A few weeks ago, the New York Times ran an op-ed by Michael Goldfarb that ostensibly dealt with the crowding out of ordinary Londoners from their city’s property market. The influx of foreign buyers that is pushing Goldfarb’s peers to the suburbs is also spiking values, further attracting more foreign buyers. Sound familiar? It should. That’s not a bad summary of what’s been happening with art over the last year or two: stampede of buyers at the top end, rapidly rising prices.
Goldfarb also offers an interesting take on what’s behind the phenomenon which should be roughly applicable to the art market, especially when you recognize that high-end art has all the attributes of high-end real estate but remains portable:
This is what happens when property in your city becomes a global reserve currency. For that is what property in London has become, first and foremost.
The property market is no longer about people making a long-term investment in owning their shelter, but a place for the world’s richest people to park their money at an annualized rate of return of around 10 percent. It has made my adopted hometown a no-go area for increasing numbers of the middle class.
According to Britain’s Office for National Statistics, London house prices rose by 9.7 percent between July 2012 and July 2013. In the surrounding suburbs they rose by a mere 2.6 percent. The farther away from London you go, the lower the numbers get. When you finally cross the border into Scotland, house prices actually decline by 2 percent.
The gap between London prices and those of the rest of the country is now at a historic high, and there is only one way to explain it. London houses and apartments are a form of money.
The reasons are simple to understand. In 2011, at the height of the euro zone crisis, citizens of the two countries at the epicenter of the cataclysm — Greece and Italy — bought 400 million pounds’ worth of London bricks and mortar. The Italian and Greek rich, fearing the single currency would collapse, got their money out of euros and parked it someplace where government was relatively stable, and the tax regime was gentle — very, very gentle.
The fact that not all works of art nor artists rise in proportion is the final comparison be art and real estate where the great mass of works retain little or no value while a few soar.
London’s Great Exodus (NYTimes)