How London's Housing Crisis Came To Be

1981, a third of all Londoners lived in council housing. Fast forward 35 years, things have changed a little. London average house price is set as £450,000. 15 times median income.

How did we get here? Where as if food prices rose as fast as property prices did, a chicken would cost today just about £100

From Subsidised Supply To Subsidised Demand

There are many causes to the London's property affordability crisis. One of the key changes was the Housing Act's Right To Buy in the 1980s, where people living in council housing were allowed to buy council houses for bargain prices. That alone was not responsible for property hyper-inflation. Housing benefits act also shifted government from subsidizing supply to subsidising demand. Which further fueled the London housing prices inflation we experience today, also adding inflationary pressure on rents.

How Foreign Capital cannibalised London's property market

That's just one side of the story. London has been for long protagonist of huge foreign capital inflow, which incentivised by low tax rates for foreign corporations and the struggling European Debt crisis, made London's real estate an appealing opportunity for foreign investors. Oligarchs & billionaires of all kinds have parked billions of pounds in London's real estate. Even the Vatican has taken a chance with London's lucrative property market when they have supposedly financed a luxury development in Cheslea worth $200m.

For Transparency International, 44,022 properties in London are owned by overseas companies, with nine out of ten of these being bought via ‘secrecy jurisdictions’. I read, London's property is used to wash dirty money.

A very simplistic analysis of the problem is often seen as just a problem of supply and demand - markets are made! Lifting planning restriction and incentivising development would simply increase supply of houses and resolve the housing crisis we are currently experiencing, governments of all factions have argued. London's property market isn't a pure market. It's heavily influenced by huge foreign capital flows, not simple local dynamics.

Home ownership's incentivisation and foreign capital inflows have therefore caused financialisation of housing, which should be everything but a financial & speculative asset. Housing should be a basic right. 

Land Banking

Property developers playing the "land banking" game also play a role in the housing crisis, fueling house scarcity and skyrocketing house and land prices.

Where To Get From Here

The London's housing crisis is a policy problem. Not a simple "supply-demand" problem, as many would argue. In Berlin, where 90% of people are renters, there have been specific policy changes to avoid what's been happening in London and continue to happen. Specific frameworks have been developed. Landlords are not allowed to increase rents more than 10% the average in the local area. The Berlin council successfully implemented the "pre-emptive right to buy" when an offshore company attempted to buy a luxury development in the city. For example, Vancouver has introduced a 15% real estate tax for foreign investors in 2016.

Takeaways

The takeaway is that a policy change is necessary to resolve the housing crisis, as many countries have successfully done already. Not necessarily just building tons of social housing, but taking all aspects and causes of the housing crisis into account. Such as speculative foreign capital inflows, land banking game played by developers and the current inflationary demand of housing.

Suggested Readings

If you are interested on a full analysis of London's housing crisis I recommend having a read at Big Capital - Who is London for? from the award-winning writer & journalist Anna Minton