Let overseas investors sink their cash into the housing we really need
Daniel Bentley, 6 April 2016
The Panama Papers add a sinister new twist to an issue that has been blighting the London property market for years, and required action long before now.
Thanks to The Guardian’s disclosures about Mossack Fonseca’s clients, we now have a clearer picture of some of the individuals behind the more than £170bn worth of UK property owned overseas. The Panamian law firm is connected to only one in 10 offshore-owned properties, yet even that small proportion accounts for more than 6,000 title deeds, worth at least £7bn.
The president of the UAE alone owns £1.2bn worth of property in London. This includes many commercial buildings (as opposed to residential) but money pouring in to either will elevate the price of land, which is the real curse in the capital.
The whole affair raises important questions about the apparently industrial scale of tax avoidance by some of the world’s richest and most powerful.
But it is a reminder too of a broader question about the UK’s willingness to usher vast sums of money – irrespective of its status – in to the London housing market from across the world. Boris Johnson in particular has been a firm believer in overseas investment. He has said it would be ‘utterly nuts’ to turn it away, arguing that it has led to ‘astonishing transformations’ in London.
But it has not been all good news for the average salaried capital-dweller, for whom housing affordability has become ever more problematic.
A report commissioned by the British Property Federation in 2014 found that 15 per cent of new London homes were purchased by overseas buyers, and in inner London 20 per cent. This might not sound like much, but that is an extra 20 per cent in a market where too much money is already chasing too few homes.
It is argued that this money is purchasing properties that ordinary Londoners would not be able to afford in any case. And it is true that most of this cash goes into high-end apartments in the most exclusive areas of central London. Many of these developments would not get off the ground without global finance.
But would that be such a great problem? Overseas investment is effectively sustaining a luxury housebuilding industry which distracts developers from building the affordable homes that are really needed.
Builders, who are so fond of blaming their poor output levels on skills shortages, have nevertheless found the capacity to construct a glut of £1m apartments between Chelsea and the City. So many in fact that, ironically, this is the one part of the market in which prices now appear to be cooling.
Clearly this is not the root of the problem in UK housing, but it is symptomatic of a housebuilding industry which is left to pursue its own chaotic, warped priorities.
What can we do about this? The Mayor of London backed moves to have properties marketed first to Londoners before going on sale abroad. This was a welcome first step but this is little good for Londoners if developers are pitching to the top of the market and holding out for prices they know will only be met by investors in places like Hong Kong or Singapore, for example.
Going further, capital controls have long been out of fashion but there is a strong case for restricting investment such as this, at least in order to channel it more constructively. In Australia, non-residents are only allowed to buy property if it is going to contribute to the housing stock. That would be a decent starting point – but the test for investing in the UK should not be just that it increases the number of homes but that it increases the right kind of homes.
Let overseas billionaires sink their cash into projects to build the properties we really need – low-cost family-sized homes in non-prime developments, for example. Now there’s a thought.
Daniel Bentley is editorial director at Civitas and author of ‘The Housing Question: Overcoming the shortage of homes’.