The Economics of Housing Greg McGill FRTPI FRICS RTPI SW Research Officer

In 1975 my wife and I bought: a 4 bed Victorian terraced house built in 1885 in the centre of York and it cost us £6,850. --------------------------- Today, comparable dwellings in York are on the market for around £500,000. RTPI SW - December 2016

The economics of house prices House prices are a combination of two of the three factors of production: Land: The natural resources of the world. Fixed in supply and location Has no cost of production Capital: Buildings + improvements. RTPI SW - December 2016

Land as a percentage of house value No studies in UK Research in US and Australia figures reported: 88% in San Francisco (2004) 23% in Oklahoma (2004) 63% in Perth, WA (2011) Studies reveal the land element increases over time On the basis of the above an average of 60% for 2011 in England is considered reasonable. RTPI SW - December 2016

Estimates of average land value of houses sold in UK Year Average Land Average house price as land value £ % £ 1971 5,632 40 2,253 1981 24,188 45 10,889 1991 62,455 50 31,228 2001 112,835 55 62,059 2011 245,000 60 147,000 Source: DCLG statistical data for average house price only. RTPI SW - December 2016

Money invested in land from house sales in UK Year No. of dwellings sold Average price £ % as land value Average land value £ Total spent on land from all house sales in each year 2001 1,170,400 112,835 55 62,059 £72,633,858,600 2006 1,254,000 178,915 57.5 102,876 £129,099,092,400 2011 624,000 245,000 60 147,000 £91,801,500,000 2014 872,900 Source: DCLG for numbers sold 267,000 Source: DCLG 61.5 164,205 £143,334,544,500 RTPI SW - December 2016

Money spent on the land element of house value: doesn’t produce anything increases the supply of money in the economy adds to inflation helps diminish the productive economy is a major cause of inequality. RTPI SW - December 2016

So what are the causes? Taxation targets labour and capital Land virtually tax free Borrowing costs are low Housing becomes an attractive investment The above increase demand for dwellings. RTPI SW - December 2016

What has planning done? 3 attempts at capturing increases in value since 1947: development charge (1947) betterment levy (1967) development land tax (1976) All targeted development Development was discouraged Land values increased. RTPI SW - December 2016

What RTPI SW is doing Initiated research last month into the delivery and affordability of housing Key areas of investigation are: Increases in house prices over the years Effects of planning process Changes to tenure Based on case studies. RTPI SW - December 2016

Which is more important in determining house prices- DD or SS? Increasing the SS of dwellings in a locality increases demand for services which helps push up land values in that locality. As land is fixed in supply increases in demand for dwellings in any locality increases the land element of house value. RTPI SW - December 2016

Useful reading George, Henry (1987) Progress and Poverty, Robert Schalkenbach Foundation, New York Peddle, Francis K (1994) Cities and Greed: Taxes, Inflation and land Speculation, Canadian Research Committee on Taxation Tideman, Nicolaus (Ed) (1994) Land and Taxation, Shepheard-Walwyn (Publishers) Ltd., London Included in Tideman are: Land as a Distinctive Factor of Production by Mason Gaffney Flawed Land Acts 1947-1976 by V.H. Blundell RTPI SW - December 2016