FactCheck: is there a vacant property crisis in London?
Posted on July 10, 2017.The tragic case of the recent Grenfall Tower fire has once again raised questions about the state of housing across the London, as well as a perceived problem with the high volume of vacant property across the Greater London boroughs. For many people, the tragedy of the fire was made even greater by the fact that the fire happened in Kensington and Chelsea, one of the most affluent London boroughs, and one with a high proportion of high value, vacant properties. One of the most urgent questions facing both the local and national government was where to house those people who were made homeless by the fire. It was suggested by some (including the Labour Party leader Jeremy Corbyn) that the homeless residents be housed in one of the many vacant properties in the Borough of Kensington and Chelsea. The Grenfall Tower fire has highlighted the perceived disparity between the number of empty, unused properties on the one hand, and the lack of social and affordable housing on the other. Many are, understandably, pointing out the inherent unfairness of a city in which high quality, high value housing is allowed to sit idle and unused, whilst demand for housing in London continues to grow. This is why a good number of people have been advocating that these vacant properties should be put to use to help those who are currently in need of good quality housing.
How many vacant properties are there in London?There are, perhaps unsurprisingly, a high volume of vacant properties in London, and the city accounts for 22% of the total number of vacant properties in England by value. According to a recent study the company Property Planner,
- There were more than 19,845 homes lying empty for more than six months in 2016.
- The total value of vacant London housing stock was £9.4 billion worth of property.
The "Buy to leave" phenomenonThe practice of buying up high value properties and then leaving them vacant is often referred to as "buy-to-leave" and is understandably common in London, a city where property, both commercial and residential, is a high-return investment. The high volume of buy to leave properties in a borough like Kensington and Chelsea has called on some commentators to refer to these areas of London as "ghost homes", since many of the properties are classified as "long-term vacant" (this refers to a vacancy which lasts more than six months). It's worth breaking down some of the statistics surrounding ownership of London property. For example, it is worth noting the differing trends in property ownership where the property is a new build, as opposed to a buildings which may have a longer life cycle, and the differing trends in inner city London versus outer London. It is perhaps also worth noting the different between vacant residential properties and residential commercial properties, as the behaviours and trends within these two property markets are somewhat different.
Property ownership in London: how the numbers break downA recent study of the role of Overseas Investors in the UK property market conducted by the Centre of Housing Policy at the University of York found that the phenomenon of "buy-to-leave" is, perhaps unsurprisingly, more complex than it may initially seem. One of the most common complaints about the property market in London is that properties are being bought by overseas investors, rather than The figures below highlight that there are a large percentage of overseas investors in the London prope.+rty market, and that a these overseas investors are concentrated in a number of countries, including the British Channel Islands, Virgin Islands, Hong Kong and Singapore. The Centre of Housing policy's study was also able to extrapolate a number of interesting and illuminating trends the data they collated in the new-build London property market.
- The number of new-build properties bought by overseas investors rose from 2014 to 2016, comprising 10.5 of sales in 2014, 13.1 of sales in 2015, and 17.95 of sales in 2016.
- Countries in South-East Asia, such as Hong-Kong, Singapore, Malaysia and China were the common suppliers of overseas in investment.
- Overseas investors were more prevalent in the prime London boroughs (these include the boroughs of Westminster and Kensington & Chelsea).
- A higher proportion of overseas company transactions also take place in the central/prime London boroughs.
Why are properties allowed to lie vacant?It may seem counter-intuitive, given the level of investment in London's property market, that these properties would allowed to be left vacant for long periods of time. For many, this is a moral outrage at a time when supply for native Londoners is seen as being too sparse and too expensive. However, there are a number of reasons why these properties may be allowed to sit idle.
- Having purchased the property, some owners/landlords/investors may find that the cost of administering general wear and tear and other administration costs, outweighs the income benefits of collecting rent. In London especially, new property owners will often pay a premium for new-build, pristine apartments.
- One of the most common reasons why houses or flats may lie vacant, is because the owner may not be able to raise the capital to do it up, renovate it, or even sell it (though it's worth noting this is perhaps more of a prevalent concern for vacant properties outside of London)
Vacant properties in London - what the experts say
Property vacancy is a problemThere is general agreement among estate agent companies, such as Savills and Prime Purchase, that the vacancy of prime property in London is having a detrimental effect, especially when so many people are looking for somewhere to live in London. For example, estimates put the level of occupancy in the high-end One Hyde Park development at an average of thirty percent.
Buy to leave does make financial senseThere are a number of financial incentives for investors to buy a London property and then leave it empty for a period of time. As we discussed above, sometimes securing rental income in prime locations is difficult, meaning that landlords will simply allow their investment to appreciate in value, rather than let it out. With other types of saving still providing a relatively poor return on investment, high end London property remains a logical investment.
Home buyers are still in the majorityIn a report published in 2014, the estate agent Savills, pointed out that the vast majority of international buyers live and work in London, and that 88% of international buyers are purchasing somewhere to live. Savills also pointed out that the interest of foreign buyers in the London property market is reflective of their interest in other investment types too. It's also worth noting that domestic buyers are still in the majority when it comes to London housing sales.
London is a major property playerAs part of the same Savills study, research director Yolande Barnes pointed out that London is a key participant in the global property market, and suddenly closing the door on international and overseas participation in London's property market would only threaten housing delivery and exacerbate London's housing crisis.
Vacant commercial property is an under-utilised resourceAccording to a 2016 study from the Policy Exchange, vacant industrial and non-domestic land has an important role to play in solving the lack of supply in London's housing market. The statistics for the use of commercial and public land is compelling.
- Surplus public sector land in London could provide the capacity for 100,000 homes,
- There are 543.5 hectares of vacant industrial land going to waste, which could provide the capacity for a further 67,000 homes.
- In total, London has 196,000 hectares of non-domestic land, that could be put to good use.
Vacant property in London can be re-purposedMuch of the popular debate surrounding vacant properties in London seems to operate under the assumption that vacant property is being left idle for long periods of time. In fact, there are a number new innovations and vacant property solutions which are offering reforms to the market; one example is property guardianship, a phenomenon where commercial property is re-purposed for residential use, benefiting property owners/investors and tenants alike.
Does the volume of vacant properties constitute a "crisis"?As is often the case with debates surrounding vacant property in London, it is tempting to see a causal link between the number of vacant properties and the shortage of affordable housing. However, the figures above suggest that the picture is, unsurprisingly, much more complicated.
- While it is true that there is a higher volume of vacant properties in the inner boroughs of London, there are only a few boroughs where so-called "buy-to-leave" seems to be taking up valuable space.
- The vast majority of property investment is still under-taken with the intention of buying a place to live, as opposed to deliberately buying up residential property and then leaving it vacant.
- Whilst there are problems with residential vacant property in the capital, it is arguable that the failure to utilise non-residential and commercial property is as much a problem for government and local authorities alike.
- There are number of ways that vacant properties can be utilised and re-purposed, and this is opening up new markets and opportunities for investment (property guardianship being a prime example).
- Property remains a high return investment, but rising prices in London are ultimately symptomatic of a failure to build the necessary volume of properties that the city needs. Whilst the rise of vacant properties and the lack of affordable housing are both chronic problems for London policymakers and regional government, the two are less linked than they may appear. Only a mixture of planning reform, investment and innovation can solve London's housing crisis.