Foreign money is turning London’s housing market into an unaffordable bubble


9:18 am - October 3rd 2013

by Dan McCurry    


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According to the Bank of England, each year since 2010, £23 billion of foreign money has poured into the London property market. One would think that this is a good thing for the economy, but most of these foreign buyers have never been to London, or at least have no intention of spending any time here.

It’s all about the preservation of wealth. The residents of unstable oil-rich countries fear the Arab Spring. The residents of China and Russia fear their governments. All are looking for stability. It has become the fashion to “park” money in London. It’s what wealthy people do when they don’t trust the banks, they “park” their money through the purchase of an asset, as a store of value. In this regard, the London property market has become a gynormous piggy bank.

In 2011, Regent Street was valued by The Crown Estate at £2bn. Each year a multiple of over 11.5 times this in ordinary homes is being snapped up. That’s the equivalent, each single year, of Oxford Street, The Strand, Fleet Street, High Holborn, Trafalgar Square, High St Kensington, Old Bond Street, Berkeley Square, Park Lane and Knightsbridge, and more. That’s just one year.

The reason government is doing nothing about this, is because the economy has been so delicate for the last three years, and the question of whether we are in or out of recession have been so finite, that any short term economic activity has been welcomed.

Far from rebalancing the economy, this government are just desperate to fend off the calls for a Plan B. Far from building a long term prosperity, they are trading the benefit of short term finance, for long term misery. This chancellor, who once accused Gordon Brown of being “dishonest” with the British people, is now covering the tracks of his own failure, fully in the knowledge that a future government will be forced to clear up the mess.

The dividing lines between Labour and the Conservative Party is clear. We believe the state has a role to play in building a better society, they believe that the market is supreme in every regard. We believe that government can guide or regulate the market as and when it becomes destructive. They do not.

In this case, the destruction is due to the sheer scale of housing that is being taken out of productive use. The situation has got so bad that even the bankers are being edged into poorer districts. This then bumps the next social class into the next district and so on. In my area of Tower Hamlets, period housing used to be priced at a premium, but as prices push against the ceiling of affordability, the prices of ex-council flats are coming into line with the Victorian terrace.

As prices rise and foreigners become excited by their returns, more money pours into the market causing more housing inflation. If this speculative bubble were caused by the British population then there would be some constraints imposed by the size and the wealth of the native population, however, we are talking about massively greater forces at work.

We keep reading polling that tells us this is not a major issue to the electorate, but that is the reason why Labour should be hammering the message home. Ever since George Osborne’s economic policies failed, we’ve seen increasingly dangerous long-term problems being created by a government who are only concerned with securing their own jobs.

They will continue to do so until the Labour persuades the nation of their folly and creates a consensus for restrictions on foreign purchasing.

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Reader comments


While the argument put forward in the OP seems reasonable and what you might guess just looking at things in an everyday way, that kind of attitude sails close to the points of view that this website is usually so strongly against.
Anything that blames foreigners or people coming into the country for any kinds of shortages, is shot down pretty quickly.
Many of the foreign buyers of London property do indeed live here for at least part of the year. You can see that by just walking around the West End and Edgware Road.
I’ve been doing deliveries for a well known furniture store, and at least half the people we deliver to are from overseas. More than half I would say. In some places like the newly built flats in E16 around the ExCel Centre, a majority of the people seem to be professionals from overseas. They seem to like the exclusivity of such developments, which have no rif-raf Brits skulking about.
So now is it OK to complain about too many yuppie foreigners and rich Arabs?
The population is growing and we’re all going to have to squeeze up.

“creates a consensus for restrictions on foreign purchasing.”

Since when did Labour become petty nationalists? Oi, you, none of yer funny foreign money ‘ere!

And you do realise you’d have to leave the EU to be able to do this, don’t you?

Funnily enough this is the kind of thing wealthy Londoners have been doing to rural populations for some time. A viable solution might be through taxation, rather like the stopping of council tax relief on second homes.

Damon & Tim

What worries me, is all the people you depend on for you to live your own lives will be unable to afford even a tile on the roof over their own heads. Doesn’t that worry you? Or will you go into knee jerk demonisation of them for the fact that their employers pay far less than even the minimum needed to live on…

As I stated on another thread, a bog standard London terraced house in Camberwell Green has recently been sold for £600,000. It’s true value is more like a third to 1/6 of that.

Shall the 99% start pitching their tent cities outside your front door, while their former homes stand empty as some parasites piggy bank?

Wait, hang on: my understanding of London property is that the megarich money-parking consists of penthouse flats in fancy new blocks, large houses in the West End, and mansions in the fancier suburbs – all of which nobody even vaguely normal could have afforded at any point ever.

Are foreign oligarchs seriously buying up 2- and 3-bed terraces in Forest Hill and Walthamstow? Or are property prices for normal Londoners at a crazy-high level because London’s population is growing, it’s restricted by the Green Belt, and average incomes are doing, if not well, then significantly less badly than they are in the rest of the UK?

As I stated on another thread, a bog standard London terraced house in Camberwell Green has recently been sold for £600,000. It’s true value is more like a third to 1/6 of that.

What the blazing fuck is its “true value”?

The money of foreign thieves otherwise known as entrepreneurs and of course Osbornes market skewing deposit scheme along with the economic depression in the UK regions and less fashionable burroughs of London removing houses from the market altogether because there are no jobs for fifty miles is causing not a housing bubble but an incredible inflation spike taking the increasingly few houses worth buying far out of the reach of all but the richest. A rising tide lifts all boats just as a bubble lifts the value of all houses but this is straight forward inflation which as Milliband said means only the yachts are rising whilst the rest of us are drowned by the shackles of our moorings.

For comparison with what is happening at the frontiers of capitalism, San Jose in California – one end of “silicon valley” – has just approved new local regulations on the kinds of foods available for sale in vending machines so as to curb the increasing incidence of obesity:

SAN JOSE (KCBS) – The San Jose City Council voted on Tuesday to set an even higher bar for its vending machines by requiring them to be stocked with healthier snacks.

The city council voted six-to-three approving an ordinance that requires that 75 percent of snacks in vending machines are healthy—up from the previous 50-percent requirement in 2006.
http://sanfrancisco.cbslocal.com/2013/10/02/san-jose-council-votes-for-healthier-vending-machines/

How is that for “free market capitalism” without burdensome regulatory red tape? How would that show up if the rigorous test of Mrs T’s “Compliance Cost Analysis” were applied?

@Cherub, You make a very good point. It is exactly the same as rural housing bought by city dwellers. The difference is that London is the engine of our economy and so needs people to be housed.

@Dissedent, Agreed.

@Tim Wostall, I don’t know what the EU has to do with it.
@John B, If it was just fancy penthouses in new blocks, then there would need to be £23bn a year of them created.

@John Lenin, The entrepreneurs are practising their art a long way from here.

@Bob B, interesting.

OTOH there is an ever increasing housing problem in San Francisco, at the other end of “silicon valley”.

By a wide consensus in America, San Francisco is regarded as the most “liberal” place in the country. Even so, the city authorities there have recently imposed a ban on public nudity, which has survived a challenge in the US Federal Courts on the claimed but dismissed grounds that the ban is unconstitutional.

Curiously, for all that, San Francisco is also one of the most affluent cities in America. Housing there is notoriously and increasingly expensive due to market pressures from the inflow of migrant workers attracted there by job opportunities in the computer industry as well as the attractions of the city’s many amenities. But there are no mooted civic controls on either incoming migrants to work in computer industry jobs or on housing rents.

One outcome of the market pressures on housing is private sector development of “micro flats”, as shown in the promotional documentary about 295-square-foot apartments at a rent of $1,600 a month:
http://money.cnn.com/video/pf/2013/06/20/pf-uh-san-francisco-micro-apartment.cnnmoney/index.html

@OP

“The reason government is doing nothing about this, is because the economy has been so delicate for the last three years, and the question of whether we are in or out of recession have been so finite, that any short term economic activity has been welcomed.”

I think this is bollocks – do you have any evidence to support this? I believe you provide the reason elsewhere – (i)the Government largely believes in free markets. (ii) polling that tells us this is not a major issue to the electorate

“In this case, the destruction is due to the sheer scale of housing that is being taken out of productive use”

Can you please provide the actual number of houses owned by foreigners which are unoccupied?

For an American’s perception of the rival merits of living and working in London or Silicon Valley in California, try Jimmy Wales:

Jimmy Wales, founder of Wikipedia, has called on the Government to be more accommodating to entrepreneurs by changing the rules of their visas.

Wales is convinced that with some amendments to the entrepreneur visa, London could become a capital for technology.

He added that living in London would prove an entirely more enticing prospect than living in Silicon Valley, California.
http://www.standard.co.uk/news/london/wikipedia-founder-jimmy-wales-calls-on-government-to-make-london-tech-capital-8799111.html

Of course, the trouble is that incoming tech entrepreneurs are likely to drive up house prices in London. May be London’s schooling should be made less attractive:

“London schools have improved so rapidly over the past 10 years that even children in the city’s poorest neighbourhoods can expect to do better than the average pupil living outside the capital.” [Financial Times, 13 January 2013]
http://www.ft.com/cms/s/0/8f65f1ce-5be7-11e2-bef7-00144feab49a.html#axzz2YT0kXvIg

McCurry: The BoE figure includes commercial property – yer Shards and yer Cheesegraters.

Again, do you seriously believe that the price of an average terrace in an average z3-4 suburb is being inflated by oligarchs acquiring them and keeping them empty? Because that isn’t happening. It’s possible that oligarchs are buying BTL properties in z3-4, but that isn’t really much different than domestic landlords with cash to spare buying BTLs.

@8 – I assume that discriminating against foreign buyers would be illegal under EU law

@11 – I assume the inflation in zones 3-4 or wherever could be caused by quite rich people who can no longer find what they want for what they can afford in the centre?

14. Luis Enrique
15. Luis Enrique

does anybody have any data on the proportion of residential properties that have nobody residing in them?

@Fungus, I find it odd that a man should demand evidence in the same sentence as the counter-argument, “I think this is bollocks”.

@John B, No link, John?

@McCurry

Why is it odd? I made it clear I am giving an opinion. Your article reads as if you are stating fact: “The reason government is doing nothing about this…..”

I don’t believe this is correct and so have asked for evidence to support your claim.

As requested earlier can you please provide the actual number of houses owned by foreigners which are unoccupied?

Without this information how can you state that “the destruction is due to the sheer scale of housing that is being taken out of productive use”

Really interesting article.

I was priced out of Brighton by Londoners who could no longer afford to live in London in the mid 90’s. In moving to the south west, I became immediately apparent I was joininng a community who could not afford the house prices I was looking at (I was lucky thanks to having sold a Brighton flat to a Londoner).

Now in Purbeck, we have – against national trends – falling school rolls, because house prices v household earnings are as bad as central London, and so families are leaving this corner of Dorset.

The inflation of London property is creating all sorts of ripples through the UK economy that serve no social purpose whatsoever, but create all manner of strains that tax payers have to deal with.

It is important to recognise, this issue is not a “Johnny Foreigner” problem, but about the social upheaval of vast inequalities of wealth. It is only those with vast sums of cash that can buy up bits of London like this. No doubt someone ass will tell me that this is the trickle down effect. Well I see schools closing, and colleagues moving away.

19. Churm Rincewind

So those bastard immigrants are buying houses and creating problems for the true Brits, eh? Isn’t this something the EDL has been saying for ages?

Suppose, just suppose, that the government or Boris follow the exciting suggestion of Jimmy Wales and start to promote London as a technology hub by attracting tech entrepreneurs:

Jimmy Wales, founder of Wikipedia, has called on the Government to be more accommodating to entrepreneurs by changing the rules of their visas.

Wales is convinced that with some amendments to the entrepreneur visa, London could become a capital for technology.

He added that living in London would prove an entirely more enticing prospect than living in Silicon Valley, California.
http://www.standard.co.uk/news/london/wikipedia-founder-jimmy-wales-calls-on-government-to-make-london-tech-capital-8799111.html

@Fungus, the govt are desperate for economic activity to keep GDP above rather than below the zero line. That’s all the evidence you need.
As for the numbers of unoccupied properties, I am afraid they don’t collect this statistic. But the fact that whole squares and terraces are dark at night would suggest no one is home.

@BobB, I would welcome tech engineers coming here to work.

20 “@BobB, I would welcome tech engineers coming here to work.”

The Mission District is the oldest part of San Francisco, having been the location of the city’s original Spanish settlement.

The district is ethnically diverse and with older, rather less expensive housing than in other, more fashionable parts of the city, it has attracted well-educated incoming migrants with jobs in the city’s flourishing economy who sought an interesting place to live – btw the official view is that SF’s largest industry by employment is tourism.

Try this documentary on the Mission District and reflect on the consequences for the London housing market and Londoners if London were to become a tech hub:
http://www.youtube.com/watch?v=Op26IK3UB2I

Btw reportedly, the Mission District is gradually becoming less ethnically and demographically diverse due to the city’s housing market pressures.

For interest and insights, several hit crime movies were produced in SF, such as Steve McQueen in Bullit, with its famous car chase, and Cliff Eastwood in the Dirty Harry series.

News update from today’s press:

“Walking last night from Oxford Circus to Notting Hill, I marvelled, as I usually do, at London’s stellar cosmopolitanism. I heard more Spanish, French, Chinese and American than English on the streets”
http://www.telegraph.co.uk/culture/art/architecture/10353232/A-fake-Crystal-Palace-will-shame-Britain.html

I’ve no objection to London becoming a tech hub but let’s not complain then about the resulting housing market pressures or about the widening of the North-South Divide in Britain.

One of my issues about market theory relating to urban economies is that it is misplaced to put much reliance on presuming reversions to means. Relatively affluent places tend to become relatively even more affluent through time and relatively poor places become relatively poorer.

Also in today’s news:

Almost a third of children are struggling to read after a year of school despite major Government reforms designed to drive up standards of literacy, it emerged today.

Official figures show almost 180,000 pupils failed to reach the expected level in a new reading test for all six-year-olds this summer.

Data from the Department for Education also revealed that boys were already lagging far behind girls after 12 months of compulsory education.

Poor white boys – those eligible for free school meals – were actually the worst-performing ethnic group, being outscored by similar pupils from Black, Asian and Chinese backgrounds. [Telegraph website]

Ironically, ordinary Londoners are now facing the same crisis faced by ordinary people in places like Wales, where the rich – often from London – come in to buy property, hugely inflating the prices and leaving them without the prospect of a reasonably priced home. Not that ordinary people are ever in the minds of the politicians, once they have bought their votes with the promise of tax cuts and a war on immigrants and benefit seekers.

@MCCurry

We’re going to have to agree to disagree.

If you want to see the impact of £23bn pa of overseas buying on the London property market surely you need to consider the total value of London property sold each year?

The landregistry is probably the best place to look:
http://www.landregistry.gov.uk/__data/assets/pdf_file/0010/57565/HPIReport20130919.pdf

This shows that currently average London property costs £389k and monthly sales volumes seem to be running at about 8,000 per month. This gives annual sales of £37bn.

Therefore 62% of London property is being brought by foreign buyers who have no intention of spending any time in London.

A rather staggering percentage.

24. Fungus

excellent. It does make me askwhat is happening to the people who are selling these 62% of London properties? I don’t believe all of them have died / got married / selling a buy to let / split the property into smaller ones. A sizeable chunk will be moving elsewhere.

@25

I should of course have said that 62% of the VALUE of London property has been bought by overseas buyers.

I suspect foreign buyers are more likely to buy high value property.

Also a reasonable portion of the 100k per year London property transactions will be new build which will partially answer your query on what the sellers are doing.

The 62% figure does seem very high and I would like to see the volume figures for the £23bn. Unfortunately I was not able to track down the £23bn BOE figure quoted in the OP.

@Fungus, The £23bn figure was put to me by an official of the BofE. I haven’t tried to track it down beyond that. I’ll write him an email in a mo.
It’s also true that the overseas buyers are mostly concentrating on certain areas. That’s why the bankers and now occupying Islington.

29. Charlieman

@27: While you are at it, Dan McCurry, can you establish whether the £23 billion includes commercial property please. Also, is this money being used in ways which might be counted more than once?

@17

With identikit shopping mall “CHAIN” shops in every town in the country + Monopolising supermarkets “CHAINS” the City financiers have created a situation that sucks all profits out of localities around the UK!
(why we cant get out of recession – ’cause the City vampire bastards suck too much life blood out of country regions!)

Profits are returned to headquarters thence reinvested in the City where bankers skim off the top for wages/bonuses/shareholders.

“In this case, the destruction is due to the sheer scale of housing that is being taken out of productive use.”

This is a common misconception – but I believe the GLA did a study which found that 90%+ is in use. If you are buying as an investment, only an absurdly careless investor would fail to boost their investment by also charging rent. Charging rent is an *astronomically* profitable business in central/inner London, if you’re not paying off a mortgage at the same time.

I may try to dig it out later if I’ve got time.

I’m not saying this isn’t an undesirable trend – it most definitely is, and it forces up prices to buy property across the board, forcing more people to rent than otherwise would choose to – but it’s not resulting in all that much property actually sitting empty.

@30

Would like to see that analysis stating that central London property is astronomically profitable.

I believe it is only profitable if house prices continue to rise (which may well be the case). Rental yields in London are quite low. Higher yields are achieved in other parts of the country.

@29

What makes you think it is the financiers tht have created identikit chain shops and supermarkets throughout the country? Maybe it is a very efficient business model that is liked by shoppers?

Very little of retails store revenues goes to headquarters. For example Tesco only has an operating margin of 5.2% in the UK. Salaries for local workers and business rates form a large chunk of their expenditure.

Who are these evil shareholders sucking money from the regions? Pension funds and small investors.

@ Jungle 30. I think there is a distinction to be made between buying as an investment and buying as a “preservation of wealth”. The latter doesn’t need a profit.
The City is smaller now that it was before 2008, yet the bankers are being pushed into Islington. Are the properties being rented out? If they were it wouldn’t be such a problem.

35. Ben Chifley

Who’s Buying Britain? Probe Reveals Real Estate Speculators Hidden By Offshore Alchemy
http://www.icij.org/offshore/secret-london-real-estate-speculators

Japan’s public pension fund, the world’s largest with a pool of $1.1 trillion, may start buying real estate to boost returns
http://www.cnbc.com/id/100838947

Abenomics has worked wonders but can it save Japan??
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/10200990/Abenomics-has-worked-wonders-but-can-it-save-Japan.html

36. CloseShave

Fungus you 5th columnist
post 33=zionist supremicist /mason

There has been no money from bankers for small business lending around the country for years!
Thousands have gone under and the ‘lucky ones’ been ripped off by pfi financiers forcing them to take it as part of conditions of a loan!

Hedgefunds and the City banks only have funds for increasing CHAIN stores.

Leahy of Tesco the evil bastard’s business model was buying bent MPs in Govt who provided him with free shelf stacking slaves – millions of £’s worth.

His ‘miracle profits’ (way above other supermarkets) was an illusion, using slave labour.
A Traitor to his council house background who sold his soul for greed!

The ‘Chains’ are so big they suck billions out of local regions, so do ‘national’ building companies, identikit mall companies,Fast Food, coffee shops and all the rest we have been lulled into by the financiers.

Noticed how your wages have not gone up, even reducing in the face of massive inflation – in fact your wages are 50% what they should be after elites disengaged wages from productivity in the 70’s
(when they wiped out social cohesion and ‘outlawed’ unions by subterfuge)

37. CloseShave

“Who are these evil shareholders sucking money from the regions? Pension funds and small investors.”
——————————————-
Don’t get me started on them either! One of the most abusive, cowardly, defraudulant businesses in The City!

They strip UK pension pots to the minimum with their rip-off, overcharging fees and charges as they are left deliberately UNREGULATED to cause maximum vexation and harrassment (think marxist/zionist Fabians)!
Then continually reduce the payout at retirement!

Dutch pensioners, for instance, retire with 40% higher pensions than those in the UK because they regulate the greed of the rip-off merchants!

@36 Close Shave

What in my post 33 makes you think I am a zionist/supremicist/mason??? A truly remarkable conclusion to arrive at on the basis of my post.

‘There has been no money from bankers for small business lending around the country for years!’

I don’t know if this is true or not, but so what? It is up to banks to decide who they lend to. Remember they are greedy capitalist pig dogs and if they think they can make a profit from small businesses they will lend to them.

‘Noticed how your wages have not gone up, even reducing in the face of massive inflation – in fact your wages are 50% what they should be after elites disengaged wages from productivity in the 70s?

Wages are based on supply and demand, not productivity. If you think you deserve to get paid more change jobs or start your own business.

‘Don’t get me started on them either! One of the most abusive, cowardly, defraudulant businesses in The City!’

I agree that active fund managers over charge compared to tracker funds. But no one is forcing you to use them. Apart from work pensions I choose to manage my own savings. How do you want to regulate this industry – a cap on fees?

39. Just visiting

Close shave
Can we have more details on the Dutch model? –

Can’t access the link in post 40, but here are details of a survey about the make up of London property buyers in today’s telegraph:

http://www.telegraph.co.uk/finance/personalfinance/10363567/Half-of-central-Londons-1m-plus-homes-go-to-non-UK-buyers.html

Some interesting points:

“neighbourhoods around Hyde Park including Kensington, Mayfair and Knightsbridge. Here there has long been activity by foreign buyers. Knight Frank’s research found 49pc of buyers in these areas were non-UK by nationality. When it came to buyers’ country of residence, however, the majority – 72pc – lived here. ”

“Knight Frank stressed that outside of the hugely expensive and international postcodes of prime central London, most buying was by UK nationals. It said 93pc of buyers of all newly-built properties in greater London, for example, were UK.”

Interesting. So according to Knight Frank, half of buyers are foreign and of those foreign buyers, half live here and half do not. Therefore about a quarter are going to non residents.
They also make a good point that the new builds are very few.

@42

Off course that only relates to the super high end areas around Mayfair.

Only 7% of Greater London property buyers are foreign.

When I bought my house in 2000 I was foreign. However I moved to London in 1993 and became a citizen last year. Like most people I took out a large mortgage and most of the deposit was earnt in the UK, but technically I was a foreign buyer.

44. CloseShave

@ 39
I gave you the hint – do your own Window gawping ‘Dutch Model’ legwork!

Here’s the post on bankers and interest rates I was trying to find earlier >>>

“Banks only want a big margin the rate at 0.5% or 7% makes little difference it’s the rate they pay and the rate it costs them that count ie the margin on that basis lower rate is better for them.

Ie pay 0.1% and lend at 4.5%  = 4.4% margin.

If rates were 7% they would then
pay 6.75% and lend at 7.75% = 1% margin
the lower rates are more profitable for banks !!!!!!

they’ve never had it so good!

I despair at the lack of knowledge and basic maths ability in this country,……”

45. CloseShave

So many developments are being sold off plan to buyers in hong Kong and china before the properties even touch the UK market. Then those appartments are put back to the market before completion with a profit.
The government should impose higher taxes on overseas buyers.

@44

“Ie pay 0.1% and lend at 4.5% = 4.4% margin.

If rates were 7% they would then
pay 6.75% and lend at 7.75% = 1% margin
the lower rates are more profitable for banks !!!!!!

they’ve never had it so good!”

But their margins don’t increase if the base rate is lower. Noticed that mortgage rates reduce when the base rate is lower?

Amazing what competition does. Banks want market share so need to compete by lending at low rates.

@CloseShave, Although if a fund with a higher charge beats the market, then the higher charging fund could be good value.

@McCurry

Unfortunately the average tracker fund outperforms the average managed fund by a reasonable margin.

There are only a handful of money managers with exceptional track records over a 10+ year timeframe, but as Nassim Taleb pointed out in his book ‘Fooled by Randomness’ if you have enough fundmanagers some of them are bound to outperform over a sustained period.

There is a damning analysis of the government’s Help To Buy scheme by Martin Wolf in Friday’s Financial Times:

Buyers beware of Britain’s absurd property trap
http://www.ft.com/cms/s/0/aa1c9dfa-30ea-11e3-b478-00144feab7de.html#axzz2hR5SHvbw

Try, also in Friday’s FT:

UK wealth gap grows as homeowners save more and renters less


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