Do property experts and businesses agree ?
Theresa May has been talking tough on immigration. The home secretary made a splash last week by saying that immigrants accounted for a third of all new housing demand, claiming this extra need had pushed up house prices and made it difficult for people to get on the property ladder.
“More than one-third of all new housing demand in Britain is caused by immigration. And there is evidence that without the demand caused by mass immigration, house prices could be 10% lower over a 20-year period,” May said in a widely-publicised speech.
During the talk, she pledged to crack down on the number of foreign students in the UK and to bring annual immigration down to government targets of below 100,000, all in a bid to protect British jobs and cull benefit abuses.
Much of what May asserts has been said before. But whether or not it would benefit Britain – and London in particular – is less clear.
“Basic economics teaches us that if demand rises, so does the price,” UKIP immigration spokesman and MEP Gerard Batten, told LondonlovesBusiness.com.
“Uncontrolled immigration pushes up property prices. It’s astonishing that Teresa May and the government have only just realised. Reducing the level of immigration is vital for those trying to get on the housing ladder.
“Nick Boles, the planning minister, recently suggested that 1,500 square miles of land would have to be built on to accommodate increased demand – the two are obviously not unconnected,” he adds.
Immigation – the facts
From 1998 to 2008, UK immigration soared from some 400,000 to 600,000 per year. In 2011 it was still above 590,000 and does not appear to have radically shrunk this year.
However, as many foreign migrants, do not settle in the UK permanently, and a more accurate measurement of immigration is net migration. This measures the total numbers going in and out. Despite May’s pledges to reduce this to 100,000 per year, net migration has not gone down. It has hovered around the 250,000 mark since 2009, mainly due to less people leaving Britain in the last few years.
But others insist the problem is not due to immigration, instead blaming burdensome regulation for shortages and rising prices.
“The idea that immigrants have driven up house prices by 10% is absolutely bonkers,” Sam Bowman, policy director at the Adam Smith Institute told LondonlovesBusiness.com. “If that was the case, why have immigrants not driven up the costs of mobile phones, or restaurants or anything else? It’s because for all this, you don’t need planning permission.
“Planning restrictions are what has driven up housing prices and what makes it much, much too difficult to build a home. We have to ask why supply is not catching up with demand in such a big way, and it is not immigration, it is restrictive construction policies,” he adds.
A report conducted earlier this year by the government’s Migration Advisory Committee also places May’s house pricing claims in doubt. It concludes that while overseas immigration was impacting some sectors, immigrants from non-EU countries tended to live in small, shared multi-adult households and therefore proportionally took up less space than average.
“These findings imply that the impact of non-European economic migration on the demand for, and thus cost of, housing in the UK is lower than the impact of an increase in the UK-born population of similar magnitudes,” the report said.
Few, however, deny that overseas interest has impacted the Central London high-end property marker.
“The London market is dominated by overseas buyers and this has a huge impact on the market,” John C. Vaughan director at London luxury estate agents, Prime Portfolio, told LondonlovesBusiness.com.
“There are many overseas investors who now see London as a long-term strategic hold and this too contributes to the tightening of supply,”
“In particular, these buyers do not normally require finance and seek the best locations. The relative undersupply is therefore impacting on prices. The best properties frequently see overseas buyers competing for a property by way of best bids to get into the market. At that point, ownership can be more of a factor than just value-for-money.”
In central London’s small band of luxury abodes, prices have risen by almost 50% since post-recession lows in 2009, and house prices look set to keep rising well in excess of the national average, largely owing to foreign demand.
“Theresa May is exactly right,” Patrick Bullick, the London chairman of the National Association of Estate Agents and managing director of Stanley Chelsea, told LondonlovesBusiness.com. “[Overseas] interest pushes up prices in Central London, specifically as they all want to buy as centrally as possible… Plus the UK still has a very benign tax regime for foreigners relative to other developed Western economies.”
Yet,while a relaxation of the constant prime property inflation might be welcome, it seems unlikely that immigration reform could seriously curtail this trend.
These kind of foreigners don’t appear to be the target of home office reforms as May has pledged to protect the “wealth-creators of the future” as well as the best students, namely PhD graduates.
Even if the immigration squeeze does affect the better off though, it will still see many of these kinds of buyers go unscathed.
“There are many overseas investors who now see London as a long-term strategic hold and this too contributes to the tightening of supply,” says Vaughan. “They are hardly ever forced sellers, preferring the market to catch up rather than reduce the asking price. Many also end up making multiple purchases as they see London property as a safe and secure asset.”
Many of these homes are bought for investment and as buy-to-rent homes, while a relatively small number is for personal usage, he explains.
Because the owners don’t necessarily live in them, at least not full-time, it is unclear how May could drive down prices in the property bracket. Instead, further taxation changes, similar to reforms being introduced for offshore companies owning homes, will have a much higher chance of having a real impact.
Source: Rex Features
But May is an incredibly difficult position. She has to appear to be doing something about immigration to appease public sentiment, but must be careful to not upset business interests or alienate foreign investors and talent. They are all crucial components of Britain’s future economic success, although many are already concerned about immigration restrictions.
London mayor Boris Johnson on Monday lashed out at May’s comments saying that this would “lead to a fall in equity for everyone. But the number one issue amongst Indian businessmen [considering investing in Britain] is: ‘Are you hostile to us coming to London?’”
Many service-based and high-tech British businesses in particular say they’re suffering.
Jeremy Brown, CEO of London-based brand strategy consultancy, Sense Worldwide says his business is having trouble growing due to difficulty in sponsoring foreign workers. The laborious process and long wait are hurting not just his company, but the UK taxpayer, Brown insists.
“80% of our work is outside the UK. We’re a major exporter of brainpower, and we earn a lot of money for the UK government. But we can only grow if we hire the best thinkers in the w
orld: MBAs, automotive designers, product designers, advertising creatives and the like,” Brown told us.
“I don’t want to hire the best people who happen to have a red passport, I want the best people in the world.”
“The NHS would crumble without immigrant workers”
The company has a turnover of £3.5m and wants to reach £5m next year, although Sense Worldwide fears it can only achieve this if it “hires the right people”. The firm has already losttwo man-work weeks just getting the sponsorship documents together, and expects to waste even more time before it is approved as a sponsor. Only then will it actually be able to sponsor candidates.
Brown says that this comes as little relief and that he needs Korean speakers – now! Hardly an easy quality to come by in the average UK graduate.
“If we were putting all this effort into actually winning more business, it’d be much easier to grow, and to earn more money for the UK exchequer from our global clients. It’s like working with a hand tied behind your back.”
Behind the scenes, Unions may grumble about immigration and strive to protect themselves from an assault of lower wage staff, but the public persona at least is all about embracing immigration.
The health sector union UNISON, the UK’s largest, insists that the “NHS would crumble without immigrant workers”.
“They bring a huge benefit to our public sector and provide a huge boost to patient care,” a spokesperson told LondonlovesBusiness.com. “We have a real shortage of staff who are qualified enough for many health, social services and social work positions.”
Economically speaking, the “lump of labour fallacy,” the concept which dictates that an economy can only absorb a certain number of many new jobs, is a tricky one.
The Office for Budget Responsibility for instance estimates that under “strong” trends, immigration will add 0.6% to GDP by 2022. If immigration moves to a “high migration” scenario with 260,000 immigrants coming in each year, however, then the independent body expects growth to rise to an average 2.6% per annum, up from 2% annual growth forecast with no more immigration.
“Immigration is not some huge surprise, the Daily Mail has been moaning about this for 30 years,” says Adam Smith Institute’s Bowman. “What is surprising is that no one is talking about internal migration? This is a major, major factor for London-bound immigration, but it is totally ignored.
“So what are people going to be concerned about – people coming to London from Hull or coming from Bangladesh? This is all we ever hear about because it is an easy vote winner,” adds Bowman.
If Britain wants to grow, it will need to modernise and improve specialisation. Immigration can help this by providing a “more diverse workforce and therefore much better divisions of labour,” says Bowman.
“We also have to remember that immigrants are prolific entrepreneurs – from local shops they set up to major fast-growing industries. In Silicon Valley 25% of the businesses are set up by immigrants and immigrants are often the most enterprising people who are a big benefit to the British economy,” he adds.
So whether you believe immigration is good for global business and can help Britain become entrepreneurial hotspot, or whether you’re convinced that too much immigration is destined to be an economic drain, immigration debate shows no signs of abating. May can keep talking tough, but others are talking back just as loudly and it sounds like we should all be listening.
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