Tokyo on Thames

Older readers may remember the property boom which engulfed Tokyo from about 1986 to 1991. The apocryphal statistic was that land under the Imperial Palace was worth about as much as the state of California.

The bursting of that bubble — as well as one in the stock market fuelled by loose monetary policy, financial speculation, corporate cross-holding and dodgy accounting — was followed by the Japanese economic stagnation that persists to this day.

What many readers may not realise, however, is that housing in parts of London is now more expensive than for Tokyo at the peak of that boom.

A reader draws our attention to this chart of price to income ratios on Japan Property Central.

Note the peak there at 18 times annual income.

Now consider an updated version of a chart we have used before based on data from the Office of National Statistics for Inner London.

As of the first half of 2013, house prices in Kensington and Chelsea were equivalent to more than 32 times median salaries. In Westminster it was over 20 times, and in Hammersmith and Fulham the multiple was over 16.

There are some differences here to consider. The first chart is new apartments, which cost more than second hand dwellings, and is for Greater Tokyo as a whole. The prime areas undoubtably went for more than 18 times income at the peak.

The average house size in the UK is the smallest in Europe (thank you Green Belt), but Tokyo flats are famously diminutive. From the blog:

The average price of a new 70 sqm apartment in 1990 in Tokyo was 107,660,000 Yen, or 1,538,000 Yen/sqm, while the average annual income was 5,940,000 Yen. Before the bubble, the average price-to-income ratio in 1985 was 8.08.

Kyoto Prefecture also saw record highs in 1990, with the average new apartment price-to-income ratio reaching 18.36. The average new apartment price at the time was 84,350,000 Yen, or 1,205,000 Yen/sqm, while the average annual income was 4,600,000 Yen.

Still, factor in another year of rising London property values and it seems prudent to at least ponder the comparison, given that Japan’s bust was followed by two decades of falling house prices.

Related Links:
Go forth and multiply, London edition – FT Alphaville
Lets nationalise the Green Belt – FT Alphaville