With homeownership in the UK becoming increasingly inaccessible, it is surprising that little has been done to tackle one of its chief causes – high rates of foreign competition in the UK residential sector.
The sharp decline in housing affordability in the UK, especially in London and the South East, has been well documented. In 2024, the average price of a London home exceeded £450,000 in 23 out of the city’s 32 boroughs. This has been going on for a while, with the average asking price for a property in London increasing by 12% between 2019-2024. As a result of these rising prices, the average cost of a house in England is more than eight times the average annual income. Unsurprisingly, home ownership rates have fallen considerably — according to analysis from the Institute for Fiscal Studies they fell from 73% to 59% among 35-44-year-olds between 1994 and 2022.
One factor behind the increasing unaffordability of UK homes is competition from overseas buyers. With few restrictions in place to deter them, foreign buyers increase the demand on already scarce UK housing stock, pricing out locals without necessarily contributing to an increase in supply.
One 2024 study examining house prices between 2003 and 2023 estimated that foreign buyer activity had increased UK house prices by 17%, £44,000 per home. If the Government wants to get more young people onto the housing ladder, restricting or deterring foreign buyers would be a good way to make some headway.
As well as inflating house prices, the large number of foreign-owned properties left vacant further reduces the supply of rental properties at a time when there is already a considerable shortage. 1.5 million homes in the UK are currently left vacant, of which 200,000 “are owned by individuals who are not resident in the country.”
Worse, the ease by which foreigners can invest in UK residential property also creates opportunities for economic crimes, such as money laundering. The London Borough of Westminster, for example, where 9% of homes are foreign-owned, is far more vulnerable to becoming “a safe haven for corrupt money” than the London Borough of Merton, where foreigners own just 0.3% of local homes. The high percentage of homes in new developments in Westminster – up to 60% – purchased “by investors from high corruption risk countries” should raise alarm bells.
Despite this, the Government has taken only limited steps to reduce foreign investment in residential property. For example, the higher rate of Stamp Duty Land Tax (SDLT) for non-resident foreign buyers, a 2% surcharge, is not proving to be much of a deterrent. This is not least because the additional tax can be refunded to individual buyers if they have resided in the UK for at least 183 continuous days within a two-year period of buying the dwelling.
Fortunately, there are several potential ways that the government could take to reduce foreign competition for UK housing.
One way would be to follow the lead of the Spanish Government, which had announced plans to introduce a 100% tax on property purchases by non-EU nationals. Arguably, however, the Spanish approach is overly punitive and could have unintended consequences. For example, the Spanish approach of excessive taxation could harm their tourism industry as the British, who are non-EU nationals, have the largest share of foreign properties of any other nation and they directly contribute a considerable sum towards the local Spanish economy.
A more feasible and less punitive option to pursue would be to introduce an annual cap on the number of homes that can be sold to foreign buyers. Switzerland, for example, caps the number of holiday homes that can be sold to foreigners at 1,500 per year. Alongside this, we could increase the additional SDLT rate for non-UK residents from the paltry 2%.
To increase the supply of rental properties, the UK could also apply a foreign vacancy tax on dwellings left vacant by foreign owners over a 90-day consecutive period. We would not be the first country to introduce a tax on unused properties either: a 2023 Spanish Housing Law led to the imposition of a 50% tax on unused dwellings after two years, which increases to 100% after three years and 150% each year beyond that. Although in Spain this applies to both international buyers and Spanish nationals, in the UK we can ensure this only applies to foreign nationals.
Restricting foreign ownership of residential property will not solve all of the UK’s housing problems. However, if we are serious about tackling housing affordability, increasing the supply of rental properties and cracking down on money laundering, it would be a very good way to make progress.
Oliver Brittain is a Member of Bright Blue. The views in this article do not necessarily express the views of Bright Blue.