Even before the leak of the Panama Papers this week, we knew it was happening. So widespread is the use of central London property as a safe haven for the spoils of the world’s elite that the government had already promised to do something about it. The problem is, it promised so little.
Last year, speaking in Singapore, David Cameron was forced to acknowledge that foreign investment in British housing stock was damaging to the housing market and provided a cover for illegal activities. He agreed to crack down on individuals and organisations using the mask of offshore companies to invest in the UK property market as a means to launder what he called “dirty money”. He described how London property was being snapped up with “plundered and laundered cash” and promised that the UK should not be a “safe haven for corrupt money”. But it wasn’t enough.
In making the speech, Cameron was responding to a growing realisation that, in ushering in foreign investment, the government had also welcomed in a wealthy elite that objected to transparency in its financial dealings. Did we really know what, or who, we were dealing with? More importantly, did we understand how significant an effect their secret spending with the global luxury real estate brokers of Mayfair was having on everyone else, right down to the family trying to buy a modest two-bedroom semi in Chelmsford?
Even Donald Toon, director of economic crime at the National Crime Agency, said the use of ‘corporate wrappers’ and other tactics to launder money had “skewed” the property market. “Prices are being artificially driven up by overseas criminals who want to sequester their assets here in the UK, ” he said last year.
UK property valued at a total of £170bn is held by overseas investors. Of course, not every purchase made by a company registered offshore is an attempt to launder dirty cash or conceal illegal activity. But buying a home through an offshore company structure is one way of escaping the taxes and costs of ownership which the rest of us all have to bear.
Now we know the scale of the influence these offshore sales are having, and it’s alarming. The Panama Papers, leaked this week, found that 2, 800 Mossack Fonseca companies are linked to the title deeds of 6, 000 properties in the UK, worth £7bn. It is estimated that 90, 000 homes in England and Wales are registered to overseas owners, the majority of which (75, 000 in total) are thought to be owned by companies registered within tax havens.
That looks like an awful lot of property tax dodging and wealth hoarding to me.
Wealthy elites, purchasing high end residential and commercial property, have pushed up the prices of housing for everyone. In the city centre, global high rollers compete aggressively for prime space, the solid investments that can weather a global financial crisis – and even a predicted future downturn. The fight pushes up the price, but when you’re finding ways to sidestep all the financial obligations that go with buying a home, perhaps that doesn’t matter quite so much. The buyers keep on coming.
The lack of property tax returns to the Treasury over the last decade is in part (though not entirely) to blame for the lack of money available to invest in new housing at affordable prices. Cameron and the Treasury attempted to deal with this sleight of hand by introducing charges on properties owned through offshore vehicles, but it might be too little too late. A consultation on whether to force buyers to disclose their identities won’t unpick the damage done.
For, elsewhere in the capital, the housing market is already distorted by this influx of foreign cash. While the international elite leave the apartments of central London sitting empty – a literal shell - the otherwise wealthy move towards the capital’s fringes. Even in zones three and four, the greener suburbs, even at the comparatively (though, frankly, not at all) modest level of a three bedroom family home, the housing market is now controlled by the cash buyer.
What hope for an ordinary household, requiring two incomes to repay a mortgage? Even with a major deposit of, say, 40 per cent, the buyer with the readies will always take precedence. That causes a ripple effect. According to analysts at the Centre for Economics and Business Research, house price growth in the south east of England is predicted to hit 8.3 per cent, compared with just 5.8 per cent in London. For the elite, the costs are being capped; the clampdown from Cameron and his government might be weeding out the worst influences, but the rush to buy up London has already had its effect.
The cost of housing for ordinary Britons is creeping up and up. For many, the chances of ever owning their own home now look slim. A huge shift of life expectations is taking place.
Yesterday we learned that private renting is now cheaper than repaying a mortgage in half of British cities. That’s the case because mortgages are so hard to secure, and properties so expensive and hard to find.
But with rents still rising, that’s little succour to those who have no choice but to accept that they’ll be renting for life, thanks to the malign influence of the selfish hoarders who make up the 0.1 per cent.
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