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Lights out London?
27 February 2020
The gap between housing supply and demand is only growing larger in London, but who is to blame for the lack of new homes being built? Some point the finger at overseas buyers of residential property in London – much maligned, but why so?
As the perception goes, foreign investors are buying up homes in London, forcing up house prices, squeezing Londoners out of the property market and, to top things off, many of these homes are left empty, hence the moniker ‘lights out London’. There is a lot to unpack here, so let’s disaggregate it, starting with most egregious part of the issue.
Apparently, if you stroll around some desirable parts of central London during the evening many homes don’t have lights on and are allegedly empty. Might the lack of illumination be because the occupants are out for dinner? Working late? Or perhaps they have one eye on their electricity bills . The latter is clearly ridiculous, but so is assessing if a home is occupied via a walking tour of some London neighbourhoods on a cold Tuesday night in January.
Assessing occupancy is far from straight forward. One of the most recent attempts was in 2017 when the Mayor of London commissioned the London School of Economics (LSE) to take a look at occupancy rates for homes bought by overseas investors, as well the general role they play in relation to the new build residential market in London. The LSE report suggested that 70% or more of sales to overseas buyers were for the purposes of them renting the home, with a maximum of 30% used either to accommodate family (predominantly students) or for work related or holiday visits. Furthermore, it was estimated that occupancy rates for individual schemes were generally up to 96%, with almost no evidence of homes being left entirely empty.
And it should also be noted that in relation to empty homes in general – i.e. those recorded as empty for Council Tax purposes – in 2018, only 1.9% of London’s housing stock was recorded as empty with this reducing to 0.6% as recorded empty for more than six months. Both figures are the lowest against the percentage of total housing stock compared to any other region in England.
Turning back to the first part of the perception, the extent of foreign investment in London’s residential market. Again, facts about this – a bit like the homes overseas investors are supposedly buying up like hot cakes – are not in plentiful supply. Obviously, foreign investment plays a role in London’s housing market, but evidence suggest it does not dominate it. The prime parts of central London, as one would naturally expect for some of the most desirable homes in the world, are a focus for overseas investors, but the total number of newly built homes bought in London sold to this part of the market is relatively small. A study by York University, again commissioned by the Mayor of London in 2017, showed that around 13% of London’s new build for-sale housing was sold to overseas buyers across London in the two years to March 2016. This equates to 3,643 homes out of a total of 28,026.
It should be of little surprise that London attracts interest from overseas investors. London is a global city and a hub for international business. Its economic success, which delivers jobs and prosperity for Londoners and the country as a whole, has been built on international trade, in past centuries primarily in goods and now principally in a range of services. If London is to continue to thrive the city must be open to housing those who come here to do business.
Furthermore, partly as a result of London’s success as a global city, Londoners are international in their origins: more than one in three of us who live and work in the capital were born outside of the UK. It is unsurprising that these foreign-born Londoners and their families wish to buy homes in London, and that some of these purchases are made overseas.
It is undeniable that developers sell to overseas buyers, although in recent years as the heat has cooled in the prime London residential market global interest has waned (though not disappeared). Overseas sales have helped to support construction in London, bolstering the total number of homes built. Some banks and other lenders require pre-sales before lending money to developers. Equally, developers have also often sort to sell homes ‘off-plan’, typically to overseas buyers. Both actions are aimed at reducing risk in what is an inherently volatile process. Culturally, overseas buyers are more used to buying in this way, and practically domestic purchases are often restricted in doing so by UK mortgage offers which generally have to be used within six months.
So, if overseas buyers of residential property isn’t the big issue, what is? To tackle the housing crisis and start building the 65,000 homes London needs each year, three things need to happen:
Government must invest more money to get homes built, unlocking another £8.6bn from both the public and private sector for London;
The Mayor must use the full weight of his powers to bring more land forward for development; and
Boroughs must support innovative ways of building, such as making better use of land through embracing density and supporting new tenures such as build to rent.
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