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Tuesday, 3 March 2020


In his excellent book, Home Truths, Liam Halligan lays out in ten graphs of  what’s wrong with the Housing Market (In Ch2), and very good it is too. But I think he missed out the ultimate 11th graph which compares House Prices with Land Prices:  

Liam's missed a trick, and a blindingly obvious conclusion here. He should have explained that it is not HOUSE prices that are rising, it’s the price of the PLOT the house stands on that is rising much more sharply. 
 Read on
 I’m sure Liam gets this Plot-Price observation. Indeed, later on p190 he does say “the root cause of the current crisis, with high prices for land”. Sadly he is only thinking of land for new-build here. To show this I can only repeat this brilliant graph which demonstrates the difference.

I find many folk who find this difficult to accept that Plot-Prices, as reflected in the price charged for land with Planning Permission, is what’s driving the market.

As I’ve said before (but can’t repeat often enough)

First of all we have to recognise that it’s not actually house prices that are rising. What is going up is the price of the land the house stands on. The cost of producing buildings is about the same in all parts of the country, and (adjusted for inflation) it hasn’t gone up much either. A typical 3-bed house has a build cost of about £126,000 in all parts of the UK With building costs of £1400 per sq m. a typical 90 sq m.  3-bed semi costs £126,000. But just look at the way the price of a House+Land has been outstripped by the price of Land on its own: subtract the cost of land and yes, the cost of the building—the house—is unchanging.

But it’s not just newly-built houses that are affected by this land-price hyper-inflation.  The majority of all house-sales (80%+) are of second-hand properties. Their price is affected by land-values to an even greater extent. Forget about ‘condition’! Even if the previous owner had kept it immaculate, it is still a second-hand house. Since the building itself cannot be ‘worth’ more,  only the inflated price of the plot can explain the huge rises in house-prices. Overwhelmingly it is land pricesthat are driving up the housing market, both new and second-hand. Fix that and you fix the Housing affordability Crisis.

Here's that graph again, but reproduced from Ryan-Collins equally excellent 2017 book. “Rethinking the Economics of Land and Housing’

So to repeat loud and clear to Liam:


Here's the longer-term graph of hose prices, but really it's LAND-PLOT prices
From: No Price Like Home: Global House Prices, 1870 – 2012 Katharina Knoll, Moritz Schularic , Thomas Steger 

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