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| Tower Bridge, London |
THE OBSERVER:
Property in the capital has become a global reserve currency for the super elite, altering its delicate cultural ecology, says Michael Goldfarb. Then he explains why his story had such an impact
Our neighbours Lauren and Matt and their kids moved out of London to Cambridge the other week. Bibi, Andy and their two left for Bristol in June. Another of my eight-year-old's classmates and her family are heading out after Christmas. In my book this is a trend.
The moves are not examples of the lifecycle of the striving middle classes. Nor are they examples of middle-class folks being thrown on hard times by the sluggish British economy. The families moving out had good incomes. Matt, who had been looking for a house for more than three years, summed up the reason for leaving best: "I don't want to be a slave to a mortgage for the next 25 years." Given the astronomical rise in house prices here, he wasn't speaking metaphorically.
This is what happens when property in your city becomes a global reserve currency. For that is what property in London has become, first and foremost. The property market is no longer about people making a long-term investment in owning their shelter, but a place for the world's richest people to park their money at an annualised rate of return of around 10%. It has made my adopted hometown a no-go area for increasing numbers of the middle class.
According to Britain's Office for National Statistics, London house prices rose by 9.7% between July 2012 and July 2013. In the surrounding suburbs they rose by a mere 2.6%. The farther away from London you go, the lower the numbers get. When you finally cross the border into Scotland, house prices actually decline by 2%.
The gap between London prices and those of the rest of the country is now at a historic high and there is only one way to explain it.
London houses and apartments are a form of money.
The reasons are simple to understand. In 2011, at the height of the eurozone crisis, citizens of the two countries at the epicentre of the cataclysm – Greece and Italy – bought £400m of London bricks and mortar. The Italian and Greek rich, fearing the single currency would collapse, got their money out of euros and parked it some place where government was relatively stable and the tax regime was gentle – very, very gentle. Considering that tax evasion in Italy and Greece was a significant contributory factor to their debt problems, it just seems grotesquely cynical to encourage this kind of behaviour.
But that's what Britain in general, and London in particular, does. The city is essentially a tax haven with great theatre, free museums and formidable dining. If you can demonstrate that you have a residence in another country, you are taxed only on your British earnings.
» | Michael Goldfarb | Sunday, October 20, 2013
