Author: Antoninus M. Samy
Abstract: The Edwardian property slump, a significant yet underexplored event in British economic history, saw a dramatic decline in house prices in London between 1900 and 1914. This blog summarises the findings of a recent study by Antoninus M. Samy that uses novel data sources to shed light on the extent and implications of this downturn.
Introduction: The Edwardian property slump was a major housing downturn that affected London before the First World War. Despite its significance, existing house price indices have failed to capture the true scale of the decline. The study uses two novel data sources to construct fresh indices that measure the slump, revealing that nominal house prices fell by 35% between 1900 and 1913, while rents remained relatively stable. The results indicate that the slump was due to a flight of investment capital from the buy-to-let market.
Historical Context: The pre-war housing market in Britain evolved significantly due to rapid population growth and urbanization. By 1911, the population of England and Wales had doubled from 1851 levels, with most of this growth occurring in urban areas. London, in particular, saw its population increase from 2.65 million to 7.16 million. Despite this growth, the housing market was largely unregulated, with most people living in rented accommodation provided by private landlords. The collapse of property values during the Edwardian period saw the beginnings of a transformative change in housing tenure, with a shift towards more owner-occupation and state intervention in the form of council housing in the interwar period.
The Edwardian Property Slump: The Edwardian property slump was characterized by a significant decline in house prices and a collapse in house construction activity. The study reveals that house prices fell continuously for over a decade, with the hedonics-based index showing an 18.0% increase in house prices between 1895 and 1900, followed by a 35.1% decline from 1900 to 1913 see (Figure 1 below). Rents on the other hand remained relatively stable due to the financial limitations of most tenants at the time. The slump was primarily concentrated in the buy-to-let market, with the owner-occupied market showing no comparable decline in house prices.
Several factors contributed to the Edwardian property slump. On the supply side, rising interest rates and building costs, coupled with a decline in gross fixed capital formation, played a significant role. The bank rate rose from 2% in 1895 to 7% in 1907, while building costs increased by 15% between 1891 and 1900. On the demand side, stagnating wages and rising unemployment limited renters’ ability to afford higher rents, leading to a flight of investment capital from the housing market. The study also highlights the impact of capital outflows from the UK, which reinforced the downward pressure on domestic investment and economic growth.
House prices and rents in Greater London, 1895-1914 (1900=100)
Source: Based on yearbooks of the London Auction Mart (1895-1914).
Implications and Contributions to Current Debate: The Edwardian property slump had far-reaching implications for the British housing market and economy. The collapse in house prices and construction activity exacerbated the housing problem, leading to overcrowding and inadequate housing for the working classes. The study’s findings contribute to current debates about the role of housing as an investment asset and the need for government intervention to address supply shortfalls and unnecessary inflation. The Edwardian slump marked a transition from an era of landlordism to greater state involvement and wider owner-occupation, highlighting the limitations of an unregulated housing market.
Conclusion: The Edwardian property slump was a significant event in British housing history, revealing the vulnerabilities of the pre-WWI housing market and the impact of economic and political changes on housing values. The study’s use of novel data sources and improved methods of price index measurement provides a fresh perspective on the slump, offering valuable insights for understanding the dynamics of housing markets and the need for effective housing policies.