A non-existent block of flats just fully sold out. In five hours. The real thing will apparently rise out of the ground somewhere near London’s Canary Wharf in 2019, but right now it’s just a promotional image and a pile of cash for the developer.
And what cash these towers generate. Non-existent “studio flats” (that means one room) sold for £350,000, while non-existent three-bedroom flats sold for £1.25m: the developer will take a cash deposit now and the full enormous sum when the flats are built in several years. Chances are as well that many of these non-existent homes will be sold on again for a profit while still in their conceptual state. That’s what has been happening down the river at the project around Battersea Power Station, according to the FT.
Even once these towers are finally built, there’s a big question mark over how many full-time homes they will actually provide. At Canary Wharf, half the buyers were overseas investors and a large proportion of the UK-based buyers are also likely to be investors rather than home seekers.
Does this matter? Homes are at least being built and most investors will rent out their property to make a return, increasing the number of available rented homes.
I think it really does matter.
The fact that London’s property market is becoming a physical stock exchange for the world’s rich undermines the idea that we need new homes at all. Why bother building if we are just going to sell fantasy apartments to speculators in Hong Kong or Singapore?
At Shelter we’ve been calling for all political parties to support policies to get England building 250,000 new homes per year, almost double the current rate of building. We argue that to meet people’s needs and aspirations half of these new homes must be more affordable than the market: either at a social rent or for low cost home ownership. Simply building for the top-end market won’t solve the housing shortage.
We’re calling for this surge in building because it is desperately needed. Around 220,000 new households form in England each year and there is a huge backlog of people who need homes. One in four adults under the age of 35 is living with their parents, homelessness is rising and council waiting lists are well over a million.
Our calls for action are starting to cut through. Housing was a bigger issue for voters at the recent general election than it has been at any for 30 years. All parties agreed on the need to build more, and increasingly the public are on board with this too. But public support can quickly turn to anger when we see development that looks as if it’s not for people like us, or for our kids. This is dangerous. The evidence is clear that we are more likely to support new homes if we think it will help local families get a place of their own.
So there needs to be a bolder approach. One that looks at both the demand for homes as well as the supply of them. We need to gradually make it less attractive for investors to buy homes purely to speculate on future prices: after all, it would be far better for the economy if their cash went into something productive like new businesses. Making this change could require further tweaks to the tax system – a process that George Osborne has started with higher stamp duty on the most expensive properties and cutting back some of landlords’ generous tax breaks.
At the same time though, we’ve got to get building high quality, genuinely affordable homes. This isn’t rocket science. Shelter and the IPPR have just published a plan to get England’s successful mid-sized cities, places like Bristol and York, building the homes they need. This means giving these cities stronger powers to get land into the hands of local builders and strongly incentivising urban and rural councils to work together to identify growth areas. It also means George Osborne prioritising investment in new homes at the upcoming Comprehensive Spending Review, which is a critical moment to prove the government is serious.
Right now the housing market is broken for people who just want a place to call home. Fixing it is possible, but will take a proper strategy of reform and investment from central government and strong leadership from our cities and councils. Until then, we’ll just see more fantasy towers for speculators while millions of real families pay the price.
I got told by an affable enough estate agent the other day that if I put down a deposit on a flat that doesn’t yet exist, and arrange my mortgage finance accordingly, for the (as yet non-existent) flat’s ‘current market value’, even if I go on to decide that I didn’t want it after all, even if only a few months down the road from now, I would ‘own an asset’ that would have increased significantly in value. Having bought a non-existent flat I was assured that I would definitely be able to sell my (still non-existent) flat for a profit.
I really don’t know much about property economics, but I do know what a tightly-stretched ever-thinning bubble looks like. If I’m being persuaded to get into major personal debt to buy something that doesn’t exist but is guaranteed to make me a profit long before it does actually exist, I’m stepping away. Fast. The blast of this bubble-burst is going to be lethal.
Great comment, thanks for sharing
It’s a shame that political leaders are not listening to you!
Imagine the imaginary Dinner Parties you could be having
Very good piece.
When Local Authorities make their Local Plans, and undertake Housing Needs Studies to feed into the Local Plan, are they allowed to distinguish between the demand for homes to live in and homes to meet the demand of investors?
They are supposed to identify type of demand such as to owner-occupation, rent, self-build etc, but can they say, ‘we are allocating land for living on but not to act as a safe-deposit box for the world’s investors’, and thus refuse consents for the latter?
One further point has crossed my mind: If we have a shortage of labour and of materials and a shortage of homes for livng in, have we reached the stage where we as a society need to prioritise and not allow the development of homes which are being designed first and foremost as safe stores of wealth for overseas investors? That is a more direct aproach than trying to affect the market via taxes and nudges.
Thanks Steven, really good point about Local Plans. We have put forward the idea of “New Homes Zones” which would allow local communities to be much more specific about what land is allocated for i.e. the amount of affordable housing, the quality, the size of homes etc. This is how pro-active planning works in Germany and the Netherlands. Adding the ability to do this for buy to let too is an interesting thought.
We are in a housing bubble!
So who cares if we build million pound homes. Our housing crisis has been caused because a lack of high end properties.
There are a lot of cheap properties in areas of high immigration and betting shops. What is lacking is a supply of high end homes. Build those high end homes and it will reduce pressure on other parts of the housing market.
Building more social housing is a mistake, as we are building the wrong sort of housing.
Look at it another way. There is a shortage of Ferraries, so people are buying up and driving up the prices of Audis until they can afford can afford the Ferrari. But they never will afford the Ferrari, as there is a scarcity. Even though there are plenty of Skodas, people are not interested. They still crave the Ferrari. That is the problem with our housing market. Housing association keep increasing the supply of Skodas’ but it does nothing to increase the supply of Ferraris, which is the root cause of high house prices.
The only other solution is to covert our Audis to Ferraris. That is turn cheap desirable places to live into fashionable ones. But Gentrification is not without its problems.
I hope people understand my analogy.
Erm where the hell are you living
‘There are a lot of cheap properties in areas of high immigration and betting shops’
To extend your analogy, there are lot of skodas but people are paying Audi prices just to rent them. People are probably paying Ferrari prices to own Audis.
Home ownership is dropping which is helping to drive up the cost of the ‘Skoda’s’
My SUPER Shelter Completed here : http://www.gotovid.com/video/my-super-shelter-completed/