The price of land – some issues

The labour party proposal to pay less for land for council housing raises a number of issues.

1) Land prices have a meaning. A reason for the high price of land is the high level of demand for a resource which is quite limited in terms of availability in the UK. The reason land for development is restricted is to ensure that its use is limited to reduce waste. High land prices are a signal that demand is far higher than supply.

2) Making development land cheaper might well appeal to people, some might consider all land for housing development should be bought at cost price with the effect of reducing house prices. However there are two problems here, one practical, one moral.

On the practical side property prices reflect demand arising from the desire for ownership and the funds to purchase property. That demand fuels house price inflation, the more there is the higher prices rise. If say land was bought at cost price and the price of a new house was lower than it would otherwise have been, the first purchaser would have a cheaper house. But as soon as the house was put on the market, the probability would be that there would be an uplift in its value which would accrue to the householder. Hence the extra value would accrue to the householder rather than the developer or landowner. The uplift in value due to demand does not disappear merely shifts from one user to another.

As to the moral question – is it more morally acceptable that a person who sells a property for a holiday let or say a football club sell their old ground for development and thereby gain from the uplift in land/property value that accrues, than someone who sells land for housing development?

3) If policy makers are to be serious about property prices then action needs to be taken on income and wealth. Those with high incomes and assets can and do bid up the price of property. A combination of taxes and ownership restrictions would reduce demand from this quarter reducing house price inflation.


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