Trellick Tower in west London. Photo: Getty
Show Hide image

Vast swathes of London are becoming unaffordable even to those on “good” incomes

London property is seen as a safe place for overseas investors to park their money. But with a lack of affordable housing in the capital while these properties sit empty, something has to change.

Barely a week goes by without a news story about overseas buyers snapping up London property. London housing has been described as a global reserve currency, with many seeing it as a safe place to park their money. There are anecdotal reports of areas of London becoming ghost towns as swathes of properties are left empty, with the architect of one such “ghost” development calling for a severe tax on those who leave homes empty.

London is a diverse global city where we rightly celebrate the fact that people from across the world want to live and work here. Yet there is a growing feeling that people with no intention of ever living or working here are profiting from our booming property market while those who do live here, wherever they’re from, are being squeezed harder and harder by our housing crisis.

But what is the real extent of overseas investment in London, what are the consequences of this and what, if anything, should be done about it?

These were the questions put to experts at a roundtable discussion hosted by me at City Hall. The event brought together a diverse range of voices from politicians and academics to developers and estate agents.

What is clear is that for all the newspaper headlines, very little research exists into the extent and effect of overseas investment. Estate agents Knight Frank have estimated that in the two years to October 2013 49 per cent of all new build purchases in ‘prime’ central London were made by overseas investors, 20 per cent in the wider inner-London area and 7 per cent in outer-London. In June 2012 the Smith Institute reported that 60 per cent of new homes in central London were bought by overseas investors.

The problem is that these figures rely primarily on data assembled by estate agents with differing methodology for a variety of purposes. No definitive data exists and no official monitoring takes place. The Greater London Authority would be in a prime position to commission such research. However, despite repeated requests from the London Assembly, the Mayor has so far refused to do so.

What we do know is that vast swathes of London are becoming unaffordable even to those on “good” incomes. The average house price is soaring towards the £500,000 mark. With most first time buyers unable to raise a deposit without help from their parents, and with historically low interest rates making saving unattractive, demand for housing is increasingly coming from those who already own a home as people enter the buy-to-let market.

For this reason it is clear that overseas investment cannot be looked at in isolation from domestic property speculation. However, with many new developments being funded by off-plan sales to overseas buyers how can local people feel that they are benefiting when a new block of luxury flats rises up over them?

There is a clear need to distinguish between different types of overseas investment: capital appreciation investment, where a home is bought purely to appreciate in value, and supply-generating investment, which results in an increase in the supply of housing for those who need to live and work here.

Perhaps the real question we should be asking is “how can we make overseas investment work for Londoners?”

Data from Islington suggest that homes being bought up by overseas buyers are increasingly being left empty. Across 10,000 homes built over the last six years in the borough there is a 3 per cent rate of properties in which no one is on the electoral register. Yet in several new developments in the south of the borough bordering the City that figure rises to almost 50 per cent. While the level of electoral registration is by no means a perfect measure of whether or not a home is actually being left empty, this level of discrepancy does suggest that something strange is going on.

In a city with an acute housing crisis, buying homes and leaving them empty is an obscene luxury that Londoners can ill-afford. Councils must be given much stronger powers to raise taxes on empty and even second homes. Given the level of capital appreciation we are talking about, the government’s decision to allow councils to charge 150% council tax on empty properties does not go anywhere near far enough.

Local authorities could also follow Islington Council's lead and impose planning conditions which specify that new homes must be occupied, requiring payments for those that are not.

Ultimately the reason people want to buy London property, whether they are from overseas or not, is that our houses are seen as commodities more than they are seen as homes. With house prices seeming to rise inexorably, property is becoming the only game in town for people with a bit of money to invest. After all, with most investments there is a risk that its value may go down instead of up. That risk in London’s property market is perceived to be very small indeed. The government’s announcement in the budget to allow people to cash in their pension will only stoke this problem as pensioners decide to enter the buy-to-let market.

The real solution is therefore twofold: making other forms of investment more attractive, and doing something to arrest the rise in house prices. The latter will require significant investment in new homes. What government, the Mayor and local authorities need to do is ensure that overseas investment contributes to an increase in the supply of affordable properties, rather than simply fuelling demand.

Tom Copley is a Labour member of the London Assembly

Show Hide image

Boaty McBoatface is no more, and other stories on this good day to bury bad news

Your mole looks into the stories the government would rather you let sail by...

Win, lose or draw, today was set to be a healthy day for British democracy. Until this: Boaty McBoatface is no more. Oh buoy.

Back in March, when the Natural Environment Research Council invited people to suggest names for their new £200m polar-research ship, this name shot to the top of the polls. Its success quickly kicked up a media storm, with commentators liking and loathing the prospect in equal measure: an irreverant symbol of national pride, said some; an embarrassment, said others. Much like Boris Johnson then.

Except, unlike Boris, McBoatface has been stripped of its democratic credentials. Science Minister Jo Johnson today announced that the results will be overruled, despite Boaty McBoatface winning four times more votes than its nearest competitor in the online poll. Instead the vessel is to be named “RRS Sir David Attenborough”, in honour of the broadcaster and naturalist.

The government has yet to decide whether the whole exercise has been a “triumph of public engagement, or a PR disaster”. Your mole thinks it's a-boat time they made up their minds.

Democracy is alive and well, however, in St Ives. On Thursday, the Cornish town (otherwise known as "Kensington-on-sea") held a referendum on whether or not to ban new second homes. In bad news for wealthy Londoners, more than 80 per cent of voters supported the plan. If the decision is upheld, it means that new builds will be reserved for full-time residents. As yet another sign that the British housing market is out of control, the government must be thankful that today's media eyes are largely elsewhere.

A more chilling revelation that the elections nearly concealed from this mole's senstitive snout is this morning's quiet release of an impact assessment on the UK's capacity market.

In order to prevent blackouts in the winter of 2017-18, the government plans to subsidise old power plants that would otherwise be at risk of shutting down. The Telegraph calculates that such subsidies could cost households up to £38 on their annual energy bills.

The government argues that blackouts would cause bills to spike, bringing the net cost of the levy down to £21. But Lisa Nandy, Labour's shadow energy secretary responded: "The Tories are trying to bury this bad news. Every family's energy bill is to shoot up to pay for these gross new handouts to the big energy companies."

I'm a mole, innit.