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>Cities are expensive because space is constrained (artificially in many cases) and lots of people want to live there.

That has ALWAYS been true, so cannot possibly account for today's prices. The last decade's price increases have been driven by the lack of other perceived safe haven investments. Treasuries/Gilts pay below inflation now. That money found a new home: property in tier one global cities.

>The author makes note of the low "property taxes" in London which is just spurious.

Oh come on. Would high taxes on a house make it a more or less attractive investment?

>A £5m house does not generate 10x the garbage of a £500k house.

THIS is spurious. Irrespective of whether that's true or not (it's not: a £5m house probably takes up more valuable land, which is made valuable by everything surrounding it - transportation, shops, parks, etc.), it still doesn't change the fact that low taxes make property a much more attractive investment.

>It's true that the current state of the global economy has meant that fearful foreigners have brought their money and bought property

It's foreigners who have checked out every other safe investment and seen how pathetically they pay. Seen the interest rate on Gilts?

Some are also (rightly) fearful of their home governments (Russians, Chinese, Arabs), and want to park their money in a country where the government is unlikely to decide to confiscate it one day.

>this tends to be at the very high end of the market which shouldn't be affecting the middle class that he's referring to.

Except:

A) It does affect the middle classes too. Prices filter down. Everybody who was buying at the high end of the market and gets priced out buys something lower down, which prices them out and so on. Land used on expensive properties is not available for the middle classes.

B) It's not just the very high end of the market. London property is being shopped all around the world, from Singapore to Hong Kong to the US as a safe investment for upper middle classes. I could show you a hundred glossy foreign magazines advertising property which is "close" to some tube station on the Piccadilly or Northern line 13-15 stops from the center.

Copenhagen has traditionally (a bit less recently) fought this kind of effect by restricting absentee investment ownership through several mechanisms. For one, a large percentage of property in the city has ownership that requires residency in Denmark, usually because it's structured as a residents' cooperative. Another significant portion is owned by nonprofit organizations that will only rent the property to residents. And beyond that, much rental property has renter-friendly laws with a view towards ownership, where if you have been renting the property to someone for three years, you are required to sell it to them if they want to buy. The general idea is to reduce the impact of absentee landlords/investors on the local housing market, by trying to restrict it to only people who physically live in Copenhagen.

The high taxes help make this work as well, by trapping would-be cheats in a situation where they can't have it both ways. Do they want to claim that they live in Denmark? Then their property is fine, but they are liable for Danish income taxes. Do they want to claim that they live elsewhere? Then they avoid Danish income taxes, but must sell their property.

Why don't the real owners employ proxy Danish residents to act as "owners"?

I suppose that if the Danish residents hold title it might be hard to prevent them from disposing of the property.

Very interesting! The more I know about scandinavian countries, there more impressed I am.

How is that even legal? It's a direct violation of several European and human rights laws. Are these laws being challenged in court?

Denmark has several EU opt-outs in its accession treaty. Equal treatment of non-resident non-nationals for the purposes of property ownership is one of them, mostly because they were worried about Germans buying up all the summer homes (joining the Euro and joining the European military command are two others). I believe Malta has the same opt-out, and Finland had a temporary one that's being phased out.

However the coops are where the residency catch-22 hits most often, and those are just structured with contract law. They have the typical owner-occupied-only rules that most coops worldwide have (some NYC coops are similar). When you buy a coop share you sign a contract agreeing that you, the share owner, are buying the coop share because you plan to reside there. You agree in the contract not to sublet it, and to sell your share if in the future you no longer reside there (usually with a 2-year grace period).

What's different from the U.S. is that it's fairly easy for the coop to enforce the owner-occupied requirement, because there is a central register of residence addresses. Every person resident in Denmark declares themselves legally resident at exactly one address. So the coop can trivially check if you have declared yourself resident at the coop or not. If you move out of the country, then to avoid Danish taxes you must declare yourself a nonresident, which removes you from the register, which the coop then sees. It also means that you can't own shares in two coops, since you can't register yourself at both. (Though in either case, some games can be played by spouses.)

The nonprofit housing associations are just regular landlords, who own large parts of the city and rent out, again with no-subletting contracts.

the parent was a bit wrong on this. It dont require the owner to be a danish resident, but it requires the owner to live most of the time in the property and by that be liable for danish taxes (which makes the property unsuitable for this kind of investment).

That has ALWAYS been true, so cannot possibly account for today's prices.

It's not as true as it used to be. Due to population growth and increased geographic mobility, there are more people who want to live in London/NY/etc than in the past. Demand is up. Supply of housing in these regions has not increased commensurately.

I'm in London right now and it looks like London has the same problem as NY and SF. Supply is capped. If you want to make housing more affordable, increase supply. Fill the 2-3 block radius surrounding each tube stop with 20 story apts (tower blocks, I think they are called here). That will allow a lot more people to live close to work.

A great way to fund it: allow those foreigners seeking investments to fund them and rent them out.

> A great way to fund it: allow those foreigners seeking investments to fund them and rent them out.

Your missing the point of this post, and the point of a lot of these comments. People don't want the foreigner investors funding these things as they then own the property stopping people who actually want to live there owning them. That's why people are moving out of London, that's why property is so expensive. Rich foreigners are buying the property for investments, making other properties more expensive.

So allow those foreign investors to invest in condos for resale. Better yet, allow both - then both local real estate speculators and housing consumers can have a supply which will meet their demand.

But the problem is precisely that the flats aren't even rented out; they're just left sitting empty. Real-estate has apparently become the new gold bullion.

One of the wonderful properties of bullion is that it's nearly impossible to make more of it. Due to zoning laws, housing has the same property.

> But the problem is precisely that the flats aren't even rented out; they're just left sitting empty

Are they? According to the London Empty Homes Audit, january 2012 done on behalf of the GLA, there were 11202 units sitting empty in London at the time. londoncouncils.gov.uk on the other hand reports almost 80,000, or about 2.4% of units based on numbers from emptyhomes.com. Either way that seems way too small for property investors leaving flats empty being a big problem, especially given that a lot of these empty units are very obviously empty for other reasons, such as being in very undesirable state or bad locations. E.g. I very much doubt the 6k total that the source of the 80k number lists for Newham and Tower Hamlets is due to foreign investors (unless someone got scammed good).

Looking at the numbers for the rest of England from the same source indicates that London is middle of the tree in terms of percent of properties left empty compared to other regions, which you wouldn't expect to see if foreign investors was a particular problem in London. So either they're just as much of a problem elsewhere, or they're not having much impact in London.

The 80k source also breaks out the number of properties empty more than 6 months, and that is down to about 34k. Furthermore about 1/4 of empty properties are owned by the councils, housing associations or other semi-public bodies. So the percent of the total available properties left empty by investors necessarily can't be very high. Lets assume the councils etc. never leave their properties empty more than 6 months (yeah, right), and the whole 34k number is investors, as opposed to owners temporarily living out of country etc. - that is still just barely 1% of the market.

If people were moving out of London in droves, rents should be going down, and they are not.

A lot of the investment properties are completely empty and not rented out. That drives rents UP.

Supply is not nearly as capped in London as e.g. SF. London authorities as well as central government is very amenable to high-rise projects as long as they are well planned. There's a long list of high-rises on the way for London - here's a list by descending planned completion dates:

http://www.skyscrapernews.com/bdbsearch.php?city=London&so=c...

But it takes time, especially given the financial climate still. The reality is that property prices in London are still not high enough that high-rises provide guaranteed good returns on investments.

E.g. Croydon, since I've been following building news here, have had a ton of projects which have just stood still for a few years due to financial uncertainty. But it's moving again, with things like Saffron Tower (44 floors) finally in progress (they've finished most of the rest of the building mass, and the lowest floors of the tower), and a steady stream of new proposals which will see the train station flanked on all sides by buildings ranging from about 20 floors to around 50.

I stand corrected. If this is the case, then I expect the situation will sort itself out in time.

>It's not as true as it used to be. Due to population growth

London's population has shrunk:

http://www.demographia.com/dm-lon31.htm

More people lived there in the 50s.

Otherwise a perfectly fine argument. Except wrong.

My mistake. In that case, how come there isn't a glut of housing and a bunch of abandoned buildings, ala Detroit?

The returns are high because rents are high. The rents are high because demand is high.

Property investors might drive up the purchase prices, but the high rental prices demonstrate that they are not responsible for the overall housing situation.

Exactly the same thoughts here.

Also he's writing about what has pretty much always happened, people move to London when they are young. They get a good career, meet a partner, have children then after trying to live on for a while they move out to the 'sticks' for a better life.

This has been happening for years, only the very rich at the top can afford to live in London for good (while keeping a 2nd home in the country) and those on the lower end of the scale who either never owned, or who can not move to the country as they have service or manual jobs.

There are always a few exceptions, but this is a total non story, I wonder if they wrote another one a few years ago called 'the great wedding and baby boom - how now I've hit 30 I've found all my friends are getting married and having kids, they never did this before it must be part of a wider trend...'

Although you're of course correct that people have always followed this pattern, I think you're missing the fact that there have been genuine shifts in the London property market that are driving this trend to an unusual extreme.

The proportion of foreign buyers of London property has nearly doubled, from 23% in 2005 to 38% in 2012 according to Savilles & I'd guess that it's going to be higher this year. Many of those buyers are looking not for income but simply for places to park capital so they don't rent out the properties which remain empty (this is especially true of Chinese buyers, apparently for cultural reasons). Consequently those people who are living in London (or would like to) are competing over a smaller pool of properties. The net effect on rents and house prices is exactly what you'd expect: both are going up sharply.

Yeah. Last I heard, there were new-build tower blocks full of apartments that sold out rapidly but have remained almost entirely unoccupied because they were bought by foreigners as a safe way of storing their wealth.

(Normally this would cause problems with squatters but the government changed the law to make it a criminal offense to squat in empty buildings and allow the police to forcibly remove them. They were helped with this by a sob story in the Daily Mail about someone who'd gone on holiday and found his house full of squatters; what the Daily Mail didn't mention is that it was a buy to let property and he didn't actually live there.)

Have you seen this article that describes who's buying London real estate now? http://www.vanityfair.com/society/2013/04/mysterious-residen...

I've just moved to London, so I'm equalising Bibi and Andy or Tarquin and Pandora at least.