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Why only UK taxpayers should own UK homes

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  • Architecture & built environment
  • Economics and Finance
  • Cities
  • Housing

The housing crisis is more than a mere shortage of houses. Too few homes is just a different way of saying too many buyers, but it has been taboo to question who buys UK homes and why. Surely the Panama Papers revelations about the London property empires of an international rogues’ gallery of crooks, despots and oligarchs is a game changer. It’s time to send a clear message that the proper use of UK homes is for UK residents to live in.

There is no doubt that the housing crisis in London has become too big to ignore, with 50 business leaders issuing a stark warning that it is an existential threat to London’s success. London is not the only place where Generation Rent faces an impoverished and insecure future because of the dysfunctional UK housing market. In St Ives, a seaside idyll to London eyes, local frustration with homelessness co-existing with darkened, empty second homes has prompted a forthcoming vote on restricting second home ownership in the town.

The stock response is “build more homes”, and of course we should endeavour to do so, but this is not going to solve the problem by itself, and it cannot relieve pressure any time soon. The causes of the housing crisis are manifold: it is a 'wicked problem'.

At a minimum any successful long-term reform must address: patterns of land ownership, lack of effective competition in housebuilding, cumbersome bureaucracy, tax policy, bank and credit regulation and social and cultural attitudes. And it must address these factors simultaneously in a holistic package of policies. Prepare the pigs for take-off.

For now, we must seriously question the most unnecessary and unproductive distortions to the housing market and this is where the Panama Papers come in.

Let’s leave aside for now how distasteful it is for UK property to be used as a store of wealth for criminals and dictators. With over £100 billion of London property purchased by foreign buyers in the last six years alone, it highlights a broader economic distortion too. The use of homes as a speculative asset for global elites stands in direct opposition of the use of homes for people to live in. This happens in two ways.

First it results in more empty homes, because such investment properties are rarely lived in as a permanent residence. This is a woeful misallocation of bricks and mortar that should be employed in its intended use as a home.

Second, it contributes to pushing up the price of all housing beyond its natural level and creates a chain reaction whereby professional workers who used to be able to afford to live in Zone 1 and 2 in decades past are pushed to Zone 3 and 4, displacing less wealthy Londoners further out and so on. Ultimately, the upward pressure on house prices ripples out down the rail commuter lines into the home-counties causing affordability problems for locals who do not earn London salaries. And although many workers choose to commute there are also many who would happily move closer to their London jobs if they could afford to, relieving the South East’s creaking transport infrastructure and releasing time for something more fun than travelling to and from work.

So if we need to choose between these two uses of UK houses – as homes for UK residents or stores of wealth for global tax dodgers – which should we choose? I hope the former is the winner but as ever the real question is the practical one. What can be done?

Here is an idea: only UK residents can own UK residential properties. Let’s look at the detail of how this might work.

Who is a UK resident?

This would include all social landlords, local authorities, UK domiciled companies and organisations and of course UK citizens. Importantly, it would also include non-UK citizens who are resident in the UK for tax purposes and those who are not ordinarily resident here but choose to make the UK their tax domicile, bringing their worldwide income and assets within the remit of UK taxation. Note that this is not ‘anti-foreigner’ or aimed at preventing non-UK citizens coming to work in the UK. Quite the opposite – it is aimed at ensuring they can find somewhere to live when they get here.

What is a UK residential property?

This should be straightforward – any property classed as C3 or C4 under the Town and Country Planning (Use Classes) Order 1987 (as amended).

What would happen?

This would mean that if ‘non-doms’ wish to own a house in the UK they will have to show their commitment by choosing to pay UK tax. They are free to choose not to, and sell their residential property.

All of the offshore-owned properties that serve as secret lock-ups for global criminals will have to be sold. As well as bringing empty homes back into use this would help end the stain on Britain’s reputation of being one of the world’s favourite money launderers.

If the legal mechanism to force sales in this way proves too troublesome, particularly if provisions on home ownership cannot be applied retrospectively, very high annual levies on land values for non-UK resident owners should achieve the same result and bring in much needed tax revenue in the meantime.

Would this cause a housing shock? Any policy proposal developed along these lines would have to assess this. Certainly luxury property prices would fall, but by the time this rippled down to the kind of 1 to 4 bedroom homes that mere mortals aspire too, the pent up demand should cushion prices from any great fall.

One other potential benefit? If the secret owners of any of these properties choose to reveal themselves as UK residents and taxpayers who have earned their wealth in an honest fashion this would be something to celebrate.

Welcome home.

 

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  • Sounds like a sane start to a very pressing problem.  Gentrification cannot be compared to the mass buying of property off plan. Moving into an area speculatively, contributing with your presence at local shops and bus stops, helps bring life and security to the streets.  Buying off plan speculatively, without contributing in other ways to the local community, doesn't build and maintain a community or ultimately a city. 

    I grew up in London, in Tower Hamlets, it's a place built on communities coming and going, replacing each other.  When I recently enquired about a small development in Limehouse I was told the properties were being marketed in Malaysia, a tiny number of units were for sale locally.  This land is a non-renewable resource, how can it be sensible to remove it from local use?  

    • Your story illustrates the problem perfectly Angelina - thanks for sharing it.

  • Australia introduced something very similar last year and it seems a logical short term solution to ease the rate at which house prices may increase.

    • Thanks for pointing that out Aaron - I will take a look.

  • Will this be reciprocal?  A lot of UK national own property in France, Spain and Italy. 

    • A good question. Given the property market conditions in those countries they might be unlikely to need, or want, to bring in similar rules but in areas where markets are overheating, they might well.

  • I think this is a well written blog. The things that have skewed the housing market are: (in my rank order)


    a) Low Interest rates for buy to let - meaning money piled in here rather then productive areas of the economy. It also doesn't help creativity as people opt to put money into this rather than starting innovative and societal beneficial business/social enterprises. The gov 0.5% rate should never have applied to residential mortgages only to businesses. 

    b) Building affordable property (due the effective monopoly of the house builders, who seek the best margins). Lets get more innovative house builders who can build cheaper and with high quality. 

    c) Overseas buyers who buy and hold purely for investment. They have no connection with the UK and hardly even visit. (Your point)

    d) Lack of land to build on. Cheap/free land to build on would create an instant impact.


    All past and current governmental policy is to trying and keep house prices rising/high, rather then keep them in relation to income. This is because of the need to get votes from property owners. However the next generation (and that includes my children) is going to be in desperate straits with high debt, high house prices, high rent. How will this encourage a creative and innovative economy unless financed by the bank of mum and dad (for the fortunate only!) 


    • Thanks Ketan. Adair Turner articles similar arguments to you in "Between Debt ad Devil" - look out for our public event with him and John Kay discussing reforming the financial system.

  • Hallo.

    Fun fact - my mother (trainee actress and poorly paid teacher) had a bedsit in Knightsbridge in the 1950s.

    But my main point, apart from supporting Tony's harder stand: I was reading the blog whilst thinking about the whole debacle of corruption in the UK: 


    Then I was looking at the 'new China Town' NorthPoint / Liverpool City Council development.

    http://www.northpointglobal.co.uk/project/liverpool-chinatown/

    New Chinatown | North Point Global

    www.northpointglobal.co.uk

    North Point Global has been chosen by The Mayor of Liverpool to deliver the comprehensive regeneration of Europe’s oldest Chinatown. The massively


    It just so happens I attended a poorly advertised and poorly attended 'consultative' meeting with the developer last year, they stated that most if not all of the purchasers would come through a Hong Kong broker.

    When asked how those buyers would occupy the properties they said something (fairly unbelievable) about accelerated visa conditions for people buying businesses and apartments in the development from overseas.


    One elderly ChinaTown resident pointed out that the knife like edge to the development was anti-fengshui.They said 'easily changed'. Of course, it hasn't been changed. See image.

    When asked about sustainability ratings, they said they couldn't really afford a 5-6-7* rating. And clearly the Council isn't asking them to provide one.


    Anyway, you see my drift. What are these developments actually for? Really for Liverpool residents? Doesn't seem likely. And probably not any residents if they are all being bought through Hong Kong based agents. One of the problems with offshore investment from the Mainland via Hong Kong is that Chinese buyers are unwilling to rent out as that renders a property second hand.


    Is this a larger story about China towns  and investment in the UK?


    (I don't think it passes the post-Panama sniff test.)



    Stephi

    • I think you raise a really significant issue. If we are building properties aimed at overseas investment buyers this must surely be the result of distorted economic incentives. We are letting domestic Chinese credit policy and housing bubbles dictate the type and quality of our own housing stock. We may not therefore be building the right kind of homes to meet the longer term needs of residents of Liverpool or anywhere else. And foreign investment money can often dry up quicker than it appeared, causing or exacerbating domestic economic cycles. 

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