Foreign buyers risk causing London housing bubble, say economists

Wealthy foreign buyers' desire for high-end London property risked creating a housing bubble in the British capital, an economic forecasting group said this week as it called for measures to cool the market.

An influx of buyers had created bubble-like conditions in London, the EY Item Club said in a report published on Monday.

That report came as think tank Civitas estimated 27 per cent of new homes in central London went to British buyers and more than half to buyers from Singapore, Hong Kong, mainland China, Malaysia and Russia.

EY Item Club economist Andrew Goodwin said: "House prices across most of the country remain well below their pre-crisis peaks and there seems little danger of a bubble developing … But London, which is suffering from a combination of strong demand and a lack of supply, is increasingly giving us cause for concern."

Real estate agents, politicians and the Royal Institution of Chartered Surveyors have said that Britain was risking a repeat of the 2008 property crash.

The business secretary, Vince Cable, has warned of the dangers of a housing bubble. Last week he said: "We cannot risk another property-linked boom-bust cycle which has done so much damage before."

The governor of the Bank of England, Mark Carney, has played down fears of a bubble. He said that while prices were rising quickly the acceleration was "from quite a low level".