Big Capital: Who Is London For?
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London - the destination of choice for foreign investors and the new global elite of oligarchs, billionaires and the super-rich
London’s much-loved skyline is being transformed by one of the greatest waves of new construction seen in the city.
The rate of return on London property far exceeds growrh, let alone wages.
I hope to expose the lie that the housing crisis is a market question of supply and demand.
The UK housing market doesn’t function like a pure market: it is linked to global capital flows, not local circumstances.
The UK housing is now, first and foremost, a financial asset, a safety deposit box for the super-rich and investors.
Public housing accounted for a huge proportion of British housing throughout the twentieth century. Since the 1980s, it has been steadily removed from the system.
During the 1980s a decision was taken to cease building housing for those on lower incomes, the profits of the top five biggest housebuilders increased by a staggering 480 per cent between 2010 and 2015.
Today, capital flowing to every aspect of land, property and housing means a system failing to meet the needs of people.
Why is this happening? And how can we change it, so that housing becomes about people rather than profit?
The UK is a prime destination for corrupt individuals looking to invest or launder the proceeds of their illicit wealth, enjoy a luxury lifestyle and cleanse their reputations.
London is the world capital for corruption and money laundering, the proceeds being funnelled straight into the super prime and prime property market.
44,022 properties in London are owned by overseas companies, with nine out of ten of these being bought via ‘secrecy jurisdictions’ such as the British Virgin Islands.
Russian billionaires are far from the only ones who see London as a ‘safe haven’ for their money,
Tiers of middlemen create a shroud of secrecy that has come to characterize the top end of the market.
As to the relationship between foreign wars and London property, one feeds the other - ‘every mortar bomb in Libya adds £1/sq foot to investments here’.
*** Rather than acknowledging the inflationary impact of global capital on London rents and house prices, the housing crisis is framed simply as a matter of supply and demand.
This is the line peddled by Conservative politicians and many from other parties, who would have us believe that if we just build more homes prices will come down.
The way global capital distorts the housing market in London, with knock-on effects for the rest of the UK, happens through a process of ‘trickle down’. It is the case that wealth does trickle down, but rather than benefiting the less well-off, it displaces them.
Residents of social housing forced out of their homes as estates are razed and luxury flats arise in their place.
The demand driving the housing market and trickling down throughout the city and the rest of the country, is coming from what are known as ‘High Net Worth Individuals’ – in excess of 500,000 in the UK, mostly in London.
These have seen their wealth increase significantly since the financial crisis, boosted by the policy of Quantitative Easing, introduced by the Bank of England.
This influx of capital has fuelled the property market since 2008.
London property is now the most sought after in the world.
Super-rich clients, when asked what could change London’s position, were clear that tax and regulation were top of the list.
London’s relatively lax tax laws for foreign corporations and individuals and its strong links with offshore dependencies have led to claims that the capital is now the biggest tax haven in the world.
25 per cent of residential properties in Knightsbridge and Belgravia are empty most of the time, rising to 40 per cent in the West End?
The most exclusive parts of the city are almost entirely deserted and shrouded in darkness by evening.
The super prime market displaces established communities to new areas, driving up property and rent prices elsewhere.
Current policies are geared to attracting foreign investment and building luxury apartments rather than affordable homes.
It also impacts private tenants on housing benefit, who get pushed into shocking conditions in temporary accommodation.
Very large injections of global capital into London’s safe haven, including corrupt money, have combined with quantitative easing, limited regulation, flexible employment and some of the lowest corporate tax rates in the world, to transform London in under a decade.
How did we get to this point, where house prices and rents are unaffordable for the majority?
Between 1945 and 1980 hundreds of thousands of homes were built every year, approximately a third by councils and two thirds by the private sector.
In 1978, the last year before Margaret Thatcher came to power, the government built 100,000 council homes and the private sector built 150,000. There was no shortage of housing.
Since 1979, while private sector house building figures have remained about the same, the government builds hardly any.
Margaret Thatcher’s flagship Right to Buy policy that saw the sell-off of millions of council homes, which began in the 1980s and continues to this day
At the time the BBC reported: ‘The government believes the bill will transform the social structure of Britain for good,’ whch it did.
Shelter predicted the outcome would be housing shortages and homelessness, closer to what we see now.
The UK builds the smallest homes in Europe, often to poor standards. This is the result of a system which encourages competition between developers to focus first and foremost on acquiring the best land sites rather than on producing the best product.
The free market answer to the malfunctioning planning system is simply to remove it, loosening regulations as much as is politically possible to make it easier for developers.
Many British towns and cities also found themselves with a glut of empty apartments, and thousands of luxury apartments lie empty and unsold.
If we want housing to be a public good, we need more democratic control, not less.
While housing has long undergone a process of stealth privatization, this accelerated sharply in 2010 when the Conservative-led coalition came to power - many leading Tories simply don’t believe in social housing.
The contradictions of today’s planning system and the failure of the housing market to provide anything like the number of homes people need have preoccupied successive governments for the last twenty years.
It is central government which has relinquished responsibility by effectively removing any mechanism to get developers to share the massive profits they make with local communities.
Britain’s biggest housebuilders are sitting on enough land with planning permission to create more than 600,000 new homes.
The number of plots approved for residential development each year rose by 59 per cent between 2011 and 2015. But the number of building starts rose by just 29 per cent.’
The Conservatives appear to be hoping for a return to the 1930s, before we had a functioning planning system, while people are in desperate need of housing, housebuilders are laughing all the way to the bank.
End-of-year profits for the five biggest firms rose from £372 million in 2010 to over £2 billion by 2015, a staggering increase of over 480 per cent.
Community benefit has made way for profits of billions for the housebuilders.
On top of all this comes the Housing and Planning Act, seen as the final nail in the coffin for social housing.
Writing in the Guardian after the bill passed into law in 2016, Kerslake said: ‘I have reluctantly come to the conclusion that for the leading figures in this government, publicly provided, social rented housing is now seen as toxic. This is something that I deeply regret.’
Planning academics describe the Act as no less than ‘an attempt to destroy any form of democratic control of planning and land use’.
Atwo-bedroom apartment on Elephant Park cost anything between £750,000 and £1 million, with 100 per cent of the apartments in the first phase sold to foreign investors.
As communities are broken up and tens of thousands of people displaced, this is another defining feature of London’s housing crisis.
Today, the result is the determination, openly admitted by many in government, to get rid of social housing altogether.
A key incentive for developers and local authorities to pursue demolition over refurbishment is the fact that new-build homes are exempt from the 20 per cent VAT that refurbishment is subject to.
Lack of real democratic accountability has long been apparent in the private public partnerships which have characterized housing throughout the UK over the last twenty years.
Many stock transfer ballots were carried out amid accusations of ballot rigging in local authorities around the country.
Failure of democratic representation for local communities, and the dirty tricks that go with it, is becoming standard practice.
As social housing becomes a relic from the past, more and more people on housing benefit are being housed in the private rented sector, with over a third of all tenants on benefit in the UK renting privately in 2016.
London’s Poverty Profile estimates that there are 860,000 people living in poverty in the private rented sector.
This crazy situation is the consequence of making a dysfunctional market system the ultimate arbiter of housing for the poor.
It’s not immigrants and those on low incomes who are responsible for the housing shortage. It’s the fact that, when it comes to housing, the market is unable to serve the public good.
The state has no responsibility to house homeless single people or childless couples.
Two other key policies introduced by Margaret Thatcher’s government, Right to Buy and Buy to Let, interact with the way housing benefit operates today to push rents up.
The amount paid by the taxpayer to private landlords doubled from £4.6 billion in 2006 to £9.3 billion in 2016 - the economics a nonsensical waste of taxpayers’ money.
200 landlords and lettings agents across the country have received more than 1 £million in housing benefit over the past three years.
The bedroom tax created a storm of controversy – but little change to the policy.
Although an effective means has been found of clamping down on terrible housing conditions, the government does not support it.
As home ownership falls and social housing is eradicated, expensive private renting is becoming the only option:
Today, 11 million people in Britain rent privately in an overlapping series of submarkets ranging from the poor conditions and slum housing at the bottom end to student accommodation, micro ‘pocket living’ flats, apartments for professionals and luxury housing at the top.
The major concern for the government and employers in London is that people will simply not put up with the extortionate rents and leave.
The vacancy rate for nurses at London’s hospitals is 14–18 per cent and the number of entrants to teacher training has fallen 16 per cent since 2010.
Philip Hammond banned lettings agents’ fees in his 2016 Autumn Statement, which is the biggest victory for private renters to date.
A key reason for this political failure is that ‘people who don’t experience this issue are in charge’, a third of MPs are buy to let landlords.
When individuals lose their homes, they can lose not just their physical shelter but their entire world. Nothing is more devastating to people than losing their identity and that is very closely tied up with home.
Who is the city for? Is it for teachers, doctors, taxi drivers and families or is it just for wealthy finance professionals and young people prepared to live in micro flats or substandard accommodation?
Only a paradigm shift in British housing policy will be able to address the housing crisis and the failure to provide homes.
The planning system is not equipped to deal with the severity of the situation.
Given the extent of the challenge, and the direction of travel of current policy towards yet further financialization, enabling this shift in political culture cannot be separated from the vital importance of democratic renewal.
Throughout the UK, there is a renewed enthusiasm for local and national politics, partly in response to the feeling that the views of local communities are not listened to.
But democratic renewal cannot be just about protest, it must also involve a rethinking of our institutions, particularly with regard to a media in which standards of journalistic scrutiny have collapsed.
The London School of Economics collaborated with housebuilders Berkeley to jointly publish ‘New London Villages’, a report which echoes the language of the pro-estate demolition lobby.
The failures of the mainstream media must be at the heart of attempts to renew democracy.
Rewriting the social contract with regard to property and planning is the biggest challenge we face in order to address the housing crisis.
The marketized housing benefit system is leading to a dangerously inflationary market that utterly fails the people it is designed to help.
The paradigm shift which requires a new social contract to control foreign investment and fix the broken planning system, housing market and benefits system, is surely the long-term goal in the UK.
All across the West politics is changing and while nobody can know what the outcome will be, there is no doubt that the speculation in property, land and housing will be at the centre of it.