Des res or deposit box? The impact of foreign investors on UK house prices
Foreign investment in UK property is an issue that’s been attracting increased media coverage, mainly because of claims that wealthy overseas investors are driving up property prices and locking millions of UK citizens out of the housing market.
Properties in central London are attracting the lion’s share of this foreign investment, primarily from Asia, Russia and the Middle East. Last year, the Civitas think tank reported that 85% of prime London property purchases in 2012 were made with overseas money.
The Civitas report highlighted concerns that, as well as driving up prices for domestic buyers, overseas investments might be distorting house-building priorities by persuading developers to focus on wealthier buyers, rather than affordable housing. Civitas argued that the UK should follow Australia’s lead in preventing non-residents from investing in residential property unless their investment adds to the housing stock.
Moves towards constraining inward investment have set alarm bells ringing for those who believe that it provides economic and social benefits to the UK, and delivers housing that would otherwise not be built. A report from London First in 2013 made the case for continued foreign investment:
“London is a – perhaps the – international business city. Its economic success, which delivers jobs and prosperity for Londoners and the country as a whole, has been built on international trade, in past centuries primarily in goods and now principally in a range of services. If London is to continue to thrive the city must be open to housing those who come here to do business.”
While London continues to attract the bulk of foreign investment, there are signs that overseas buyers may be starting to look beyond the UK capital. One estate agent told The Daily Telegraph that international investment in Edinburgh’s residential market was increasing “at a phenomenal rate”. The article went on to highlight the city’s pulling power for overseas investors:
“It’s largely down to the schools, which are the main attraction. Russian buyers are sending their children to Merchiston Castle School, George Watson’s College and Edinburgh Academy. We have also seen an increase in Chinese buyers, who are attracted to Edinburgh for the freehold properties.”
Some observers have sensed an undercurrent of xenophobia among the opponents of overseas property investment. Writing in The Guardian last month, Dave Hill observed:
There’s something discordant about the stress on the foreignness of those “rich foreign investors”. Would rich investors in London be alright if they weren’t foreign? Are foreign investors alright if they live in London, as many do? Are we not a “world city”, suddenly?
For others, such as Peter Wynne Rees, the former planning officer for the City of London Corporation, the real problem is an unresponsive planning regime:
“A residential development in central London is now likely to make four to six times more profit than an office scheme. Without planning control, much-needed offices have given way to piles of “safe-deposit boxes” rising across the capital. These towers, many of dubious architectural quality, are sold off-plan to the world’s “uber-rich”, as a repository for their spare and suspect capital.”
Rees was one of the contributors when the Greater London Assembly’s Housing Committee met to consider the issue of overseas inward investment in March.
The issue is likely to maintain its high profile up to and beyond the general election. Ed Balls, the shadow chancellor, has suggested that overseas owners with second homes in the UK could be forced to pay a larger contribution than people living in their only home. The Conservative Party rejects this approach, but in his 2014 Budget chancellor George Osborne extended stamp duty to include more wealthy foreigners who buy homes in Britain to avoid tax, and in December he increased stamp duty on house sales worth more than £1.5m. It appears that this, along with uncertainty over the election outcome, has begun to affect the market.
Underlying all of this is the shortage of affordable housing. In London, 809,000 new homes are needed by 2021 to meet existing and new demand. But while all sides agree that the best way to address house prices without damaging foreign investment is to build more homes, there is no consensus on how that can be achieved.
By James Carson, Idox