London property is now seen in terms of its investment potential, rather than something that should be meeting a basic social need for the capital’s residents.
Daniel Bentley is director of communications at the think tank Civitas and co-author of ‘Finding Shelter: Overseas investment in the UK housing market‘
A few years ago, when the property market had not yet recovered from the recession, the coalition’s then housing minister Grant Shapps declared that the era of dramatic house price growth was over.
He wanted an era of long-term price stability, and for homes to be seen not as an investment opportunity but as shelter, a fundamental need that was increasingly difficult to obtain for today’s 20-and 30-somethings.
“The main thing everyone requires for their subsistence is a roof over their head and when that basic human need becomes too expensive for average citizens to afford, something is out of kilter,” he said. “This government absolutely supports peoples’ aspiration to own a home. But we also believe that [property] should be primarily thought of as a place to be your home.”
Since then, increasingly desperate for economic growth that felt like it would never come, the coalition has been whistling a rather different tune, quietly encouraging the housing market to inflate again, despite siren warnings of another bubble, rents at record highs and first-time buyers increasingly priced out of the market.
In tackling the housing shortage the government has been focused on increasing the supply.
There is no doubt that the UK needs more homes and the more that can be done in this direction the better. But the supply of housing is only one side of the equation, which is being exacerbated further by an unwillingness to address the question of demand.
Of course, much of the demand is largely unpreventable. But, to an increasing extent in recent years, it has been topped up by interest in the London housing market from overseas investors.
Estate agency Knight Frank says foreign buyers spent £2.2 billion on all new-build central London property in 2012, up from £1.8 billion in 2011. It estimates that 85 to 90 per cent of new-build purchases across Greater London have been to UK residents in the past two years, meaning 10 to 15 per cent of purchases were from abroad.
But in central London, only 27 per cent of new homes went to UK buyers. More than half were sold to buyers from Singapore, Hong Kong, China, Malaysia and Russia.
Sadly, not only is the government’s default setting to quietly encourage house price growth, it is also to do nothing that would impede overseas investment – without regard to whether it is having a deleterious effect.
The reality is that London property is now seen for many in terms of its investment potential, as a safe haven for cash in an unstable global economic climate, rather than something that should be meeting a basic social need for the capital’s residents.
As the London-dwelling American writer Michael Goldfarb put it in the New York Times last October, the capital’s property has become, first and foremost, “a global reserve currency”.
The case is made that most foreign money is going into new-build properties and that a great many developments would not go ahead without such purchases. Both of these assertions are probably true, but what is at issue is those investments that do not add to the supply.
In a new Civitas report, David Green and I argue for restrictions on non-resident purchases of UK homes, so that they would not be permitted unless the investment genuinely adds to the housing stock, thus increasing supply rather than demand. A ‘non-resident housing investment agency’ should be set up to handle applications.
We would not pretend this is the silver bullet for all of the housing market’s problems at this time, but it would remove a layer of demand which – while comforting for London’s propertied class – is not helping those at the bottom trying to pull themselves up.
The lure of international cash, always strong, is not one the government is likely to resist in the current economic climate. But if it is really concerned about the plight of younger people and the soaring cost of housing, it must cast a more critical eye on some of the investment the UK is attracting.Like this article? Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today.