Affordable Housing v Foreign Investors: The Truth?

Introduction

This article outlines how foreign investment can be advantageous but equally detrimental to property-based economies. The jurisdictions of Spain, England, and Wales have been used to illustrate this. This article will also explore the treatment of investors and the potential impact of proposed restrictive measures against them.

Spain’s Prime Minister Pedro Sanchez has proposed higher taxation and greater restrictions on foreign investors; his comments present foreign property investors as detrimental to housing affordability and have been met with uncertainty internationally. Similarly, in England and Wales, an increasing number of ‘empty homes’ and housing unaffordability has been linked to foreign investment by London-based MP Bob Blackman and academic Filipa Sá. However, the true measure of their impact requires further examination.

Spain: Golden Visas, High Taxation, and Perceived Instability

‘We will propose to ban these non-EU foreigners who are not residents, and their relatives, from buying houses in our country since they only do so to speculate.’ – Spain’s Prime Minister Sanchez (19th January 2025).

According to Spanish Property Insight, in 2023, non-EU foreign buyers purchased 18,648 homes in Spain. Over the past decade, their investment in Spain’s property market has been on a marked decline. In the first half of 2024, non-EU buyers only accounted for 9,166 property purchases out of a total of 340,281. These figures do not indicate that non-EU, foreign buyers are the significant driver of change in Spain’s property market. Most property purchases are completed by Spanish nationals, EU nationals, and non-EU nationals with legal residence in Spain. Despite this, Prime Minister Sanchez continues to blame non-EU, foreign buyers for Spain’s inflationary property prices.

Due to this sentiment, Prime Minister Sanchez is overseeing the end of the ‘Golden Visa’ scheme. First introduced in 2013, it was aimed at attracting foreign investment. Other European countries have implemented similar initiatives. The scheme granted non-EU investors a visa in exchange for: investing €2m (£1.7m) in state bonds; investing in emerging Spanish companies, or investing in property worth €500,000 (£428,000). By 2023, 6,200 (94%) of visas were awarded for buying property. In April 2024, Prime Minister Sanchez announced that the scheme would be coming to an end on the 3rd April 2025.

Alongside this, Prime Minister Sanchez has proposed to increase taxes for foreign investors. On the 13th January 2025, he spoke at a housing conference entitled ‘Housing, the fifth pillar of the welfare state’. He announced several ‘forceful’ and ‘unprecedented’ measures to help tackle Spain’s housing problem, outlining three priorities: more housing, better regulation, and greater aid. As part of these measures, Prime Minister Sanchez proposed a 100% tax on property purchases by non-resident, non-EU buyers to make housing more affordable for Spain’s citizens. He said: ‘Non-EU residents are buying properties in Spain not to live in, not for their families to live in, but to speculate and make money’. His words pose a stark contrast to the Golden Visa scheme’s ethos.

The following week, on the 19th January 2025, at a political rally, Prime Minister Sanchez continued to inflammatorily place blame on non-EU buyers for Spain’s housing crisis despite figures indicating otherwise. Per the Financial Times, Craig Ritchie, a Chartered Financial Planner at GSB, said: ‘… it seems to be a political statement more than a meaningful measure’. Indeed, his actions seem more politically, rather than practically, motivated. His government is a minority coalition, which lacks popularity and has struggled to get meaningful legislation through the Spanish Congress. By showing he cares about affordable housing and scorning foreign investors, he is arguably attempting to increase his political popularity and appeal to voters.

However, Prime Minister Sanchez’s strategy may do more harm than good for Spain’s prospects. If foreign investment in the property market declines, this does not ensure that housing will become more affordable; it is not the only factor. Additionally, although the taxation proposal is unlikely to succeed, primarily due to its weak political position, its proposal, alongside the Golden Visa scheme being halted, may discourage too many foreign investors. As property investments decline, is he prepared for other areas to follow suit? If investors feel unwelcome, they will be driven elsewhere, to countries that have a more favourable reputation. This could impact the broader investment culture in Spain, especially as his comments come after a wave of protests against tourism in Spanish sites, such as Lanzarote and Tenerife.

England and Wales: London-centricity, Empty Homes and Continued Uncertainty

Foreign investors are attracted to the UK property market; it’s perceived as a stable, lucrative investment, as property demand heavily outpaces supply. 2024 HM Land Registry figures show that 189,793 properties in England and Wales were owned by foreign buyers. According to the Mortgage Finance Gazette, this was a 2.6% increase from the year prior. Buyers include those from: Hong Kong (13.7%), Singapore (8.2%), the United States (6.5%), the United Arab Emirates (5.8%), and China (5.2%).

As foreign demand for property in England and Wales has increased, particularly in London, the reaction from the media and government alike has been interesting to follow. In December 2022, Conservative MP for Harrow East Bob Blackman claimed that buyers from abroad were ‘snapping up new properties, often to let out, and reducing the number of homes available for Londoners to buy or rent at affordable prices’. He cited Battersea Power Station as an example, claiming that the majority of buyers were ‘Singaporean investors’. Simon Murphy, the former CEO of Battersea Power Station Development Company, refuted this and stated that residential accommodation buyers consisted of: ‘sixty per cent UK buyers, 20 per cent Malaysian and 20 per cent other overseas’. Although Blackman’s example was backed by inaccurate figures, the premise that foreign investors in residential property are pricing out London natives is one worth exploring.

Filipa Sá, a Reader in Applied Economics at King’s Business School and former Teaching Fellow at Trinity College Cambridge, explored this idea in her 2017 paper: ‘The Effect of Foreign Investors on Local Housing Markets: Evidence from the UK’. She asserted that foreign investment tends to be concentrated in London (especially Westminster and Kensington and Chelsea) and major Northern cities (Liverpool, Leeds and Manchester, etc.). She claimed that, in 2014, ‘average house prices in England and Wales in 2014 would have been about 19% lower in the absence of foreign investment’. Foreign investors have a ‘positive and significant effect on house prices’.

Another phenomenon that foreign investors have been blamed for, especially within the media, has been the ‘buy-to-leave’ phenomenon. This is also known as the ‘empty home’ phenomenon, whereby investors purchase property but not let them out on the rental market. This limits the amount of available properties, contributes to heightened property prices because of increased demand, and thus also contributes to their property’s value appreciation. Sá claims there is no clear evidence that the ‘buy-to-leave’ phenomenon has been spurred by foreign investors. However, councils have started taking action to address this issue. In March 2023, Westminster Council unveiled plans for an empty homes hotline, whereby people can report properties that are suspected as empty long-term. The Council’s ‘report an empty property’ form signifies its awareness of London’s lack of housing, particularly in affluent areas of London. The council aims to encourage owners of empty long-term properties to put them on the rental market. Refusal to do so may result in increased taxation and property seizure. For example, if a property has been empty for two to five years, a premium of 100% will be applied to Council Tax bills. This percentage increases with time. These measures signify the Council’s awareness of increasing housing unaffordability but do not directly link these issues with foreign investors. More research is needed on how investors may be contributing to the ‘empty homes’ phenomenon.

The government has attempted to implement restrictive measures by increasing stamp duty for foreign buyers, but this has not slowed purchasing. Prime Minister Keir Starmer’s 2023 Labour manifesto laid out his plans to aid first-time buyers and housing affordability. In July 2024, he won a landslide victory. It will be interesting to see how foreign investors are treated under his new approach, which seems to de-prioritise them.

Ultimately, it is clear that the UK requires increasing investment to keep up with demand. Thus, the UK cannot afford to alienate foreign investors. However, to aid housing affordability, that investment needs to be spread across the UK and involve the construction of new houses, rather than purely the acquisition of existing builds. Greater construction will aid the affordability of houses and allow for a less strained housing market. How to make the UK a more favourable place for investors to build requires greater research.

Conclusion

Foreign investment is still clouded by significant uncertainty. Discouraging foreign property investors is highly unlikely to solve the housing crisis in Spain, England, Wales, or other European countries. Additionally, levying high taxes against foreign buyers and allowing domestic media to paint them in a negative light may deter foreign investors and lead them to seek property, and thus opportunities, elsewhere. However, with housing becoming increasingly unaffordable, governments need to show affordable housing is at the forefront of their minds or risk alienating voters.

Bibliography

Spain

England and Wales

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