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

2. 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

3. 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

4. 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

5. Estimates of average land value of houses sold in UK
Year Average Land Average
house price as land value
£ % £
, ,253
, ,889
, ,228
, ,059
, ,000
Source: DCLG statistical data for average house price only.
RTPI SW - December 2016

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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 by V.H. Blundell
RTPI SW - December 2016