LONDON’S housing policy is in a mess: rules, restrictions and levies make it hard and expensive to build homes in the right places, crimping supply. Combined with growing demand, this has pushed prices up. While the coalition’s reforms have helped slightly, making it easier to convert old offices and simplifying some rules, and more public sector land is being earmarked for development, the situation remains critical.
In 2011-12, 20,040 new homes (primarily flats) were built in London; construction has averaged 20,458 in the past five years. This is barely higher than the 19,000 units a year built during the 1990s. These are gross numbers and don’t include homes that no longer exist (for example, if two flats have been merged into one). They are not adjusted for living space – a one-bed hovel counts as much as a seven-bed mansion with a massive garden. Supply is finally starting to rise – and some extra house-builders are entering the market – but will only hit 24-27,500 per annum over the next few years.
This remains hopelessly inadequate. The Department of Communities and Local Government estimates household numbers in London will grow by 36,000 per year until 2033; the Greater London Authority’s “London Plan” puts it at 34,000 a year; industry estimates range from 38,000 to 54,000. My own take is that 60,000-70,000 new homes a year are needed to satisfy demand and keep prices under control.
Economic activity will continue to gravitate towards London, attracting workers from the UK and overseas, requiring more net new homes. People will continue to wait longer before having children, meaning fewer people per household, and more households. That said, population growth is also being driven by a baby boom; because of insufficient adequate homes, families are being forced to commute longer distances. Much of the housing stock is ancient and of poor quality; far more of it ought to be replaced.
As an excellent report by Deutsche Bank’s Glynis Johnson and Manu Rimpela point out, the weak pound means that for buyers from China and Singapore, London house prices remain less than 60 per cent of peak; for Malaysian, Hong Kong and dollar investors, less than 70 per cent. But apart from in the most expensive central London locations, overseas investors are not the primary drivers of the madness. Foreign migrants who have moved to London are often confused in the housing debate with overseas investors; yet they are quite different. A large minority of London’s population is made up of immigrants and it makes sense for them to buy a home and settle down.
In the small prime central London market, 49 per cent of new-builds were bought by overseas investors over the past two years. Across the rest of inner London, UK residents bought 80 per cent of new properties; in outer London, they bought 93.4 per cent. For Greater London as a whole, 85-90 per cent of new-builds were bought by UK residents, according to Knight Frank. So yes, overseas buyers are pushing up prices of very expensive homes in a few locations – but it is absurd to blame them for the overall over-valuation.
Overseas cash buyers are needed to help many developments get off the ground. Foreign-owned companies generate 28 per cent of UK gross value added and finance much infrastructure; allowing wealthy overseas folk to buy homes here is great for attracting even more foreign direct investment, holidays and shopping trips to Harrods and students to UK universities. And what about the second homes owned by Brits in France, Spain, Dubai or Florida? Brits probably own more homes overseas than foreigners own in the UK. Our trade deficit has to be paid for somehow; swapping stupidly priced flats in high rise blocks for computers and smartphones is a surprisingly clever business model. We must build much more, not blame foreigners.