EDITOR'S LETTERJohn Stepek
Timely lessons from Tokyo
It’s one of the all-time classic bubble statistics. During Japan’s bubble of the late 1980s, which drove up the prices of everything from stocks to property to fine art, the land under the Imperial Palace was said to be worth as much as the entire state of California.
The story is apocryphal – sadly no one keeps an official ‘central Tokyo to Californian land mass’ ratio index – but it does give a flavour of just how crazy things became.
If you look at the actual historical data, as Dan McCrum noted on the FT’s Alphaville blog this week, then at the peak of the bubble in 1990 a new flat in greater Tokyo would have cost you 18 times the average annual income.
Why is this relevant? Because, says McCrum, if you look at London prices today, some prime areas of London are already far more expensive than that.
In Kensington and Chelsea, the average house will set you back a whopping 32 times median income, while Westminster is above 20.
Sure, it’s hardly comparing like with like – prime properties in Tokyo “undoubtedly went for more than 18 times income at the peak”, says McCrum. All the same, “it seems prudent to at least ponder the comparison, given that Japan’s bust was followed by two decades of falling house prices”.
London property is hardly the only expensive-looking asset out there.
• Read the full editor’s letter here: Timely lessons from Tokyo