Chris Blackhurst: Bellyaching about foreign investors, empty properties and taxes won't stop a bubble. We must get building
05-05-2014
Midweek View: People must be encouraged to head to east London where land is cheaper and more plentiful
Chris Blackhurst Author Biography
What's to be done about the London housing crisis? You would think, wouldn't you, that after the crash of 2008, we would be acutely aware of allowing bubbles to form and grow, that we would go out of our way to prevent such an occurrence.
But no, six years after the economy hit the buffers, we're watching the seeds of another disaster take root before our very eyes. The chat is of ever-rising prices, and of the "doughnut effect" of a city devoid of residents, the properties owned by investors who don't reside there.
It matters to all of us, regardless of whether we live and work in London or not, because the capital is the engine room of the economy; if it falters, the country suffers; such is its dominance that everything depends on its well-being.
Several factors have created the bubble. There was already a backlog, a shortfall in property supply. That's been made worse by the continuing rampant rise in London's population and the changing nature of demand for housing. Family units have altered, so there are now far more singles and singles with children. Developers need to offer wider variety, which puts additional pressure on their ability to provide.
Property has become a store of value, an asset class all on its own, which has attracted domestic and international money in an unprecedented fashion. Add to these the availability of cheap money and the ability to leverage, and the ingredients are in place for soaring demand. How can it be solved? "Supply, supply, supply," says Gerard Lyons, the Mayor of London's chief economic adviser.
Other solutions don't work. Trying to cut off foreign investors piling into London will not get off the ground. If anything, people overseas are finding it easier, not more difficult, to buy in London as more tower blocks are built. In the past, if they bought an apartment in a converted building they had to sort out its upkeep and security – today, they can choose from commoditised units where everything is taken care of and included.
In theory, asking questions about sources of wealth may seem easy and reasonable, but in practice they are difficult to answer. The unintended consequences, of driving away overseas investment from the UK, may far outweigh the benefits of reducing the number of foreigners snapping up London residential property. Legally and politically, too, it's a minefield: EU citizens can't be barred, but non-EU citizens would rightly claim they were being unfairly discriminated against.
Why stop at foreigners? One of the unexplored aspects of the current London boom is the relatively high numbers of buyers of Sub-Continent and South Asian origin paying cash. Querying where they get the money from – do they pay all the tax they're obliged to pay? – is regarded as a social hot potato and best-avoided.
Much is being made of properties lying empty due to foreign-buying. Islington Council likes to complain it's a worsening issue, but recent figures show that only 3 per cent of new-builds in the borough had no registered elector living at the address. It's a problem but nowhere near as big as is being portrayed.
There is another solution to the crisis: making London's economy less powerful and transferring that dynamism elsewhere in the UK. While that has been attempted by successive recent governments and lies behind projects such as the moving of much of the BBC to Salford (and future ones such as the HS2 rail link), the impact has so far been negligible: London is still the major national and international draw.
Changing the taxation system won't make much difference either. The UK taxes property more than any other nation in the world. While it is true that inheritance tax is the most ludicrous tax there is, getting rid of it won't provide a cure to London's housing ills. Neither will the proposed mansion tax. It's a crazy tax, one that will lead to properties not being refurbished. Why do so if it takes the value over the taxation threshold? Someone uses their post-tax income to improve a property that only sees them pay more tax – it does not make sense.
The mansion tax is unfair, hitting only one type of person – middle-class owners who put their wealth into one property (the rich will always find ruses to avoid paying; their advisers will come up with new wheezes). They get hit with the mansion tax, but the landlord who owns 20 properties worth £200,000 each pays nothing – discuss.
No, the only real answer to London's housing woes is to get building and to keep on building. We did it before, on a similarly large-scale, in the 1930s and 1960s. We have to do so again.
We must remove all the unnecessary regulatory obstacles. The brownfield sites must be developed. Abandoned industrial plants need to be demolished and built on. Empty shops and the flats above them, which are also frequently unoccupied, ought to be converted to residential use.
We need to raise density levels. Before everyone rushes for the hills, that does not necessarily mean more towers going up everywhere.
What is the area of London affording the highest potential population density? Answer: the part around Sloane Square. The numerous eight-storey mansion blocks making up that district could house more people, potentially, than the skyscrapers in other, poorer, neighbourhoods.
I say potentially, because many of those mansion flats are lived in by single occupiers. But if all the bedrooms were taken, some of London's smartest streets could provide the densest housing.
Build on brownfields, add to the density, and go east. This means making a cultural shift as well as adding thousands of new-builds. Too much emphasis is placed on west London as the place to be. People have to be encouraged to head east where land is cheaper and more plentiful – so improve the transport links, something that has already occurred with new services at Stratford and Barking. It's not only infrastructure – mind-sets need altering, so that instead of wanting to live in Putney, someone is attracted to live in Leyton, where the journey times to the centre are quicker.
It can happen. The repeats of old TV series such as The Sweeney show car chases taking place through rundown areas. Now those same locations are trendy. Take Balham, not so long ago a working-class area, now very much a fashionable destination. What is needed is ambition. Bellyaching about foreign investors, empty properties and taxes won't achieve anything. Boosting the rest of the country could work but it takes for ever and, so far, has not come close to countering London's appeal.
We've inherited a housing shortage, it gets worse not better, and we must respond accordingly; we have to slow the growth of that bubble. We must get building.