London and Property Markets: A Long-term View

Abstract

This paper examines the relationship between investment in built structures, economic growth and economic cycles in the UK from the middle of the 19th century and relates its findings to the development of London. A rising price of built structures relative to investment in equipment has existed throughout virtually all of the time-period. This, it is argued, has encouraged suburbanisation. In addition, a long-term rise in demand for housing is putting additional pressure on living space in the city. London has benefited however from the high level of building investment in modern economies, particularly in attracting key building-intensive activities, like financial services. Long-phases of building activity are shown in the data and they are argued to have a destabilising effect on London's economic growth. These relationships between the relative price of investment goods, long phases of higher and lower activity in their provision and the London economy, reinforce the need for a London-wide planning authority; and, if the social returns of building investment are greater than the private returns, as they probably are, for public infrastructure expenditure and for subsidies for new building investment in the city.