Having visited China a few years ago, I found the debate about President Xi Jinping’s state visit difficult to assess. There were a lot of side issues that attracted attention – would Jeremy wear a white tie to the banquet seemed to be a fixation for some parts of the media – but the primary issue was human rights.
There are obviously so many abuses in China but there is a balance sheet to be drawn up. Freedom of speech is still ruthlessly suppressed, yet I found the people we met on our trip able to discuss politics openly. Our guide commented that his father absolutely revered Mao Tse Tung, he knew about him as a crucial historical figure, but his own son would be hard pressed to tell you anything about him at all. We discussed openly both the appalling excesses of Mao, the impact of the cultural revolution and the capitalist reforms.
It took Britain and the USA many more generations to move from a feudal economy, and in many respects China has sprinted past us. Huge strides have been made against poverty hunger and disease. They build new homes on a scale we simply cannot imagine. Of course the society still has many brutal elements, however it seems highly likely that political liberalisation will follow economic liberalisation, but at an unpredictable pace. That is why engagement is the best route forward.
Economic liberalisation, or the introduction of capitalism, has not been all good for China. It seems that the rising tide of wealth has lifted most, but not all, boats, on the other hand some have been lifted to extreme heights. Millions of Chinese have become extremely wealthy and the opulence of their lifestyles and their growing detachment from the reality of the common people is as offensive as it is in the west. But just like Russian oligarchs, Oil Sheiks and rich Greeks before them, wealthy Chinese want to hedge their bets with their money in case domestic politics changes for the worse (as they see it) or in case the recent economic turbulence and stock market crashes become more permanent features of the Chinese economy.
China built hundreds of thousands of new homes on higher ground to facilitate the relocation of 1.24 million residents to enable the Three Gorges Dam project to proceed. The scale of Chinese ambition is extraordinary.
Which brings us to housing. President Xi is carrying out further economic reforms, including making it easier for individuals to invest abroad. More than 60% of wealthy Chinese in a recent survey were looking to increase their foreign investment, and their most popular option was residential property. Increasing numbers of wealthy young Chinese go abroad for their education, and their families invest in property when they go. As in Britain, a large investment can also bring the right to reside in the country concerned (never hear UKIP complain about that one). London is a highly desirable destination, but so are other UK cities with good Universities. Despite the huge inflow, the UK is not yet the number one choice, it is still behind USA, Australia and Canada. But London is clearly the destination of choice within Europe, followed by our other University cities. Nearly half a million young Chinese went abroad to study last year, and the number is rising rapidly.
The impact of all of this in the UK is difficult to assess, but added to the supply of rich migrants from other countries it is an increasingly significant factor in the property market. UK property is accepted as a ‘safe haven’ generally, but the so-called ‘golden postcodes’ around good schools and universities and in inner London create property hotspots which in turn ripple out into the wider market. It certainly feeds the expectation of high prices. Developers like to market overseas because investors will buy ‘off plan’, boosting their cash flow. It is no surprise to see them marketing new homes vigorously in many countries and especially across China. It seems unfair to existing UK residents, but there are also suggestions that the London new build market is more fragile than people think and might be teetering on the brink of a downturn without this additional demand to compensate for the fact that so few domestic purchasers can compete at current price levels.
George Osborne has taken a few small steps to regulate this market, in particular by gathering stamp duty from property investors using a corporate structure. Much more action is needed against those who ‘buy to leave’ and foreign property investment would seem to be a good source of tax revenue to help bring the deficit under control. But the biggest lesson is that a housing policy that relies on high demand to encourage greater supply is doomed to chase its own tail. We need less planning liberalisation, as we see in the Housing and Planning Bill, and stronger powers to enable local councils to determine the mix of homes that will appear on particular sites. The only way to house people on very low incomes without recourse to huge housing benefit costs is through social housing, and the only way to have a long term impact in high value areas is to do more to control the cost of land. These are among the issues that the IPPR/Kerslake Commission on housing in London will turn its attention in the next few months. We will await their conclusions with interest.