Real Estate Development in Post-Fire London

The Great Fire of London destroyed most of the capital and, in fact, nearly the entirety of the portion of London within the walls, the City. Yet, London continued to grow. The 1666 fire sparked a building boom that was most pronounced in the western suburbs. However, prior to this, London had no building companies or professional real estate developers. Houses were built by a variety of people either for their own dwelling or to sell as an investment opportunity for someone else. As a result, a crop of new real estate entrepreneurs had to be educated in the basics of real estate finance.

Early Modern London

After the end of the Middle Ages, London grew from the 15th century onward. The city proper was populated by rich and poor alike. Indeed, aristocratic houses, which used to be found more readily in the vicinity of the city than in the center itself, were now built within the city walls, particularly along the river. By 1550, the city population was about 70,000 and the majority of Londoners still lived within the walls, though extensive suburbs developed in the west towards Westminster.

By 1600, the population of London had reached 130,000. Remarkably, it would grow over the next century to 550,000 despite war, plague, and fire. The city became extremely dense in this period even though it did expand further beyond the walls as well. Besides the development of the western suburbs, the 17th century also saw the city expand slightly eastward. With the exception of the Spitalfields silk district, where French immigrants established a silk industry in London, these neighborhoods were largely poor. The rich were increasingly found in the west and it is in this century that such an east-west affluence divide developed.

In any case, in the early 17th century, the city was expanding greatly and this despite numerous constraints on building, largely intended to reduce the threat of plague.

Great Fire of 1666

Despite these efforts, a particularly bad plague afflicted London in 1665 anyways. But it was a different disaster the following year that would shape the development of London more thoroughly. The Great Fire of London began on September 2, 1666. It brought four-fifths of the City to ruins and some portions beyond the wall too. Some 13,200 houses were destroyed leaving 100,000 homeless. In the wake of the fire, large encampments were set up in fields on the outskirts of the City, particularly at Moorfields, to house those who had lost their homes.

Rebuilding

The fire created a housing crisis in London of unprecedented proportion. Rents rose almost immediately after the fire. Already by September 7, the diarist Samuel Pepys reported it was “strange to hear what is bid for houses all up and down here; a friend of Sir W. Rider’s: having £150 for what he used to let for £40 per annum”. Even in 1670, many were still living in temporary shelters at Moorfields; they were given until September 1674 to vacate.

Initially, rebuilding was slow going. Pepys wrote after dining with a property owner in February 1667 that, “He gives it me, as his opinion, that the City will never be built again together, as is expected, while any restraint is laid upon them. He hath been a great loser, and would be a builder again, but, he says, he knows not what restrictions there will be, so as it is unsafe for him to begin.” This friend of Pepys was not a professional property developer; indeed, he was a surgeon by training. At the time of the fire, property developers came from all sorts of backgrounds. Many were tradesmen like bricklayers and carpenters, others were more affluent figures like gentry, merchants, or goldsmiths.

The lines along which houses were to be rebuilt were specified in the Rebuilding Act of 1667. The legislation called for wider streets and outlawed façades overhanging above the street in order to establish better fire breaks. It also mandated the use of brick in construction. The law specified a height limit of four levels for houses on ‘principal streets’, three for houses on ‘streets and lanes of note’, and just two for houses on ‘by-streets’. Some streets already had numerous five-level houses before the fire so these height restrictions would result in a reduced density for the urban core of London. Another effect of the law: legislation regulated heights and building materials meaning the city was going to be rebuilt with greater uniformity and planning than was common before.

New Developers

A building boom finally got underway as disputes between landlords and tenants were settled through a newly established Fire Court. In the rebuilding, new people jumped into real estate development and not only the wealthy. Recall that there was not really such a thing as a professional real estate developer in 17th century England, so those arranging for the construction of houses tended to be gentry, or otherwise tradesmen or merchants with day jobs. There were no homebuilding firms in London either.

To advise these new developers, guides to real estate development were published, including Stephen Primatt’s The City and Country Purchaser & Builder, published in 1667 and republished the following year by the Fire Court which believed the content therein dealing with dispute resolution was particularly valuable to its work. Primatt’s book taught everything from the work of different tradesmen and estimates of the building costs of different houses to basic surveying and valuation techniques. Primatt estimated that a house twenty feet by forty feet with a cellar and four floors above it would cost £500 to build. His book broke down this estimated sum into dozens of line items, right down to the cost of doors (10 shillings for a door together with a lock and pair of hinges).

These books also taught the basics of finance and contained tables of compound interest and the discounted value of future cash flows. In determining a fair price to buy or sell real estate, Primatt suggested a technique of considering the annual rental value and a certain multiple that represented the “years’ purchase”, or the going rate in the market for such properties as a multiple of that rental value. He acknowledged that this was to some extent a function of interest rates and a risk premium. Primatt reckoned houses in London were worth approximately thirteen to sixteen years’ purchase, generally a lower multiple than land by itself but a higher multiple than for houses in other parts of England, reflecting the relative risk of these investments.

“First, as to Lands in Fee Simple, they being in many places, worth Twenty years Purchase, in others Nineteen, in others but Eighteen or Seventeen, or it may be not above Fifteen or Sixteen. Let the Purchaser take notice that the rates allowed for money at Interest, is for the most part a rule for the valuation of any Purchase. And this not only so in England, but in most places of the World, as in Holland, Venice, and other places; their moiety yeilding not above three pounds in the hundred, makes them value their Lands at thirty five or thirty six years Purchase, and their Houses at Twenty eight or Thirty years.” – The City and Country Purchaser & Builder by Stephen Primatt, 1667

Financing was a large part of the project of getting a building off the ground. Helping somewhat, typical leases of land to builders had provisions such that for the first two years only a nominal ground rent would have to be paid to the landowner. Thereafter, the normal rate of ground rent would apply, but the builder would likely have completed his house by then; often, the project took just six-to-nine months to complete.

Builders would borrow money for development, sometimes from several investors. Lawyers and notaries, who were essential in real estate development, often introduced builders to syndicates of investors. Credit would also be supplied by the suppliers of building materials. Once completed, the building would be sold, often to an investor-landlord. Some of these were institutions like companies or church parishes; institutions were estimated to have owned 30% of all rental properties in the city.

New Developments

Though the fire leveled the center of London, the western suburbs saw substantial development as a result. In the aftermath of the conflagration, the rich of London moved to suburbs that used to be poorer than the city proper. This had the effect of reducing the density of London from its 17th century peak. As a result of the new development, the western suburbs came to be wealthier and the housing there more uniform and built on more formally laid out neighborhoods than could be found in the medieval City.

“How much more considerable are the Suburbs now, than that lately were? Some places of despicable termination, and as mean account, but a few months since, such as Hounds-ditch, and Shoreditch, do now contain not a few Citizens of very good fashion. Philosophers say, that Generatio unius est corruptio alterius [(the generation of one thing is the corruption of another)]: so was the marring of the City, the making of the Suburbs. … Time was that rich Citizens would almost have held their noses, if they had passed by those places where now it may be they are constrained to dwell … What are the Suburbs now becom, but as it were the in-side of the late-Famous City, carried and placed without [(outside)] the Walls? London its self (by a kind of metamorphosis) the Soul of the City, being now translated into the Body of the Suburbs: So that he, who would now look for London, must look for most of it, not within, but without the Walls.” – Shlohavot, or, The Burning of London in the Year 1666 by Samuel Rolle, 1667

Much of this suburban development took place in the fields to the north of The Strand and St. James Park. The rich migrated here since they used the fire as an opportunity to find more space and better air. This suburban development often centered around new squares. One of the first, Bloomsbury Square, developed before the fire, starting from 1661. Others came afterward, with King Square (now Soho Square) and Golden Square in the 1670s, each further west than the former. In 1680, the Earl of Bolingbroke relocated to King Square from Spital Square, just north of the City. Golden Square came to be called home by six peers by 1707.

Map of London by John Rocque, 1746 – Holborn, Russell & Bloomsbury Square, Lincoln’s and Gray’s Inn, Camden

The new squares and the surrounding development was built on land leased by local nobility. This land could be leased more cheaply than land in the City. In fact, the difference could be very great. Leasing a building site for a single house in Cheapside, Fleet Street, or Cornhill could cost £50 a year but in The Strand further west, a site could be leased for £15. So, a more substantial house could be built in the suburbs for the same total annual cost to the occupant. The built environment put up by the developers was predictable; the squares were typically anchored by a statue in the middle, a church on one end, and perhaps a large aristocratic house on the other. Property developers building these squares installed paved sidewalks and drains separating the housing from filthy streets outside.

It was estimated that about one in four middle-income households owned a real estate investment. Many bought their properties on credit from the developers who extended loans secured by mortgages on the property. Developers would also lease properties to investors who might then sublease out units to tenants. These properties could quickly turn out to be good investments for owners. The 17th century real estate developer Nicholas Barbon, trained as a physician as it happens, noted that as the western suburbs of London grew larger with the development of Covent Garden, Lincoln’s Inn Fields, Piccadilly, and St. James, rents on The Strand, which was now more centrally located by comparison, had doubled over the course of forty to fifty years.

Lesson

Real estate may be one of the most valuable assets comprising a country’s wealth. But in the 17th century, Britain generally lacked a professional class of real estate developers. Properties were built by men of various backgrounds, often but not always in the building trades, and were bought by people of means, though not necessarily only the richest in society.

As with other massive business opportunities that open up so quickly, no single firm or individual was poised to take advantage of the rebuilding opportunity after the Great Fire of London, so a large group of new developers rebuilt the city. However, they often needed the assistance of investors, lawyers and notaries who also proved important to real estate finance, and the published works of educators like Stephen Primatt, to say nothing of all the trades involved in putting up a house. The broad array of inputs, both in materials and talents, that development requires is fairly unique to real estate.

More from the Tontine Coffee-House

Read about how London’s reconstruction was financed and about the work of builder, insurer, financier, and economist Nicholas Barbon. Consider subscribing to this blog’s newsletter or checking out book recommendations, which include many of the sources often referenced in my posts.