To live in Central London without really worrying you have to be in one of two camps; the rich or the poor.
The rich of course will continue to use their capital to skim the profit and secure their status, and the poor will continue to vote in councils that provide social housing and benefits.
I'm one of those who is in the middle and work; I rent in an up-and-coming area (i.e. people look down on it until they come here) and rent is going up 8 times salary. We are already at rent being 30% of combined salary.
I won't be in a position to get social housing, so I'll be forced to move in a few months either further out (so travelling will take longer and be more stressful, and the working day longer) or move somewhere less appealing.
Property in London is controlled by the super rich who realise its easier to have their current investments increase in value by lack of supply than it is to fund property development. The shortfall in housing in London will be one million homes by 2022! The free market is supposed to mean that supply will rise up to meet demand where possible.
The little property development that does go on is usually done by block selling hundreds of apartments in new builds off plan to investors from Asia/Nigeria etc. who in turn get them rented out, or insane apartments that are sold to Russians and Arabs for £100m+ pulling all other property prices up.
I think that early stage tech entrepreneurship in London will be a rare thing unless you can live in your parents house and live like a student in the near future, or you will end up giving away so much capital just to survive.
The more I read about Berlin the more I see it as being the future of tech in Europe; creative, cheap property and offices (in comparison), intelligent people and cosmopolitan.
Gentrification is a massive problem in Berlin... Mitte -> Prenzlauer Berg -> Kreuzberg -> Neukölln -> Where Next?
It's absolutely not as extreme as London because most people in Berlin rent rather than own, and other costs of living are comparitively far cheaper across the board. The problem is though many people have had your idea, one that I share, and we are "spoiling" it for the locals. (Or the people who were ahead of the curve) Go for a visit, the areas I mentioned, especially the last two, are packed with British, Australian and American twenty somethings looking for that cheaper/creative/hedonistic lifestyle.
> I'm one of those who is in the middle and work; I rent in an up-and-coming area (i.e. people look down on it until they come here) and rent is going up 8 times salary. We are already at rent being 30% of combined salary.
Ditto (Brixton). Flats in my area are already at the £350k (2 bed) mark, with landlords upping their rent accordingly (having bought the flat for < £200k 9yrs ago). My solution is moving further South (Surrey) near a good train line which gets you into Victoria/London Bridge in 30 mins. The rent on a flat/house out there is ~50% of what it is in London, not to mention cheaper council tax/insurance/etc.
I'm near East Croydon - you can get 2 bed houses in the ~200k range, and 3 bed houses with a garden in the 250k-300k range, and with rents to match. 15 min to Victoria 18-20 min to London Bridge, which frankly means that despite being zone 5 it's still faster to get to the centre than in a lot of places in zone 2/3.
Less desirable areas of Croydon are cheaper (on the opposite end of the spectrum, you can buy 6-8 bedroom mansions in the 800k-1.5m range, still a steal compared to central London)
The price pressure is so high in central London because so many people can afford it, and prefer to pay out ludicrous amounts rather than even consider moving further out - it's the opposite of the trend cited in the article: The prices are skyrocketing not because outsiders use it as investments, but because the demand make the properties a good investment. The outsiders buying explains the high purchase prices in the centre, the demand explains the pressure on rental prices.
Greater London is generally quite homogeneous. Good areas and bad areas are often cheek by jowl. One end of a street can be quite nice, while the other end is much poorer. Obviously there are better & worse areas, but even there there's lots of variability.
So just like everywhere else, Croyden has lots of good, lots of bad, and lots and lots of in-between.
> The whole of London is an undesirable area in my opinion
Agreed. I think OP was more referring to crime. Ok maybe Chelsea vs Croydon is a bit different, but compared to any of the surrounding areas e.g. Wimbledon and Clapham, it isn't much different.
(I was in South Wimbledon - close to Mitcham and Tooting - for 2 years)
You might be surprised. In the year to date, Kensington & Chelsea have had about 12 crimes per 100 people according to the Met. Croydon have had about 6 crimes per 100 people. K&C does come out better if you look at certain subsets of serious crime, but Croydon is consistently in the "better half" of London Boroughs in terms of crime, often doing very well.
Most of the worst boroughs in London in terms of crime are the inner-city boroughs, regardless of wealth (Westminster in particular is a crime ridden hellhole if you look at the raw numbers by population, due largely to the amount of business and nightlife and low number of people living there; but Croydon city centre suffers from some of the same effect, dragging the overall crime rate for the borough up, even though the totals for the borough still remain better than average for London).
I'm right there with you having lived here for 3 years. It seems like you have to be single to enjoy living in London. I just find it crowded, expensive and rammed with traffic!
Amongst people who have never visited, yes. Which is presumably one of the reasons it is still so cheap.
The central business district also still suffers from ugly office blocks, as the town centre was bombed out during the war largely due to the proximity to the RAF base at Croydon Airport (which used to be London's main airport until Heathrow - it's been closed since the end of the 50's) and the factories at Purley Way, and most of the rebuilding resulting in massive amounts of large, ugly concrete office buildings mainly used by the home office initially.
As I mentioned, it's below the London average when it comes to crime, quite a bit above the London average in terms of salaries. A lot of good schools, including a handful of expensive high end private schools.
There are a few run down areas though the worst are "hidden away" far outside the main town centre, but also quite a few upscale areas, including Purley (in South Croydon), which is consistently one of the wealthiest post-codes in the UK due to a large number of very spacious estates (we're talking houses that can hardly be seen from the gate facing out to to private roads, forming adorable little seemingly old but entirely fake vestiges of old country villages) dotted around a leafy and generally nice little town centre.
Most of Croydon, though, is covered by mostly firmly middle class neighbourhoods and parks. Lots and lots of parks (120 of them), some of them very substantial. There's of course also the central shopping area, which is one of the largest in England, with two massive shopping centres (which look to be refurbished and combined into one centre as part of a join venture that includes the Westfield operators). Some of the best public transport in London (central choke-point on main lines from Victoria and London Bridge to the South Coast, as well as the tram system).
Part of the reputation problem is probably because most visitors at most see the central business district (which as mentioned still looks ugly), at most, including TV footage of Luna House (immigration processing for the Home Office), and don't even realise that most of the much nicer looking small towns and villages surrounding Croydon town centre are also part of the borough.
The last 5 years or so, we've also had a massive increase in building of upscale housing (highrises with 1m+ penthouses etc...) - they're in the process of putting up another high end 50 floor highrise in the city centre - and upgrades to the town centre, with more underway, so soon it'll even look nice.
A little bit of the riot happened within a small part of the shopping area of Croydon town centre, constrained to about half a square mile or so, apart from one or two stores in the Purley Way retail park. The Reeves corner store burning down was the "highlight" yes, and a couple of stores had some broken glass.
I walked through the town centre on the days of the riots, and frankly it was mostly quiet and uneventful - the media coverage was massively overblown.
There are still areas that area (as with any town), but on the whole I think it's increasingly seen as an option for young professionals working in London who don't want to live there.
"My solution is moving further South (Surrey) near a good train line which gets you into Victoria/London Bridge in 30 mins." The sum of your rental and travel expenditure will probably stay constant though? Train fares are quite hight.
Nope, my Oyster travelcard (zones 1-2) is £116/m, the season ticket is £164/m. Just the drop in car/home insurance and council tax makes that up, let alone the £500+ drop in rent!
And the other thing worth noting for people considering this: If you have any way of avoiding zone 1 (if you work near the border to zone 2, and it's viable for you to take a bus, walk or cycle the last bit, for example), zone one makes up for an atrocious amount of the travelcard price in London - getting a travel card that excludes zone 1 can be a major saving.
Hm.. Taxi driver I was speaking to, was on the list for social housing for 20 years before getting one. For years, the amount being sold has been much higher than being built (since Thatcher brought in right to buy).
Although most housing developments have to build "affordable housing", in most of london you need to be earning £40-£60 to afford them (IE in the top 10% already).
The poor camp is even smaller. It's not just those who are poor enough to be eligible for social housing, but those who are lucky enough to get it, or unlucky enough to really, really need it.
1. Not everyone in London is Dick Whittington (and this is also a criticism of other comments in this thread, that seems to assume this), coming for the gold-paved streets. Some people live there because they grew up there, as did their parents and so on. As do their parents still, because 30 or more years ago, it was still possible for normal people to buy a family home.
2. You sound like the Golgafrinchans. If only "professionals" live in London, who cleans up after those professionals, serves them coffee, or does any of the other non-professional tasks that keep a city moving? Do you expect your £18Kpa hairdresser (or the minimum-wage junior that sweeps up the hair) to spend £5Kpa (after tax) getting to work, or would you prefer to have go to Northampton every couple of months to get your hair cut?
> You sound like the Golgafrinchans. If only "professionals" live in London, who cleans up after those professionals, serves them coffee, or does any of the other non-professional tasks that keep a city moving?
Commuters who live outside of London proper and commute in for work?
> Do you expect your £18Kpa hairdresser (or the minimum-wage junior that sweeps up the hair) to spend £5Kpa (after tax) getting to work, or would you prefer to have go to Northampton every couple of months to get your hair cut?
I'd expect the price of the service they are providing to rise until it justified either them commuting into the city or their living in the city. If development in the city is constrained, probably the former.
And lower salaries and lower employment. And if your social network is in London, many also run into situations where they can't really move. E.g. if you're a parent, living near family that can look after your child part- or full time might mean a difference of hundreds of pounds a month in child care.
3 families are leaving London and that makes a trend? Comparing property prices in London to Williamsburg or SF and it looks like a similar trajectory to me. Cities are expensive because space is constrained (artificially in many cases) and lots of people want to live there.
The author makes note of the low "property taxes" in London which is just spurious. In the US, property taxes are often used as a way to pay for many local and state government services for a number of historical reasons. This is often the only income that some states collect. In the UK, council tax is to pay for a much smaller set of services. A £5m house does not generate 10x the garbage of a £500k house. It's a cheap shot that tries to make a false point for US readers.
It's true that the current state of the global economy has meant that fearful foreigners have brought their money and bought property, but this tends to be at the very high end of the market which shouldn't be affecting the middle class that he's referring to. Greater demand by many people wanting to live in one of the world's great cities might.
>Cities are expensive because space is constrained (artificially in many cases) and lots of people want to live there.
That has ALWAYS been true, so cannot possibly account for today's prices. The last decade's price increases have been driven by the lack of other perceived safe haven investments. Treasuries/Gilts pay below inflation now. That money found a new home: property in tier one global cities.
>The author makes note of the low "property taxes" in London which is just spurious.
Oh come on. Would high taxes on a house make it a more or less attractive investment?
>A £5m house does not generate 10x the garbage of a £500k house.
THIS is spurious. Irrespective of whether that's true or not (it's not: a £5m house probably takes up more valuable land, which is made valuable by everything surrounding it - transportation, shops, parks, etc.), it still doesn't change the fact that low taxes make property a much more attractive investment.
>It's true that the current state of the global economy has meant that fearful foreigners have brought their money and bought property
It's foreigners who have checked out every other safe investment and seen how pathetically they pay. Seen the interest rate on Gilts?
Some are also (rightly) fearful of their home governments (Russians, Chinese, Arabs), and want to park their money in a country where the government is unlikely to decide to confiscate it one day.
>this tends to be at the very high end of the market which shouldn't be affecting the middle class that he's referring to.
Except:
A) It does affect the middle classes too. Prices filter down. Everybody who was buying at the high end of the market and gets priced out buys something lower down, which prices them out and so on. Land used on expensive properties is not available for the middle classes.
B) It's not just the very high end of the market. London property is being shopped all around the world, from Singapore to Hong Kong to the US as a safe investment for upper middle classes. I could show you a hundred glossy foreign magazines advertising property which is "close" to some tube station on the Piccadilly or Northern line 13-15 stops from the center.
Copenhagen has traditionally (a bit less recently) fought this kind of effect by restricting absentee investment ownership through several mechanisms. For one, a large percentage of property in the city has ownership that requires residency in Denmark, usually because it's structured as a residents' cooperative. Another significant portion is owned by nonprofit organizations that will only rent the property to residents. And beyond that, much rental property has renter-friendly laws with a view towards ownership, where if you have been renting the property to someone for three years, you are required to sell it to them if they want to buy. The general idea is to reduce the impact of absentee landlords/investors on the local housing market, by trying to restrict it to only people who physically live in Copenhagen.
The high taxes help make this work as well, by trapping would-be cheats in a situation where they can't have it both ways. Do they want to claim that they live in Denmark? Then their property is fine, but they are liable for Danish income taxes. Do they want to claim that they live elsewhere? Then they avoid Danish income taxes, but must sell their property.
Denmark has several EU opt-outs in its accession treaty. Equal treatment of non-resident non-nationals for the purposes of property ownership is one of them, mostly because they were worried about Germans buying up all the summer homes (joining the Euro and joining the European military command are two others). I believe Malta has the same opt-out, and Finland had a temporary one that's being phased out.
However the coops are where the residency catch-22 hits most often, and those are just structured with contract law. They have the typical owner-occupied-only rules that most coops worldwide have (some NYC coops are similar). When you buy a coop share you sign a contract agreeing that you, the share owner, are buying the coop share because you plan to reside there. You agree in the contract not to sublet it, and to sell your share if in the future you no longer reside there (usually with a 2-year grace period).
What's different from the U.S. is that it's fairly easy for the coop to enforce the owner-occupied requirement, because there is a central register of residence addresses. Every person resident in Denmark declares themselves legally resident at exactly one address. So the coop can trivially check if you have declared yourself resident at the coop or not. If you move out of the country, then to avoid Danish taxes you must declare yourself a nonresident, which removes you from the register, which the coop then sees. It also means that you can't own shares in two coops, since you can't register yourself at both. (Though in either case, some games can be played by spouses.)
The nonprofit housing associations are just regular landlords, who own large parts of the city and rent out, again with no-subletting contracts.
the parent was a bit wrong on this. It dont require the owner to be a danish resident, but it requires the owner to live most of the time in the property and by that be liable for danish taxes (which makes the property unsuitable for this kind of investment).
That has ALWAYS been true, so cannot possibly account for today's prices.
It's not as true as it used to be. Due to population growth and increased geographic mobility, there are more people who want to live in London/NY/etc than in the past. Demand is up. Supply of housing in these regions has not increased commensurately.
I'm in London right now and it looks like London has the same problem as NY and SF. Supply is capped. If you want to make housing more affordable, increase supply. Fill the 2-3 block radius surrounding each tube stop with 20 story apts (tower blocks, I think they are called here). That will allow a lot more people to live close to work.
A great way to fund it: allow those foreigners seeking investments to fund them and rent them out.
Supply is not nearly as capped in London as e.g. SF. London authorities as well as central government is very amenable to high-rise projects as long as they are well planned. There's a long list of high-rises on the way for London - here's a list by descending planned completion dates:
But it takes time, especially given the financial climate still. The reality is that property prices in London are still not high enough that high-rises provide guaranteed good returns on investments.
E.g. Croydon, since I've been following building news here, have had a ton of projects which have just stood still for a few years due to financial uncertainty. But it's moving again, with things like Saffron Tower (44 floors) finally in progress (they've finished most of the rest of the building mass, and the lowest floors of the tower), and a steady stream of new proposals which will see the train station flanked on all sides by buildings ranging from about 20 floors to around 50.
> A great way to fund it: allow those foreigners seeking investments to fund them and rent them out.
Your missing the point of this post, and the point of a lot of these comments. People don't want the foreigner investors funding these things as they then own the property stopping people who actually want to live there owning them. That's why people are moving out of London, that's why property is so expensive. Rich foreigners are buying the property for investments, making other properties more expensive.
So allow those foreign investors to invest in condos for resale. Better yet, allow both - then both local real estate speculators and housing consumers can have a supply which will meet their demand.
But the problem is precisely that the flats aren't even rented out; they're just left sitting empty. Real-estate has apparently become the new gold bullion.
> But the problem is precisely that the flats aren't even rented out; they're just left sitting empty
Are they? According to the London Empty Homes Audit, january 2012 done on behalf of the GLA, there were 11202 units sitting empty in London at the time. londoncouncils.gov.uk on the other hand reports almost 80,000, or about 2.4% of units based on numbers from emptyhomes.com. Either way that seems way too small for property investors leaving flats empty being a big problem, especially given that a lot of these empty units are very obviously empty for other reasons, such as being in very undesirable state or bad locations. E.g. I very much doubt the 6k total that the source of the 80k number lists for Newham and Tower Hamlets is due to foreign investors (unless someone got scammed good).
Looking at the numbers for the rest of England from the same source indicates that London is middle of the tree in terms of percent of properties left empty compared to other regions, which you wouldn't expect to see if foreign investors was a particular problem in London. So either they're just as much of a problem elsewhere, or they're not having much impact in London.
The 80k source also breaks out the number of properties empty more than 6 months, and that is down to about 34k. Furthermore about 1/4 of empty properties are owned by the councils, housing associations or other semi-public bodies. So the percent of the total available properties left empty by investors necessarily can't be very high. Lets assume the councils etc. never leave their properties empty more than 6 months (yeah, right), and the whole 34k number is investors, as opposed to owners temporarily living out of country etc. - that is still just barely 1% of the market.
The returns are high because rents are high. The rents are high because demand is high.
Property investors might drive up the purchase prices, but the high rental prices demonstrate that they are not responsible for the overall housing situation.
Also he's writing about what has pretty much always happened, people move to London when they are young. They get a good career, meet a partner, have children then after trying to live on for a while they move out to the 'sticks' for a better life.
This has been happening for years, only the very rich at the top can afford to live in London for good (while keeping a 2nd home in the country) and those on the lower end of the scale who either never owned, or who can not move to the country as they have service or manual jobs.
There are always a few exceptions, but this is a total non story, I wonder if they wrote another one a few years ago called 'the great wedding and baby boom - how now I've hit 30 I've found all my friends are getting married and having kids, they never did this before it must be part of a wider trend...'
Although you're of course correct that people have always followed this pattern, I think you're missing the fact that there have been genuine shifts in the London property market that are driving this trend to an unusual extreme.
The proportion of foreign buyers of London property has nearly doubled, from 23% in 2005 to 38% in 2012 according to Savilles & I'd guess that it's going to be higher this year. Many of those buyers are looking not for income but simply for places to park capital so they don't rent out the properties which remain empty (this is especially true of Chinese buyers, apparently for cultural reasons). Consequently those people who are living in London (or would like to) are competing over a smaller pool of properties. The net effect on rents and house prices is exactly what you'd expect: both are going up sharply.
Yeah. Last I heard, there were new-build tower blocks full of apartments that sold out rapidly but have remained almost entirely unoccupied because they were bought by foreigners as a safe way of storing their wealth.
(Normally this would cause problems with squatters but the government changed the law to make it a criminal offense to squat in empty buildings and allow the police to forcibly remove them. They were helped with this by a sob story in the Daily Mail about someone who'd gone on holiday and found his house full of squatters; what the Daily Mail didn't mention is that it was a buy to let property and he didn't actually live there.)
If you need to explain a joke it's a pretty bad joke. Besides, it was maybe interesting to some people when used first million times, but now, I wish I could downvote ...
Funny, we saw this exact same article come through a few months back about Paris.
It's the same story: All the trendy rich people that displaced the poor bohemians and gentrified the neighborhoods are now being displaced by even richer people.
It makes for good ironic commentary, so it plays well here. I suspect we'll see the third part of the trilogy about New York come through by the end of the year.
People with children don't really want their children to grow up on the streets of London. As the article writer gets older, he'll know more and more people with children moving out, independent of house prices.
The other bit, the silly prices paid for unoccupied houses, is mostly concentrated in central London, and a few bits in close proximity to the west, north and south. There are still plenty of less desirable neighbourhoods.
I currently live in Paris and that's exactly what I was thinking while reading the article. Except maybe for the taxes which may be a little higher in France, the situation seems nearly identical. In the last decade, prices in the whole capital have doubled.
The property taxes cited are fascinating. $3k per year on a 20 million dollar home??? As they say, there's your problem right there.
I've come to appreciate the extent to which property taxes drive a country's culture or system of living. I grew up in an eastern European country where property taxes don't exist, and so there are tons of people who live in quite posh inherited/grandfathered-from-communist-times residences while receiving tiny incomes in comparison. Meanwhile the property tax rates common in the U.S. tend to drive out people who stop being able to afford to live in a locale.
>The property taxes cited are fascinating. $3k per year on a 20 million dollar home??? As they say, there's your problem right there.
It's very misleading, or downright wrong. Firstly, you'll pay tax on the sale (stamp duty), of 7%. There used to be a loophole for corporations, but that's now been closed (if you buy as a corporation you'll pay 15%). So already you've paid $1.4 million in tax.
You then pay council tax, which isn't property tax, but a tax for basic services such as waste disposal, etc, that your local authority provides.
It normally isn't very helpful to 'pick and choose' taxes when comparing them to the US, partly because the UK taxes some things very differently. For example, a sales tax in the US of 20% would be political suicide, but yet that's effectively what happens in the UK with VAT.
Firstly, you'll pay tax on the sale (stamp duty), of 7%.
On a £20million property? It'll be owned by a shell company in the Vigin Islands or some other tax haven & only the ownership of the company will ever change hands so no stamp duty will be due in the UK.
Yes, this is iniquitous. Stamp duty should clearly be replaced by a better targeted land tax, but good luck getting any UK government to make that change...
> It'll be owned by a shell company in the Vigin Islands or some other tax haven & only the ownership of the company will ever change hands so no stamp duty will be due in the UK.
I believe this isn't true any more. Legally, stamp duty will be due at 15% in this case.
Of course, whether this is enforceable, whether the authorities make any effort to enforce this (as opposed to it being a nice sounding law to appease the public), and whether the people involved actually report these transactions are entirely different matters, and I wouldn't be optimistic.
I believe this isn't true any more. Legally, stamp duty will be due at 15% in this case.
Only for newly built properties - the transfer into corporate ownership attracts 15% duty. However, properties that are already owned by offshore companies care unaffected.
I agree that there are probably ways round the new rules too: The tax laws in this country are so complex that those who can employ the best accountants and lawyers can often simply out argue the Inland Revenue.
I've often wondered how that works. Yes, obviously you can avoid stamp duty that way, but then you're in to "living in company property" area - and that's taxed as a benefit in lieu of income, which would be much more than just paying the stamp duty.
If you're being paid partially in kind, then the Inland Revenue expects to receive it's cut no matter what shape that income takes.
However, if you're not being paid to live there in return for some service there's no employment contract and no income tax to pay. At least that's my understanding of the situation.
You don't pay stamp duty if you structure it correctly. The trick is to not buy the title, but instead buy the holding company that holds the title. Buying a company also incurs stamp duty, but it's readily dodged by declaring the purchased holding company an investment and being domiciled offshore, at which point no stamp duty is due, and any capital gains can be deferred until the point of sale/realisation.
Re: council tax - again, you don't pay this if you declare the property unoccupied, or have the property zoned such that it's not applicable. This is often achieved by having the holding company be owned by a charitable trust, who operate the home as "offices", which would have business rates applicable, but as a charity they're reduced by a minimum of 80% and with an appropriate backhander, to 100%. The other option commonly followed is to make the chain of ownership/domicile so insanely complex that the authorities don't bother/can't follow the trail. Property owned by a trust owned by a charity owned by a holding company owned by a trust owned by... you get the picture.
In reality, plutarchs who manage property portfolios in the UK pay no tax whatsoever more often than not, so the $3k per year is a bit of a misnomer.
VAT is not a 20% sales tax; it's a 20% tax over the profit the seller has over the final customer. If a seller has a 40% profit margin on a product then he pays taxes over that, not the entire cost of whatever he's selling.
It's the customer who pays VAT. Businesses don't pay VAT, they only collect it for the tax man (and in cases where they have paid it, they claim it back).
The UK does not have property taxes. The figure given is presumably council tax, which is a fixed fee per household, vaguely based on the house's supposed value. The highest council tax band is quite low; i pay £2,000 per year, and my flat is worth a lot less than $20m.
This is correct about rented properties, but not about empty ones.
Empty properties can attract a discounted rate of council tax, but are only exempt under certain circumstances (resident in prison/hospital, house unlivable).
Long-term empty properties can even attract a higher rate of council tax.
That last part is simply incorrect; Councils have a time limit on whether empty properties are exempt from council tax. Also, there's an extra 50% penalty if it's been empty/unfurnished for 2 years or more:
https://www.gov.uk/council-tax/second-homes-and-empty-proper...
I think this phenomenon of using house as a place to park money exists mainly in countries with insignificant property tax. For example in India, China and most of Europe people park their money in property rather than stocks. A 2% yearly property tax may change it!
This kind of housing boom is a direct result of the concentration of wealth in the top
1%. As wealth concentrates, the things that rich people buy inflate in price.
I believe the overwhelming majority of the buyers at the top end of the London market are foreign. So it does have something to do with wealth distribution, but not the distribution in Britain.
I think it's more about more and more nations' economies growing and entering the global economy. When that happens you will get new millionaires and billionaires no matter how little inequality a country has.
These people had easier access to loans anyway because of their ability to pay. All the subsidy does is make it a no-brainer when it comes to where to invest their money. People put their money into whatever gives them the best ROI and for the last decade or so that's been real estate. All it does though is drive prices up and the middle class out.
Interesting, I strongly suggest that the City change its taxing strategy. Seriously. If you get proper property taxes and you don't need the services because the people don't actually live there, then that just accrues to the benefit of the less well off. It also mitigates the challenge of finding housing since the taxes will balance out with quality of life improvements.
Its also an exceptionally straight forward way to "tax the rich" as it were.
It's a straightforward way to tax people who have homes that are worth a lot of money. Not entirely the same as being rich.
What if you live in one of the leafier parts of the east end, where only 30 years ago you could buy a house on a blue-collar wage. Now your house is worth more than £1m. But you're retired and on a basic state pension. You don't want to move to a cheaper area because your friends and family live close to you and are able to support you.
High property taxes based on the value of your assets would force you to move away or re-mortgage. Not ideal when it comes to maintaining a sense of community or caring for the elderly.
I assume by 'proper' property taxes you mean 'the way the US does things'. I'm not sure that it would work in the UK with our different economics, system of government and geography.
So in the article they discussed a special tax break for non-residents which was resulting in much lower tax revenue from these properties.
As it happens, living in the Bay Area I'm very aware of living in a house that, I could neither afford to 'buy' again, nor pay the taxes on should my prop 13 bill revert to 'current value'. But the way the tax base evolves in California is when property turns over or is sold. So when buy a house the taxing level is reset to the current value.
My suggestion is that by normalizing the tax burden to new owners without special "non-resident" perks, you would force the cost of ownership to be the same for everyone, and that would both discourage some rich folk from moving (lowering demand a bit and helping) and increase the tax base even though the number of residents was not increasing (which increases per capita services budget).
Now the last time I looked at buying a flat in Chelsea part of the thing that confused the heck out of me was the whole 99 year lease thing. I decided that real estate in London was going to need a lot more research than I had time for. A pity though because in 2002 when I was looking at it, I could have made a nice return.
I think that the tax break the article is talking about is the fact that in the UK, if your 'main residence' is elsewhere, you only pay income tax on your UK earnings. That's different to the US where (I believe) citizens are expected to pay tax even if they are non-resident. I'm not sure why it's mentioned to be honest as income taxes are not related to just buying a house in the UK - which anyone can do whether they are a citizen, resident, or whatever.
Council tax in the UK is payable by the building owner or tenant, and is much lower than, for example, the US property tax. Council tax is supposed to just pay for municipal services. IIRC, they even break it down into bits on your bill 'Police - £xx, Fire Brigade - £xx' etc etc
I suppose my points were firstly that it is unreasonable to compare UK council tax and US property tax, and secondly that a tax directly related to a home's value can impact people disproportionately due to the crazy rise in UK house prices over the last few decades.
All that said, the idea of a property tax level resetting when a building is sold is very interesting - I didn't realise that was the case in California and it certainly makes sense. However, there is still the issue of our system of government being different - local governments can't create new taxes (and it would need to be a local tax since the problem is restricted to one geographic area), and the economics are different - people just aren't set up to pay high property taxes. Not insurmountable problems, I accept.
And yeah, 99 year leases are weird, but not uncommon. It gets weirder. For example it's not that unusual in the UK for properties to be totally surrounded by land owned by others. Also, land ownership in the UK (London especially) often has crazy disputes just due to the age of the records.
>What if you live in one of the leafier parts of the east end, where only 30 years ago you could buy a house on a blue-collar wage. Now your house is worth more than £1m. But you're retired and on a basic state pension. You don't want to move to a cheaper area because your friends and family live close to you and are able to support you.
Then you are making very inefficient use of an extremely scarce resource. Economically speaking, you should get out of the way and let someone more productive have that property.
Morally that might be wrong, but I think you should be able to argue for why we should adopt policies that sound morally right but have nasty economic consequences.
>I assume by 'proper' property taxes you mean 'the way the US does things'. I'm not sure that it would work in the UK with our different economics, system of government and geography.
Olicarchification, the new gentrification, is a bitch. What do all of these "successful 'creatives' (architects, cinematographers, commercial and television directors, etc.)" think happened to the people that were living there before them?
"When you have a bejeweled, buckle-shoed duke willing to pay 11 or 12 times the asking price for a block of renovated brownstones—and usually up front with satchels of solid gold guineas..."
What do you mean the new gentrification? Creatives have always been a step in the march of gentrification, roughly approximated as "poor => creatives => wealthy"
I think most people would be able to deduce that those people who were living there before moved somewhere else. If you can't use money to buy things that lots of people all want, why bother to earn the money in the first place?
This "elephant" is a racist opinion of your own making. Parents want to send their kids to a school where their peers will influence them to be good students. And as anyone who has gone to a largely "non-ethnic" school can attest, the racial makeup of the student body is far from a guarantee.
How is it racist to point out that out - what next being called racist for pointing out that BME people that get stopped and searched more than whites?
The guardians own articles on property make a point of highlighting "good" schools when they cover an area?
Parents good intentions can often go out of the window when it comes to their children - I recall my mum commenting that if we had stayed in Birmingham she woudl have tried to get me into King Edward VII via family connections.
King Edward VII being the top selective school in the UK
And yet everybody who can afford it, sends their kids to private schools in London. Heck - I know people who sold their house so that they could pay for private schools.
The intent usually seems to be to get one's chidren surrounded by primarily middle-or-better class children, not to keep their schooling racially and culturally pure.
I don't think the original post indicated a desire to keep one's children "racially and culturally pure" but rather to avoid sending one's children to schools with large number of non-Whites, for any number of reasons.
It's not a race thing but rather class. People want their children to go to school with отчер kids who are smart / motivated to succeed - hence will focus on school.
Best determinant of that are the parents themselves. So private schools end up being essentially a sieve that checks parents. In the US parents move to the suburbs with high local taxes that fund good schools for the same purpose.
A great thing about moving to the suburbs (from Zone 2 to Zone 5) which I didn't consider before, was that now in the morning I always get a seat on the train, so I can immediately get my laptop out, and the journey disappears. Definitely worth the extra 7 minutes train journey for me.
A lot of people move out of London when they have children. Inner city schoolkids are scary, many don't want their children growing up being mixed up with gangs. I know I didn't.
The problems of the London (and UK) property market go back to the days of Margaret Thatcher. Selling council homes, abolishing rates and low interest rates and deposit requirements have stacked the cards in favour of the few. Effectively we are borrowing from the grandchildren with the property bubble.
The property bubble received a boost with the dot com crash as it was the only outlet for speculative capital. There have been some dips, however, house price inflation is never seen for what it is - inflation. In fact it is kept out of the headline inflation figure. You can have housing go up 10% a year and inflation be at 2% - notionally. When 25-33% of people's income is spent on housing you would expect that if that cost goes up 10% then the overall inflation would go up by at least 2.5% even if everything else, e.g. food and fuel was static.
In the UK we need to look at what our European neighbours do and borrow a few ideas from here and there. For instance in Switzerland foreign nationals need to live there for five years to buy a house and even then they have to actually live in it rather than rent it out. They also have a sizeable tax on owning a property equivalent to its rental value. Consequently the house price inflation in Switzerland is practically non existent and most Swiss people rent. They live like kings compared to most Londoners and don't have a bee in their bonnet about having to be 'on the housing ladder'.
In a world where not everyone has a roof over their head, homes should be homes rather than speculative investments for the work shy. Something has gone wrong with capitalism if it makes more sense to invest in property than to invest in the bank (low risk) or the stock market (some risk).
"Something has gone wrong with capitalism if it makes more sense to invest in property than to invest in the bank (low risk) or the stock market (some risk)."
This macroeconomic observation is probably the most important observation in the whole discussion. When the best thing a people can do with $1M is very expensively (high transactional costs) trade non-productive real estate with each other, that implies an economic collapse in the future, or at least an anticipated one.
In a part of the world with (rightly?) more optimism, $1M would be dropped on something productive. Small business. Going in as part of a medium business. Stock in large businesses. Bonds in huge businesses. Productive assets of some sort not a depreciating liability like property.
Now what happens to prices when that collapse occurs, and what is the demographic characteristics of the bagholders being set up to be holding the asset when it's price collapses?
I'd be too nervous about renting into my old age. Who's to say the govt in 20-30 years time won't have a more capitalist outlook and allow rents to rise with rises in property prices and price you out of your home? I agree foreign ownership should be limited, but I think there will always be local demand due to people wanting security for themselves. But maybe this is a UK style view-point (I'm not British, but live in London), maybe the Swiss have faith that renting for the rest of your life is safe enough?
the tax figures quoted are nonsense. They are for council tax - paying to have your bins collected, and in London only the subsidy for the tube and busses - not all the taxes you have to pay for living in the UK.
If you rent the property, your rent income would be subject to income tax which is a % of the income (depends on the total income, but for large enough values will be 40%.)
Additionally, when you buy or sell a house, you must pay "stamp duty", which is a percentage of the sale value, and for a £30m house would be 7%, or £2.1m [1].
Alas, I'm sure there are ways around it. This is mostly why I'd classify any time money went from a "company" into a personal bank account as "income" and tax all that at one rate - dividends, salary, rent, all one income. The one thing I'd allow to be exempt would be pensions contributions - which you will pay tax on later when you draw them out again anyway.
I wish politicians could see past all the separate groups of voters they can bribe with exceptions and tax credits and just implement something simple and cheap to administer - more money for public services, less faff.
If markets work, you don't need to incentivise - Risky investments pay out more when they do succeed.
If markets don't work yet, fix the failures with regulation until they do. No need to incentivise behaviour through taxation.
edit: my principal reason for believing it's better to do things this way round is cost: re-writing the rules only costs you (us, the government) money once, and it works forever. Writing an exception in costs you money once to write the exception, plus every year in lost revenue.
Actually I was trying to use a coding analogy to explain to a technical audience. I apologise, should all future contributions be in the form of a mathematical proof? perhaps latin?
Seriously, you have no idea what an economy would do given different changes, as no one has tested it - we don't have any good[1] evidence for anything at all in the sphere of economics, except perhaps that people don't behave as economists model them.
As I said in my previous answer, different levels of risk are given different levels of reward already; changing the tax level of each won't make any difference, relatively speaking. (I won't bother explaining how VC funds spread risk to make it acceptable to lay-investors, because you doubtless already know.)
If markets are to be trusted for anything, putting correct prices on different levels of risky investment should be it. If not, as you say, no one would ever invest, and we would need to ask the government to run all our industries for us.
[1] from the point of view of physicists who actually care about uncertainty values.
I'm about to give up on London and move to San Francisco. Both cities are experiencing 10%+ house price inflation and all the pain that goes with it. New York has experienced much the same since the 2008 housing crash. Cities are in, suburbs are out. So I have trouble buying the hypothesis that London's increase is due to its use as a quasi-currency or foreign demand. The demand to live in London and other world cities is common and organic. I don't doubt the UK's retrogressive tax policies encourage more investment than normal but that's not the centre of the demand, nor are Eric Schmidt or Michael Bloomberg legitimately competing with me for housing.
I work in London but couldn't imagine living there - not because of the cost but because it feels so claustrophobic. I live in the Suffolk countryside, and am grateful every evening when on the train that I can escape. Cambridge is close enough to provide most of the amenities of London but on a human scale.
I'm glad you can afford it. We'd like to move to Cambridge but the house prices are even more than where we are in the South of England. We're having to think of somewhere further north or less sexy...
I'm pretty sure timthorn means he's living (not in Cambridge, but) somewhere in Suffolk, and can go to Cambridge for shopping, cultural events, etc., in the same sort of way as someone nearer London might go to London.
Cambridge itself has really expensive housing, not as bad as London but still very bad; think San Francisco as opposed to New York. But there are plenty of places within reasonable reach of Cambridge that are much more affordable. I live in a nice village about 7 miles from the centre of Cambridge, and prices there are 2-3 times cheaper than in the centre; move further out to somewhere that's not so much "one of the villages around Cambridge" and prices go down by another 1.5-2x.
Look back 30-40 years:
* Places like the Lower East Side of Manhattan were magnets for broke artists because they were dirt cheap places to live.
* San Francisco neighborhoods like SOMA were similarly inexpensive. A few people with meager incomes could go in together and rent a warehouse to live in.
* London had numerous squats: housing stock so unvalued that it wasn't worth stopping people just moving in for free.
Think about property values in those places today.
In the past 60 years we've witnessed a remarkable cycle. First you had the "white flight" to the suburbs starting in the late 1950s or so. By 1980 the general consensus seemed to be that central cities were doomed forever to poverty. Now the trend is reversed and people want to pour back in. However, the regional population is much larger than when this cycle started so central housing has become a scarce resource.
The article is mostly about forces particular to the London market though. It is amazing how high property values have gone there. I live in San Francisco so I think I'm fairly accustomed to high prices, but visiting London and seeing mews houses going for £3m still blew my mind. Another peculiarity of the UK market is that a lot of property trading are just leaseholds, so you don't even really own the house after you "buy" it. (There are "freeholds" for sale as well, but that's even more expensive) Lovely city, but it does make you poor.
Actually it totally cycles. Availability of cars as well as a government policy encouraging home ownership (cheap loans) created a shift of people moving out to suburbs. If you're really familiar with the biggest cities, you can see this shift over time and it happens with subways and commuter rail lines too. Certain areas of New York's outer-boroughs have seen large shifts in class/demographic over the past 200 years. Coney Island used to be a resort/hotel town for the mega rich. With cars and the completion of major highways, the rich moved out to Westchester and Long Island. The subway eventually reached Coney Island and it became a poor neighborhood. It is now starting the swing back the other way because of new construction and the convenience of the Q line. The biggest shift happened right around when the subway lines were first connected at Times Square and the companies merged.
Moscow realty is Russia's reserve currency for ten years now, what's so surprising with London?
"They accept that their children will never be able to afford to stay on in the city."
The reality of new middle ages when who you are is defined by what you inherited, not by your skills.
I've lived in Shepherd's Bush and to the south by train. The commute from the 'burbs is grueling, but the cost differential is hard to ignore. (Hotels in London are naked extortion.)
The palpable sentiment is the average person is walking a razor-thin financial tightrope.
One soultion would be to have a tax on empty properties, and tax rental income in bands simular to tax duty. This would then make property a worse investment, and increase the supply for people buying.
Obviously you would want this to come in slowly so it doesn't cause a crash.
I guess government isn't around long enough to do this, and no one wants a crash on their watch, so are happy to let it continue.
A bit more background on the numbers mentioned in the article and some personal thoughts:
- Non-mortgage sales of houses/flats in the highest price areas in central London (e.g. SW1 / SW3, SWxx plus parts of inner, East and North London) are now more than 80% (that is most likely the cash figures referred to) - people / non-first time buyers are shelling out funds here of almost always more than £1M for small flats - houses from £2M - both up to £30M and more)
- The total number of property sales is about 50%-60% of the volume of pre-2008/9 sales.
Given the broad scale of house prices in London (e.g. £1M - £30M+) and similar high prices in some of the fringe areas (where top price areas also command house prices > £20M), IMHO this only means that there is massive (almost tax-free) inflation-hedging for many that are profiting from the gains of the financial markets in the last years / decades - in other words £1M is the new £100K from e.g 20 years ago.
While the times might have passed when buyers showed up with bags full of cash and could legally buy real estate in the UK / London - no questions asked rendering all global money laundering regulations nil and driving property prices up to previously unseen levels (the commonly used cliché would be a Russian "business-man", but same applies to anywhere where people got hold of truckloads of cash from whatever sources), the UK/London is still a tax heaven for many, particularly European buyers (e.g. Germans because of loopholes in tax legislations / double taxation laws can reduce their taxes massively some close to zero).
Besides the above I believe the following key drivers are visible:
- Central locations in mega-cities like London are getting more and more expensive by the sheer demand (more people than 20 years ago, globalisation) and limited supply.
- Since years in the UK, many, that have made huge profits in financial markets, have exchanged those into tangible assets like property - another indicator for that would be land / country estates with large amounts of land all selling at multiples of years ago. This is not the first time this has happened, in centuries before whole areas in London were built by financial investors / people that have profited from massive financial gains e.g. on the stock exchange. IMHO this also clearly demonstrate that many of those DO very well know they are trading hot air.
- Most of the middle-class children/20s today will be substantially poorer than their parents as they will not be able to participate / gain profits e.g. in housing, but instead will have to pay substantial amounts of their income (if not inheriting a property) for living / housing expenses. One more reason for this is also that huge financial profits today are not shared as broadly as these were e.g. 10 years ago via bonus pays, salaries.
Generally speaking (all the above epitomized) - if you don't have the money to live comfortably in London but have to work for it, London becomes less-and-less attractive now even to middle class people with income levels beyond £150K p.a. - others in services jobs, nurses, teachers, etc are since years not able to live in London anymore - add the changes in living subsidies since April this year when the UK started to "deport" low income families from London to Manchester, Birmingham, the North, the recent Red Cross figures of more than 100 Million people in Europe having no money to buy food and you get a more holistic picture what actually is happening.
The rich of course will continue to use their capital to skim the profit and secure their status, and the poor will continue to vote in councils that provide social housing and benefits.
I'm one of those who is in the middle and work; I rent in an up-and-coming area (i.e. people look down on it until they come here) and rent is going up 8 times salary. We are already at rent being 30% of combined salary.
I won't be in a position to get social housing, so I'll be forced to move in a few months either further out (so travelling will take longer and be more stressful, and the working day longer) or move somewhere less appealing.
Property in London is controlled by the super rich who realise its easier to have their current investments increase in value by lack of supply than it is to fund property development. The shortfall in housing in London will be one million homes by 2022! The free market is supposed to mean that supply will rise up to meet demand where possible.
The little property development that does go on is usually done by block selling hundreds of apartments in new builds off plan to investors from Asia/Nigeria etc. who in turn get them rented out, or insane apartments that are sold to Russians and Arabs for £100m+ pulling all other property prices up.
I think that early stage tech entrepreneurship in London will be a rare thing unless you can live in your parents house and live like a student in the near future, or you will end up giving away so much capital just to survive.
The more I read about Berlin the more I see it as being the future of tech in Europe; creative, cheap property and offices (in comparison), intelligent people and cosmopolitan.