Commissioned in Autumn 2016, the final report of the London Mayor’s investigation into the role of overseas investment in housing was published last week – but its findings can be read in very different ways.
Based on research by the LSE, its major conclusion and argument is that off-plan and pre-sales to the overseas market are integral to the current development model in London – and therefore also key to leveraging more affordable housing through section 106 agreements on those sites.
It singles out the nascent Build to Rent sector as one that can particularly benefit from overseas investment.
It also argues that of those properties sold to foreign buyers, 70% are let out to Londoners, meaning that looking at overall supply, only up to 6% of new market build are not available to those living in the capital.
Alongside this, the report also finds that only a tiny number of homes are left permanently empty – though it remains an open question how many homes that are ‘lived in’ are only used for a few weeks or months of the year.
However, this positive analysis of the current role of overseas investors is not a definitive way of looking at the data. Indeed, both of the arguments above obscure a number of issues, and ignore questions about the social value of what is now being built in London.
It shouldn’t be surprising that still most homes that are built are lived in by London residents; although the ‘ghost streets’ in some of the wealthiest streets of the city are emblematic of a failed housing market, they are still symbols, rather than typical examples, and are perhaps more common in existing stock rather than new-build.
The bigger question is whether the homes that built through overseas investment are affordable, and who is benefitting from them.
One view of the final report has suggested that the data shows half of the less expensive homes being built, that should be available to London’s first-time buyers, are instead going to overseas landlord investors.
This means homeownership is being squeezed while increasing numbers of expensive, insecure private lets are being created.
Furthermore, it should be accepted that London’s Build to Rent market, which is identified as a key beneficiary in the report, is only currently catering to the highest end of the private rented sector, with planning guidance that will almost certainly lead to lower levels of affordable housing than on other developments.
But there is also a wider question about what it means for London’s property market to be ‘reliant’ on foreign investment. Given the need and demand for housing in the city, it’s obvious that housebuilders would still be able to sell their homes if no one was buying them from abroad.
The additional demand from overseas has pushed up house prices, leading to the extortionate cost of land for development in the city. If you have a market for luxury flats in central London, driven by overseas investors, then land is bid for and bought on that basis, and developers will need to sell high-end homes to make a return.
Measures to dampen overseas investment would probably lead to the central London market dropping off in the short-term, but it would be a necessary correction, and recent fluctuations have shown that the market is not immune to that anyway in its current model.
What London really doesn’t need more of is high-end, luxury flats.
Indeed, across the rest of the country homes are built and sold without the need for overseas investment – because developers build for the domestic market, as was the case for many decades across the country in the post-war period.
Returning to a market based on domestic demand from first-time buyers would lead to homes that were more affordable for everyone, while still leveraging investment in social housing.
So the argument for the necessity of overseas investment is one based on a model of ‘business as usual’. It’s true that current London housebuilding does use overseas investment to finance its developments – but that model is not providing anywhere near the number homes, nor the types of homes required to meet London’s need.
First-time buyers in London are still putting down around £90,000 on average as a mortgage deposit, while the level of affordable housing built in the year running up to the 2016 Mayoral election was just 6,856 – a record low.
And the question of what kind of demand should drive our housebuilding market is one that must go beyond whether investors and buyers are British or not. By increasing the effective level of demand, government measures like Help to Buy, alongside a failure to properly control Buy to Let, have also pushed up house prices.
In a context where many new homes are bought through buy-to-let, high house prices mean increased rents for private tenants who are paying off the large mortgages of their landlords.
The idea therefore that increasing supply in this way should bring down rents is a fallacy, alongside the fact that these homes are not available to first-time buyers.
Relying on overseas investment means business as usual. And that’s a situation we need to move away from, rather than try to prop up.