London: the city that ate itself

http://www.theguardian.com/uk-news/2015/jun/28/london-the-city-that-ate-itself-rowan-moore

by smacktoward • 11 years ago

78 91 11 years ago

sytelus2• 11 years ago

This is just not London, it's happening in almost every major city. There is a massive real estate investment movement in progress where wealthy and giant investing funds are dumping bucket loads of money to buy up properties in popular areas. These then gets put back on market with extra-ordinary rents (typically 5% annual of purchase price). I think the hope is that even if property stays without renters for even half a year, its returns when combined with appreciation would exceed other "safe" investments. It's not unnatural anymore to go in high demand areas of city in night just to find empty apartments all over. I shudder to imagine how next real estate crash would look like...

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.

elektromekatron2• 11 years ago

It might take a crash for London to become livable again. There is also probably a threshold where London stops being attractive to money compared to the competition from other locations, because it has priced out the service economy.

spiralpolitik• 11 years ago

BRExit is the most likely scenario as if the UK leaves the EU then any advantage of being in London disappears and so the money will leave.

This of course assumes the EU economy survives GRExit in any fit state to continue to attract investment.

frandroid• 11 years ago

A crash may delay trends from happening, but a change in the basic characteristics is necessary to change it for good. See San Francisco's gentrification, stopped by the 2001 crash but still going on strong.

pliny• 11 years ago

Are there penalties for invading those kinds of homes in the UK? Where I used to live (a city of ~100K in Israel) there are probably 500-1000 properties on and around the marina owned by foreign nationals that are conspicuously empty for 9 months of the year, I considered squatting in one of those but if I'm discovered I'd be liable for the something like 3 times the rent for the period I lived there.

Presumably if the penalty for squatting unattended apartments were lower, the owners might be more motivated to find occupants.

jeffbr13• 11 years ago

Apparently, squatting has recently (2012) been made into a criminal offence in England, meaning a criminal record if convicted, so... not worth it.

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

vidarh3• 11 years ago

These then gets put back on market with extra-ordinary rents (typically 5% annual of purchase price).

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.

nine_k• 11 years ago

"Extraordinary rent" is, to me, when the property in a high-demand place is vacant for prolonged periods of time, due to the price. Probably occupancy figures are available somewhere publicly; if so, this statement can be checked against reality.

zimpenfish• 11 years ago

"Writing for The Independent, the former Olympics Minister pledged to tackle the "scandal" of London's 22,000 empty homes, saying they could house 55,000 people - about half the 114,000 Londoners living in temporary accommodation such as bed and breakfast." (Jan 2015)

http://www.independent.co.uk/news/uk/politics/tessa-jowell-i...

meatysnapper• 11 years ago

The next real estate crash will be very interesting. It's not gonna be the whatever estate saddled with an unpayable mortgage, or banks saddled with a a ton of unknown/questionable mortgages... correct me if I'm wrong, but it will be a lot of rich people, especially foreigners who will get hosed.

sjtgraham• 11 years ago

This is only a problem when one wants to sell up. If there is some sort of economic crisis that precipitates a collapse in the housing market it's very likely anything else the super rich could've parked their money in instead would also be FUBAR too.

crdoconnor6• 11 years ago

correct me if I'm wrong, but it will be a lot of rich people, especially foreigners who will get hosed.

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.

cynicalkane• 11 years ago

5% of purchase is a perfectly cromulent rent. Outside cities, that number goes up, not down.

gammarator• 11 years ago

it's happening in almost every major city

Agreed. Here, for example, is an excellent article about these effects in Portland, Oregon: http://www.invw.org/cash

_yosefk• 11 years ago

Widespread building restrictions limiting supply and huge subsidies for those holding financial assets ("QE") together with low yields caused by near-zero interest rates fueling demand will do that. (How it will end I can't imagine. I'm amazed at how calmly people are taking it, and at the kind of countermeasures they propose (usually rent control or other foot shots.))

nosuchthing4• 11 years ago

Couldn't this be solved by passing city ordinances, and state taxes on vacant properties, non-primary houses, and un-rented apartment 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..

eru3• 11 years ago

Couldn't this be solved by passing city ordinances, and state taxes on vacant properties, non-primary houses, and un-rented apartment spaces?

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..

facepalm6• 11 years ago

Doesn't it already cost money to leave an apartment vacant (opportunity costs)? How would taxes fundamentally change that?

KaiserPro3• 11 years ago

for london, no. not really

London has a chronic lack of affordable housing, and there is no new supply. Worse there is no social renting housing being built either.

gsnedders• 11 years ago

The UK already has taxes on vacant properties — they're just (obviously) not high enough to stop what's happening in London, where the growth in value far exceeds the taxes.

ars2• 11 years ago

with extra-ordinary rents (typically 5% annual of purchase price

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.

markvdb2• 11 years ago

That might be true for the US, but it certainly is not for most of Europe. I guess that difference has at least something to do with differences in fiscal regime.

I dare you to find me real estate with a 10% gross yield in Belgium for example...

icu• 11 years ago

What many people don't get is this is global asset inflation due to the enormous amounts of money created by central banks worldwide. The term "currency war" has been used to describe it and like any war the poor and working classes bear the burden.

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.

sytelus2• 11 years ago

My solution is to protect my family as much as possible

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.

dalore• 11 years ago

It's not that those apartments aren't being rented, they usually are. It's those apartments aren't being lived in.

nicwolff• 11 years ago

My office near Columbus Circle in NYC looks directly at One57, the 75-story condo tower whose apartments are setting price records up to $100 million (and which will shortly be dwarfed by newer taller pricier towers).

No matter how late I work, not one window lights up.

coldcode• 11 years ago

Hawaii got bought up by the Japanese when they were flying high and then they crashed to earth. I remember playing golf once in a beautiful country club that was now public. Glorious gold everywhere in the clubhouse and no one would ever use it again. Eventually things will crash and all that golden London will die.

d4rkph1b3r• 11 years ago

Need to tax unoccupancy. If an entity is preventing people from living in the city, they should be paying more than those contributing to the well being of the city.

someone7x• 11 years ago

That's a great idea. I'd like to see that where I live.

vezzy-fnord• 11 years ago

Sounds like a classic Georgist tax.

abstractbeliefs• 11 years ago

We tried to tax underoccupancy in state provided accommodation, ie, if you lived in state housing, with empty rooms, you'd have a reduced benefits payout. It was an absolute nightmare response. https://en.wikipedia.org/wiki/Under-occupancy_penalty

mahyarm• 11 years ago

There were several political mistakes in that one. The poor outnumber the wealthy, so they can vote more. Anything that targets them can be a hard sell, especially if a lot of them are elderly.

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.

Mandatum2• 11 years ago

There was large campaigns to abolish this tax, I believe this was largely funded by lobbying. Edge cases, like the ones below which was largely used to stir criticism from public could easily be accounted for (ie implement allowance of 6 months after the death for under-occupancy tax to kick in and medical requirements). Yes these allowances may be abused/dodged (I can see a lot of "home offices" popping up and people claiming tax on their "office rooms"), however there will be a large amount of revenue generated from implementing an under-occupancy tax.

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

jon-wood3• 11 years ago

That's because once again the government were targeting those least able to afford it, while leaving the rich to do whatever they want.

KaiserPro3• 11 years ago

But thats trying to cure the symptom.

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.

mschuster913• 11 years ago

Why taxes? Rich idiots buying just for resale would not be impeded in any way.

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.

crdoconnor6• 11 years ago

Why taxes? Rich idiots buying just for resale would not be impeded in any way.

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.

escanda• 11 years ago

Why not cap rents and property valuation? It seems Berlin has done the former [1]. But it's not the first city to do so, Vienna is known to have a large public rent market to counter balance private development greed.

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...

peteretep4• 11 years ago

The author went to Eton and then Cambridge, moving to London for the first time after university. In the process, he himself pushed property prices up, and directly contributed to gentrification.

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.

laurencerowe• 11 years ago

Not really. London shrank until 1988 and only this year passed the previous historical population peak of 1939 as the UK economy has become completely concentrated in the city.

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.

001sky2• 11 years ago

This is an absurd comment. Who do you think the Londers were previously?

peteretep4• 11 years ago

People who had moved there a generation or two before.

Unless you've made it rich, each generation gets pushed out at least a tube zone or two, or to commuter suburbs

crdoconnor6• 11 years ago

he himself pushed property prices up, and directly contributed to gentrification.

Not nearly as much as those Russian oligarchs and Arab oil barons did.

peteretep4• 11 years ago

It's amazing, with the tens of thousands of Russian millionaires coming to London each year, stealing our houses, that the Russians have any left at all!

Much less amazing: the same xenophobia and racism as always towards immigrants.

l33tbro• 11 years ago

Very similar sentiment to the Vice article from the weekend:

https://i-d.vice.com/en_gb/article/london-its-over-and-its-n...

vermooten• 11 years ago

Boo bloody hoo. Are we in 'the provinces' meant to feel sorry for Londoners? Are you shitting me?

techsupporter• 11 years ago

Sure, since it's happening on this side of the pond, too. "The provinces" have their own messes, like Toronto and Vancouver and Montreal (to some extent).

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.

threedaymonk• 11 years ago

In a British context, "the provinces" is a rather pejorative expression for the rest of the country outside London. It doesn't refer to Canada.

KaiserPro3• 11 years ago

We are pushing up your house prices.

Anything that is within 3 hours of central london is now 50-200% more valuable than it should be.

facepalm6• 11 years ago

London is not creating the prices of property, the people are. They will be prepared to pay as much as they think living in London is worth. If eventually all the cool stuff is driven out by the high prices, prices will fall accordingly. Or rather, presumably there will be an equilibrium of prices vs coolness.

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.

toupeetape2• 11 years ago

"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?"

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.

facepalm6• 11 years ago

Of course it is the cool, nice places that become unaffordable. Pretty sure if you move further out, or to another city, it is cheaper?

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?

aries1980• 11 years ago

What would be preferable is more housing and better infrastructure, because the current living cost is toxic to the economy. The cost of living is still high in the suburbs where support workers (cleaners, plumbers, etc.) can afford to live, but they pushed outer regions y/y while the commuting time and cost is higher. We will end up being uncompetitive just because we have to pay extra for the employees living cost. This can be acceptable for the financial and tech sector, but what will a locksmith or street food owner do? And this happens just because there is no city planning and more housing. These prices are artificially high.

London: the city that ate itself

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