The prices of houses are currently on the rise, just as they have been for decades. However, the rate at which these prices are beginning to rise is a bit unsettling, with U.S. housing prices rising at around 5%, annually. This greatly outpaces inflation, meaning that American citizens are going to be spending more and more on housing costs. Although there are benefits to rising home costs, especially in the era of recovering housing markets that were left after the global recession, there are elements of this that should cause us to stop and give pause. The truth is, there were a lot of hidden variables about rising home costs from before the recession that greatly contributed to the housing bubble, and the recent revelation in the Panama Papers reveals more about it…
The Panama Papers
The Panama Papers were a series of documents (over a million, actually) that revealed many shady business dealings within the offshore finance firm Mossack Fonseca. The documents, released by a global team of investigative journalists in early April, exposed a great deal of information about how the offshore finance industry worked, and how tax evasion was able to thrive through shell corporations that were set up by businesses like Mossack Fonseca. The release of these papers caused a ripple effect that led to embarrassment for several world leaders, such as British Prime Minister David Cameron and the now-ousted Icelandic Prime Minister. The activities of businesses and individuals through these shell corporations has been shown to have an effect on property prices.
England’s housing crisis
An example of how these offshore firms have been used to increase prices, take a look at the current situation in England and, in particular, London. The Panama Paper’s revealed that nearly 90% of high end property in London was being purchased and invested in through offshore corporations, and how these properties were part of an embezzling scheme to hide activity in illegal industries, such as drug and sex trafficking. As these overseas criminals begin to pour their assets into English property, as a way to cover up illegal dealings, this has caused a huge skewing of price relation, in terms of supply and demand economics.
Artificial price inflation
When tax-evaded money from poor countries, or income that is being embezzled from foreign industries through offshore shell corporations, begins to pour into Western economies, and especially cities, it causes what is called an artificial price inflation. As these elite criminals use property and homes to consolidate wealth, it causes prices to rise at higher amounts, even though the actual homebuyer market would set the price much lower. This has caused housing prices to grow as high as 9% in some parts of England.