high real estate prices

Brits complain that foreign demand for real estate is driving up the cost of living in London. Canadians complain that wealthy Chinese investors are causing housing prices to skyrocket in Vancouver and Toronto.

Tim Harford, FT undercover economist, explains that these high and rising real estate prices are often a sign of success, a refection of the fact that increasing numbers of people want to live in a specific geographic area. Absentee owners of vacant homes are not common, so have little or no effect on real estate prices.

London’s excruciating price tag is not just a vulnerability but also a sign of success. It is hard to see how the city can be written off when so many people are willing to pay such extraordinary sums to live there. ….

London is not going to become a gigantic holiday park full of second homes for billionaires — there simply aren’t enough billionaires out there to turn a city of more than eight million souls into the equivalent of a weekend hideaway in Cornwall.

Another concern is that international investors will snap up new-build apartments as investments, then leave them empty. But rental property is a much better investment when one actually rents it out, so this makes sense only if one accepts that most international investors are insane.

Tim Harford, “London’s turning …“, Financial Times, 15 August 2015 (metered paywall).

One Response to “high real estate prices”

  1. Susan ST John says:

    Tim should come to New Zealand. The argument that interantional investors will rent out their purchases because they are not insane is deeply flawed when there is a speculative bubble and untaxed capital gains are the motive