Sunset, and construction ceases: City of London skyline, November 2017 Alberto Pezzali · NurPhoto · Getty

Despite angst about top-end property sales, foreign investors bought a third of all properties sold in London in the past year (rising to 50% in prime areas) (1), so the juggernaut devoted to making the wealthy feel at home rolls on, while the rest of London frets about Brexit, unaffordable housing and strained social infrastructure. The rich, especially financiers, remain a source of growing social discontent. Yet the juggernaut is slowing. Until recently, sales of homes for £5m to £15m plus were commonplace, and prices rose as foreign buyers fought for a square metre of the action. Those days appear to be over, sellers accept that times have changed, and prices are falling, not least as a result of the unpredictable impact of Brexit. Of 2,000 luxury apartments completed in the past year, more than half have failed to sell (2).

But development cannot be switched off overnight. The most recent survey of tall buildings in London, almost all for prime residential use, showed that, in 2016, 26 were completed and 48, almost one a week, began construction in the same year. The threat of Brexit and economic uncertainty mean buyers are able to negotiate prices more aggressively. Developers have thrown in televisions or free parking to lure buyers, and now free club spaces or the use of a luxury chauffeur-driven car in central London for developments like The Mansion, a prime development in Marylebone. Despite a faltering market, construction continues. It has to, as does senior politicians and leaders’ talk of the greatness of London and its insulation from future risk.

A zombie city is rising, animated by flows of foreign capital that fuel construction, even as demand and confidence evaporate. While some may crow over this reversal of fortunes – not least the leaders of rivals such as Dublin, Frankfurt and Paris as they try to attract banks and related institutions amidst the uncertainties of Brexit – the hollowing out of the high-rise apartment sector is a further sign that courting capital and the wealthy is a high-stakes game. Those seeking to divert attention with dazzling GDP and GVA figures gloss over the lack of affordable housing, at-capacity transport infrastructure, overcrowding, poor-quality schools, community violence and the difficulty of everyday life in any place that the City economy fails to illuminate. The curse of the finance model (3) is that it drives investment decisions away from providing for the poor and excluded.

There is a fear that many towers now under construction will become ghost spaces haunting the skyline. Over-supply at the top end may cause a decline in prices. Blocks may then be subdivided and filter down to investor-landlords to be let to lower-income households. A more serious risk is that there will be a sudden switch when development halts because of over-supply and wider macroeconomic shocks. Fewer top-end apartments would be built, but that is unlikely to resolve the structural conditions of the crisis. Indeed, those with capital may profit from any developers’ crisis, snapping up unsold housing assets at discounted prices before the next upturn in the market. This is a more likely outcome than a real reduction of prices to a level where those on middle and lower incomes can afford them. A city in boom or bust cannot address human need without significant change.

For many, the fear is of sleeping four to a room while the state pays housing benefits to ruthless landlords offering units smaller than prison cells to the desperate (4). London does not feel so empty if you are fighting for a home. The creation of over-priced apartments for investors and part-time residents is a significant misuse of resources when the rest of the city is struggling, often desperately, to make ends meet (5). Most new-builds for sale in London are now apartments (89%) (6) and between 2014 and 2016, 13% of them were sold overseas; in the prime areas of central London that rises to 36%. Most overseas sales are to buyer-investors, often for rent, sometimes just to hold the asset for capital growth.

Tainted wealth

In 2011, the latest relevant census, London overall had 3.5% of housing vacant (homes where it was recorded that no one was usually resident). For new-build properties, the figures were shocking: City of London 25%, Westminster 19%, Kensington and Chelsea (the borough of the Grenfell Tower fire) 14%. The figures for under-occupancy were 39% for homes worth £1-5m, and 64% at £5m plus. There are fewer transactions at the highest price levels, but they are not trivial. (In 2017 the total value of homes sold for more than £5m was £18.9bn.) Yet the blight of emptiness and under-occupancy, at a time of historic highs in housing need, homelessness and an affordability crisis, is clear.

There seems to be increasing anxiety among corporate and political elites about the legitimacy of their position and the economic system they have advanced. Media attention to corporate malpractice, tax avoidance by the wealthy and the criminal activity of others provides headlines that erode the sense that capitalism delivers for all. There are whispers in Mayfair about criminal capital in housing development, driving demand where there might otherwise be very little. Perhaps the whispers are class resentment, since the old Trustafarians of Notting Hill and the Sloane Rangers of Knightsbridge have been supplanted by newer and more heartless tribes affiliated to whichever currency or city is doing best.

Media attention to corporate malpractice, tax avoidance by the wealthy and the criminal activity of others, provides headlines that erode the sense that capitalism delivers for all

We should avoid ‘citizens of nowhere’ name-calling, but look more closely at tainted money coming into London. In 2016 the National Crime Agency estimated that between £36bn and £90bn is laundered annually in the UK. There are even larger suspect sources of money using property in London and elsewhere in the UK to evade and avoid local taxation regimes. It was estimated in 2016 that £170bn worth of UK real estate was held by more than 30,000 companies registered in tax havens. Offshore companies hold 25% of The Tower at St George Wharf in Vauxhall (the district that is home to the new US embassy); there are similar estimates for One Hyde Park in Knightsbridge and other showplaces.

People now see the property market as an (im)moral economy that signals deep dysfunction in urban planning, with local government working with developers rather than building to satisfy the need for real homes. Despite general outrage, recent data shows that only one in 300 property purchases by overseas cash buyers triggered the red flags the NCA uses to indicate suspicion about money sources. Corruption and illicit flows of capital have not been tackled despite much talk. Anyone scanning the property pages of the Financial Times may have spotted premium developments being advertised for sale in Bitcoin; the risk in moving capital flows in untraceable ways is evident.

The consequences of dubious capital for London and other cities are serious. The director of the NCA has suggested that the London property market is skewed by laundered money. How much are ordinary citizens overpaying to purchase or rent as a result? Being a city for the rich means defunding and displacing residents from public housing estates, with many estates now demolished and only a little (unaffordable) affordable housing included in the replacement developments. People made homeless and profoundly stressed by the housing situation should form part of the cost-benefit calculation for London’s economy and society. New York and Tokyo are now following the same pattern.

Fall in social renting

We must focus on the mechanisms that have allowed construction to increase so much for those with capital while everyone else struggles to find a suitable, safe home. It is this system which enables the zombie property economy to keep on walking. London councils have recently granted developers planning permission to build more than 26,000 luxury flats at over £1m each, about the total annual number of new homes for London. Capacity chases those with the most resources rather than being regulated to provide more significant contributions for all.

One effect is that by 2025 the number of households renting privately is now projected to be the same as those owning (7). Social rented housing continues to fall as a result of historic sales and cuts to public construction. Social renting is now about 23%; in 1981 it was 35%. Yet productive capacity is surprising among registered social landlords; in 2015 housing associations built a respectable 8,000 dwellings compared to the 16,000 built by private developers, not bad for a sector vilified in the press as inefficient. The obvious missing players are local authorities, which produced only 130 homes in 2015.

The politics of these changes are complex and fast-moving. Those aspiring to own a home and escape the rental sector see few prospects, while those with political power recognise the need to provide affordable homes, even if this means commandeering land, as proposed by the Labour Party and privately backed by some in the Conservative Party. There is now genuine excitement about the possible gains from using government-backed loans to increase public housing construction. This could generate more strategic responses, such as building for those on low incomes, and offering affordable high-quality homes with security of tenure. What’s not to like?

The promotion of contracts with private providers with inter-generational arrangements that offered poor value, while privileging investors over tenants, is over; private finance initiatives are increasingly seen as costly, inefficient and anti-democratic. Claire Kober, council leader in the borough of Haringey, resigned because of the acrimony over plans to demolish quality homes without consultation. London’s Labour mayor, Sadiq Khan, has promised all tenants will be consulted in future, but such assurances do not end the fear that austerity has reduced the ability of local authorities to tackle the housing crisis. Cuts have allowed private capital to offer ready-made solutions, and have eroded the position of poorer households. After the collapse of Carillion, a private company with annual revenue of £5bn that had secured huge state contracts in construction and the provision of council services, there is now scepticism about a culture of state-funded corporate activity, which appears wholly unable to resolve the housing crisis.