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Would Restricting Second Home Ownership in Central London Help Contain Price Growth?

By +Eric Jafari

Simon Hughes, a Liberal Democrat MP, has proposed a motion that would allow local councils to introduce controls on second home ownership in London. He believes that this could serve as an effective means of controlling price-growth and will prevent foreigners and investors from continuing to drive up the cost of London home ownership.

At first blush, one would assume that this could work. The intent is to prevent speculators from artificially driving up the demand for London property and consequently allow owner-occupiers the ability to afford a home. 

I empathise with Mr Hughes' intent and the ambition associated with his proposal.  He wants to tackle a serious issue and at least he has proposed something.  Unfortunately, in my opinion, his approach needs some refining. Although this strategy could work in other regions; in London, the lack of supply is the predominant driver of price-growth - not foreign and second home demand. I do believe that something needs to be done but I am concerned that such a policy would not work in the intended manner. It could generate the opposite effect - by further weakening supply.

Research by the Smith Institute suggests that in 2011, foreign purchasers, who spent circa £5bn, purchased 60% of Central London new build property.  This exceeds the English government affordable housing budget for the past four years combined. 

Why does this matter?

The consequences of adopting protectionist housing policy could have the following consequences:

Fortunately, for the time being, only Lewisham council responded positively to the idea.

Housing supply is not only a problem for buyers, but for renters as well. London rents have risen significantly in the last few years as supply has continued to constrain.

Put simply: if it were not for foreign investors and second homeowners London's rental market would be much worse. Foreign investment has allowed for London's construction sector to continue generating healthy revenues, creating jobs and investment.

If we listened to the likes of Mr Hughes the result could be soaring rents, extortionate home prices, falling construction and rising unemployment.  In a world that is becoming more and more defined by globalisation, although protectionism may appear enticing on the surface, it rarely produces the result it promises.

However, I do not fault Simon Hughes.  He is making what he perceives is the most effective solution based on the information available to him.  At the very least, he is making some attempt to address London's housing problem whereas many are turning a blind eye.

For issues as serious as this, it is imperative that MPs and other government officials and property experts such as advisors, investors and developers collaborate with one another on a non-biased manner to co-develop solutions that best serves London.

There are solutions but they require time, careful thought and most importantly input from seasoned industry leaders. A little think tank comprised of MPs and industry experts approaching the problem from different angles could go a long way.

09 October 2012

Tags

Simon Hughes MP,Housing Policy,Buy to Let,London Rental Property Market,Housing Supply