In 2013, my brother and I clubbed together for a deposit on a flat in south London.
Eight years on, two separate estate agents have assured us it would sell for double what we paid. Typical commission-hungry over-promises? Zoopla data for recent purchases in the building, together with last year’s four-fold ground rent hike, suggests they might be right.
Two reasons explain a 12 per cent annual growth rate in the value of this distinctly average home. First, despite my net negative contribution since moving there, the postcode became a lot trendier. Second, we also made the biggest financial decision of our then youngish lives just before London’s post-financial crisis house price surge started to rocket.
Assuming these supposed asking prices hold until we sell some time in the next few years, I wouldn’t expect such good timing or financial jamminess again in my life. After all, the main reason we decided to buy a home together and endure several years of Mexican stand-offs over the washing up was to avoid handing half our income to landlords for years on end.
I’m not complaining. Internalising improbable market prices allows for (slightly) bigger dreams about the future. The most recent revelation, that average home prices increased 10 per cent in May, will come as the latest in a long stream of good news for home owners.
But a part of me – call it the balance sheet in my gut – says our flat can surely have only crept up at or around core inflation, plus the cost of renovations. Call it 25 per cent, perhaps. Otherwise, the underlying asset’s location, structure and drab outside appearance haven’t fundamentally changed.
Might it have deteriorated? Accounting principles dictate that the value of fixed tangible assets – the property, plant and equipment line on most balance sheets – is steadily depreciated over time. But the reference to ‘property’ here is misleading; in an office, a piece of furniture is usually thought to lose its value over five years, a computer in three.
By contrast, the useful life of a property is rightly considered to be many decades, far beyond most accountants’ time horizons. As such, we normally think of our homes on a ‘revaluation model’ rather than a ‘cost model’. After all, depreciating an asset to its scrap value makes little sense when there are buyers willing to pay more for it than your original purchase price.
In the UK, this thinking is underpinned by the deep culture of home ownership that has grown up since the inter-war period. Germany’s own past century, by comparison, has created an aversion to home-owning, helped by renter-friendly policies, a lack of subsidies for home-owners and slower house price inflation.
It is also the view of Elon Musk, himself no stranger to price volatility, who just listed his last property – a $37.5m mansion just south of San Francisco – a year after tweeting: “I am selling almost all physical possessions. Will own no house.”
Naturally, the cost to the business world’s pre-eminent maverick of renting any property is a rounding error. For the rest of us, owning a home or property takes on much greater financial significance. And so we come full circle.
Of course, there is the view that you can’t place a monetary value on a home, really. It feels like a sound philosophy. But it’s also the sort of thing an estate agent would say.
