Analysis shows foreign buyers do push up prices and not just in London
Foreign property investors have contributed to the increase in house prices in the UK over the last 15 years, sending values soaring by around 20%, according to a new piece of academic research.
While foreign buyers have mostly affected price growth in London and the South East, other major cities such as Liverpool, Leeds and Manchester have also seen the effect, says the research from the School of Management and Business at King’s College London.
Using figures recorded by the Land Registry, the analysis shows that the average price is around £215,000 but would have been about £174,000 without the investment from overseas.
Buyers from overseas don’t just have an effect on the upper end of the housing market where they tend to buy properties as there is a ‘trickle down’ effect to less expensive properties, the research also shows.
It also suggests that it reduces home ownership rates, suggesting some ordinary buyers in Britain may be priced out of the market in areas where foreign investors are more active and have to rent rather than own their homes.
‘One of the factors behind house price growth in countries such as the UK, Australia and Canada is demand from foreign investors. This study looks at data for the UK and argues that foreign investment had a significant and positive effect on house price growth in the last 15 years,’ said Professor Filipa Sá.
The study explains that since 1999 average house prices in England and Wales have almost tripled from just over £70,000 to about £215,000 in 2014. Apart from a reduction in 2009, at the height of the global financial crisis, house prices increased every year during this period.
Behind this average lies considerable regional variation, with average prices in the prime London area of Kensington and Chelsea reaching £1.3 million in 2014.
The analysis looked at the records all property transactions in England and Wales registered to overseas companies and researchers calculated the share of total transactions registered to overseas companies in volume and in value. This matched a similar upward trend to house prices.
Sá used regional variation in house price growth and the share of residential property transactions registered to overseas companies to identify the effect of foreign investment on house prices.
She found an increase of one percentage point in the volume share of residential transactions registered to overseas companies leads to an increase of about 2.1% in house prices.
She concluded that there is no evidence that an increase in foreign investment leads to an increase in housing construction or for the hypothesis that foreign buyers purchase properties purely for capital appreciation and do not occupy them or rent them out.
But there is evidence that foreign investment reduces home ownership rates, suggesting that some residents may be priced out of the market in areas where foreign investors are more active and have to rent rather than own their homes.
The Mayor of London, Sadiq Kahn, has recently launched an inquiry into the consequences of foreign property ownership in the capital and other countries such as Australia, Switzerland and Canada have also been debating this issue and have introduced policies to control foreign investment in the housing market.