Synoptic Economics: Does FDI raise UK house… | tutor2u Economics
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Synoptic Economics: Does FDI raise UK house prices?

Demand from foreign investors has had a significant and positive effect on UK house price growth over the last 15 years, according to research by Filipa Sá presented at the Royal Economic Society's annual conference at the University of Sussex in Brighton in March 2018. Analysing a new dataset released by the Land Registry, which records all property transactions in England and Wales registered to overseas companies, the study finds that:

Average house prices in England and Wales in 2014 would have been about 19% lower in the absence of foreign investment (at approximately £174,000, compared with an actual average of about £215,000).

The impact on house prices is concentrated mostly in the South East and major cities in the North, such as Liverpool, Leeds and Manchester.

The effect of foreign investment on house prices is larger in local authorities where housing supply is less elastic – due to land scarcity or regulatory constraints.

Foreign investment does not just raise prices of expensive homes, but has a ‘trickle down’ effect to less expensive properties.

There is no evidence that an increase in foreign investment leads to an increase in housing construction or in the share of vacant homes.

There is evidence that foreign investment reduces home ownership rates, suggesting that some residents may be priced out of the market in areas where foreign investors are more active and have to rent rather than own their homes.

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