London now has the world’s most expensive residential property, according to a new study by Knight Frank and Citi Private Bank.

The average cost of prime central London property has reached $4,600 a square foot, compared with $3,200 in New York. The report also predicts that the growth of “serious wealth” will continue in Britain, further increasing the demand for prime residential properties as primary and secondary homes and investments.

The London market upsurge has been driven by wealthy foreign buyers, who represent 59% of prime London sales so far this year. And, as with New Yorkers, many Londoners cannot afford to buy — or even rent — in their own city.

Prices in central London have risen by 38% in 18 months and will rise another 55% over the next three years, Knight Frank forecasts.
As prices in traditionally stylish neighborhoods such as Mayfair hit the stratosphere, formerly working-class neighborhoods such as Islington are becoming fully gentrified. Indeed, a Londoner, sociologist Ruth Glass, coined the term “gentrification” in 1964 to describe the transformation of shabby Islington mews and cottages into more elegant — and more expensive — residences.

The “remaining white working-class enclaves are jealously guarded by their inhabitants, who regard their council housing as the patrimony of socialism and not to be surrendered to anyone,” investment manager Richard Szwagrzak, a West Londoner by birth, said.

Far more than in most American cities, rich and poor have often lived side by side in London. This is in part because it is an ancient city, with essentials of its medieval plan still intact, including mixed-use neighborhoods. But after the Blitz demolished whole blocks throughout London during World War II, Britain’s postwar government used many vacant sites to build public housing, known as council estates.

Hundreds of council estates were built in wealthy neighborhoods such as Kensington and Pimlico, the head of residential research at Knight Frank, Liam Bailey, said. “As a legacy of bomb damage, London has many beautiful areas with quite Brutalist development,” he said, referring to the style of council housing architecture. The presence of public housing does not seem to slow down the private market, he added.

One area severely damaged during the war was Swiss Cottage, North London. Beginning in 1945, the Camden council built thousands of units of public housing there. Most conspicuous are the five concrete towers of the Chalcots Estates, modeled on the Swiss -born architect Le Corbusier’s High Modernist Plan Voisin for urban landscapes and today championed by a preservationist architectural group, the 20th Century Society.

Broadcast journalist Tracey Logan, who grew up in Chalcots’s 19-story Blashford Tower, not far from the Primrose Hill neighborhood, where scenes from “Mary Poppins” were filmed, recalled how handsome she thought the towers were when she was a child. “You can call them Brutalist, but I think they’re beautiful,” she said recently, walking on Adelaide Road, which divides the council housing from an area of single-family mansions, villas, and row houses. “We were so proud when we moved in. We couldn’t have been happier. It was 1968, and most of our neighbors had been living in slums — disgusting, dangerous, rat-filled slums, not devotedly restored houses like the ones you see across the street.”

As part of a partial privatization scheme, Chalcots’s tenants are now enduring a 15-year, multimillion-pound renovation that will provide new bathrooms, kitchens, elevators, and “cladding,” which bolts aluminum panels onto the concrete.

“They’re doing this all over London in the name of upgrades,” Ms. Logan said. “But in fact, the cladding wears badly. So the estate towers end up looking mediocre and deteriorated.”

Chalcots does indeed seem to have some of the worst elements of public housing — a central authority makes all the decisions and imposes them on tenants — and few of the strengths of privatization, other than access to private capital via the Private Financing Initiative. About 20% of the apartments are held by leasehold, meaning the tenants bought them under Prime Minister Thatcher’s right-to-buy scheme.

But the tenants do not own the freehold. “In many estates,” Ms. Logan said, “the owners find that they can’t easily sell their property, even if London prices say it should be valuable. And they’re susceptible to high maintenance charges to pay for improvements.” By “valuable,” Ms. Logan means prices that may shock even New Yorkers. A two-bedroom flat on the first floor of one of Chalcots’s towers is listed at $420,000 — or about half what a “private flat” in the neighborhood would command, Ms. Logan said.

What is the future of affordable housing in London? “The government has made the decision to mix social groups,” Mr. Bailey said. “The politicians want to see affordable housing developed on the same site as expensive private housing.” He said he thinks the mixing has worked reasonably well so far.

Ms. Logan begs to differ. “As far as social mixing goes,” she said, “most property owners will want to be as far away from public housing as possible due to higher crime rates and anti-social behavior. There are many ethnic groups in London, but they don’t mix too much beyond the superficial, really.”

Mr. Bailey’s report suggests the rich don’t want to mix much with the poor. While acknowledging that prime city locations such as London, New York, and Paris “tend to be more egalitarian, at least on the surface” than exclusive resort, island, and country properties, the drive for properties that are “unique, elite, and different” still applies. As a result, London and New York in particular have seen the rise of the “über-development” — an extraordinary new market at record prices, responding to needs clients “never thought they had.”

And of course, the über-developers provide no affordable housing.