September 19, 2013

Even that might not be too destabilizing were it not for the difficulties in the eurozone. Because money is still flowing in London, and because Britain had the sense to stay out of the sorry mess that is the euro, the country has become a safe haven. If you have assets in a part of Europe that looks like it might split away from the euro, then you need to get them out faster than a heretic when the Inquisition’s in town. What do you do with the proceeds? You don”€™t want it in an offshore bank account when it earns no interest and you”€™re worried about banks being plundered by bankrupt governments. Equities, maybe? But stock markets could collapse again when the largely unsolved problems facing the euro resurface. No, my friend, what appeals are hard assets. Gold is off the charts, so that’s no good. Art? Yes, to a degree, which is why the contemporary art market is frothing like someone’s dropped an Alka-Seltzer into a cappuccino. But most reassuring of all are good, old-fashioned bricks and mortar. 

Normally property wouldn”€™t work because it falls in value when everything else does. In most of Europe that has been the case. But because of what’s happening in London, property has kept on rising in value even when it was falling on the rest of the continent and even in the rest of Britain. Central London’s value is now worth more than all of Wales, Scotland, and Northern Ireland combined. Just the rise in value since 2007 could buy the northeast of England. That’s not healthy; it’s also not stable. When the rest of Europe recovers”€”and it will”€”and when inflation and interest rates rise”€”and they will”€”this will all change. It’s impossible to predict what will create the spark that lights the fuse, but just as an example it could be interest rates causing mayhem in the buy-to-let sector. And when the price of London property starts going all Harold Lloyd, you”€™ve got a lot of people who have no need to keep their money in an overvalued investment or a safe haven that’s suddenly looking riskier than home. And that’s when the fun starts.

One of the oldest signs that an asset class bubble is about to burst is when people confidently tell you that it never goes down in value. Well, that’s happening all the time in London right now. Another old trope is that a surefire sign of a city on the edge of a nervous breakdown is its hosting the Olympic Games. Check that box. The only thing missing from the old indicators is that nobody’s building the tallest building in the world here; that’s the oldest one of all and began in Babel.

Take a look at some of the skyscrapers going up and you”€™ll appreciate that the only things in the developers”€™ way are the planning laws that they”€™re itching to bypass. I”€™m not saying that we”€™re facing the sort of apocalypse that gets a Hollywood director all fired up and searching for a leading lady.

But when someone recently told me how lucky I was to be living in civilization’s urban playground, I had this nasty moment where I felt like a Pompeian who”€™d just noticed smoke rising from Vesuvius.



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