Tim Parkes, CEO of RAW Capital Partners, explores how property investors and landlords, including overseas owners, can have a positive impact on the UK housing market.
The housing crisis is one of the most important – and frequently discussed – social issues in the UK, and a sizeable portion of Labour’s election-winning manifesto last year centred around the party’s pledge to kickstart a house-building ‘revolution’.
It is a complex issue, and there is no easy way to better balance supply and demand within the property market. But we must also be careful when attempting to apportion blame.
Property investors and landlords are often criticised, particularly those who are not themselves UK residents. However, this perspective ignores the importance private landlords have in creating a buoyant rental market. Moreover, blaming overseas buyers overlooks the positive impact they can have on the UK property market.
Boosting supply by reinvigorating existing properties
For example, property investors – domestic and international – can play a major role in returning currently empty homes to the market.
Data from Action on Empty Homes indicates that there are nearly 700,000 homes in England that are currently sat empty, over 265,000 of which are classified as being ‘long-term empty’. Meanwhile, estimates suggest that more than 165,000 commercial properties are not being used either.
Add these figures together, and the number of properties not being utilised breaches the 1 million mark – a significant number of homes that would ultimately go a long way to solving the housing crisis, should they be returned to the market.
This is where international property investors come in. By buying up derelict, empty properties and returning them to market, they can contribute to reducing the gap between supply and demand. What’s more, they can do so at a much faster speed than major new-home developments that can take years to be approved, let alone built.
Increasing floor space
Ensuring existing stock is fit-for-purpose is an important piece of the puzzle, but overseas property investors can also improve housing supply through extensions.
After all, terraced (41%) and semi-detached (40%) homes are most in demand among prospective buyers, reflecting the fact that larger properties are the most sought after. As such, any action that can be taken to increase the floor space of existing properties to meet this demand should be welcomed – turning a two-bed home into a three-bed, or a three-bed into a four-bed, might not affect the bottom-line number of available properties, but ensuring there are more HMOs can have a significant impact on addressing demand among prospective buyers and renters.
That said, it would be remiss of me to suggest that the measures I have already detailed will solve the crisis on their own. New developments are very much needed, but they require a significant amount of investment.
Purchasing off-plan properties to provide capital to developers
Another way in which non-UK buyers and property investors can contribute to solving the housing crisis, therefore, is by providing developers with the capital and confidence they need to get spades in the ground.
Indeed, developers need to know that there will be buyers for the homes they build, but restricted funding availability was recently named as the second largest barrier to building more homes among small house builders.
However, by purchasing off-plan properties – buying news houses or flats a year or two before developments are completed – non-UK resident buyers provide many builders and developers with the crucial backing that they need.
In turn, developers have greater access to private investment, and greater confidence in completing a project; this means that more homes are built more quickly, which can bring down demand in the sales or rental market (depending on what the investor chooses to do with it once built).
Increasing the supply of rental homes
Understandably, one of the main arguments against non-UK resident buyers and property investors is that they purchase properties that would otherwise be bought by domestic buyers. If the market remains in its current holding pattern and supply doesn’t increase, this argument carries some weight. Indeed, it applies more broadly to landlords across the board.
However, it’s important to remember over a third of the population (35%) are renters. As such, non-UK resident buyers who invest in rental properties help ease demand in the private rented sector (PRS). This, in turn, curbs unsustainable rental price inflation, making renting a more viable option for those unable or unwilling to buy.
Without this influx of private rental homes, pressure on social housing and rental affordability would intensify. Thus, rather than exacerbating the crisis, non-UK resident buyers are playing a key role in the solution.
Property investors contribute to the exchequer
The same applies to any government-backed housebuilding initiative, as non-UK resident buyers also contribute funds that the government can reinvest into the housing market. It’s important to remember that investing in the UK property sector is by no means free. And any investment that is made will add some much-needed money to the public purse.
Through Stamp Duty Land Tax (SDLT), for instance, non-UK residents buying a property in the UK must pay a 2% SDLT surcharge on any property they buy, as well as the standard rates. Additionally, someone buying a second home in the UK must pay a 5% surcharge (this was increased from 3% in the recent Autumn Budget. This means that an international investor buying a UK property – if they already own – will have a 7% surcharge on top of the usual SDLT rates.
These surcharges are designed to boost SDLT tax receipts for the UK government, so deterring non-UK residents from investing in British bricks and mortar could harm public finances, which in turn could hinder investment in housebuilding. Additionally, of course, non-UK property investors contribute to local economies by paying council tax, directly supporting community services and giving local authorities more resources for development. They may also be liable to paying income tax on the rents they receive if they let out their property investments.
These contributions highlight the positive economic impact of property investments by non-UK residents, countering arguments that overlook the benefits that they provide to both national and local markets.
Ultimately, a balanced view is required when looking for viable, long-term solutions to the UK’s housing shortage. Overseas property investors bring many unseen benefits, from reinvigorating empty homes to providing capital for new developments and increasing rental supply – their contributions are a necessary part of addressing the housing crisis.
For the market to remain viable and sustainable, it’s crucial that lenders and brokers collaborate to offer the financial products and support non-UK resident buyers and property investors need. This will enable them to continue contributing to a more balanced and healthy market that benefits everyone.
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Tim Parkes is the CEO of RAW Capital Partners. RAW Capital Partners is a Guernsey-based specialist investment manager primarily responsible for managing the RAW Mortgage Fund, a Guernsey open-ended collective investment scheme that offers attractive and consistent returns, a high level of capital security, and total fee transparency.