Osborne’s skyscraper a totem of Britain’s new global export: houses
Yesterday George Osborne repeatedly said his economic plan was “just like this building”: One Commercial Street in London’s East End. That is where he chose to give a weighty speech with no policy announcements, but a forceful argument: the 2013 data shows that he and his “Plan A” was right, and the deficit denying “Plan B” brigade were wrong.
The building is a rather intriguing choice of totem for the UK economy. The chancellor’s team chose it, because it stalled in the aftermath of the crisis, and restarted, when confidence returned on 2012, thanks, says the chancellor, to his economic plan. The story is even more interesting than that.
The private flats, covering 10 floors, are flats for sale from £720,000 to £1.4m for the British market. The penthouses are millions. Expensive, yes. But that’s capitalism, particularly in a new district of the “City fringe” with easy access to the financial district and a bespoke tunnel giving access to the Underground. No doubt, for those who are critical of the chancellor it would be seen as a symbol of recovery for the wealthy.
Well, the Chancellor was at pains to point out that the building has provision for four floors of affordable housing, though this is accessed through a separate entrance. Who could complain about the provision of high rate council tax payers in Tower Hamlets? Particularly, as I understand, many of the social housing flats are bigger than the privately sold ones, under regulation of minimum standards for social housing.
But One Commercial Street is rather typical of trends for Britain’s new housing stock for a rather different reason. Fifty of the flats were sold off-plan to wealthy investors in East Asia. Developer Redrow held a special marketing event at a hotel in Hong Kong in February 2012. The flats were then marketed in Britain only months later, and at prices markedly higher.
Is there anything wrong with this? Many would argue that this is a smart strategy where the world’s global upper middle class are buying into the safety, economic and legal stability of British bricks and mortar. Those apartments then effectively subsidise the social housing.
First, the British squeezed middle and even London upper middle are squeezed out of this development. Only a rich nondom, banker or those top of the affordable housing list will be able to live in developments like this (and clearly this is a generic issue stretching well beyond this building).
Second, this makes a mockery of the housebuilding targets and statistics. If some statistics that 75 per cent of London’s new build are bought abroad are true, then net housing stock available to ordinary Britons may well be going down not up. Certainly it will be growing even less than the miniscule amount it is growing now.
Third, house prices are inflated and distorted by this type of business. What would they be doing without this trade?
Fourth, are these flats even lived in? I’m willing to bet that if George Osborne returns to this development in five years’ time, many dozens of these flats will be empty.
Fifth, in other regards the housebuilders are being directly subsidised by the taxpayer with help to buy. Are the housebuilders then choosing to subsidise wealthy foreign purchasers of property, and not even allow the domestic market to function, and domestic buyers to buy? Are we having to subsidise UK domestic mortgages, just so that they can compete with wealthy foreign buyers?
So why are they buying? Because we live in a bail-in world*, where London property is seen as an international currency and store of wealth. Sterling’s devaluation helped. This will continue as Cyprus eases its capital controls, and China liberalises its rules on foreign property purchases. Fine. But there are and will be consequences. It is probably better to acknowledge, count and investigate this. A canny exchequer could probably squeeze much more tax out of these strange purchases. In some of the countries where buyers originate, free market authorities limit property purchases to one per person.
Britain, not just London, has a newish export industry. We are exporting our housing stock. Large swathes of the capital and beyond are turning into a giant hotel, with ghostly empty palaces distorting our already dysfunctional housing market. In some developments, it is not actually possible to buy from Britain. In others, there is a premium paid for buying from Britain. The houses and flats are not functionally part of the British housing stock, almost from the day they are drawn on an architect’s CAD system. Perhaps we should embrace it, and create a new export council, or even new towns full or expensive properties that will never be lived in.
George Osborne’s totem of the UK recovery is rather apt.
* Much of this is drawn from a chapter in my book, The Default Line.
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