Both London and Manhattan are very expensive cities to buy and live in. And in the face of housing issues in both England and the United States, these cities are holding their own and housing prices are increasing. The main reason is that they are the centers of finance for their countries and the financial markets are booming these days.

To answer the question that we asked though, London is pulling away as the combined cost of housing and the strength of the English pound has extended the housing prices in London compared to New York City in dollar terms.

But London is pulling away. Last year, prices in its plush SW1 postal code (which covers Belgravia) grew 29%. In dollar terms, it was an even stronger 46%. The price of luxury condominiums throughout Manhattan grew a mere 6.3%. As a result, prices are now a lot higher on the Atlantic’s eastern shore. Property in SW1 fetched £1,450 ($2,862) a square foot at the end of 2006, 63% more than Manhattan luxury condos.
Why is London doing better? For a start, U.K. property prices in general grew 10% last year, whereas U.S. house prices fell 3%. Then, there’s more top-end immigration into London than New York these days — not just financiers, but Russian oligarchs and Indian steel magnates. It is also harder to create new supply. Stricter building codes limit the size and height of new construction.
But the relative momentum of the two cities’ financial centers is also a factor. Aggregate bonuses last year on Wall Street were still larger than in the City. But London’s grew faster — by 17% in local currency (or 33% in dollar terms). Wall Street bonuses were up only 9%.
To the extent that bonuses are fueling house price rises, London has little to worry about. But soaring prices are also putting pressure on the cost of living. That, ultimately, could undermine the City’s competitiveness.

London’s Sky-High Real Estate May Damp Its Competitiveness – WSJ.com.

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