The London property market has defied gravity once again, with average prices smashing through the £550,000 barrier for the first time. The culprit? A wave of Gen-Z buyers, armed with inheritances from a generation that benefited from decades of rising house prices. This is the great wealth transfer, and it is reshaping the capital's housing landscape in ways that should make any fiscal conservative uneasy.

According to data from the Land Registry, London house prices rose 8% year-on-year in the first quarter of 2025, driven disproportionately by buyers aged 18 to 25. These young purchasers, often dismissed as avocado-on-toast enthusiasts, are now the fastest-growing demographic in the market. Their secret weapon? Inheritance. The Office for National Statistics reports that the average inheritance in the UK has ballooned to £120,000, with many Londoners receiving sums well above that. This is not earned income; it is intergenerational wealth transfer, and it is fueling a surge in demand that the market cannot satisfy.

But here is the rub. This surge is not a sign of a healthy economy. It is a symptom of fiscal incontinence that has inflated asset prices to absurd levels. The Bank of England's loose monetary policy over the past decade has created a generation of homeowners who have seen their wealth multiply without doing much to earn it. Now, that wealth is being passed on, but instead of being invested in productive assets or spent in the real economy, it is being poured into an already overheated property market. This is not the invisible hand at work; it is a giant, government-engineered wealth transfer from the young to the old, and now from the old to the equally young.

Consider the mechanics. Gilt yields remain stubbornly low at around 4.5% for 10-year bonds, despite inflation hovering near 3%. This means that pension funds and institutional investors are desperately seeking yield, driving up prices for all assets, including housing. The result is a market where the only way for young people to get on the ladder is to wait for their parents to die. This is not a sustainable model. It is a Ponzi scheme built on the assumption that house prices will always rise, and that the next generation will always have the money to buy them. But when the inheritance tap runs dry, what then?

Already, there are signs of strain. The number of first-time buyers using inherited or gifted deposits has skyrocketed, but those without family wealth are being left behind. The ratio of house prices to earnings in London hit 13-to-1, a record high. Meanwhile, rental yields are falling as landlords struggle to pass on higher mortgage costs. The Bank of England's rate hikes have done little to cool the market, because the buyers are not leveraged to the hilt. They are paying cash, or at least with substantial deposits, so the interest rate channel is broken.

What we are witnessing is a classic case of capital flight from the real economy into hard assets. Equities have stagnated, and cash is being eroded by inflation. So, the wealth that should be funding startups, infrastructure, and productivity improvements is instead parked in bricks and mortar. This is a misallocation of capital on a grand scale, and it will end badly. When the inheritance wave recedes, and it will when the boomer generation finally passes on, we will be left with a hollowed-out economy and a generation stranded in a market they can no longer afford.

The government must act, but it won't. Raising stamp duty would be political suicide, and building more homes is too difficult. So, we drift on, pretending that soaring asset prices are a sign of prosperity. They are not. They are a sign of a deeply dysfunctional economy that has become addicted to property speculation. The great wealth transfer is not a cause for celebration; it is a warning. The bottom line is that if you are not inheriting a pile of cash, London property is now a closed shop. And that is a crisis for the city's future.