Recent increases in house prices have released lots of froth, bubbles and exuberance about how the UK economy is on the mend. Rising house prices it is constantly asserted are a good thing. People will be wealthier and happier.
Yet much of the increase is in London and most of that reflects the transformation of housing in London from somewhere to live to as an asset to store your funds (if you are very rich that is).
We all know the impact of this – in London residents find it almost impossible to afford to purchase a property. Some move out effectively transferring the price increases to other parts of the country.
The Government of course attacks the poor who claim housing benefit by imposing a cap. Housing benefit costs go up as house prices go up.
A couple of articles set out some of the issues.
According to Britain’s Office for National Statistics, London house prices rose by 9.7% between July 2012 and July 2013. In the surrounding suburbs they rose by a mere 2.6%. The farther away from London you go, the lower the numbers get. When you finally cross the border into Scotland, house prices actually decline by 2%.
The gap between London prices and those of the rest of the country is now at a historic high and there is only one way to explain it.
London houses and apartments are a form of money.
The reasons are simple to understand. In 2011, at the height of the eurozone crisis, citizens of the two countries at the epicentre of the cataclysm – Greece and Italy – bought £400m of London bricks and mortar. The Italian and Greek rich, fearing the single currency would collapse, got their money out of euros and parked it some place where government was relatively stable and the tax regime was gentle – very, very gentle. Considering that tax evasion in Italy and Greece was a significant contributory factor to their debt problems, it just seems grotesquely cynical to encourage this kind of behaviour.
But that’s what Britain in general, and London in particular, does. The city is essentially a tax haven with great theatre, free museums and formidable dining. If you can demonstrate that you have a residence in another country, you are taxed only on your British earnings.
And the savings on property taxes are phenomenal. The property taxes on New York mayor Michael R. Bloomberg’s $20m London home come to £2,143.30 a year. That’s $3,430. Clearly, the mayor bought in at the right time. The Google executive chairman, Eric Schmidt, is reported to be house-hunting here – he’s looking in the £30m (about $48m) price range. Yet he will pay a similar amount in property tax as Bloomberg does.
Deutche Bank have analysed the London housing market. They confirm that most of the higher prices properties are bought by rich overseas buyers. 65% of whom are see the properties as an investment.
Comment So what is to be done? The political establishment is silent about this problem. This is hardly surprising they have all bought in to the idea that extreme wealth is a good thing; that if people want to buy a property in London or elsewhere well they have a perfect right to do so.
There will be noises about property taxes – though they will not solve the problem, indeed they will disadvantage London residents with inflated house prices and low incomes and encourage policy makers to see property as a means of raising revenue.
What we really need is to end the whole idea that property is an investment. That means restricting purchases to people who actually live in the UK and want to live in the property – not rent it out or use it as a second home.
And of course the problem is exacerbated by the continued influx of people to London another
brilliant idea policy folly.