At the beginning of 2020, the average house price in London was 476,588 GBP, compared to the UK average of 231,185 GBP. Renting is also expensive, with the average London rent costing nearly 50% of the average local salary, further hindering first time buyers or those who wish to save for a house. Although these high prices have benefitted landlords and real estate companies, it has also meant that many now struggle to live comfortably in the city. This is not a phenomenon unique to London, with cities such as Hong Kong, Sydney and New York all suffering from similar problems. Local authorities in the UK can charge council tax premiums, implement compulsory purchase orders and facilitate housing schemes such as Help to Buy. Even so, house prices remain high. It is worth considering the ways the government could reverse the upward trends for prices and rents.
One option may be to follow the path Barcelona has taken. In July, the council announced that it had written to 14 companies in the city that own 194 empty apartments. The council threatened them with repossession at half the market value should they not have found a tenant within the next month, according to Bloomberg. This follows previous measures from 2016 when the government announced that it would now be legal for properties that have been empty for 2 years to be seized. Policies such as these were enacted due to companies’ “land banking” empty homes in the hope that property prices may recover from the crash of 2008. According to PropertyWire, an international real estate news site, there were 25,000 empty properties in London as of January 2020. Freeing up these properties could provide a small boost to a large market, although it would not be enough to bring down prices across London. Many of these homes are also in already affluent areas, meaning there will be no effect on the availability of affordable housing.
Another option may be to follow New Zealand which, in 2018, banned foreign non-residents from purchasing property due to a housing affordability crisis. This measure was a major political issue in the 2017 New Zealand election, but it was found to only impact less than 5% of property sales nationally. The effects of the law have been ambiguous, with sales to foreign nationals decreasing substantially but with a small effect on the total housing market. However, London has a greater share of foreign ownership, with 13% of new build properties between 2014 and 2016 bought by foreign investors. In 2018, overseas registered companies also owned around 48,000 properties in London worth 33.9 billion GBP, according to the BBC. A policy such as the one used in New Zealand may help dampen rising house prices in the capital, especially with the relatively high percentage of foreign ownership. On the other hand, it may not necessarily impact the rental market or affordable housing market.
A policy that would affect the rental market would be a rent freeze. In January 2020, Berlin passed a law that enabled rent to be frozen for 5 years, due to rental prices doubling in the past 10 years. This is not a radical or unique idea, with many other global cities such as Amsterdam and New York passing rent control measures. The idea is to protect poorer renters from being evicted from fast-rising rental prices and also provide relatively cheap housing in a major city. A policy such as this combined with one that focusses on sales may help bring the market under control and open it up to the younger generation who often struggle to initially get on the property ladder.
One issue with attempts to reform the property market is that it could quickly devolve into a political rather than economic issue. This was evident during the 2017 New Zealand election and could be the same in the UK. Another issue is that many homes are used for short term holiday lets or rent through third parties like Airbnb. The Financial Times reports there were nearly 65,000 Airbnb listings in London by the end of 2019, the highest for any city in the world. This reduces supply for long term renters but allows London’s tourist industry to boom. With visitors spending over 9.4 billion GBP in 2011 and tourism employing over 700,000 people, according to Deloitte, there is a balance that needs to be struck between allowing cheap affordable housing and accessible tourist lets.
With London being a global financial hub, there is increased demand to relocate ito this city and thus higher living costs. However, much like other global cities, residents and those hoping to move in are finding it increasingly harder to afford a comfortable life due to the high costs. No one solution will fix all problems and the tourism industry must also be protected – nonetheless, there is potential that London will start looking abroad to adopt the solutions used by other cities to ensure affordable properties.
By Gregor Macdonald
Senior Editor: Aaron Hobb