The Bow Group, while associated with the Conservative Party, is an independent organisation. Its views and its members are, nevertheless, recognisable as being to the right of political thought. It has over the period of its existence since 1951 shifted in terms of dominant philosophy. In 1973, for example, Peter Lilley produced the so-called alternative manifesto which marked a move away from Keynesian economics: the ground was being prepared for what was to become Thatcherism.
As such, therefore, it would be presumed that the Bow Group would be wholly market liberal. That presumption would normally be accurate, but in November last year the Bow Group came up with a proposal which might sound staggering, given its usual philosophies. It was addressing Britain's housing crisis, and its solution, rather than the building of thousands more new homes, was the cutting of demand. Specifically, the author of its report, Daniel Valentine, argued that Britain should follow the lead of countries such as Denmark and Switzerland and make it tougher for foreigners to buy properties.
In Switzerland there is an annual quota for how many homes can be sold to foreign non-residents. This applies countrywide, though the individual cantons can and do apply additional restrictions. Denmark doesn't allow non-EU nationals to buy homes unless they have lived in the country for five years. The EU allows Denmark to restrict second-home purchases by EU citizens. Those citizens who do purchase need to provide confirmation that the property will be lived in all year round.
Away from Europe, the Singapore government restricts purchases to condos or apartments without the need for first obtaining permission to buy. In Australia, non-resident foreign purchasers can generally only acquire new builds. The Bow Group has suggested just this, with penalties applied if the property is sold within five years.
At the heart of what the Bow Group has said and also at the heart of what certain countries have introduced by way of restrictions is a recognition that a free-for-all, liberalised market doesn't work. Or rather, it works well enough for some but most definitely not for others.
Last week, and despite a report of 29% growth in home sales with the Balearics to the forefront, it was said that a new housing bubble was not about to emerge. Perhaps it won't, though there are some who say that it will. Consider, if you will, a further recent report which identified the fact that there are some 600 owners of 32,000 properties in the Balearics. Why do they need so many? The basis of a bubble is speculation. How many of these 600 plus might be foreign owners? The information would be possible to extract. Perhaps it should be.
There has been a great deal of discussion of what is an increasing housing crisis in Mallorca. The factors that have contributed to it are well-enough known, one being purchases for rental - holiday rental - purposes. A further factor is the cost of land, of which there is in any event a shortage for development. The cost in Mallorca didn't decline during the years of crisis to the extent that it did in many parts of Spain. With crisis mostly a thing of the past, land is at a premium and at a premium price, especially in the more desired parts of Mallorca, with the coastal resorts, the source of much employment, at the top of the list.
In the first quarter of the year, there were, according to figures from the national ministry for development, 3,122 homes sold in the Balearics (988 of them in Palma and 307 in Calvia). More than a third of these were purchased by foreign buyers. The average spend on property by foreigners in the Balearics was almost double the national average. The average price of any purchase exceeded by some 37,000 euros the price in the second most expensive region - the community of Madrid.
In some respects, this is of course good news, but in others it is far less so. While it might be said that there is a particular distortion in the market in the most in-demand parts of the island, such as Palma, the Bow Group in its report argued that purchases by top-end buyers in specific areas pushes prices up in the whole market. In Mallorca, small that it is, this is occurring. Prices in the interior are up both for purchases and for rental.
An argument is and will be that wealth is generated generally by a highly active property market. While true, it depends on where and how that wealth is distributed. The middle class in Mallorca, hammered by crisis, shows little sign of recuperating its one-time purchasing power; as yet anyway. The consequence is the total distortion and imbalance that now exists. When the Balearic government introduces its housing bill, will foreign purchasers be a target?