[ExI] Future of London: the New York Times on the foreign rich buying up property

Eugen Leitl eugen at leitl.org
Thu Oct 24 10:43:10 UTC 2013


Future of London: the New York Times on the foreign rich buying up property

Property in the capital has become a global reserve currency for the super
elite, altering its delicate cultural ecology, says Michael Goldfarb. Then he
explains why his story had such an impact

Michael Goldfarb

The Observer, Sunday 20 October 2013

Tower Bridge

Aerial view of Tower Bridge and the River Thames at night. Photograph: Jason

Our neighbours Lauren and Matt and their kids moved out of London to
Cambridge the other week. Bibi, Andy and their two left for Bristol in June.
Another of my eight-year-old's classmates and her family are heading out
after Christmas. In my book this is a trend.

The moves are not examples of the lifecycle of the striving middle classes.
Nor are they examples of middle-class folks being thrown on hard times by the
sluggish British economy. The families moving out had good incomes. Matt, who
had been looking for a house for more than three years, summed up the reason
for leaving best: "I don't want to be a slave to a mortgage for the next 25
years." Given the astronomical rise in house prices here, he wasn't speaking

This is what happens when property in your city becomes a global reserve
currency. For that is what property in London has become, first and foremost.
The property market is no longer about people making a long-term investment
in owning their shelter, but a place for the world's richest people to park
their money at an annualised rate of return of around 10%. It has made my
adopted hometown a no-go area for increasing numbers of the middle class.

According to Britain's Office for National Statistics, London house prices
rose by 9.7% between July 2012 and July 2013. In the surrounding suburbs they
rose by a mere 2.6%. The farther away from London you go, the lower the
numbers get. When you finally cross the border into Scotland, house prices
actually decline by 2%.

The gap between London prices and those of the rest of the country is now at
a historic high and there is only one way to explain it.

London houses and apartments are a form of money.

The reasons are simple to understand. In 2011, at the height of the eurozone
crisis, citizens of the two countries at the epicentre of the cataclysm –
Greece and Italy – bought £400m of London bricks and mortar. The Italian and
Greek rich, fearing the single currency would collapse, got their money out
of euros and parked it some place where government was relatively stable and
the tax regime was gentle – very, very gentle. Considering that tax evasion
in Italy and Greece was a significant contributory factor to their debt
problems, it just seems grotesquely cynical to encourage this kind of

But that's what Britain in general, and London in particular, does. The city
is essentially a tax haven with great theatre, free museums and formidable
dining. If you can demonstrate that you have a residence in another country,
you are taxed only on your British earnings.

And the savings on property taxes are phenomenal. The property taxes on New
York mayor Michael R. Bloomberg's $20m London home come to £2,143.30 a year.
That's $3,430. Clearly, the mayor bought in at the right time. The Google
executive chairman, Eric Schmidt, is reported to be house-hunting here – he's
looking in the £30m (about $48m) price range. Yet he will pay a similar
amount in property tax as Bloomberg does.

There are other facets of London real estate as a medium of exchange. British
gross domestic product has yet to return to pre-crash levels, but the
financial services industry has roared back. Banks are paying out big bonuses
again, and anyone looking for a safe investment is getting into London

>From the top of Parliament Hill, on Hampstead Heath, look eastward. Out
around the Olympic Park and beyond you see clumps of highrise apartment
buildings sprouting like toadstools in a meadow after heavy rain. These
aren't being built to meet the calamitous shortage of affordable family
housing in the city; they are studio and one- or two-bedroom apartments.

The developments are financed by "off plan" buying. Bonus babies look at the
blueprints and put their money down with no intention of living in what
they've bought – just collecting decades of rent. And it's not just those who
work in London's financial district, the City, who buy in. Hot money from
China, Singapore, India and other countries with fast-growing economies and
short traditions of good governance is pouring into London.

When I say property is money I mean it. An astonishing £83bn of properties
were purchased in 2012 with no financing – all cash purchases. That's around

I suppose the development that houses equals medium of exchange isn't all
bad. I have friends who were very successful "creatives" (architects,
cinematographers, commercial and television directors, etc) in their 30s and
40s. They bought houses when houses were places to live in. Once they turned
50, they passed through a mirror that turned them invisible. Work dried up.
They have survived in London via the magic of remortgaging. They accept that
their children will never be able to afford to stay on in the city.

The ripple effect of this frankly demented situation is felt all over town.
The foreign rich and the City rich (there is some overlap) have made most of
the centre of London unaffordable to any but their own kind. Those who were
once considered rich – in the top 10% of earners – now can barely afford to
move to my neighbourhood, where a typical row (terraced) house, with three
bedrooms (the third bedroom wouldn't qualify as a closet in Manhattan) and a
total living space of around 950 square feet tops a million dollars, three
times what it cost in 2000.

The overall economy of Britain certainly doesn't justify these prices. Bank
lending for businesses is flat, but mortgage lending? Hoo-ha, it's soaring up
and up and the bulk of it is concentrated in London. It's as if the whole
British economy is based on housing speculation in the capital.

David Cameron's government seems to think that is the case. Cameron may be
pursuing austerity policies elsewhere in the economy, doing virtually nothing
to help subsidise employment or industry, but his government has just started
a "help to buy" scheme. The government will guarantee up to 15% of the
purchase price of a house up to £600,000 ($960,000), if you have a 5% down

The ordinary uses of the city have been changed beyond recognition. London
was never a cheap place to live, but now more expensive property means more
expensive everything else: restaurants, cinemas, bars and theatre tickets.As
for services, the minimal tax paid by those who have made property into money
means that a city whose population has increased by 14% in the last decade
can't afford to build new schools. There will be a capacity shortfall of an
estimated 90,000 places by 2015. Children won't be turned away from school,
but class sizes will grow to untenable proportions.

So younger people, like my former neighbours, feel compelled to leave – even
though they were making a very decent living. The delicate social ecology
that made London's transformation into a great world city over the last two
decades is past the tipping point, I fear.

For the quarter of a century I have lived here, a sense of community has
defined my life. A very organic sense of London pride has allowed this city
to withstand substantial shocks – some welcome, like its transformation into
a true cosmopolis; some unwelcome, like jihadist terrorism.

Now it is beginning to feel that the next phase of London's history will be
one of transience, with no allegiance to the city. I wonder whether those
just parking their money here by buying real estate will ever be able to
provide the communal sensibility to help the city survive the inevitable
shocks it will experience in years to come.

How this story will end doesn't bear thinking about. It seems a very
reasonable bet, though, that those who use London property as just another
form of money aren't thinking about it at all.

Michael Goldfarb is a writer whose most recent book is Emancipation: How
Liberating Europe's Jews From the Ghetto Led to Revolution and Renaissance

© 2013 The New York Times Syndicate


When I wrote this piece in September, shortly after the ONS published its
report showing a 9.7% increase in London house prices, I never thought to
send it to a British paper. Everybody here knows the score – no one will
publish it, I thought. Wrong. It went viral. Clearly, it spoke to people's

They fear that property prices make no sense. It feels like 2005-07 all over
again. People shake their heads and say it can't go on like this. Since
nothing has changed in oversight of the City and the rest of the global
financial system, people fear what the next property- driven crash will do to
their lives.

People fear for their jobs. The time frame of productive economic life for
the middle classes is growing shorter. People don't get into good full-time
work now until their late 20s. By the time they are 50, they are living on
borrowed time (it's more like 40 if they work at Silicon Roundabout). And
anyway wages are not rising in line with house prices, so they have to take
out massive mortgages.

Finally, they fear what I write about at the end of the essay. The balance in
London's complex social ecology has been lost. The balance point in any
society should be between stability and stasis. Stability is good; stasis is
bad. What's happening in London has shifted the ground so dramatically that
stability isn't something most people can contemplate. How do you raise your
children knowing that the place they were born and raised is – on current
trends – not a place they will be able to afford to live when they grow up?

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