Sunday, 21 April 2013

With the cost of living in London spiralling, the capital will be a Tory city within a decade

In April, figures showed that private rents in London are at their highest ever level, having risen a staggering eight times as fast than wages in a single year.

A recent report from the housing charity Shelter found that in five London boroughs, average monthly rent for a 2-bed property is now 75% or more of local median take-home pay.

This is part of a trend that has been accelerating over recent years, as the prices of London's properties push people that would ordinarily buy into renting. Reports in March confirmed that the cost of buying a home in London is now higher than in 2007, prior to the banking crash. Halifax, in a recent survey, classified 100% of London boroughs as being 'unaffordable' for first-time buyers.

The price of buying property has been driven by a number of factors, including the lack of new house building, the malign influence of the booming buy-to-let sector and the vast bank accounts of the global super-rich.

These last two factors are rarely talked about, but tackling them is crucial to prevent the majority of new houses built in the capital merely being swallowed up into the ever-larger property portfolios of the wealthy - and changing the political character of a city that has tended to lean left, even now.

The global super-rich

The influence of the very rich on London's property market can't be overstated. As the commentator Carole Cadwalladr put it today, "their effect on London's housing market has been nothing less than catastrophic", as she highlighted a study that found that 73% of prime central London new-build homes were bought by foreign buyers last year.

This is backed-up by other recent studies. Last year, Savills announced that almost 60% of buyers in central London areas such as Kensington, Chelsea and Marylebone were from overseas and for 37% of these their London property is not their primary residence.

Research by Camden Council in 2012 found that 1 in 16 homes are left empty by their owners in their borough, many of which would be due to the fact that they are a second (or third, forth) 'home'.

And the trend is set to continue. The number of "prime residential" schemes aimed at the super-rich at planning rose 70% between 2011 and 2012. The effect on inequality in London is startling: a study found that, in 2012, the top 10% of households by property wealth in the capital account for 45% of all household wealth. The bottom 40% have no or almost no household wealth at all.

The journalist Simon Jenkins railed against this recently; the property market, he said, "is clearing streets of their residents. It is erecting tower blocks of luxury flats along the Thames, which will stand as “fiscal launderettes” that are empty of occupants...These properties are not sublet. They pump no money into the local economy. They are Midas properties, a banquet of solid gold that is uneatable by anyone. Boris Johnson’s theory that these people are “bringing wealth to London” is laughable. They are stashing it here, that is all".


But-to-let

Another key factor in the crisis in housing in London is the impact of buy-to-let. Despite a dismal set of lending figures by the banks to first-time buyers, 2012 saw a 15% rise in buy-to-let mortgage approvals.

Underlying this is the fact that many first-time buyers, often with a good income, are unable to afford the huge deposits required to buy a house in London. Recent figures showed that an average first time house buyer would need to save for 24 years to accumulate the deposit required to cover a home in the capital. And, the forecast is even bleaker for those seeking to get a home of their own: the average deposit for a house in the capital is set to rise to a jaw-dropping £100,000 by the end of the decade.

On the other hand, buy-to-let landlords have the capital - and access to the best bank rates. For many sellers, the stability offered by this group of people is attractive. And so first-time-buyers are disadvantaged yet further.

London: a true blue city?

There is an array of policy tools available to tackle this problem. To address the cost of house purchases, a government could tackle offshore companies acting for anonymous overseas buyers, allowing money gained in potentially the most toxic ways to flood the capital.

To help reduce and control the cost of private rents, there is the option of a New York-style cap on rents and there is the concept of a London Living Rent - both proposed by Ken Livingstone.

To tackle both issues there is the option to levy charges on empty homes, as Camden Council suggested. And there is, of course, the option of increasing taxes on second homes, thus making buy-to-let investment less attractive and reduce the influx of money by the wealthy into properties then left empty. It would also restore life where there is now eerie silence in parts of prime central London areas like Kensington at weekends - or the 'ghost town' effect, as Simon Jenkins recently put it.

So, what does London's Tory Mayor, Boris Johnson, propose to do?

Nothing - as his Deputy confirmed recently.

And yet, why would he do anything? For it this trend continues, London will be a 'true blue' city, populated only by the wealthy, the very wealthy and - just occasionally enough to qualify for non-dom tax breaks - the mega-rich.

It will be, as Giles Fraser, the priest-in-charge at St Mary's Newington, put it, 'a playground for the super rich'. The super-rich that, as another commentator concludes, already "exist in a separate space, behind their gated drives, ring-fenced from the rest, convinced everything is fine".

It will have little or none of the social diversity that has made London such an energetic city, locating as it has done wealthy Primrose Hill next to more down-at-heel Camden and Kentish Town, or, in 1990s and 2000s, trendy, arty Shoreditch next to the towers of the City. It won't have boroughs like Southwark or Wandsworth, that see the rich, the middle-class and the poor live mere moments from each other.

But it will almost certainly vote Tory. And what could be more important to Cameron or Boris than that?

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