A recent study by King’s College London has cast a very interesting light on the UK property market and the impact that foreign investment has had over the last 15 years. The report suggests that UK house prices increased by 20% over the last 15 years as a direct consequence of increasing foreign investment. The average price of a UK home at the moment stands at around £215,000 but, according to calculations by King’s College London, would have been around £174,000 without overseas investment.
It may surprise many people to learn that while London has historically grabbed the headlines as the major UK market, and a recipient of significant overseas investment, it is house prices in the south-east and major cities of the north which have been impacted most.
The likes of Liverpool, Leeds and Manchester have undergone major redevelopment in recent years much of which was funded by foreign investment. Indeed the ongoing creation of the so-called “Northern Powerhouse” has yet to get off the ground but will no doubt involve a degree of foreign investment.
One of the major bones of contention that many critics of overseas investment in UK property have repeated, time and time again, is the assumption that they have in some way increased the number of vacant properties across the country. We know there are properties in London which are vacant and often discussed in light of money-laundering regulations.
However, the report by King’s College London found no evidence that foreign investment has had a significant impact on the number of vacant properties. Indeed, there would appear to be evidence to suggest the exact opposite!
We know that property investment focused on specific areas of the UK has had an impact on property prices and forced many people to turn to the rental market. As a consequence, those looking at rental properties and unable to afford an outright purchase are filling homes which may well have been vacant for some time.
So, while many people will always suggest that foreign investment in UK homes has led to a greater degree of vacant properties, maybe, just maybe, we are looking at this from the wrong angle?
One interesting element of the King’s College London report covers the issue of foreign investment and consequential increases in property prices.
After taking into account foreign investment and property prices right across the UK, the report came to the conclusion that each one percentage point increase in the volume share of residential transactions registered to overseas investors equated to an increase of 2.1% in house prices. It will be interesting to see whether this pattern is maintained going forward and indeed whether we do reach a situation where the UK authorities will be forced to introduce Canadian style foreign investment taxes.
There is no doubt that foreign investment has pushed up house prices in various parts of the country but maybe not by the amount critics have been repeating for many years.
Many people forget that while house prices have increased over the last 15 years since 1999 prices have tripled from £70,000 to £215,000, not all of which can be attributed to foreign investment. Again, the commonly repeated myth that foreign investors buy properties in the UK and leave them unoccupied has been dissected.
The report by King’s College London shows no evidence of so-called “buy to leave” investment strategies. At the end of the day, wealthy investors pumping money into the UK housing market are no fools, why would they maintain a vacant property when there is an acute housing shortage right across the UK?