Stop blaming foreigners for Croydon’s housing woes


By - Tuesday 1st September, 2015

Jonny Rose tries to alter the alarmist and xenophobic narrative around Croydon’s housing


“Head South, whilst you can still afford it”. So ended a riveting three page spread on ‘Cool Croydon’ in the Evening Standard last Friday.

Indeed, despite the article being all about Croydon’s burgeoning tech, arts and culture scene, it was symptomatic of the current London narrative where it is almost impossible to read anything about the capital right now without reference being made to its increasingly bonkers property market.

London property has become an attractive investment in recent years, with some of the most expensive property in the city often outperforming other asset classes across the world. However, with the capital suffering from a severe shortage of housing, there has been increased interest in what the impact of this investment has been.

A 2014 YouGov survey found that almost half of Londoners think that wealthy people from overseas buying top-end property as an investment has been the main cause of the London house price boom, which has seen average house prices rise to over fifteen times more than average incomes.

Similar views are echoed here in Croydon, leading to Daily Mail headlines (‘China’s middle classes are snapping up British homes in Croydon’) and even Croydon Citizen contributors in these very pages decrying the influx of foreign money.

But are foreign investors really the cause of Croydon’s (apparently unwelcome) property price boom?

The foreign effect on Croydon’s house prices

A 2013 study by estate agents Knight Frank found that in the twelve months up to June 2013, 28% of £1 million plus homes in prime central London (areas such as Chelsea, Islington and Notting Hill) were sold to overseas buyers. The same study found that only 7% of new-build properties in outer London (i.e. Croydon and its environs) are purchased by overseas buyers.

Given that approximately 7,000 homes in London during that period were sold for over £1 million then overseas investors accounted for just 2,450 of these £1 million plus transactions – equivalent to roughly 1.5% of all house sales in London that year.

This is hardly the pox on Croydon’s housing stock that the commentators would have you believe.

What is causing the Croydon property price boom?

Renting and purchasing property in London can be very expensive, but those statistics from Knight Frank cast significant doubt on the idea that overseas investment is the primary driver. Instead, the main cause is a simple imbalance of supply and demand. The chronic shortage of supply and increasing demand has meant that home prices, on average, have rocketed by 56% nationally since 2004, with a 90% increase in London (according to the Confederation of British Industry). This has happened well before foreign investors came into the picture.

Understandably, landlords want as large a return on their investment as possible and as long as demand for homes massively exceeds supply they rationally charge relatively high rents. To that effect, the cost of renting a property in Croydon is unlikely to be any different if the landlord was from Crystal Palace rather than China.

Another reason is that Croydonians are simply not earning enough. Whilst the Help to Buy scheme is available until March 2016, rising interest rates, pressure on affordability (especially since wages are still moving up by less than inflation increases) and curbs on lending mean fewer locals in a position to buy homes.

Finally, some responsibility goes to those who are already on the housing ladder. As long as you have people feeling like they deserve to make gazillions on their ‘cosy’ two bedroom flat in an ‘upcoming area’, you will get prices that reflect that.

So unless wages improve and house builders actually do what they are meant to do and build thousands more homes, it looks like foreign investors are only just supping up what we can’t afford.

We should welcome, not bemoan, foreign investment in Croydon

The rising costs of Croydon’s properties are no doubt a bind on first-time buyers, the so-called ‘Generation Rent’, and anyone who has to suffer through that predictably banal moment at an English dinner party where conversation turns to house prices.

Yet overseas investment can actually have a positive effect. The finance raised from off-plan sales overseas no doubt helps bring forward development on otherwise unviable sites, and through council Section 106 agreements and the Community Infrastructure Levy add to the supply of affordable housing. The key for policymakers is to direct foreign investment toward a wider range of housing types and affordable properties. Any attempt to deter overseas investment would most likely harm the town’s chances of building the necessary number of homes it needs.

So, if you are one of those moany Croydonians who are looking to apportion blame, at least make sure that it’s directed at the right people. It’s not foreign investors: it’s politicians and policy-makers who aren’t taking action to boost the supply of new homes that Croydon desperately needs.

Jonny Rose

Jonny Rose

Jonny Rose is a committed Christian who has lived in the Croydon area for nearly twenty years. He is an active participant in his local community, serving at Grace Vineyard Church and organising Purley Breakfast Club, and was ranked "Croydon's 37th most powerful person" by the Croydon Advertiser (much to his amusement). He is the Head of Content at marketing technology company Idio, the founder of the Croydon Tech City movement, a LinkedIn coach, and creator of Croydon's first fashion label, Croydon Vs The World. Working on Instagram training. Views are his own, but it would be best for all concerned if you shared them. Please send your fanmail to: jonnyrose1 (at) gmail (dot) com

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  • cpmatthews

    Investment in property is screwing potential home owners, especially those starting out, and will in the long term screw us all when this hyper inflated housing bubble bursts because an entire generation hasn’t been able to get on the property ladder. Every ladder needs a bottom rung. Investment is taking away that rung by charging high rents in one hand and creating property scarcity in the other by holding on to investment properties. This will be, 100%, the greatest failure of this generation.

    I think that the confusion here is that housing economy works differently to the economy of tech startups, and this is where the logic is falling down. The idea that investment drives forward development of houses to the greater benefit of others is flawed. People buying property as investments removes potential property from the market thereby driving up prices – as opposed to tech where investment generally equals more access to the commodity one has invested in. Furthermore, investors drive up the value as developers seek to develop more and more luxurious developments which are beyond the means of the local residents but which they know investors will buy.

    What does this mean long term? Horendous hikes in rent as people are existentially priced out of buying their first property.

    What does that mean long term? A whole generation of people unable to buy property means the bottom falls out of the housing market. Massive market collapse. All these expensive places to live go into disrepair because there’s no one to fund their upkeep. End up with lots of crumbling towers. Live in a dystopian future. Judge Dredd happens.

    Ok maybe not Judge Dredd… but probably Judge Dredd.

  • moguloilman

    Thanks Jonny, some good points. We need more thoughts on the housing issue.

    Not being afraid of foreigners coming to Croydon is in my view fundamental. I sometimes see a paradoxical attitude that we should be welcoming to immigrants, but somehow not if they have money.

    As you point out, it is true that there are a small number of very rich individuals who have pumped up high end central London property prices. It was Arabs, then Russians, then Chinese, all of whom are likely to be declining in the short term. Speaking from memory, the 2011 Census I am pretty sure showed that Croydon had the lowest proportion of these groups of any London Borough.

    I agree that there is an imbalance of supply and demand. You use the example of landlords and tenants. Landlords want the rent to be as high as possible, tenants would like it to be as low as possible. Rents rise to bring these into balance to a level where there are tenants willing to pay that amount. Rents are always affordable. It is a question of affordable to whom. The same applies to house purchase prices.

    The question, as ever, is what to do. Do we need more houses, if so where and of what tenure and size and how do we deliver them at the right speed and cost?

    I have a Citizen article already submitted that I hope starts to address that.

    • lizsheppardjourno

      Hi Robert – but unless you link rents to, say, average earnings, they are not affordable to the average person. Mortgages work the same way. I’d argue that rents hould be linked to averages in an area, to remain affordable to local people – but then, I don’t care about landlords’ profits.

      In my late 20s, I bought a flat on my income alone – only exceptional earners or those with considerable parental support (which I did not have) can do so now. Flats have therefore not remained at all affordable in the only way that matters.

      • Stephen Giles

        But none of us have ever considered buying flats after leaving our parental homes. The norm has always been to live in a bedsit or flatshare. One never bought until one was married and having two salaries made that possible. Nowadays everyone wants everything handed to them on a plate. Also – most landlords are normal people using rents as a way to live, particularly those who have retired and need the income. People I know who rent do not overcharge.

  • http://www.loafapp.co.uk Han-Son Lee

    Thanks Jonny. A well written article sir. I think the imbalance of supply and demand really can’t be overstated enough. The population inflows into the London and Greater London area is only going up over the next 5-10 years especially, by which time, and to Christo’s point, a huge part of the ‘next generation’ of property owners could well and truly find themselves having to make not just a step up but ’2 steps’ up to get onto the ladder at all. When you consider that pensions can soon be liquidated to a much freer extent, then you have a whole new type of investor entering the market to compound the problem for first time buyers. There is a natural limit though to investment property growth if rental yields continue to outstrip actual wage growth. That, for me, is where a lot of London and Greater London development is going wrong – in developing an area, and then pushing the very people who make it great, further and further away through unaffordable living. As someone who’s recently moved into the area, I actually think Croydon has a great opportunity to do something now to make the most of the various inflows of investment and people that will come its way over the next 5-10 years, if it can ensure a level of affordable housing and rental that keeps it’s population as bright and as fresh as the change it’s promising.

  • Jessica Hope

    Especially pertinent timing of this article, considering Foxtons are now coming to Croydon…

  • http://blog.thenello.com/ Charles Aji

    Excellent article Jonny.

    I do agree that the imbalance of demand and supply is the root cause of the issue. The limited supply of new homes put a lot of pressure on property prices in ALL areas.

    However, I think the government needs to support and offer more incentivise to developers to build more affordable houses. The profit motive prevents many developers from doing this, they would rather build penthouses than family homes.

    The problem with a lot of new builds being ‘Luxury’ apartments is that these properties are bought by foreign investors as a safe haven to secure their cash. A lot of these investors are not your typical landlords, they do not invest to benefit from the rental income and because of the high purchase prices/cost of these properties, the rental yield are ultra low or in the negative.

    A bulk of landlords who invest in property for rental income are UK citizens who see this investment as an alternative to storing their cash in banks (because of the low interest payouts). To acquire these properties they need to secure finance from lenders who will only approved these loans based on the market rate rental prices, and not the landlord’s recommendation. In other words, even if landlord wants to charge excessive rents – the banks don’t support this.

    There is little motivation for landlords to charge high rents because this can lead to renters churning out as there are many alternative properties or rooms in the market, and high void periods eats into the Landlord’s profit.

    SMART Landlords are more interested in long term secured cashflow from retaining tenants for the longer term. Keeping the renter happy protects the landlords profits.

    Some tenants are considering Rent to buy schemes where they are able to acquire the property after renting for a few years, some Landlords are open to this idea as it will save them estate agency fees of marketing and selling the property to a total stranger.

    Quick disclaimer: I’m PRO landlords, and run a business that help people investment in property. If you are interested in investing in Croydon, check out our decision making tool at http://blog.thenello.com/

    • Stephen Giles

      Absolutely correct – I have prepared tax returns for a variety of landlords, all of whom make little or no profit once land agents have extracted their management and maintenance fees, to say nothing of annual charges for negotiating short term rental renewals, ongoing repairs etc.

  • RSDavies

    It is not in the interests of property owners in Croydon to facilitate the construction of sufficient homes to meet demand in Croydon, and as these people are politically active insofar as they vote then there will always be a gulf between demand and supply. Private sector landlords also benefit from the shortage of supply. The arrangement ensures the redistribution of wealth from the poor to the already wealthy, and serves to reinforce intergenerational disadvantage.
    Were the council to facilitate the construction of enough houses, the availability of houses would drive houses prices down and many people would find themselves with negative equity.
    To compound the above there are many people who oppose any change to the character of Croydon, and although they want to benefit from he wealth that London creates they don’t want to enable it to be sustainable through the construction of sufficient homes. These people oppose medium & high density developments that could produce enough housing units within the available land. Their opposition delays developments inherently adding to their cost.
    But Croydon is a deeply divided borough. The divisions are reinforced by secondary education with the Whitgift Foundation and a handful of grammar schools in adjacent boroughs taking the most advantaged. Croydon secondary schools are surprisingly effective given the circumstances, but the division between the haves & have nots remains entrenched.
    Ultimately there will be no significant change until the people of Croydon want that change, and at present they don’t.