Britain’s hugest home prices have always been found in central London, and two boroughs – Westminster, and Kensington and Chelsea – always have the highest of all. These are properties in tree-lined streets or magnificent mansion blocks that are worth more than a whole street in some other towns, and have rental values to match. Since Grenfell, the consequences for social housing and the people who rely on affordable property – many of whom keep the London economy moving – have become hideously clear. Most survivors still wait for the council to honour its promise to rehome every one of them in the borough. At the last count, 169 offers of accommodation have been made, 46 of which have been accepted. Only 12 families have actually been rehoused. Now the Guardian has established that there are 1,652 empty homes in the borough, 64 in the same ward as Grenfell Tower. Some of them have been empty for more than two years.
London property values have historically risen so fast (despite a slowdown in the past year) that, despite the thousands of pounds that they could earn in rent, the seriously rich do not even bother to let out their surplus homes. Like most of the properties in the Tower, a luxury block near Westminster where on dozens of floors the lights never come on, these are not homes but commodities – assets that appreciate faster and more reliably than equities. Investing in Britain brings the extra attraction of light-touch regulation, and less pressure to explain what really goes on behind the offshore property companies that make it so hard to trace ownership.
Private Eye, helped by the people behind the website Who Owns England, has built a searchable map of foreign-owned property in England and Wales. On its calculations, over a decade as much as £170bn flowed in from overseas buyers. Significant parts of it will have been part of a money-laundering exercise, or a safe place for money that the rich and powerful prefer out of their own country. Last week Pakistan’s prime minister, Nawaz Sharif, resigned over allegations of corruption that appeared to suggest he was treating London property as a bolthole for family cash, in a deal hidden behind a company registered in the British Virgin Islands. He denies any wrongdoing.
In England and Wales, overheated property prices are not exclusively a London problem; they are not primarily a product of foreign money. There are arguments for limiting the marketing of new developments overseas, because it inflates not just the prices of super-homes but also of small flats intended for first-time buyers, but they are so far untested.
Yet almost every big city in a country with a reliable financial and legal system is feeling the pressure of overseas investors. That means there are several policy models available for those seeking ways to counter it. In Switzerland there is a limit of 20% on the amount of property in any one area that can be sold to foreigners. The UK has introduced changes to capital gains tax liability and higher stamp duty on expensive properties. Vancouver, Sydney, Melbourne and Hong Kong have all recently whacked taxes on to foreign investors’ property purchases.
Yet so far there is nothing that looks like a silver bullet for the housing crisis. Higher taxes might slow the rise in market prices, but they soon bounce back. The 15% tax on foreign buyers in central Vancouver is a year old, and prices are rising again as fast as they were before the tax was introduced. In truth, London is an extreme example of the country’s dysfunctional housing market and the reluctance of central and local government to use the tax system as a way of influencing it. Take the universal problem of older people in houses that are bigger than they need. There is no incentive to downsize when there is no inheritance tax on a primary residence but there is 10% stamp duty on a house valued – as many family homes in London are – at over £1m.
The only surefire way of bringing down prices is to increase supply. That means confronting greedy developers who hoard land, release homes slowly and build only the most expensive ones; being bold about admitting that house prices will have to fall; and returning to local authorities the powers they need for volume housebuilding. Grenfell exposed the grotesque inequality that will only be solved when councils like Kensington and Chelsea start constructing homes in serious numbers. And it showed that there will rightly be a heavy political cost for a government that fails again to address it.
