There’s a fad these days for net exports and trade surpluses, whereby somehow all nations are supposed to be virtuous and make more than they take. But looking at property markets is a reminder that this kind of thinking can get a bit confused. You could imagine a world with zero foreign investment in London real estate (maybe because of a regulatory issue) that’s striking similar to our own. In a world like that all the same structures exist in London, except their owners are all British and they lease the property to foreigners. Perhaps it’s even long-term leases that allow for subleasing. In that world, England is a thrifty nation with tons of domestically financed investment and surging exports of housing services. English people are able to import goods thanks to their export earnings.
The real world’s not like that, of course. The English are, instead, importing lots of capital (foreign real estate investment) and using that to finance consumption of goods via a trade deficit. It’s tempting to think of this as relating specifically to foreigners’ affection for London but recall that Australia’s been running a trade deficit forever. Well-governed developed democracies with relatively high population-growth rates attract persistent capital inflows, with much of it going directly or indirectly to finance the physical structures needed to accommodate their growing populations.