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Getting to the bottom of high UK house prices

House prices in parts of the UK are well known to be some of the most expensive in the world. With demand for properties across the country growing and many people being priced out of prime spots, understanding the cause of these high property prices, which impact so heavily on people’s outgoings, is very important.

Research conducted at King’s Business School has identified that one of the causes of these high property prices are foreign investors. This evidence has recently supported a major policy change in the UK.

The average house price in England and Wales has almost tripled in the last 15 years, from just over £70,000 in 1999 to about £215,000 in 2014. Research carried out by Dr Filipa Sa, Senior Lecturer in Economics, shows that with no foreign investment in the housing market in England and Wales between the years 2000 – 2014, house prices would be 19% lower than they are now.

Dr Sa says: ‘Housing costs form a big part of households' budgets and so they are a concern for a large portion of the UK population.

‘One of the issues on people’s minds is that foreign investors are buying properties with the purpose of making money as opposed to creating a home to live in and that this is pushing house prices up.

‘This research shows that foreign investment in the UK housing market does, indeed, play a part in the increase in house prices that we have seen in the last two decades.’

However, Dr Sa acknowledges that the demand for more housing is trumping our current supply and this is also causing the continuous boom of house prices.

 

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These findings have already proved useful in informing the policy debate on the impact of foreign investment on the housing market. Using the research as evidence, the UK government has recently announced a new tax on foreign home buyers, with the money raised being used to tackle rough sleeping. The issue has also caught the attention of the Mayor of London, Sadiq Kahn, who has recently launched an inquiry into the consequences of foreign property ownership in the capital.

Dr Sa says: ‘This problem isn’t unique to the UK – 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.

‘This is certainly an issue that we need to continue focussing on so that current and future generations can afford to create their own homes across the UK.’