What is capital flight?
To put it simply, capital flight is money moving out of a country. This could be businesses moving their headquarters to other nations or people simply moving away. Capital flight has many different causes, but it usually stems from a political or economical situation. For example, in 2016 during the Brexit referendum there were lots of talks and uncertainty that businesses would move abroad. This was because no one had ever left the EU before. Which made it difficult to predict what would happen and led to economic uncertainty. The worry is now that London housing has become so expensive that people are just leaving, but why?
The London Boom
For nearly 40 years London has been one of the strongest economic cities in the world. This has seen an increase in capital within the city which has resulted in more business, and more jobs. These jobs also paid a higher wage then a lot of other jobs in the country. This can be linked back to an event in 1986 called the Big Bang. This was when the Chancellor, Nigel Lawson, deregulated the financial markets which led to an economic boom. This led to London’s position as a financial capital being strengthened. This would lead to a drastic change in the Isle of Dogs and docklands area. The area was transformed from an old dockland to a modern enterprise zone full of skyscrapers, with lots of businesses.
Capital Flight in London
Due to the increase of capital in London this has made London a more expensive place to be in. Anyone who has been to London knows that things are more expensive in London then they are elsewhere. For example, a pint of beer in most of the UK averages at £3.50 however, in London you could be paying almost double that for a pint.
The same is true in terms of housing. In Upminster, which is in the London Borough of Havering, a three-bedroom house can cost anywhere between £650,000-£750,000. If we compare this to South Ockendon, which is only a few miles away in Essex, a three-bedroom house average anywhere from £350,000-£400,000. These two places are right next to one another, yet it perfectly shows the difference of prices in London compared to elsewhere in the UK.
Due to these high prices, we have seen an increase in people leaving London. They do this because places like Chafford Hundred and Laindon have direct transport links to London via the C2C. So, because of this they can still work in London, earn a higher wage, and live just outside of London in a nice house that is a lot cheaper.
What’s The Solution to London’s Housing?
With house prices in London set to increase another 20% in the next five years it begs the question, will more people be leaving London? This question we simply cannot answer definitively because lots can change in those five years. However, local authorities are aware of this issue with various reports of different policy ideas being released in the past year. There is a desire to build more affordable housing in London, but with little room left to build the high number of houses required, this has led to the idea of building more high-rise flat blocks.
Another topic that arose was the fact that the pandemic has shown that some businesses are able to run whilst their employees work from home. If this were to be a full-time deal, then it would make a lot of office buildings in London desolate. These could then be torn down and replaced with new and affordable housing. This would then hopefully stop people from moving out of London. However, working from home full time doesn’t seem to be a viable option for most businesses.
What Conclusion Can be Drawn up to Deal With London’s Housing?
In conclusion, it is safe to say that for now people will continue to leave London and live in surrounding areas. This is because it simply makes more sense to do this and its more cost effective. This is simply because house prices in London double those outside of London. This will continue to happen for at least the next decade until good housing is built that is affordable for working class people.
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