Restrictions needed on overseas investment in UK housing market
- Non-resident purchases should only be permitted if they increase the number of homes
- Global capital should not be allowed to price younger people and families out of the market
Overseas investment in London homes must be curbed to help reduce rampant house price inflation and ease the housing shortage, a new Civitas report says.
The UK property market is being used as an investment vehicle by the global super-rich while hundreds of thousands of younger residents are being priced out of the market and rents are eating into more and more of people’s salaries.
A Civitas paper published today calls for new restrictions on overseas buyers seeking to use London’s limited housing stock purely for investment purposes.
The think tank says that non-residents of the UK should only be allowed to purchase a property here if that investment will add to the number of homes.
The idea reflects the system in place in Australia, where all non-residents wishing to purchase property must apply to that country’s Foreign Investment Review Board (FIRB).
They are not allowed to buy an existing home but they may be allowed to buy an unoccupied new dwelling, so long as they can satisfy the FIRB that the housing stock has increased.
Civitas proposes setting up a ‘non-resident housing investment agency’ for the UK to which non-residents would need to apply for permission to buy. It would not be given unless the agency believed that a genuine increase in the housing stock would take place, thereby helping to reduce prices in current market conditions.
The new-build market in central London is dominated by overseas buyers. Many such investments may in fact increase the housing stock because developments would not go ahead without off-plan purchases. The job of the proposed agency would be to ensure that all overseas investments are in the public interest in this way.
“London is one of the most – if not the most – attractive property markets for international investors all over the world. It is also at the centre of an affordability crisis in the UK which is having serious consequences for younger people and the less well-off,” the report, co-authored by David Green and Daniel Bentley of Civitas, says.
“It is time for the government to consider what can be done to tackle demand, alongside efforts to boost supply, to ensure that London property is not put forever beyond the reach of its residents by global capital.”
Alongside Australia, similar controls on overseas investment are used by Switzerland, Denmark and Singapore to ensure that purchases are in the public interest.
House prices grew by more than 8% last year and faster still in London, where prices are now 14% higher than at their pre-recession peak. The ratio of average prices to average incomes in the UK has increase from 2.3 in 1980 to 4.6 in 2013 – and 6.1 in Greater London. Rents are also at record levels. Despite efforts to increase housebuilding, there remains a large annual shortfall compared with demand.
Estate agencies report that the majority of central London property purchases, in both the ‘prime’ and new-build categories, are made with international money. Estimates suggest in the region of £5 billion of overseas cash will be spent on new-build London homes in 2014.
As well as driving up prices, there are claims that investment at the top end of the market has been distracting developers from the need for more affordable accommodation.
Overseas investment is driven by the UK’s attractive tax regime and transparent legal system, as well as the consistently good performance of the London property market. The introduction of capital gains tax for non-resident owners of UK property is not expected to change that.
“London property is now seen for many in terms of its investment potential, as a safe haven for cash in an unstable global economic climate, rather than something that should be meeting a basic social need for the capital’s residents,” Dr Green and Mr Bentley write in ‘Finding Shelter: Overseas investment in the UK housing market’.
“For too many it is providing financial shelter rather than human shelter.”
‘Finding Shelter: Overseas investment in the UK housing market’ can be accessed below.
David Green is the director of Civitas, which he founded in 2000. Daniel Bentley is director of communications at Civitas and a former journalist.
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Civitas: Institute for the Study of Civil Society is an independent social policy think tank that facilitates informed public debate on important issues of the day. It is not affiliated to any political party and receives no state funding
Finding Shelter: Overseas investment in the UK housing market