Londoners, Labour politicians and left-leaning journalists often blame rich foreigners for high housing prices in the capital. This has provided opportunities for people like Boris Johnson to teasingly suggest that they are being xenophobic and, more importantly, has demonstrated a regrettable readiness to seek easy culprits for complicated problems. A BBC TV report on the combined effects of Brexit and changes in property tax on London’s housing market may give this tendency fresh impetus. But it has also underlined its flaws.
In the report, investors from Hong Kong are shown purchasing homes that are still under construction in Zone 4 Colindale. The fall in the value of the pound since the EU referendum has given wealthy global shoppers like them a further incentive to buy future London bricks and mortar “off-plan”, and changes in stamp duty and levies on second homes have made purchasing handfuls of units of half-built suburban housing more profitable than buying fewer of them in Kensington.
Outrage! Are those archetypal “rich foreign investors” now buying up the suburbs too at the expense of native Brits? Shouldn’t they be stopped? What would happen if they were? “Be careful what you wish for,” warns one house builder. “Because in the UK, and in London in particular, they play a very vital role in underpinning every [housing] development.” And those developments include much of the affordable housing supplied for Londoners on low and middle incomes as part of the planning deals struck with boroughs.
Here, once again, is the uncomfortable truth about the relationship between big foreign money and Londoners on ordinary incomes looking for homes they can afford to rent or buy. It is that in the absence of enough public money, the former have long provided a lot of the cash that pays for the building of the latter. If they stop investing, the provision of “affordable” housing starts getting more difficult. This shouldn’t come as a surprise: “Red” Ken Livingstone worked it out 15 years ago.
Another heresy to take on board is that the Honk Kongers featured in the BBC piece have no intention of leaving their new properties empty. “Buy to leave” certainly occurs, but the extent of it is contested and hard to quantify. And why would you simply leave a brand new flat gathering dust when you can profit from letting it? London needs a growing stock of professionally-run new homes for private rent. Should we oppose foreigners supplying it?
There’s something quite familiar about all this; something reminiscent of the early days of Mayor Johnson, when the economic downturn kicked in, the credit crunch bit and overall housing supply in London became increasingly dependent on hot money seeking safe havens from abroad. The other recurring theme is its complete absurdity as a mechanism for addressing the UK capital’s housing needs - one of its most fundamental infrastructure problems. The problem is a shortage of alternatives.
Johnston's successor, Sadiq Khan, intends to try to alter the housing finance equation in London, believing this will generate better results. His plans include restrictions on off-plan sales overseas in the hope of holding down prices and giving Londoners a better chance of buying new housing as it comes on stream. The worry is that fewer homes of every kind will end up getting built, although there have been hints that he might seek to channel more foreign finance into the kinds of housing London most needs more of.
Wish him well with such endeavours. But don’t pretend that foreign investors are the cause of every problem or that, like it or not, they aren’t going to remain part of the solution.
https://www.theguardian.com/society/2016/sep/05/london-housing-why-hong-kong-cash-in-colindale-is-not-all-bad
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