The London School of Economics has examined the role of wealthy foreigners in the UK residential market, and what it found is at odds with certain popular preconceptions.

Claims that London’s property market is put out of reach of local residents by rich foreigners who don’t even use them is politically radioactive. And a few days ago Labour Party leader Jeremy Corbyn suggested seizing empty properties to house those left homeless because of the recent deadly high-rise fire in the city. His comments were ridiculed in some quarters, but by simply raising the issue, he gives them fresh prominence.

It turns out however that claims that wealthy foreigners are snaffling up properties at the expense of locals are greatly exaggerated and often plain wrong, according to a study by the London School of Economics. 

“Overall, therefore, sales to overseas buyers almost certainly contributed to the net availability of housing to Londoners,” the report, entitled The role of overseas investors in the London new-build residential market, said. “The positive impact of overseas investment on the supply of new housing development is additional and complementary to that arising from these sales and is becoming increasingly important in speeding delivery, especially on large sites. One important implication of these findings is that there would be real costs to the London housing market if overseas investment either through purchasing new dwellings or supporting new developments began to feel unwelcome,” the report added.

The LSE has analysed sales data on residential properties covering about 10 per cent of new private units for sale during a period from April 2014 to March 2016; it interviewed developers involved in more than half of new units. The LSE study said that in the period 2015-2016, 24,180 new dwellings were completed in London of which just over 17,000 were in the private sector. This was higher than in the previous four years when the figures were 20,000 or fewer in total and 12,000 or fewer in the private sector.

“About a third of the sales handled by certain international estate agents between April 2014 and April 2016 were to overseas buyers, rising to over 50 per cent in central London (where the number of new units is small). Information from developers is consistent with this in particular parts of the market. However many developers hardly sell any units to overseas residents so the overall proportion of new market units sold to overseas buyers is undoubtedly much lower,” it said.

The analysis goes on to say that most overseas buyers are from the Middle East and Asia; they buy London property for three main reasons: an investment to rent out; to accommodate family and/or as a home to be used for residential/vacation visit purposes.

Developers estimated that occupancy rates for individuals schemes ran as high as 95 per cent. In a sentence that should give politicians of all parties pause, the LSE study says: “There was almost no evidence of units being left entirely empty – certainly less than 1 per cent. Units bought to be let out appear to have very high occupancy rates and indeed some are `over-occupied’, eg, by students.”

For units bought as second homes, however, occupancy can be as little as a few weeks a year; many of such homes are to UK residents rather than foreigners. 

The report goes on to say: “Sales to overseas buyers accelerate development through their impact on developers’ decisions to build and thus make more market and affordable housing available – especially given that affordable housing is currently largely a by-product of market development. International investment and finance have helped bring stalled sites into use and speed up development especially on larger sites. They have also been key to creating a UK build to rent sector.”

Why is such a report worth highlighting for wealth managers? The reason is that claims about the impact of high-end, unoccupied real estate are part of a general drum-beat of noise about how wealthy foreigners are benefiting unfairly at the expense of the wider British public and that therefore policymakers should do something about it. We have already seen changes to the tax treatment of foreign-owned properties, to the UK's non-domicile residency system, and so on. If claims continue to be made about the supposed unfairness of foreign wealthy individuals' treatment by the authorities, it will only fuel calls for yet more attacks on wealth generally. With uncertainties around Brexit and the UK's own political climate after the June general election, it is healthy for some myths to be corrected and put in context.

What gives the LSE study an edge is that it is produced by an academic institution, not a real estate firm motivated perhaps by commercial self interest. But if the LSE’s data and extrapolations from the figures are correct, then it surely demolishes the claim that a reason for unaffordable housing in the UK is a horde of wealthy foreigners denying space to everyone else. At a time when political populism, and perhaps outright xenophobia, is in the air, correcting such misapprehensions is a necessary and welcome step.