The concentration of wealth – and property wealth in particular – in Britain’s south-eastern corner is hardly a new phenomenon. In the aftermath of the financial crisis, however, the gap between London and the rest has widened further and faster than ever. Left unchecked, the “two-speed” housing market increasingly in evidence will not only exacerbate social divisions; it begins to undermine the very notion of national economic policy. Whatever else, then, it cannot continue to be ignored.
The regional divergence is staggering. According to Savills, the past five years have seen average house prices in the capital shoot up by 15 per cent – a gain equivalent to the total value of all the residential property in the north- east. In some areas, prices have ballooned by as much as half, with the result that the 10 priciest London boroughs now have a property price tag equal to that of Scotland, Wales and Northern Ireland combined. Yet across much of the rest of the country, property values have fallen steadily since the bursting of the credit bubble in 2008, and in the worst-hit areas prices are down by as much as 50 per cent.
The explanation? A steady stream of wealthy investors from abroad pouring into London and pushing up prices not just at the top, but all the way down the chain. That Britain is so open to foreign investment is no bad thing in itself. There is much to be gained from London’s status as a political and economic haven. From the “multiplier effect” of well-heeled new residents’ spending on goods and services, to the boost to British competitiveness in the ever-sharper global race, London’s reputation as the world’s most international city is to be cherished, not bemoaned.
But there are also downsides. For Londoners, the influx of the super-rich means many people priced out of the housing market, fuelling a boom in the rental sector. The cracks are already beginning to show, with rents spiralling and reports of unscrupulous landlordism on the rise.
For the rest of the country, the over-dominant capital not only sucks in an ever greater proportion of resources, it skews the picture of Britain’s economic health. Take London out of the equation and the picture of Britain’s housing market is quite different. Supposed national policies on interest rates, say, let alone housing itself, become increasingly tricky to apply.
In fairness, the Government is not entirely sitting on its hands. Last year’s Budget did hike the stamp duty on houses sold for more than £2m and clamped down on common avoidance tactics. Securing a larger chunk of sale values for the public purse is no comprehensive solution, though. And although the Chancellor has, thus far, eschewed the introduction of a so-called “mansion tax” on super-high-end property – levied through the introduction of a supplementary council tax band – the case in favour is only gaining strength.
Improvements in transport infrastructure, not least the proposed high-speed train line, might also help. The immediate priority, however, must be to tackle the shortfall in supply. And that means building more houses. Despite attempts at reform, the planning system is still sclerotic, counteracting any boost from, for example, subsidies introduced to encourage new developments. Meanwhile, for all the complaints that the South-east is already over-crowded, there is in fact no shortage of either brownfield sites or vacant property. In London alone, more than 72,000 homes stand empty. It is here that efforts must be concentrated if the inflated property prices of the South-east are not to become socially, politically and practically unsustainable.