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Building shield

At the height of the Eurozone crisis, there was one group of investors buying European assets when everyone else was pulling their money out. The story is told by Jamil Anderlini in the Financial Times:

“In 2010, the total stock of Chinese direct investment in the EU was just over €6.1bn – less than what was held by India, Iceland or Nigeria. By the end of 2012, Chinese investment stock had quadrupled, to nearly €27bn, according to figures compiled by Deutsche Bank.

“The buying spree, analysts say, was nothing short of a transformation of the model of Chinese outbound investment. It is expected to increase steadily over the next decade.”

This surge of investment is dominated by state-owned companies and appears to mark a significant development in Chinese economic strategy:

“Independent entities such as Rhodium Group and the Heritage Foundation, a conservative US-based think-tank, have chronicled a recent shift in Chinese money from resource-rich developing countries in Africa to partnerships in developed countries, including Europe.”

The FT’s report includes Heritage Foundation figures for Chinese investment (from 2005 to 2014) into the five biggest EU economies (plus Portugal and Greece). In terms of investment volumes, Britain is at the top of the table, with an overall figure exceeding the combined total for the next three countries (France, Italy and Germany).

More evidence for the international competitiveness of the British economy, then?

Sort of. Nearly a third of the Chinese money invested in Britain went into real estate – and further tenth into agriculture, i.e. land. British territory may not be very extensive these days, but it is reassuringly expensive. And thanks to the buoyancy and openness of our property markets, British soil has become the asset-class of choice for a growing number of international investors.

Note that this isn’t purely a function of our planning system and its failure to release sufficient land for development. Indeed, as the Economist reports, prices for British farmland are growing faster than London real estate:

“Over the past decade farmland prices have grown at twice the rate of prime London property prices… with good agricultural land increasing 270% in value compared with a 135% rise for London houses during that time, according to Savills, a land agent. This makes it three times the price of farmland in America and 15 times the cost of such land in Australia.”

Of course, land with planning permission is still vastly more valuable – and it will be argued that the mere possibility of more farmland being released for development is what’s pushing its price up.

In fact, there’s rather more to it than that. For a start – and contrary to the simplistic assertions of the bulldoze-the-greenbelt brigade – there is a shortage of farmland (or at least farmland up for sale):

“…in 2000 some 300,000 acres were on the open market; last year this was below 150,000—less than half a per cent of Britain’s farmland.”

Then there’s the fact that land doesn’t actually have to have houses on it to be useful:

“…farmers are growing richer. They have benefited from a global surge in commodity prices: wheat, for example, is 80% more expensive than it was five years ago. As commodity prices rise, banks have been more willing to lend.”

For all sorts of reasons, our green and pleasant land has become a “safe-haven” for investors the world over. The planning system can be loosened, but with so much international money chasing our acres, one has to ask what it would take to soak up the enormous pool of current and future demand.

This is why the ConservativeHome manifesto makes the case that other, more radical, measures will be required to render homeownership more affordable.

In the meantime, we need to charge investors a lot more for the privilege of burying their money in British soil. It’s not as if investing in land is going to make any more of it, so let’s whack-up the relevant taxes and use proceeds to reduce the burden on genuine, job-creating enterprise.

4 comments for: Our green and pleasant land has become a global commodity – so let’s tax it

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