In London about one third of property buyers are now from overseas. With demand for houses rising all the time, this is having a knock-on effect on prices across the UK, say campaigners.
(London property development on sale in Malaysia)
According to a report drawn up for the Mayor of London Boris Johnson in December 2012, the problem is even more acute in prime London locations, where up to 75 per cent of buyers are from overseas.
Many of these properties are sold “off-plan” (before they are built), an arrangement more familiar to foreign buyers than to those in the UK, where potential purchasers usually expect to look round a house before putting in an offer.
This state of affairs is distorting the whole market and not meeting the housing needs of Londoners, according to Darren Johnson, Green party member of the London Assembly.
He told Channel 4 News that this is not just a problem for the capital:
“London is at the sharp end of this, but house price inflation impacts on the country as a whole.
“It shows why we need to push for more stringent affordable housing targets, particularly for social rent. We need more public investment for social rent, not just building for overseas investors.”
While Darren Johnson has floated the idea of a cap on the percentage of overseas investors in any development, the authors of a report for the Smith Institute have proposed the introduction of a property speculation tax. Countries such as Switzerland, Australia and Singapore already have controls on overseas investors.
According to the Smith Institute report, overseas buyers are estimated to have invested over £7bn in London in 2012.
It suggests that, with the exception of owner-occupiers, sellers – including corporate investors – could face a tax on the resale of properties. Unlike capital gains tax, this levy would apply to all sellers, regardless of whether or not they are UK taxpayers.
The authors argue that this could damp down price inflation by discouraging speculation. But they also concede that such a tax could have the unintended consequence of reducing the available finance for social housing projects. With finance for new developments hard to find, it is not just private builders who are chasing cash from overseas buyers:
“Housing associations (and some councils) are seeking to build properties for open market sale in order to provide the cross-subsidy [for affordable housing] are becoming reliant on overseas buyers to sustain demand (and prices).”
The vital role of overseas cash is a point emphasised by London Mayor Boris Johnson, who told Channel 4 News: “If you don’t make sure that the market is attractive for investors, they simply won’t come and build and then you’ll get no homes at all – so it is much more important that London should be open and dynamic than try and close people out.”
The lack of affordable housing is worrying the business community too. In response to Ed Miliband’s conference pledge that a future Labour government would aim to build 200,000 new homes by 2020, the business group London First said “a failure to provide enough homes for London’s growing population will put a brake on the city’s economic success”.
In a survey, 28 London First members – mostly large businesses – said the capital’s housing shortage threatens their ability to atract the staff they need. Some 78.6 per cent of respondents thought that the authorities should increase the amount of public investment put into house building.
London First Chief Executive Baroness Jo Valentine commented: “We need a step change in house building which requires government, the Mayor and the boroughs to work together to create a new housing settlement for London that will deliver the volume of homes we need.”
And prices are certainly becoming increasingly unaffordable.
According to Darren Johnson’s report on the subject, Crumbs for Londoners, house prices should not be higher than £140,000 for a single earner and £170,000 for a couple if they are to be affordable for the average household.