Expensive social housing and the rise of overseas buyers

Published by 24publishing for 24dash.com in Housing and also in Central Government, Communities, Local Government

As the housing sector continues to debate the Policy Exchange’s rather blunt proposals of selling off higher value social properties to fund cheaper ones, it’s perhaps worthy to note that demand from overseas cash purchases for homes in the capital is rocketing.

In July Savills told us that 34% of all prime residential London buyers in 2011/12 were from overseas – up from 24% in 2007. It is interesting to note that two-thirds were buying their main residence, however, some 20% were second homes.

Today, consultant EC Harris informs us that strong demand from overseas cash purchasers has seen developers and landowners respond with over 15,000 units worth £38bn planned over the next decade.

In July, the Smith Institute warned the Government and the Mayor of London to get a handle on the rise in overseas property investment in the capital as it risked killing affordability for local people.

It warned that London’s housing market had become “distorted and dysfunctional” and a new approach is needed which seeks to direct such investment into positive areas such as new affordable housing rather than capitalising on the asset values of new and second-hand luxury properties.

The Policy Exchange report found London to have the highest proportion of ‘expensive’ social housing stock (30.7%) – defined as housing worth more than the average property.

Taking these 228,000 London homes out of the social housing stock, however, would not only pool cheaper stock in cheaper areas, but would continue to inflate house prices and further reduce affordable homes for local people.

According to the Smith Institute, in the “desirable” London boroughs where affordability is deteriorating, a household on the median income for Kensington and Chelsea (£39,000 p.a.) would already face an average price of £1.25 million in that borough; 31 times their income.

Forcing the sell-off of yet more homes could thus exacerbate the rich/poor divide and risks leaving those forced between homeownership and social housing without any other option than to rent in high value areas – making them more reliant on housing benefit.

At that same juncture, it’s hard to disagree with million pound properties being used to house families through housing benefit when multiple homes housing multiple families off the waiting list could be achieved.

Thus it makes sense to consider selling such properties – without a mandatory requirement – but providing the replacements in a range of areas and for a range of tenures decided by local need.

Is it also time for a tougher tax regime for foreign property investors? Cash raised from taxing foreign investors on UK property could also be ploughed into the building of new affordable homes in the capital.

Ross Macmillan is the deputy editor of 24housing magazine.