London housing too pricey for Londoners

LONDON - It was standing room only: magicians, a kampung troupe, Chinese and Indian drums and hundreds of businessmen vying with one another to catch a glimpse of Malaysia's Prime Minister Najib Rajak and his British counterpart David Cameron as they recently unveiled a massive housing development scheme in London.

Everyone waxed lyrical about the Malaysian-funded project which will revive a site around the disused Battersea Power Station, a mere kilometre from the gilded spires of the Palace of Westminster and the heart of the British capital.

And everyone was too polite to mention that this scheme, like many others, will provide swanky homes almost exclusively for rich foreigners who, in turn, will probably neither live in them nor rent them out.

Welcome to the strange world of London's housing, where foreign investors call the shots, the locals don't even get a look-in and, although voters grumble about a horrid shortage of affordable homes, all British politicians mysteriously get away with doing nothing.

For a foreigner with plenty of cash, plunging into the British property market is a no-brainer.

There are no restrictions on who can purchase real estate, the 7.9 per cent one-off purchase tax is relatively low and the value of the pound has fallen by a third in real terms over the past few years.

A low crime rate, a history of respect for private property and a net return rate of 25 per cent over the past five years make things even more attractive.

Unsurprisingly, foreigners are pouring in: According to the latest statistics, 75 per cent of all new homes on offer in inner London are now purchased by non-resident foreign nationals.

In most cases, these new homes are advertised and sold overseas before locals even hear that they are on offer.

"For a lot of developers, if you can't show that you can pre-sell enough to cover the construction costs, the banks simply won't finance you," the Financial Times recently quoted Mr Rob Perrins, chief executive of Berkeley Homes, Britain's biggest house-builder, as saying.

The outcome, however, is decidedly odd. Take the One Hyde Park development, London's most desirable residential complex in Knightsbridge, where prices start at £20 million (S$39 million) and the top penthouse sold for £140 million.

The place also boasts a jewellery shop and an Arab bank in the entrance lobby, convenient for those residents who want to pop downstairs to transfer a few million from one bank account to another.

But according to tax returns, only four of the 86 residential units are actually lived-in; the rest lie empty, since these were simply bought as long-term investment by people who have other properties in sunnier places than London.

Yet whether foreigners choose to actually live in London, their influx has driven out most local residents.

Property prices in central London are 116 per cent higher today than they were in 2005. And the real telling figure is that compiled by aides to London Mayor Boris Johnson, which show that the ratio between house prices and average earnings has doubled over the past 15 years.

It is almost impossible for someone on an average salary to buy even a one-room bedsit in central London, which costs about £450,000.

And it is also impossible for the local authorities to build public housing: There are 354,000 families on the waiting list in London alone.

Politicians have few solutions to offer.

The government has launched a Help to Buy scheme to support first-time buyers.

The Minister for Business Vince Cable, a member of the Liberal Democrats, has suggested the introduction of a yearly tax on properties worth more than £2 million.

Mr Simon Hughes, the deputy Liberal party leader, went further by demanding the introduction of legal restrictions on non-resident foreign buyers.

But all these suggestions were rebuffed by the Conservatives, senior partners in the ruling coalition.

Instead, they are touting massive building schemes which are unlikely to be realised.

For even if the money is found, there is almost nowhere to build because the British suffer from another affliction: a phobia about house construction on empty land.

While other nations view new homes and amenities as progress, many in Britain regard the loss of even one green field as a disaster.

Most believe that their island-state is already over-crowded, with nature wiped out by concrete forests.

Despite the fact that only 2.4 per cent of land in England is built on, the country remains afflicted with a syndrome which is usually referred to as "Banana": Build Absolutely Nothing Anywhere Near Anyone.

What's more, mention new housing and many in Britain will recoil in horror at memories of the disastrous projects of the 1940s and 1950s which gave rise to soulless, crime-ridden estates.

One result: The number of owner- occupiers is falling fast. In 1981, 57.2 per cent of the British owned the homes they lived in; a decade later, 67.2 per cent did so. But from 2002 onwards the proportion began to fall, by an average of about 1 percentage point each year.

Mr Nick Boyles, the Planning Minister, warned voters recently that if they persist in defending nature at the expense of housing, they will push Britain "back to the 19th century" when only the wealthy could afford their own home.

But the Campaign to Protect Rural England - most of whose members have nice expensive homes in the leafy countryside - branded his remarks as "shocking" and "incredibly irresponsible".

Such pressure groups are being heard because the British public and politicians are deeply divided about what should be done.

Everyone accepts the need to provide affordable homes, but ministers also fear a collapse in housing prices which will affect their re-election prospects, and no politician wants to be seen to be cutting down trees.

Besides, those who already own homes are also those most likely to vote and most likely to donate to political parties. So, doing nothing while blaming foreigners and immigrants for the housing shortage is the default option.

The burden of this mess is ultimately borne by millions of London's office workers, who on average spend about 12 per cent of their monthly earnings and about three hours a day commuting to and from the outskirts where houses are cheaper.

Few of them ever enjoy either the swanky property developments in central London, or the English countryside which is kept pristine, supposedly for their benefit.

jonathan.eyal@gmail.com

Get a copy of The Straits Times or go to straitstimes.com for more stories.