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How Australia can help London’s housing troubles

Joe Wright, 18 December 2013

The accountancy firm UHY Hacker Young released a report on Monday with intriguing findings on foreign ownership of UK property. The headline statistic was that the number of foreign based landlords with rental properties in the UK has now surpassed 2 million for the first time. In 2006/7 there were 1,460,000; in just five years the number has jumped to 2,040,000 – an increase of 39 percent, and 6 percent in just the last year.

property table
Source: UHY Hacker Young Chartered Accountants

This data only includes private property owners, not corporate buyers, which are widely regarded as being part-responsible for pricing first time buyers out of the market, particularly in the South East and London. House prices in London have shot up by 9.4 percent in just the last year and are creating yet more fears the London market is overheating.

The Autumn Statement provided some indication the government is willing to act unfavorably to foreign investors in the right circumstances. In a press release for the report, UHY Hacker stated that ‘following the Government’s recently announced plans to charge Capital Gains Tax on the sale of properties owned by foreign investors from April 2015…Our research warns that this could discourage foreign buyers from investing in the UK.’ But a little discouragement is exactly what is needed, especially while housing supply remains so low, and as long as it discourages a particularly damaging kind of ‘investment’.

This is something the Australian government has long recognised and upheld through its Foreign Investment Review Board (FIRB). The board differentiates between good and bad property investment following the principle that, ‘Foreign non-residents or short term visa holders can invest in Australian real estate only if that investment adds to the housing stock. This generally occurs by acquiring new dwellings, off-the-plan properties under construction or yet to be built, or vacant land for development.’

It makes some exceptions for foreign companies that need long-term accommodation for their employees, and is keen to encourage applications on the basis that it assesses the merits of each, but overall they ensure the existing housing stock is not eaten up, or overheated, by foreign (and invariably wealthy in London’s case) investors. The policy has the positive effect of defining real investment as that which creates new houses.

The natural instinct is be wary of anything that whiffs of protectionism, but when supply for such a basic need as housing is so low and so overpriced, a degree of self-preservation is merited. Diluting competition from foreign property investors for current housing will help to restore the housing market in places like London to some semblance of normality. It will also encourage foreign investors to look more at supply opportunities rather than letting.

Our February 2014 report, ‘Finding Shelter: Overseas investment in the UK housing market’, can be found here.

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