Young professionals eye London’s tough neighbourhoods

1 April 2015, The Wall Street Journal

The dangerous streets where a serial killer stalked his prey, a neighborhood synonymous with race rioting and an obscure working-class suburb. As potential hot spots for London’s young hipsters, these neighborhoods might seem unlikely choices. But soaring house prices are forcing Generation Y to look to areas their parents would almost certainly have bypassed.

The latest research by real-estate firm Savills, based on U.K. census data from 2011, has pinpointed 20 areas where wealthy professionals under 35 are most likely to live, and where they outnumber baby boomers by a 3-to-1 ratio.

“Even the most affluent under-35s have been priced out of traditional locations,” explained Lucian Cook, director of residential research at Savills and author of the study. “They are having to pioneer new areas.”

The No. 1 spot is Whitechapel, the East London neighborhood where Jack the Ripper killed at least five women in 1888. Bombed heavily during World War II and rebuilt with sprawling concrete high-rise buildings in the 1960s and ’70s, it isn’t immediately recognizable as the kind of neighborhood where hipsters hang out. “It is a bit of a compromise,” acknowledged Jamie Burnhope, a consultant at buying agency Black Brick. “Anyone who is used to pretty streets might have their hearts in their mouths walking around all this rather aggressive architecture.”

But what it lacks in aesthetics, it makes up for in location and value. The average property price in the area is £465,514, or about $690,000, which by Central London standards is an absolute steal. The average price in Kensington and Chelsea, the heartland of prime Central London, is currently more than $1.94 million, according to the Land Registry, the U.K.’s official home-price monitor.

Oliver Knight, an executive in the residential research department of Knight Frank, says value isn’t the only attraction: Although the area is peppered with postwar projects, it also contains some lovely homes. “The area benefits from existing high-quality property stock, including Georgian terraces as well as period commercial buildings—some of which have already lent themselves to conversion into large-scale, open-plan residential buildings not dissimilar to Tribeca in New York,” he said.

One such terraced property, a 1,287-square-foot 119-square-meter three-bedroom townhouse that’s been modernized with an open-plan kitchen and living room, is on the market for £1.1 million, or about $1.6 million.

Beyond East London, which accounts for 12 of the top 20 neighborhoods in the Savills study, the most popular address is Brixton in south London.

Brixton is a classic example of how London neighborhoods are in constant flux. It was a middle class area before World War II, but in the postwar era its fortunes waned. Projects were built and largely populated by Afro-Caribbean immigrants who suffered from high rates of unemployment. In 1981, tensions over police “stop and search” practices erupted into bloody riots. The neighborhood was hit by riots again in 1985 and 1995.

Despite this, by the end of the 1990s, middle-class buyers were starting to discover Brixton’s Victorian townhouses and excellent public-transport links. Jimmy Carr, sales manager at Kinleigh Folkard & Hayward estate agents, estimates that a four-bedroom house would today be priced at over $1.5 million. A recently refurbished three-bedroom row house with a private garden near Brixton Hill is being offered for around $1.3 million.

“It is a trendy place to live,” Mr. Carr said, adding that his buyers tend to be 30-somethings working in media or advertising. “But there are still areas which are slightly intimidating, which gives it a little bit of edginess.”

While most popular hipster locations are gritty, urban neighborhoods with a vibrant night life, Earlsfield is a notable exception. Seven miles southwest of the city center, the neighborhood has more cafes than nightclubs. But its selling points include its green space, good schools and affordable family homes.

“Earlsfield has come on leaps and bounds in the last five years,” said Jonathan Mount, a partner at the Buying Solution who liked the area so much that he moved there himself last year. “People who would once have aspired to middle-class southwest London neighborhoods like Clapham and Wimbledon have been priced out, and there has been a classic ripple effect.”

That ripple has changed the feel of the once working-class area—its thrift stores now replaced by delis and bars—and buyers now pay around $1.3 million for a three- to four-bedroom townhouse. One recently redone 1,417-square-foot period home in the area with a small studio in the back garden is asking around $1.8 million.

While Generation Y’s parents would likely have felt that a home in Earlsfield—or Brixton or Whitechapel—was a comedown, financial constraints have made them attractive. Over the past three or four decades, British home prices have risen at a far stronger rate than wages, and mortgage lending is now dependent on hefty down payments—around 25% is the norm—that few young buyers can afford.

There is, of course, another reason why Generation Y is plowing a new property furrow. “It is not just a financial issue,” said Savills’ Mr. Cook. “They probably don’t even want to live in areas their parents would like.”

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