The two Britains
Today’s trading statement from Savills, the property agent, is fresh evidence of a decoupling between Britain’s two economies, that of the super-rich and that of the majority of Britons.
It talks about a cooling of the UK mainstream residential market, with the market for new homes in “certain provincial cities” showing signs of “over-supply”.
Savills says housing demand in London and the South-East remains strong, which may reinforce the determination of the hawks at the Bank of England to raise interest rates this week (although the softness on the high street which I recently highlighted suggests the earlier rate rises are biting).
But what the Bank of England has almost zero influence over is what Savills calls the “super-prime markets”, or homes selling for many many millions of pounds each. These are still soaring in value, due in large part to “interest from international purchasers” (the Russians, the Chinese, Arabs, the non-British partners in hedge funds and private equity).
The country-hopping billionaire class is untouched by whether the Bank of England raises interest rates by ¼ per cent or not. They are the human manifestation of another phenomenon which the Bank can barely influence at all – the loose international credit conditions which have led to the boom in hedge funds and private equity, whose spoils have swelled the ranks of the super-rich.
If that credit bubble were pricked, then the super-prime housing market would deflate – but then so too would the price of many other assets.
There is an asymmetry here. The economy for most Britons can and probably will slow without much of an impact on the very wealthiest. But if the wealthiest were to feel the pinch from chillier conditions in global financial markets, well then we’d all have a bad case of the sniffles, or worse.