Can the East Dulwich micro economy survive a recession?

[macroban]

I ceased to have an understanding of East Dulwich commercial business models (including buy to let) when financial deregulation began to kick in quite a few years ago. Since then I've had the ever increasing impression that the survival of the East Dulwich micro economy is predicated on macro economy boom conditions.

Is the East Dulwich micro economy strong enough to withstand a recession which many newer local businesses and property owners have not experienced before and may not be part of their existing business plans or stress testing?

[James]

If the international supply of baby booties is hit we will have a problem.

[Marmora Man]

Many people's view of their own economic well being is tied to the perceived value of their assets. Usually their mortgaged to the hilt home is the principle asset.

If house prices fall (starting to happen - tho' not, yet, in London) they tend to be more careful with money.

More careful with money - less shopping and buying, less shopping and buying - slows the economy. Slower economy = house prices falling. Could be a rocky ride.

[Alan Dale]

Does it matter if it couldn't?

The high class soap sellers should just continue to make hay while the sun shines.

[ratty]

If my mortgage goes up any more then Mark and Sons may find their profits down considerably!

[downsouth]

Fantastic question that I've been thinking about too. I suppose it is a demographic situation. I.e. say that 70% of working adults were employed by the government/public sector I would think 'no' as they are pretty recession proof sectors. Job security will remain. Going the other way with private sector it depends on what the employment exposure is to the financial markets, retail firms and the other usual suspects come time for a downturn. These are the industries that lay off folks in their hundreds and thousands. Not all private employers are so easily susceptible to such changes i.e. utilites, energy and oil and gas who will always make hay exccept in extremis.

I suppose it depends on what the mix is private:public and additionally whether what is being sold on LL is really 'needed'. Downturns and recessions have a way of weeding out the less regarded and frankly unecessary shops. Competition will kick in with shoppers being far less forgiving i.e. how many gastro pubs are really needed on LL and when it comes to it which one is really better? as opposed to "I'll try Franklins today as I haven't been there in a while".

I think LL will have a tough time of it. What with the number of lifestyle related independent businesses in the area these nice to have's but frankly dispensible enterprises will mainly go to the wall. Same for the plague of estate agents that have descended, 9 indian restaurants, umpteen child focussed book shops/toy shops, annd lastly 9a personal bug bear)The White Stuff - does anybody buy theur clothes???

[macroban]

The change in the East Dulwich public/private sector employment mix is interesting and may increase instability during a recession.

Another change since the 1950s is the nature of East Dulwich retail tenure. Then most retail businesses either held the freehold of their premises or had long-term leases with no, or 7 yearly, rent reviews. Typically, they were family businesses with the family living above the shop.

I suspect a large number of the newer retail business have short-term leases with regular upward only rent reviews, and the recently started businesses will have market peak rents.

[Domitianus]

Although house prices are only one facet of economic performance and stability they have enormous perceptual value as a house is prolly the largest purchase most people will make. Drops in house prices or higher mortgage payments can easily engender a panic reaction with people radically cutting back on other expenditure. We only have to look at the queues to withdraw money from Northern Rock despite its underlying solidity to see how irrationally people can react when they see their assets threatened.

I have noted a number of times on this board over the past few months that there are significant signs of threat to the house price boom. A friend in the City notified me yesterday that in Northern Ireland (which has experienced similar price inflation as London house prices, although not to the same dizzy heights) there has just been an 8% drop in house prices IN ONE MONTH!!!! Also, despite Marmoraman saying there has been no impact in London as yet, it was only last month or the month before that houses in Tower Hamlets dropped by an average of ?30,000.

There are also respected commentators speculating on significant redundancies and reductions of bonuses in the City. Depending on how much of the ED population are vulnerable to such City exposure, the impact there could be significant.

I suspect the Labour 'Economic Miracle' may soon be seen to have been the smoke and mirrors that many have felt it to be for quite some time. There is an old saying that there are two types of Chancellor of the Exchequer - those who fail and those who get out in time. Brown may have got out of Number 11 in time but he is so closely associated with Labour's economic performance that a move into Number 10 ain't far enough to spare him the association if things start to go down the plughole.

[Huguenot]

Surely you contradict yourself Dom, 'those who fail and those who get out in time' implies an inevitablity of downturns in the economic cycle that would remove personal or party liability... you can't have it both ways.

Besides we're hardly at 15% interest rates yet, and Britain even proved itself reasonably resilient to that kind of c*ck up.

As for the hysterical behaviour of Northern Rock investors, well this is what Alan Dale struggled to anticipate when he was egging on this entire forum to get us into the buy-to-let housing at the top of the cycle. When the market wavers, landlords will get anxious, with a downward pressure on rents and shortfalls on mortgage payments.

If the buy-to-let market gets the jitters then we have a real concern...

[SeanMacGabhann]

Ah - a timely interjection from our man in the East - and one I can only agree with

This thread is one of several (see also: City Bonuses, Northern Rock, and Inconvenient Truth) where people seem to want to have it both ways - ie unbridled free-markets are great BECAUSE they provide choice for the all-important consumer (hey, if people are prepared to spend money on odd canon-ball shaped lighters who are we to stop them - let;s have several) and yet when the economy takes a downturn they are still GREAT because they reduce 9 curry houses on LL to just the one required. Boom and bust all over again

For many years those of us who have said things are just TOO out there to be sustained we have been dismissed with an "it's different this time" attitude... how dare we question these Gods of the Universe. Their jobs are on the line if they f@@@ up - yeah, yeah.. just THEIR jobs.... psshhhh

[macroban]

Yes, but...

Can the East Dulwich micro economy survive?

Does it have distinctive features that will protect it from what happens elsewhere in the UK economy?

[SeanMacGabhann]

I guess the answer is... it depends

A genuinely ferocious recession will leave few survivors an even then the aftermath will take some people down

But if we are talking about something along the lines of the early 90s I would say ED is pretty much likely to be ok (overall I mean... individuals and individual businesses will suffer in the short term )

A small area with a pretty mixed demographic but more importantly a pretty loyal and interested population will see the profile of LL largely unchanged in the medium-term.... the mix of bars and restaurants may shrink but will be the first to regrow. Estate agents will inevitably contract - Foxtons may be new and big but that may make them the most exposed

The various cafes will largely be ok, the gift shops less so and the food retailers will be fine

All of this is from a business perspective - my experience of previous recessions have been in different parts of the country but no less prosperous areas - and money aside they have provided me with some of my best friendships and memories...

Going out to various eateries and bars is great and not to be thrown away lightly - but spending less, hanging out at friend's houses etc is underestimated in good times (by the relatively affluent anyway)

Worst come to the worst, batten down the hatches, do what needs doing but don't give up on what makes life great - the good times will roll again

[Domitianus]

The comment about the two types of Chancellor is not mine - I merely repeat it as it is often cited and I think it applies maybe more to Brown than others as he has been heralded as a miracle worker much more than others - wrongly in the view of many.

On the house-price front - I don't know if anyone saw today's Observer which quoted Nationwide's Chief Economist as predicting house price inflation next year as being around 3%! There are those who think that is optomistic. Since house prices have been driven to an extent by demand from those who see them as an investment (ie. buy it and flip it in a year or two when its value has shot up - guaranteed!) such meagre inflation may well diminish the demand that has kept the market buoyant. I mean a 3% increase in a year is less than you get in a decent bank account where you at least get a degree of security and don't have all the b***dy hassle and the conveyancing fees, stamp duty etc. Northern Rock has shown us how irrationally people react to perceptions of bad news even when their cash is pretty secure. How would people react to even a minor downturn in house prices? Especially those who are geared to the hilt and relying on house price appreciation to cover their backs?

How might this affect ED economy? Hard to tell but I think it is worth considering that many of the new businesses in the area are at the luxury end of things - pretty but useless decor, over-priced kitcheware that will never get used, gyms etc. These are exactly the type of retailers who usually suffer during an economic downturn.

[macroban]

This makes it sound like East Dulwich buy-to-let landlords are vulnerable to a economic down-turn.

[SeanMacGabhann]

That hard done by section of society...

[Keef]

macroban Wrote:

-------------------------------------------------------

> This makes it sound like East Dulwich buy-to-let

> landlords are vulnerable to a economic down-turn.

Bless their cottons, poor lambs.

[Alan Dale]

However Hugonought may have misinterpreted my posts I think it important to note that buy to let investing is strictly a long term investment.

I don't advise anyone to do it- I just don't complain about those who do.

[downsouth]

Yes house prices are inextricably linked to not only to the ED economy but indeed to that of London and the UK. Alan Greenspan (former chairman on the Fed Reserve) had some sobering words today: http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/09/17/cngrspan117.xml

I went with a friend of mine to look at some property in nearby areas to ED - Upper Sydenham, Sydenham and Penge. For less than 230k you could get a 3 bed room apartment with acres of space and parking. For the same money you'd be lucky to get a 1 bed in East Dulwich. So, what is ED offering that others aren't? Walking distance to swanky shops? Is this really justified in 'market value'. This will no doubt be teased out in bad times as is it really so bad to have to drive 10 minutes to reach LL? Especially if you can get an extra 2 bedrooms?

And in terms of the ultra capitalsits - I think I am probably one, perhaps not card carrying but yes am I committed with the proviso of some social obligations on government and regulators. So yes some firms go to the wall - call it boom and bust if you will (v. New Labour) but that does ensure that people get what they want in terms services on offer, that they are efficient and that they learn to not be profligate either in terms of pricing or offering.

It is batten down hatches time but life will go on.

[macroban]

I've not thought of this before in the way that downsouth has written.

If you pay a ?200k premium for a three bedroom terrace in East Dulwich what exactly are you getting for the ?200k?

Yes there are some slightly up-market shops, bars, and restaurants - but are they worth that ?200k?

What else in East Dulwich would justify such a large premium?

It suggests to me East Dulwich house prices are greatly over-inflated.

[downsouth]

Couldn't agree more. Granted state schools in south london are generally speaking not great but even so ED schools which are fine are not head and shoulders above. The state schools in the village are 'decent' dut then again there's a state primary school near Tulse Hill that comes within the top 1% in the country. And prices for property are much cheaper. Transport links again in Tulse hill are really good what with Thameslink and trains to London Bridge, Croydon and Victoria. I'm not estolling the virtues of one area over another but merely wondering where the premium comes from.

In the Village it is palpable what you are paying for - space, amenity, school catchment area, village feel and look, gallery, park etc... but for the victorian terraces back in ED I am not so sure.

I hope I am wrong about ED but can't for the life of me work it out. When IO bought my apartment 3 years ago the price for ED and West Duliwch were the same, but now ED is more than ?100k more expensive for such an apartment. Yes ED is getting the tube, has a long high street with nice bars and restaurants but that is where the advantage ends.

When interest rates go up and affordability is squeezed where will the 'smart' money go?

[SeanMacGabhann]

I think comparatively ED IS overpriced but I can see why it is more expensive than other areas within a short distance and it has nothing to do with the price of bricks and mortar

"ultra capitalists" may struggle with the concept but there is an intangible difference to the area - a buzz, an atmosphere, a (with apologies to The Castle movie) "vibe"

The shops and bars are a result of that, not the cause of it

This forum is another example of it - surrounding areas have similar forums but they don't seem to have the same ooomph

That is why I like living here despite my cramped conditions...

[Domitianus]

SeanMacGabhann Wrote:

-------------------------------------------------------

> I think comparatively ED IS overpriced but I can

> see why it is more expensive than other areas

> within a short distance and it has nothing to do

> with the price of bricks and mortar

>

> "ultra capitalists" may struggle with the concept

> but there is an intangible difference to the area

> - a buzz, an atmosphere, a (with apologies to The

> Castle movie) "vibe"

>

> The shops and bars are a result of that, not the

> cause of it

>

> This forum is another example of it - surrounding

> areas have similar forums but they don't seem to

> have the same ooomph

>

> That is why I like living here despite my cramped

> conditions...

If the shops and bars are a consequence not a cause of the ED "buzz" then what actually initiated that "buzz" or "vibe" in the first place. Reason I ask is that a couple of people who have lived in ED for over thirty years tell me that it used to be a quite, leafy retirement home. ANy thoughts on what has caused it to become what it is today? Cheap house-prices in a picturesque area, leading to an influx of youthful breeding types, leading to a buzz that attracted more youthful breeding types who were drawn by the buzz even though the house prices aren't cheap any more? Just speculating, I don't really know myself.

Back to economics though, I think dippy Darling has done the worst possible thing he could by stepping in to the Northern Rock affair. I suspect we may be seeing the beginning of a bubble bursting and there is no real way to have that happen easily and comfortably. NR is a victim (however unwitting) of the sub-prime f**k up which was a result of utterly reckless lending by institutions that should have known better. Unfortunately such institutions need to feel the pain of their irresponsibility otherwise there is no incentive to behave more carefully in future. This is not merely my view, I obtained it fro a number of commentators recently and I happen to agree. Mervyn King at the B of E has quite rightly stood back and decided to let people reap what they have sown, unlike some other central banks. I get the impression the Treasury is now twisting his arm so they don't get egg on their faces by presiding over a financial meltdown after so many years of crafting the illusion of financial competence.

Interesting but not surprising to see Greenspan agreeing with what a whole raft of people are now saying - the UK housing market is unsustainable at current prices. Those who wish to believe differently may, of course, take solace from the fact that that economic guru Grant Bovey believes differently.

[macroban]

The upside of East Dulwich negative equity might be a more stable community as people stay in the area a little longer rather than making a profit on their property and moving on.

[macroban]

I looked in quite a few estate agents' windows today.

Where have all the SOLD, SALE AGREED, and UNDER OFFER stickers gone?

[Asset]

You're such a prophet of doom Macro. If everyone talks about a crash all the time, it will happen. You seem to be enjoying it though so fair enough.