If the EU referendum is important for everyone in the UK, it has a special importance for readers of Investors Chronicle. That's because they would be particularly exposed to the fallout from an exit. They tend to live in the south-east of England, the region that would suffer most if the UK quit the EU and - partly as a consequence of that - have much wealth tied up in residential property, even if their investments mean they are better diversified than the average UK adult.
Which brings me to the main point - to suggest that Brexit would be the final factor in creating the perfect storm that will wipe out property prices in London and the south-east in 2016 and beyond.
True, nasty weather may be coming to residential property anyway. For that, an increase in interest rates is all that would be needed because rising amounts of cheap debt have helped chase house prices to levels where homes are tougher to afford probably than ever before. If that is true of the UK as a whole, it especially applies to London and the south-east.
Declining affordability is best measured by comparing house prices with average earnings (ie, wages). Go back to the early 1990s and this price/earnings ratio was much the same throughout the UK at about four times. Since then - and in lockstep with falling interest rates - the ratio has risen, except for a blip in 2008-09 as part of the fallout from the global 'credit crunch'. Low interest rates have masked declining affordability by making debt-servicing cheaper and have made house prices more vulnerable in the long run. Based on the latest data, the price/earnings ratio for houses in England and Wales is now 6.8 times, which is high, but not its highest.By contrast, the ratio for London is 14.1 times - easily its highest - and for the rest of the south-east it is almost nine times.
Another way of highlighting the frightening amount of wealth tied up in UK homes is to make an international comparison. According to data from the OECD, a club for the world's wealthier nations, in the UK the wealth per person tied up in homes - at almost $93,000 - is more than twice the OECD average and almost 50 per cent higher than in France. That makes the average Briton surprisingly wealthy. OECD data also says that average net worth in the UK - most of which would be in property - is 7.6 times average income. Granted, that statistic is tempered by the fact that average income in the UK just scrapes into the top half of the OECD's country rankings; even so, it's the highest ratio among OECD nations.
Meanwhile, the comparative property wealth of Londoners is highlighted in research from property agents Knight Frank which says that €1m - ie, about £730,000 - buys just 33.2 sq meters of prime London property. Except for Monaco, that's less than any of Europe's glamorous cities; in Barcelona, for example, where Brits are the leading foreign buyers, that amount buys 167 sq meters.
So what happens when you combine the vulnerability of south-east England's property values with rising interest rates then add Brexit? London's status as Europe's leading financial centre is undermined. That hits house prices as foreign City workers desert Richmond and Hampstead to ply their trade in Frankfurt and Basel. Simultaneously, London loses its 'safe-haven' cachet, sending Russians and Chinese scurrying to Monaco and Zurich.
All this prompts a run on sterling, forcing interest rates higher still. That drives down prices further, then distressed selling and exposed negative equity ratchet the effect. The descent might slow except that the City's faltering performance means that the UK's lousy balance of payments are further weakened and it becomes increasingly difficult to persuade foreigners to fund the deficit through buying UK assets. That drives up interest rates even further.
Finally, in a blind panic, the government feels it must do something to stimulate a sclerotic, introspective post-Brexit UK economy. So it hacks away the greatest constraint on the UK economy of them all - the planning system of restrictions, permits and regulations that slows the UK's growth more than Brussels ever managed. The generations-old constraints on housing supply are swept away. By the close of 2017, house prices across England and Wales are 25 per cent lower than two years earlier. In London, prices fall by 40 per cent and in Kensington and Chelsea, the richest local authority in the country, prices halve. But throughout the home counties the loss of wealth is brutal.
Okay, this is a scenario as much as a prediction. But first it serves to highlight the stupidity of London's property prices. Then it tells us that, whatever the consequences of a Brexit, they will be ugly.
