The London housing bubble: investment and speculation
London’s house prices have risen because financiers and bankers, within and beyond London, have invested in London either to keep their money safe or speculatively expecting the market to pay good dividends.
With increasing demand for housing and a strong economy attracting people into it, the stable growth in London’s house prices has attracted and been pumped up by international investors, looking for a stable investment, in times of economics uncertainty. International investment from wealthy Europeans was prompted by the great western bank robbery, which started in 2007. The financial crisis affected many parts of the western world, and created economic and political insecurity and upheaval. Many western Europeans, who believed their money and assets to be unsafe, and fearing collapse of the Euro, responded by selling up and investing in London property. Large numbers of Greeks, Italians and French have all said to have resorted to buying into the London property market. Reuters news agency suggests that the so-called Arab Spring, which has turned out to be nothing more than an Arab Sprung, led to rich Arabs investing in London property. Furthemore Reuters reported in 2014 that, “Knight Frank, a specialist in upmarket properties, said it had seen online enquiries about British homes from crisis-hit countries such as Argentina, Ukraine and Turkey soar over the past year.”
Others of a more speculative bent invest in London housing because they believe it will pay rich dividends, perhaps far greater than many other things they can invest their money in. London’s financiers and bankers are speculating in London housing, forcing prices up further. The bubble grows and grows. Anticipating long-term growth, investors continue to plough money into London property, and in so doing fuel the bubble, that encourages others to invest. On the 4th March 2014, it was reported by Patrick Collinson of the Guardian that an investment company called London Central Portfolio aimed to purchase £100 million’s worth of 1 and 2 bed room flats in Mayfair and other areas of west London, based on the belief that by 2050 such flats will be sold for £36 million a piece. Hugh Best, LCP investment director, said: “The average price in prime central London is now £1.5m, and has been growing at 9% a year, which we think is firmly sustainable. They have been growing at that level for 40 years and we see no reason for that to change.”
Foreign investors, who do not want to live in London, and who may have never been to London also speculate. The appetite of foreigners for speculation in the London housing market is by itself prompting developments costing billions of pounds, many of which are being funded by foreign developers. At the beginning of 2013 the majority of buyers of 866 luxury apartments planned for Battersea Power Station by a Malaysian developer were foreign, with Singaporeans taking more than any other foreigner type. In 2013 estate agents selling flats in Elephant and Castle targeted investors in South-East Asia. Far eastern businessmen own most of the property around Canary Wharf and Limehouse. Vantage Properties, an estate agent in Canary Wharf, have offices in Hong Kong and Shanghai and employ many Chinese staff.It has been suggested that in the not too distant future the plan of the Chinese government to liberalise hedge funds, is likely to result in a wave of investment from China into London’s property market.
Speculation and foreign investment in London housing has been encouraged by successive British governments. Unlike in many other countries foreigners can invest in London property, without having to pay tax on the income that they generate outside of the United Kingdom. This makes London a less expensive capital city to stay in, than other comparable western European capitals. Furthermore successive governments have resisted building social housing on a large scale, to provide decent homes for London’s poorest, instead preferring to pump state money into banks, so the banks can provide mortgages, helping increase the relative wealth of home owners.
The consequence of people investing in housing in London purely to park their wealth and/or to speculate, assuming that prices will continue to increase, is that some are not interested in renting the property out, but prefer to leave those properties empty. Several mansions on The Bishops Avenue in Hampstead have been kept empy for some years. In this way then investment and speculation in the London housing market works to literally hollow out London’s housing, and make in uninhabitable and off-limits for those who live and work in London, essentially reducing the housing stock available, and in some senses is equivalent to bull-dozing the properties. The effect is to lower the housing stock, which those who work and live in London compete for, and driving up prices. Furthermore those properties which are left empty are beginning to fall into a state of disrepeair. Of the mansions on The Bishops Avenue in Hampstead, which have been kept empy for years, trees, plants and mould are regaining what the builders had once taken. The consequence, perversely, is that one of the most expensive streets in London is turning into a mini-slum.
This hollowing out of London can be seen as another way in which the world’s rich, most of whom have gained their money through tax avoidance, corruption and cronyism, seek to tighten the screw on working class people.