London’s Poorest Area Waits for Olympics to Lift Home Prices
The east London borough hosting the 2012 Olympic Games had the city’s biggest decline in home prices even after the government spent billions of pounds on projects aimed at revitalizing the capital’s poorest area.
Prices in Newham, where the opening ceremony will be held on July 27, fell 2.5 percent last year compared with a 2.8 percent gain in London overall, Jones Lang LaSalle Inc. (JLL) estimates. Property values in the three other areas benefiting most from Olympic investment all rose, according to the Chicago-based broker.
“There’s still a lot more infrastructure that needs to be built in Newham before you see significant rises in house prices,” said Nick Verdi, a real-estate broker who works for Keatons about a mile (1.6 kilometers) from the Olympic Park. “It’s been a very flat market.”
Newham, with about 270,000 residents, had the lowest average income among London boroughs and the eighth lowest in England in 2010, according to a survey by the Department of Communities and Local Government. While areas closest to the Olympic Park will benefit from improved rail services, sports venues and new businesses, much of the borough lacks infrastructure and amenities such as schools and restaurants that attract homebuyers, according to residents and real-estate professionals.
The Olympics will cost about 9.3 billion pounds ($15 billion), an expense borne by the U.K. government, lottery revenue and local authorities. About 75 pence of every pound spent by the Olympic Delivery Authority goes to the rejuvenation of east London, according to the website for the Games.
Investment linked to the Olympics has boosted the supply of homes in the area without increasing demand to match, said Yolande Barnes, residential research director at property broker Savills Plc. (SVS) That may keep housing prices depressed.
“A demand shift will be needed,” she said in an interview. “In today’s market, you’re not going to see house-price inflation unless you see a flow of equity into the area.”
Stratford, where Westfield Group (WDC) opened Europe’s largest urban shopping mall last year, needs to become as attractive to buyers as the west London neighborhood of Fulham, Barnes said. Prices in the borough of Hammersmith and Fulham rose 5 percent last year.
Newham spreads from Stratford, where the Olympic Park is based, past the home of the West Ham United soccer team to East Ham on the region’s border with Barking & Dagenham. Few signs of revitalization are visible in the neighborhood of Plaistow about two miles southeast of the Olympic Stadium.
Liquor Stores, Betting Shops
Blocks of public housing projects, known as council estates, are bisected by business streets lined with discount liquor stores, betting shops and fast-food outlets. Residents say improvements in Stratford are making it worse for the other parts of Newham by drawing people away.
“There’s too many people here and too much crime,” said Jahangir Alom, 36, a shopkeeper at Bengal Supermarket on the corner of London Road and Upper Road in Plaistow. “The population is moving to Stratford because of that.”
Georgina Baker, 15, and a friend sit on a carousel in Star Park with the Canary Wharf business district in the background. They are skipping school.
“You can see the difference as you go from Canning Town to Stratford. It goes from poor to really new,” she said. “It’s not fair to the area.”
Renewal projects linked to the Olympics include upgraded rail links that can transport passengers between Stratford to London’s Kings Cross in seven minutes, the construction of more than 2,800 homes, one of the U.K.’s largest tree planting projects and the cleaning of almost two million tons of contaminated soil.
“London 2012 truly will be remembered as the regeneration games, due to the scale of change that is being delivered,” Olympic Delivery Authority Chairman John Armitt told a conference of business leaders in 2008.
Overseas investors or buyers able to make large cash down payments are more likely to look for homes in central London than the city’s eastern neighborhoods, said Jon Neale, a London-based residential research director for Jones Lang.
City Boost Doubtful
Recent Olympic Games have done little to lift overall property values in some of the host cities, according to a study by New York University. Researchers studied the change in residential real estate prices in six Olympic host cities over 16 years and contrasted them with similar metropolitan areas. Only two of the hosts had a bigger rise in home prices, said the study’s author, Constantine Kontokosta.
“It’s unlikely that Olympics will give a significant, long-term economic boost to London,” he said by e-mail. “This possible outcome stems from the fact that Olympic-related investments tend to have a low return and high opportunity cost in relation to other potential investments to improve livability and economic strength of a city.”
Values in Los Angeles rose slower than in the California cities of San Francisco, San Diego and Sacramento after the 1984 Games, said Kontokosta, who spent six years researching the Olympics. Atlanta’s home-price inflation was lower than Miami, Memphis, Tennessee, New Orleans, Charlotte, North Carolina and Charleston, South Carolina and Nashville, Tennessee, after the 1996 Games.
Home prices vary greatly in Newham, said Keatons broker Verdi. For 255,000 pounds, a buyer can get either a newly refurbished three-bedroom house in the Plaistow neighborhood or a one-bedroom apartment in Stratford, less than two miles away.
“The Olympics may have had an effect on the western side of Newham, but it’s a large borough with very different characteristics in its central and eastern areas,” said Jon Neale, a residential research director for Jones Lang.
Unemployment in Newham was 14.7 percent in the year through June 2011, according to the Office for National Statistics. That compares with 9.1 percent for London as a whole. A study published in 2008 by Communities and Local Government found that Newham was the sixth-most deprived area in the England.
“As the biggest host borough for the 2012 Olympic and Paralympic Games, the eyes of the world will be on Newham,” said Robin Wales, the borough’s mayor, by e-mail. “Over the next two decades more jobs are likely to be created here than anywhere else in London.”
West Ham United
“Not much has changed in West Ham except the football club’s manager,” said Dennis Fisher, 56, who sells clothes from a market stall in Stratford. “You won’t have a knock on effect. The sphere of influence is around 200 meters from the park.”
Even the West Ham United soccer team tried to move out of the neighborhood whose name it bears and into the Olympic stadium in Stratford. West Ham was awarded the right to play its home games in the stadium by the Olympic Park Legacy Company last year, only to see the deal collapse following legal challenges from the Leyton Orient and Tottenham Hotspur teams.
About 15 percent of the homes in the borough were unfit for habitation, compared with 6 percent for London as a whole, according to a 2010 report by the U.K.’s National Health Service and the local authority. The population in the area is projected to rise to 375,500 by 2031, the report said. Around 362 homes owned by Newham council were awaiting demolition as of April 1, 2011, according to information obtained by Bloomberg through a Freedom of Information Act request. The local authority owns 18,191 dwellings.
“Things do move down there, but you have to make them pretty good value for money,” said Verdi, manager of Keatons’ Stratford office. “West Ham and Plaistow haven’t been affected by the Olympics. There’s some quite big housing estates, transport links aren’t quite as good as they are in Stratford.”
Other Boroughs Gain
By contrast, prices rose 3.8 percent in the London Borough of Hackney, northwest of the 246-hectare (608-acre) Olympic Park, the most of all the east London areas revived for the Games, Neale said. Values in Tower Hamlets to the west gained 1.6 percent, while Waltham Forest north of the park rose 0.7 percent.
“Newham, Barking & Dagenham and Havering have seen prices fall over the past year, by the largest amount in the capital,” Neale said by e-mail. “This can be attributed to low levels of equity and limited investor demand.”
Values are climbing in areas like Hackney and Tower Hamlets because a shortage of properties is helping lift prices and the gentrification of the areas is attracting financial industry workers who commute to Canary Wharf and the City of London, said Russell Stone of property broker W.J. Meade.
For prices to increase across Newham, more schools need to be built, and bars and restaurants, which are concentrated in Stratford, need to be spread across the area.
‘Lack of Confidence’
“Things like that still aren’t available in Newham and that’s one real difference you see between places like Hackney and Tower Hamlets,” Verdi said. “The lack of confidence in the economy and the fact that first-time buyers can’t get on the ladder have made prices stagnant at the moment.”
Signs of improvement are most evident close to the Olympic venues. Manhattan Loft Corp., which turned an abandoned ticket office at London’s St. Pancras International railroad station into an opulent residence and hotel, won permission to develop a 42-story luxury tower that overlooks the Olympic Park, said Chief Executive Officer Harry Handelsman.
Manhattan Loft’s 39,000 square-meter (423,000 square-foot) tower, which features gardens on its upper floors, will have 248 apartments and a 150-bedroom hotel, according to the developer’s website. The project will be completed in 2016.
“When I said I would do this, people said ‘Harry, you’re completely insane,’” Handelsman said in an interview. “It’s the most exciting place to be at the moment.”
To contact the reporter on this story: Chris Spillane in London at firstname.lastname@example.org.