The Government's Office for National Statistics (ONS) forecast for London's population to hit 9.8m in 2025 has been cast into serious doubt by the events of the past year. According to the government funded Economic Statistics Centre of Excellence almost 700,000 foreign-born residents may have left the city since the pandemic reached Britain's shores. This is equivalent to 8% of the population.
This is backed up by an estimate from the global consulting firm, PWC, that London's population could fall by more than 300,000 in 2021. This contraction marks the first annual decline since 1988, ending decades of growth built upon London's emergence as a global financial center, second only to New York City.
In the midst of the deepest recession in 300 years official figures reveal that unemployment across the UK is rising fastest in London. The hospitality, leisure, retail and travel industries which have relied heavily upon migrant labor have been hit hardest by the pandemic. But its not just the economic malaise associated with the pandemic that is driving this contraction in population.
Since the 2016 Brexit vote net European Union (EU) migration to the UK has been in decline and could turn negative this year for the first time since the early 1990's. Post Brexit, the UK Government introduced a new points-based immigration system raising the barriers for would-be migrants. With the vaccine rollout progressing smoothly there is a body of opinion that this mass of people will return to London as the economy emerges from lockdown. But the real picture is more complex.
One of the outcomes of Londoners working from home during lockdown was a serious reappraisal of their property requirements. As homes became so much more than just a place to relax and sleep, and the realization set in that remote working opened up the opportunity to move out of the city, Hamptons International reported that 73,950 Londoners bought homes outside the capital in 2020. This perspective is reinforced by a survey six months ago by the London Assembly which found that 4.5% of Londoners, approximately 420,000, said that they would definitely move out of the city within the next 12 months.
This population exodus has produced a sharp drop in demand for rental properties in central London with landlords commonly reducing rents by 25% to attract tenants. The inevitable knock-on effect is that those with any serious level of debt may struggle to cover their costs with the real prospect of a ‘fire sale’ of Build-to-Let (BTL) flats hitting the market. As we referenced in our annual review, the market for London flats in 2020 had already been negatively impacted by changing consumer preferences and the absence of international investors.
Reflecting on this scenario, Neal Hudson, a leading UK housing market analyst, commented that “We could definitely see that happening in new-build markets such as Nine Elms”1, referring to the huge redevelopment project near Battersea Power Station.
It is clearly too early to know whether this population contraction is symptomatic of a broader trend, last seen in the years post World War 2 when London's population declined from 8.6m in 1939 to 6.8m in the early 1980's. What is clear is that in the fragmented London property market that 2021 will provide dynamic investment opportunities.