There is risk at the moment of a housing bubble. This could cause even more damage to the dysfunctional housing market.
The housing bubble will come as a result of the huge amount of overseas buyers purchasing high end properties within London which means the local people are being priced out of the market. This is not the only industry this will have an effect on. The property and landlord insurance industry will also be affected. This is because overseas buyers will be buying insurance overseas in their home countries which will draw trade in the industry out of the UK.
This information is the result of research conducted by the Future of London and The Smith Institute which is stating that the housing market is becoming even more distorted than in recent months.
Overseas Buyers
The amount of money overseas buyers are investing in top end properties has doubled in the last year and now stands at over £5 billion. This amount is five times the budget for affordable housing for the entire country for four years. For all the loans that are taken out to purchase a home, this figure accounts for one third in London.
Andrew Heywood conducted the report looking into the private housing market within London and shows what the effects the huge increase in overseas buyers has created.
It reveals that 60 per cent new homes that are being built in London are being purchased by overseas buyers, even though there are high interest rates. Most of these investors are from the Middle East and once they have purchased the properties many are being left unoccupied.
Housing Bubble
As a result this could cause a housing bubble. This is because overseas buyers are looking for an investment and the local people are looking for a home. Those looking for an investment are willing to pay a little more than those looking for a home as they expect the value of their asset to continue to increase. By purchasing properties at a higher cost, and by reducing the amount of stock to be sold, this will in turn increase prices of those properties that are left leaving them unaffordable for local people.
Ben Harrison, director of Future of London, has said, “London faces a significant housing challenge in the years ahead. If the stated aims of the Mayor to promote more homes and provide assistance to first time buyers are to be met, then more attention must be devoted to the dynamics of the private housing market.
“Within this focus, the most urgent task is to understand and develop a strategy in relation to overseas investment. London practitioners must do more to boost their knowledge of the scale, distribution and sources of overseas investment into the capital, and the impact that this has on prices, affordability and overall housing supply.”