London: the city that ate itself
theguardian.com
theguardian.com
If you walk through Knightsbridge in the evening, at a time when people in well-adjusted cities might be having dinner with their families and friends, or at least watching TV with their kids, you will see a wall of black, punctuated by the odd square of illumination.
Why do you think this rent is extraordinary? Unless you meant that it is extraordinary as a result of extraordinary purchase prices. As a proportion of purchase prices, these rentals are nothing special. Rental prices will lie within a relatively narrow band near the cost of maintaining a mortgage for the simple reason that if they get much higher, people can finance more property purchases and hope to gain on price growth, and if they get much lower, a substantial proportion of investors lose the ability to leverage and so the returns won't be attractive.
> If you walk through Knightsbridge in the evening, at a time when people in well-adjusted cities might be having dinner with their families and friends, or at least watching TV with their kids, you will see a wall of black, punctuated by the odd square of illumination.
Try walking around the wealthiest area of any city, and the patterns will be very different from "normal" areas: Flats will be larger, and someone at home does not necessarily mean the building will look very lit; more people have second homes, or travel a lot, or work late, and so an inhabited flat may still have people at home more rarely. You can easily find rich areas that look almost black even when most houses are occupied.
I don't know if Knightsbridge is an aberration, but I do know London in general does not in fact have a lot of empty properties in proportion to its size/population. I don't have a source handy, but the last time I looked at the stats it was small. More importantly, the vast majority was empty for other reasons than uninterested absentee landlords.
http://www.independent.co.uk/news/uk/politics/tessa-jowell-i...
Consider the many reasons why properties will lay empty, such as for example:
* Owner dies; handling the estate can sometimes take a year.
* Refurbishment can drag out; it's not unusual for large scale building refurbishments to take a year or two.
* Uncertainty over developments; e.g. near me a building of flats stood empty for 2 years or so because it was slated for demolition to make way for new developments that is finally now underway.
When you factor this in, 0.6% minus the "acceptable" reasons simply doesn't leave much room left for any large number of homes to have been left empty for no good reason.
The real scandal is not that there are 22,000 empty homes, but that consecutive governments have left councils in a state that means they don't have the available council flats to find longer term homes for those they are legally required to assist with housing for. They are in temporary housing not because housing can't be found, but because doing so means spending over the "wrong" budgets, and spending too much to replenish council housing that was sold off cheaply starting with Thatcher and that now would cost a fortune to replace because you'd be competing with quite wealthy people willing to stretch far to avoid being displaced further out of the centre of town.
Agreed. Here, for example, is an excellent article about these effects in Portland, Oregon: http://www.invw.org/cash
But yeah, near-zero interest rates right now and borrowing costs being tax-deductible contribute to housing bubbles.
5% is not extra-ordinary, 5% is low. 10% is average and more than that is high.
After paying for property tax and maintenance, anything under 10% is not really worth it unless rent is just a side effect and you are really hoping for appreciation.
I dare you to find me real estate with a 10% gross yield in Belgium for example...
Does Belgium have no property tax? That's the only way such low rents could work.
Round trip transaction cost is sky high though. My experience is that the 21.10% estimated here is a gross underestimate: http://www.globalpropertyguide.com/Europe/Belgium/roundtrip-...
My solution is to protect my family as much as possible while trying to generate enough wealth entrepreneurialy to have a seat at the table.
How do you exactly do it? If you are not yet home owner, it looks like your rents would go up to a point where you are paying 10% of the property price a year. That means in 10 years you will look back and see you sunk all your money in rent while you could have walked out owning it. But at the same time it won't be prudent to buy it right now because you just can't tell how and when current bubble will end. So either way, you don't have good option when wealthy investors are coming together to squeeze you out of a fair home ownership.
Presumably if the penalty for squatting unattended apartments were lower, the owners might be more motivated to find occupants.
Squatting used to be a ~fairly~ normal thing in England, going by impressions from my youth, but this could have been media fear-mongering the middle class with tales of home-invaders, after reading that Wikipedia article[1]. It's a shame that it's a criminal offence now, considering the housing shortfall and rising inequality in the UK.
However, these specific properties/flats would be very difficult to squat anyway, as the buildings are presumably guarded by doormen and at least a few sets of high-security doors.
[1]: https://en.wikipedia.org/wiki/Squatting_in_England_and_Wales
Without any way to counter balance out speculation, land hording, and gentrification/displacement of urban areas, syndicates of real-estate investors would just buy up everything in sight, turn it into luxury condos/lofts and set the price at a rate determined to be some minimum of %75 of the target populations' average income..
Why restrict these taxes only to unused spaces? If you do so, you'll have to get around people only nominally using the spaces.
> Without any way to counter balance out speculation, land hording, and gentrification/displacement of urban areas, syndicates of real-estate investors would just buy up everything in sight, turn it into luxury condos/lofts and set the price at a rate determined to be some minimum of %75 of the target populations' average income..
If only making money was so easy..
To create an incentive for unused spaces to be used, instead of horded.
>If you do so, you'll have to get around people only nominally using the spaces.
Who could pull that off? Someone who owns 4 houses?.. 10 apartment units?
a) stamp duty - sometimes historically avoided by owning property though a cooperation, which is then sold instead of the property directly.
b) council tax - avoided by keeping the property empty of funiture.
A tax crafted in such a way to disincentive hording and speculation would push empty homes and apartments into actual use as living spaces instead of financial siphons.
I get that they speculate on rising prices. But that is still a speculation, so it can go wrong.
And by driving away people, they are probably devaluing their property.
Hording real estate in urban areas inflates prices via intentional limitation on supply.
Do you have any numbers that show the speculation is really what is driving the prices? I doubt that some vacant flat here or there has a significant impact on prices.
If a street was completely vacant, prices would probably go down because it would be unattractive to live there.
London has a chronic lack of affordable housing, and there is no new supply. Worse there is no social renting housing being built either.
Wealthy investors always seem to find a way to foist the losses off on to somebody else.
See what happened to Greece's loans for just one example. They ended up owned by Eurozone governments but they didn't start out that way.
I live in Australia, and there are a lot of "rich" people who made a money off property, just flipping regular houses in our insane market.
All the components of a medium house are reasonably cheap. But then market value comes into play you you add thousands to a sale price. I think the real issue is that a house (basic human need) is being used like any other financial tool. There should be restrictions on the types of investment that uses residential property, to protect people and to allow them to live where they work.
But good luck controlling capitalism, last GFC started because of houses. But nothings really has changed.
Just to add in the Australian context people see property as a way to get rich. the idea of starting business or generating wealth via new ideas, services, technology is sadly not as prevalent as other places.
Muammar al-Gaddafi had an interesting take on this particular issue: page 51 of The Green Book (http://openanthropology.org/libya/gaddafi-green-book.pdf). Newlyweds were given enough money to build a house.
Restrictions on who can invest only bar the people who can't hire a clever lawyer to get around the restrictions.
No matter how late I work, not one window lights up.
This of course assumes the EU economy survives GRExit in any fit state to continue to attract investment.
Obviously, when he moved there, that's when London was at its best. Since then, these upstarts and their money, moving there, pricing out the real Londoners... etc.
It has always been thus.
The problem is exacerbated by the UK's lack of building. Thatcher stopped local authorities constructing homes (then half the total) and even private building has declined as its so hard to build. The result has been a huge wealth transfer to those who owned property.
Not nearly as much as those Russian oligarchs and Arab oil barons did.
Much less amazing: the same xenophobia and racism as always towards immigrants.
Now it's slowly turned into a string of soulless Gucci/Prada/Maserati shops, and all the people/immigrants who made it a genuinely nice place to live have been priced out by foreign investors.
But sure, racism or whatever.
> most multicultural areas of London
...
> a string of soulless Gucci/Prada/Maserati shops
> by foreign investors
Just because your prejudice spans a class direction upward doesn't stop it being xenophobic.
Edit: HN doesn't let me write more comments. I still don't understand from those videos how they make money with the vacant houses. Also the articles are a bit weird, as if renting out a few houses in an expensive street would really have a significant impact on the housing issues of London.
In most cases, yes. But not in all cases. The thing is, it is not normal to be able to make money on an empty property. So then, the expensive parts of London are not normal.
http://www.theguardian.com/society/2014/jan/31/inside-london...
http://www.standard.co.uk/news/london/lights-out-london-stre...
http://www.theguardian.com/uk-news/2015/jan/25/its-like-a-gh...
In the UK, the main political parities have resisted allowing a house construction boom for two main reasons. Much of middle England has got used to steep house price increases as normal income stream, so to slow it down is considered to be political suicide. And also much of the financial industry and upper classes are very used to it, so it would screw with the banks and the posh people to slow it down as well.
This means that currently London property is just guaranteed to rise (or so folk think), so it is considered an investment just to buy it and wait, and has been for at least 20 years.
This is also why they keep putting off raising interest rates. When they do it will get very messy.
Unless you've made it rich, each generation gets pushed out at least a tube zone or two, or to commuter suburbs
I would make it a 'complete, long term non-occupancy' tax, that is solvable by renting the places out or having someone live in them. People can still have whatever space they want, but don't do the utter waste of buying a house as a another form of bank account.
But as we all know getting bureaucracies to implement something like this will cost hundreds of millions, and will it be beneficial in the short term? Probably not. But we should start looking at long-term solutions.
> Michael Rosen writing in The Guardian has criticised how, under government proposals, parents living in social housing could become liable for what he calls the bedroom tax after only three months following the death of a child – something that inadvertently causes the creation of a "spare" room.[26] In March 2015 the Daily Mirror, a British tabloid newspaper, reported that a woman had become liable for the bedroom tax following her son's death from a brain haemorrhage following an assault.
> The changes in housing benefit have been criticised for having a disproportionate effect on disabled families. Two-thirds of individuals affected by the under-occupancy penalty are registered as disabled.
Source: https://en.wikipedia.org/wiki/Under-occupancy_penalty
Penalizing people for having extra rooms while it is impossible for them to downsize because there is insufficient supply of smaller properties is not a long term solution.
http://www.independent.co.uk/news/uk/politics/big-lie-behind...
The main problem is the lack of correct sized social housing. The bedroom tax forced people to downsize.
In southwark the most pressure of housing is for one and two bedroom properties. Most people were downsizing from 3+ into 2 or 1 bedroom places.
If the price is too high, its not because of tax (3-5%) its because there isn't enough to go round.
The lack of state rental housing means that there is increased pressure on private rental. There is no new supply of rental housing, which means that the existing stock becomes more valuable. This means that rental prices rise inline with the value of the housing stock.
This is turn means that the direct cost to the government rises as well.
Its literally cheaper to build council houses.
However this will never happen because: 1) it involves borrowing money for the "poor"
2) it involves planning for something longer than two years
3) it will lower house prices for the very voters that got the tories into government.
Nothing will change untill a crisis happens. And by crisis I mean the voting classes getting impacted.
An effective way might be forced auctioning off if the asset was left unoccupied for more than 9 months (to allow "holiday flats"). In case the asset sells for more than the price it was acquired, the previous owner gets only this price and any surplus ends up as taxes; in case the asset has less worth, the owner only gets the auction proceeds.
Resale value would plummet if properties were taxed more, especially if extra onerous taxes were put on foreign investors. This would discourage rich dirty-money investors using central London property as an offshore savings account.
>to allow "holiday flats"
I really don't see why Russians who spend two weeks in London a year need to occupy a huge apartment in South Ken. That space could be used for Londoners who are being pushed into zone 5.
Another idea that just jumped to my mind: why not tax any capital gains on property sales by 100%? Of course, deduct the inflation over the time the property was held by the owner, and in case the value of the property was increased by e.g. upgrading it, also deduct these costs and 5% margin for this investment... that would essentially disallow property investment.
Homes are made for living and profits should be made by living in the property or by renting it out.
https://en.wikipedia.org/wiki/Land_value_tax
Profiting from building a better home on the same plot of land shouldn't be eliminated, but profiting from building a house on a piece of land that suddenly becomes more valuable certainly should be.
If you're a Russian with enough cash to spare to buy a central London property just as an investment asset, the taxes have to be in triple-digit million ranges to become noteworthy.
> I really don't see why Russians who spend two weeks in London a year need to occupy a huge apartment in South Ken. That space could be used for Londoners who are being pushed into zone 5.
Expensive, multi-million-dollar apartments are not affordable by working-class people.
Higher taxes don't just mean higher taxes for the Russian, they also reduce the value of his property as an investment.
>Expensive, multi-million-dollar apartments are not affordable by working-class people.
Hence the use of the word "space", not "apartment".
In Spain, Andalucia (an area in the south of Spain), advocated during the political campaign to rent out thousands of flats owned by private banks, which in turn were bailed out with public money. Also Barcelona is going to implement measures to prevent the city to become an empty touristic resort with no much life beyond tourist apartments and hotels.
[1] http://www.theguardian.com/world/2015/jun/01/rent-cap-legisl...
It kind of sucks, but what would actually be a better system? That people get assigned places to live by lottery, so if you happen to live in a cool place on the cheap, you were simply lucky? It sounds good on the surface because you only have the people living there in your mind. You forget about all the other people who never get a chance of living there. Why is it fair if some randomly selected people get to live in nice places and others don't?
I am not convinced that the market approach is not preferable. After all, those people PAY for the privilege to live in a cool place. If they have the money, presumably they should have delivered something good to the world in exchange.
And, hello, welcome to overpopulation. The number of nice places to live is finite. Even if we can cram ever more and more people into the world (by building skyscrapers or whatever), it doesn't seem obvious to me that we can provide nice places for everyone. For example, the length of shorelines is finite (glossing over fractal issues), so if your idea of living in a nice place is to live by the sea, there are only so many people who can have that privilege.
We actually have had something not completely dissimilar to this since the 1980s. Anyone who lives in state housing for at least a minimum period of time is able to buy that home at a subsidized price. As local authorities are banned from using this money to build more state housing, this leads to long term shortages in state housing which is one of the causes of the problems we are facing now. (Source: https://en.wikipedia.org/wiki/Right_to_Buy)
Nobody is expecting to get a cheap home in Kensington or the equivalent super-expensive part of whatever city you are from. But it is not just the "cool", "nice" places that are becoming unaffordable. And the problem is that people are not paying to live in these homes. People are paying to use them as big, shiny piggy banks in the sky that happen to offer a better rate of return than other investments. Poor people who actually live in London and use London businesses generally contribute more to London's culture than rich people who don't.
How much would you say contributing to the culture should be worth?
And I still don't understand how they make money by letting houses remain vacant?
https://i-d.vice.com/en_gb/article/london-its-over-and-its-n...
Same in "the colonies," like: San Francisco, Seattle, Portland, Austin, the Bronx and Brooklyn (ways you know the real estate market has gone bonkers: people are buying in Manhattan because it's cheaper than Brooklyn).
Vancouver, Seattle, and Portland are getting the exact same double-whammy as London: very popular places to live along with very popular places for foreign investment.
Schadenfreude doesn't help anybody, really.
Anything that is within 3 hours of central london is now 50-200% more valuable than it should be.