Garvan Walshe was National and International Security Policy Adviser to the Conservative Party until 2008.
The Prime Minister should be commended for calmness in a media storm and refusal to be diverted from his agenda by events of little global importance. He showed uncharacteristic restraint in failing to announce a new initiative to protect endangered species in response to the moral panic gripping the West after the killing of Cecil the Lion. All the elements were there: charismatic megafauna; gun-toting Americans; dentists engaged in wanton acts of violence. Yet no crackdown was announced. Dentists remain free to travel to Zimbabwe.
This is out of character. Less than two weeks before, Channel 4 had screened a documentary “From Russia With Cash” in which a purported Russian minister sought to capture particularly elusive prey with the help of another despised and resented profession. The footage of smarmy estate agents reassuring the implausibly hammy “minister” (inevitably named Boris) that he would be put in touch with lawyers who could handle his case “with discretion” was matched only by sequences in which expensively-suited barristers and German investment bankers complained that the inflow of dirty money had put mansions in Kensington and Hampstead beyond their reach.
The Prime Minister, as it happens on a visit to South East Asia, promptly inserted a paragraph into the speech he was due to give in Singapore in which he announced some minor tweaks to the land registry.
Sinagpore was an unintentionally apposite place for to make a speech averring to wealthy overseas buyers of London property. Not only is it equally beloved of oligarchs looking to stash their cash, but it has become a main market for British property developers. It is impossible to to get through the Straits Times without coming across ads for expensive new London buildings. Among them is a sumptuous new tower, grandly named Canaletto, that purportedly ensures its residents canal-side living of which a Doge would be proud.
The impression, assiduously fostered by pro-tax left-wing campaign groups, is that ordinary people are being priced out of London by foreign state-sponsored thieves from Russia, China and the Middle East. But in fact, London property is expensive because the city is successful, interest rates are low, and urban planning remains stubbornly socialist.
First, salaries in London are far higher than in the rest of the country. Almost 200,000 people in the capital earn six figure salaries, and many more earn equivalent sums from dividends in companies they run. These bankers, lawyers and other businesspeople can afford expensive houses. They make their money from the global economy and take globe-sized awards. Though it is little consolation to public sector workers or people working for nationally-focused companies, the Exchequer would be bankrupt without the taxes they pay.
Second, property prices are set by the number of buyers able to pay a particular price and sellers willing to accept it right then. This is mainly fixed by the cost of credit – the lower interest rates are, the more banks are allowed to lend people. Less of the maximum amount of monthly repayments they are permitted is taken up by interest leaving more for the principal. The change, not the absolute level of interest rate is what matters. A 0.5 per cent rate rise reduces the amount people can borrow by one eighth. Sceptics will scoff, and say that London property has been going up since 1992. They would be wise to remember the warning printed at the bottom of every fund manager’s website: past performance is no guide to future performance. Prices can go down as well as up.
Most serious is the failure to build the right kind of houses in London. Planning rules and development codes have imposed unintended consequences that distort the market and prevent it supplying the kinds of homes people want. Innovative thinkers like Nick Boys-Smith, founding director of the social enterprise Create Streets, find their way blocked by a thicket of socialistic regulation. But as London’s population grows, and the trend towards smaller family sizes continues, whatever the short term financial fluctuations might be, the longer-term pressure on housing in London will only intensify. The effect will be less to hike average prices (those are constrained by earnings and credit), than to produce ever smaller and more squalid places for people to live in.
Meanwhile, and quite separately, great baubles, including that Canaletto tower, are being constructed. It overlooks a spectacularly ugly 1950s council estate and a World War Two era bomb shelter. Though not as bad as a new development near Wandsworth Bridge with views – and smells – of the “Western Riverside Waste Authority Recycling Facility”, is not a place that a Londoner able to afford it would contemplate living.
Money-launderers are scarcely an endangered species, yet they are the charismatic megafauna of London’s housing shortage. As such, they distract from the already immensely difficult task of building the homes and infrastructure that Londoners deserve.