A global super-rich elite, some of them criminal, are snapping up property in Britain, pushing up costs for all of us and throwing the poor to the edge of the cities. Rampant landlordism is dividing Britain into a nation of housing haves and have-nots. Tax breaks for buy-to-lets are still too generous. Tenants are in despair. Many young people will never be able to buy their own home. This, extraordinarily, is not the language of some lefty academic or pressure group, but comes from the heart of the Conservative party in a new report by the Bow Group, the oldest Tory thinktank in the UK, which styles itself as the “intellectual home to conservatives”.
It is a dramatic repudiation of decades of thinking in the Conservative party. These are the people who have, until now, equated rising house prices with wealth and prosperity, and who have profited enormously from buy-to-let and billions in foreign cash. But the Bow Group now recognises that Britain’s housing market is broken – and its prescription for reform may stagger traditional Tory supporters.
It turns conventional thinking on its head by saying the solution to Britain’s housing crisis is not millions of new homes, as so many argue, but cutting demand.
The report’s author, Daniel Valentine, traces the phenomenal increase in house price inflation to the mid-1990s when three factors came together: a sudden surge in population growth, the explosion in buy-to-let lending, and the entry of China and Russia into the global economy, producing a global elite seeking a safe home for their cash.
These factors have corrupted the market, creating an insatiable “investment demand” divorced from the underlying needs of the people of Britain. Foreign buyers now own close to 10% of the UK’s housing stock, he claims, and, unchecked, will gobble up much more, increasingly in Manchester, Edinburgh and other regional cities. With the global financial elite numbering at least 15 million, “increasing housing supply can never bring down prices, no matter how much public land and green belt is turned into flats, because the demand for investment returns is almost infinite.”
The accepted wisdom is that Chinese billionaires buying in Belgravia have no impact on Bromley or Birmingham. Not so, says the report, citing academic studies that prove that top-end buyers pull up prices through the entire market.
The Bow Group’s solution? To follow the example of Denmark, Switzerland and Australia and make it much tougher for foreign buyers to snap up homes as investment vehicles. It is astonishing that we allow, for example, millionaires in Singapore to buy land and property in Britain, but Singapore bars British and other foreign nationals from buying in their country.
Denmark prohibits non-EU nationals from buying a home unless they have lived in the country for five years – and, like Finland and Malta, is allowed by the EU to restrict EU citizens from buying second homes in the country. Australia has dramatically cracked down on foreign buyers who have pumped the property market in Sydney and Melbourne to absurd levels. Only Britain leaves the doors almost completely open.
The Bow Group proposes that foreign residents should be limited to the purchase of a single property, and only in the new-build sector, with penalties if they sell within five years. No new block should be more than 50% foreign-owned, it says. But the report goes further than just hammering foreign nationals – it wants the Bank of England to set a target where house prices average no more than four times income.
To some this report may read as xenophobic, or a manifesto for nimbys. It certainly is London-centric. But its conclusions share a lot of the philosophy of green lobbyists, who argue that the solution to traffic problems is not to build more roads. There is no point in mega-developments – such as Vauxhall’s answer to Pudong – that do nothing to meet the underlying needs of British workers. Above all, it challenges the heart of Thatcherite dogma – that laissez-faire works. In housing, the author concludes, such thinking has failed, and dramatically so.
