Most Londoners we know aren’t too sure about what to think about the Olympics in their backyard. Sure, it’ll be fun, and there have already been some notable improvements to infrastructure, but is the enormous hassle really worth the whopping £4.2 billion ($6.5 billion) cost?
Well, if you take into account that an Englishman’s home may his castle, it just might be.
A new report from Goldman Sachs that looks at the economics of the games has a whole section on how the games affect host city’s house prices, and its good news.
The section, written by analyst Hui Shan, reevaluates claims that from University of British Columbia’s Tsur Somerville and Jake Wetzel, who concluded in a 2010 study that “house prices [remain] the same as they would be in the absence of the Games.”
Shan argues that because Somerville and Wetzel use metropolitan-wide data, their findings are skewed. Shan instead compares ZIP code level house price indexes provided by Fiserv for metropolitan areas around Los Angeles and Atlanta, contrasting house prices within the city and those nearby.
These charts show Shan’s findings (click to enlarge):
Photo: Goldman Sachs
While adding some caveats that the hypothesis is only based on two games, and that London represents a number of unique difficulties (“a backdrop of slow economic growth, a deleveraging banking sector, higher bank funding costs and a significant tightening in mortgage credit”), Shan comes up with some encouraging figures:
“On average, hosting the Olympics increases the annual appreciation rate of local house prices by about 1 percentage point (ppt). Assuming the effect lasts for 10 quarters after the Games, the cumulative effect is 2.5ppt.”
So let’s assume the 10 quarter figure is accurate — a big assumption, but reasonable. Given that a recent analysis of the UK property value put the total value of London house prices at over £1 trillion ($1.5 million), an extra 2.5% increase across the board could (emphasis on could here) result in a London homes being worth an extra £25 billion ($38 billion) over two and a half years, or a £10 billion ($15 billion) increase each year.
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