With 83,250 new build units in Inner London’s pipeline, new research from LCP (www.londoncentralportfolio.com) reveals that these new developments will bring an additional £2.8 billion to the national tax coffers through VAT and SDLT, whilst injecting an additional £5.2 billion into the UK economy.
This might sound like really good news but for one very big fly in the ointment. Ministers in Community and Local Government are discussing plans to limit foreign investment into London’s new developments. According to Simon Hughes, Deputy Leader of the Lib-Dems “the law should be changed so that housing in London can only be bought by people resident or domiciled in the UK, unless it is as a permanent home.” Thereby forcing developers to sell property to the UK local market.
Whilst the need to address the house crisis is unequivocal, the Government has failed to think this through. LCP’s research reveals that 44% of London’s new builds are bought by buy-to-let investors – 36,630 new apartments over the next few years. This is estimated to bring in £4.3bn to the economy. The Government simply cannot afford to ignore the revenue the Private Rented Sector (PRS) generates, which depends on foreign investment.
“The private rented sector fulfils an important requirement within the City. It provides housing for international students, foreign visitors and corporate executives, all sectors the government is actively promoting. Not only this, but with no PRS, the contemporaries of Prince George of Cambridge will no longer be ‘Generation Rent’ but rather ‘Generation live-at-home’” comments Naomi Heaton, CEO of LCP.
Marketing these developments to the UK only, or to the locals first, as Mark Prisk Minister for Housing suggests, is simply not going to solve the housing problem.
LCP’s analysis shows that the average price of London new builds now lies at £820 per square foot. Based on an average salary of £32,000, Londoners could never afford these premium priced developments. The Government’s only option would be to force developers to slash prices. LCP’s calculations show that values would have to fall by 54% to match the ‘price to income’ ratio of the rest of the country.
The economic fallout is unthinkable. As prices plummet, and UK ‘owner occupiers’ become the majority buyers, many jobs reliant on a healthy property market will suffer. The result, according to this new research, could see £1.9bn wiped off the Exchequer’s balance sheet, with an additional £3.7bn being forfeited by the general economy, equivalent to 28,000 jobs spanning from London based professionals to nationally based manufacturers.
Not only does an outdated xenophobic message jeopardise London’s global position but it could cause an all-out housing crash. Heaton explains: “The price of older properties would also have to take a haircut to remain competitive with new-builds. In a repeat of the 1980s crash, this would result in widespread negative equity with devastating consequences when base rates inevitably increase.
With 354,389 families on the waiting list for social homes in London, something clearly needs to be done to provide additional affordable housing. Banning foreign investors, however, is not a solution. The Government needs to have some blue sky thinking.
Take Singapore, for example, which has developed a thriving two stream system. It maintains a booming private housing market which encourages a hive of investment from foreigners and Singaporeans alike. Alongside, it is has one of the most successful social housing regimes (HDBs) in the world.
HDBs are self-sustainable precincts which come complete with many low cost, but well maintained, units; together with education, health care and recreational centres providing both jobs and housing. Available solely to Singapore citizens and permanent residents, more than 80% of the population have opted to live in the HDBs. These centres are developed and subsidised by the Government themselves and residents elect to make down-payments through the Central Provident Fund (similar to the UK’s National Insurance).
LCP’s research highlights the fact that addressing the housing crisis cannot be done in isolation of the economic health of the country but in tandem with a thriving private housing sector. It is time for the Government to abandon their populist sound bites and ‘easy hits’ and do some hard thinking, before it is too late.