Annual new build housing starts totalled 157,480 for the year to March 2018, well short of the 300,000 homes a year that the House of Lords Economic Affairs Committee estimated the UK needs for the foreseeable future or what the Chancellor committed to delivering in the 2017 Budget.
Punishing land banking house builders, addressing the effective monopoly enjoyed by the big house builders, giving local authorities more powers, freeing up part of the green belt, applying punitive taxes – for example additional stamp duty on second homes – and many other solutions have been put forward as solutions to this problem over the years with varying degrees of success.
There is another mechanism that could be employed to help reduce the problem, one that AAT first highlighted in 2017, and that is to impose some form of additional tax on overseas residential property investors.
This is in recognition of the fact supply is limited and that millions of UK residents who live, work and pay tax in the UK are struggling to get on the housing ladder – and that competition with overseas investors is not helping. It’s far from a panacea and AAT has repeatedly stated it won’t solve the housing problem but it will make a small yet significant dent.
The Government has responded to AAT’s 18-month campaign for reform with the Prime Minister last week confirming that they will introduce such a change.
The Prime Minister, Theresa May MP, said;
“Britain will always be open to people who want to live, work and build a life here. However, it cannot be right that it is as easy for individuals who don’t live in the UK and don’t pay taxes here, as well as foreign based companies, to buy homes as hard working British residents.”
Why penalise overseas investors?
Some commentators have questioned why this is necessary, so it might be helpful to set out the case.
Put simply, it doesn’t matter how many houses are built in the UK, there will never be enough to meet demand because demand is not simply coming from the 65m currently resident in the UK but from across, Europe, Asia and America.
Years of London property purchases by the super-rich from Russia, China, America and various other countries are well documented but it’s not just London that overseas investors are setting their sights on. Liverpool, Manchester and other parts of the UK are proving equally attractive.
What’s more, it is no longer the super-rich alone who are snapping up properties across the country. Middle income earners from across the world, especially China, Malaysia and Singapore, are finding UK property an increasingly attractive proposition. This has been exacerbated the weakness of sterling following Brexit.
Perhaps the most frustrating aspect of this phenomenon is the fact that some of these properties are bought solely as investments rather than as homes or even as rental properties. In other words, they sit empty, appreciating in value whilst huge numbers of British residents become priced out of the property market, are forced to rent, to live with friends and family or to join the ranks of the thousands of rough sleepers on our streets.
Imposing an additional tax is far from radical, will introduce some much-needed fairness to the system and could raise tens of millions of pounds to help reduce homelessness. These are all factors that the Government has accepted and highlighted with their announcement last week.
Much of the criticism of this policy, primarily from estate agents concerned about dwindling commissions, has suggested there is no evidence this will make any difference and indicated that it is unacceptably discriminatory. Neither argument stands up to scrutiny.
There are numerous international examples to demonstrate this can be done effectively.
Property can only be purchased by residents in Singapore and Iceland. Others impose less rigorous but arguably sensible restrictions. Non-residents in Poland, well those from outside the European Union anyway, must obtain permission from and pay a fee to the Ministry of Internal Affairs to purchase a home. This permission will only be granted if they have either lived in the country for five years or more, or can demonstrate some other form of significant connection to the country e.g. marriage to a Polish citizen. Similarly, Denmark and Hungary impose some limits on who can buy property within their borders and make additional charges, and Australia and New Zealand have imposed some restrictions as a direct result of an explosion in overseas property acquisitions, primarily from China.
The discrimination argument also has no merit given location rather than nationality is the deciding factor – as with much other successful tax law and policies. Furthermore, the Government has rightly been explicit that anyone of any nationality is encouraged to buy property in the UK if they live here, it’s simply that if you don’t you will have to pay a little more. My understanding is that this will also apply to British nationals who are permanently resident in another country, again undermining the rather weak opposition based on discriminatory grounds.
Another criticism is that Government shouldn’t interfere in the market, that imposing some sensible restrictions in this area threatens the important message that Britain is open for business or that it could be damaging for our successful property market.
Scratch the surface and these arguments fall away. Governments often interfere where markets are not working properly, and few would argue our housing market is working well. Britain is open for business, whatever your nationality, move here, contribute and there will be nothing to stop you buying a home.
AAT has been campaigning for this reform not simply because it’s fairer, because it will help raise money to tackle homelessness, or because it will make a small but meaningful contribution towards the UK’s housing problems, but because there is overwhelming support for such a change from our members.
Last year, AAT members were asked if there should continue to be no restrictions on house purchases by overseas investors and the response was overwhelming. 87% said “No” with a mere 8% saying “Yes”. This indicated the time had come for Government to give serious consideration to acting.
More specifically, the 2017 AAT Housing Survey revealed that when asked, “Should an additional tax be paid on property purchases by overseas investors?” more than three quarters (78%) said “Yes” compared to just 14% who said “No”.
As a result, AAT welcomes the Government decision to impose an additional Stamp Duty charge on overseas residential property investors.
Whilst recognising this isn’t going to solve housing supply issues on its own, it’s a sensible and measured response to an increasing problem that will also raise £40-£120m and add a degree of previously absent fairness to the system.
Phil Hall is AAT's Head of Public Affairs and Public Policy.