For forty-five years, I have been a fan of Alvis sports cars. My neighbour had one when I was growing up and I used to sit in it as a child. As soon as I could afford to, I bought one for myself and I have enjoyed using it on sunny days ever since.
The other day, I went to get some spare parts for my most favourite car from a specialist dealer. After I had paid for them, he asked me if I would like to look round his workshop and storage facility. Naturally, I accepted the invitation and I was astonished by what I saw. Dozens and dozens of beautifully restored cars, all parked inches away from each other in air conditioned storage barns.
The innermost room contained the most beautiful and valuable cars of all. “How often are these used?” I asked. “They haven’t been outside for at least ten years,” the dealer replied. “They are owned by an American investor who has never seen them. To him, they are just an investment commodity.”
“What a terrible shame,” I thought.
THE PROPERTY MARKET
Now, it seems, exactly the same thing seems to have happened to the London housing market. The finest, elegant and desirable properties in the best locations are no longer seen as homes, they have just become an investment commodity and the capital growth has been so great that many of their owners can afford to just leave them empty.
I love London but it really saddens me to walk through it at night and look up at the rows and rows of dark windows. It just seems totally wrong that these beautiful properties lie unused whilst the people who work in London every day have to waste two or three hours of their lives every day commuting from some distant suburb.
Plenty of others would agree and certainly the estate agents who dream of selling these ‘homes’ would love to get their valuation hats on to gain a splendid and lucrative instruction, but with our national belief that an Englishman’s home is his castle (which clearly applies to non-domiciled owners too), there is no easy way of bringing these empty homes to market.
So what can be done about it?
Even within Europe, some areas restrict foreign nationals buying property. Austria has limitations on half of it’s federal states; Switzerland limits foreign purchases to resort property in specific cantons. In Finland, foreign citizens cannot buy property on Åland Islands.
Introducing similar rule in London would solve the problem overnight but the sudden drop in values would risk destroying our economy and would harm too many powerful vested interests so that isn’t going to happen.
A less dramatic solution would be to encourage owners to bring their properties back into use by changing the tax rules. At the moment, the capital gains made by foreign investors are very likely to be taxed and this could gradually be changed.
Even UK resident investors are all too often encouraged to leave their London properties empty. One of my clients, a lucky lady, has a property in London and another in Cornwall both of which are worth around £1 million. She used to let her London flat out until her accountant told her not to. If it remains empty, she can use it/claim it as her principal private residence and by doing so, the £100,000 per annum increase in its value is tax-free. If she lets it, she will pay tax on the capital gain one day at 28 per cent, i.e. £28,000 per annum. This exceeds the rent that she would get if she let it. As a consequence, it remains empty for a large part of the year.
IMPACT OF CHANGE
Any change in the tax rules would, very probably, have a negative impact on London house prices but perhaps this would be no bad thing for the rest of the UK. The huge price rises in London have disguised the fact that house prices in most of the rest of the country go up much more slowly. Perhaps the next rise in interest rates which, we are told is necessary to control a runaway housing market, could be delayed if the London market was to be damped down or excluded from the calculations.
Adam Walker is a management consultant, business sales agent and trainer who has worked in the property sector for more than 25 years.