MEASURING PRICES OF PLOTS UNDER EXISTING HOUSES:

 Is this a recognised method?

Thanks to the vast amount of reliable data on house-prices available on Zoopla and Rightmove, we can all join in the game of valuing our own and others’ houses and flats. Professional valuers have been taught[1] to call this the Comparable Method, and it is the basis for the all-important decision on selling price. In combination with the valuer’s local knowledge and intuition, this wealth of data means that the vendor can rely on an asking price that is trustworthy and achievable.

But what if the valuer is asked to split this valuation into a price for the house only, and a separate price for the market value of the land it stands on? Due to lack of data on house-building land sales, the comparable technique is difficult to apply. Any plot-value estimate is likely to be subject to wide error bounds. If this valuation was to be used for taxation purposes (which is the whole point of this essay!) it would be contestable at law, and cause bafflement to the property owner, who after all is the one who will be expected to pay any land-value tax.

 So two major obstacles to establishing plot values for land value taxation  are:—

1. The difficulty for valuers in estimating reliable and defensible land values.

2. The lack of acceptance or understanding of such values by the tax-paying owners.

 The Comparables Method works fine in a local context. Looking at house prices  regionally or nationally reveals huge differences between areas. This reflects, not so much differences in building costs, but the differences in plot values.

 Has anyone made use of this fact to extend the comparable method to establish the size of ‘locational effects’ nation-wide? It seems such an obvious way of identifying plot values relative to a datum value. If we can find the cheapest comparable houses nation-wide, then they must surely have been built on what is now the cheapest land.

 Using the value of the cheapest houses on plots of negligible value they can act as baseline for comparison. So a plot-valuation procedure could be as follows:

—First find the average sale price of a house-type in the cheapest area in the country. This gives us a base price for the house-plus-plot.

—Next, calculate the premium for a comparable house in another location. This is a measure of the plot value premium. This higher-than-cheapest price will include all the valued social, economic and scenic benefits at this location.

 Hence: for comparable houses

Sale price at location X     minus    Sale price in base-location

Equals   

 Plot value at location X   

[assume negligible plot value in base location] 

How it might work

Examples of plot-valuing using base-location comparables

 Note: this is a quick and dirty exercise to show the method. In reality far more data would need to collected to provide defensible plot values.

 Where in the country are the cheapest houses?

According to Zoopla it’s Shildon in Co. Durham[2]

“The quaint town of Shildon in County Durham has retained its crown as Britain’s most affordable town”.

BASELINE SHILDON 1930s 3-bed freehold Semi-detached (better than bog-standard, but gives you some idea) College Street, Shildon DL4

For sale May 2021 at £120,000; 90 sq m (950 sq ft) frontage includes side parking. Cond. V. good.

Frontage: 10.5 m (estimated) Garden of average length.

Full details 3 bed semi-detached house for sale in College Street, Shildon, Durham DL4 - Zoopla

BASELINE:        SHILDON Co. Durham              £120,000 

Now to calculate local plot values from

comparable examples

MEDIUM PREMIUM  West Park Ave, Northfield, Birmingham

For sale May 2021 at £210,000

For details 3 bed semi-detached house for sale in West Park Avenue, Northfield, Birmingham B31 – Zoopla

From this I infer that the

Locational Plot Value of this property is £90,000 above Shildon baseline

(£210k minus £120k)

HIGHPRICED PRICED COMPARATOR Quinton Road Birmingham B17

For sale May 2021 at £375,000; 112 sq m (1200 sq ft) Frontage 9 m (guesstimate) long garden

3 bed semi-detached house for sale in Quinton Road, Harborne, Birmingham B17 - Zoopla

From this I infer that the

Locational Plot Value of this property is £245,000 above Shildon baseline

(£375k minus £120k)

Although claimed sq m is 24% greater than Shildon, frontage is 17% less.

 

VERY HIGHPRICED PRICED COMPARATOR Marsh Lane Headington Oxford OX3

For sale May 2021 at £475,000; 81 sq m (869 sq ft) Frontage 7.5 m (estimate) average/long garden

3 bed semi-detached house for sale in Marsh Lane, Headington, Oxford OX3 - Zoopla

From this I infer that the

Locational Plot Value of this property is £345,000 above Shildon baseline

(£475k minus £120k)

EXTREMELY HIGHPRICED PRICED COMPARATOR Sandpits Road, Richmond TW10

For sale May 2021 at £1,095,000; 108 sq m (incl loft ext. 24 sq m) = 84 sq m equiv over 2 floors

Frontage 7 m (estimate) tiny garden part built over

4 bed semi-detached house for sale in Sandpits Road, Richmond TW10 - Zoopla

From this I infer that the

Locational Plot Value of this property is £975,000 above Shildon baseline

(£1,095k minus £120k)

——————————————————

This method of inter-regional comparables is straightforward, although it would need to be worked up in more detail.  It also should be understandable by the home-owner, who can then accept it as the basis for LVT.

So

1. Have I ‘re-invented the wheel’? Is this a well-known technique, already in the literature?

2. Do the results of my calculation make sense? Is this a viable plot valuation technique?

 [I am aware of the actual techniques used, for example in Denmark, to establish plot values. I also appreciate the excellent work by Tony Vickers to establish land-value contour maps. That is why I ask somewhat naively, “Could my suggestion, so easy to calculate, so intuitively understandable, actually work?”]

[1] Millington, A. F. 'An Introduction to Property Valuation', 2nd ed., Estates Gazette, London (1982)

[2] Revealed: the most affordable areas in Britain - Zoopla  Nicky Burridge March 18, 2021Zoopla

WHAT SHOULD WE BUILD? A MEDIUM-RISE FUTURE

 

 

One vision of the future? Medium-rise terrace in Glasgow. Who wouldn’t want to live here?

 ~ ~ ~ ~ 

Great article from the Irish Times 7 June 2021

 “The housing crisis didn’t happen in a single season – it has taken 50 years to get into this mess and the way out is not to lower building standards or to abandon planning regulations (though they need to be changed). A radical solution is required.

Two things need to be said.

—One, tower blocks are not the answer.

—Two, comprehensive redevelopment of the inner suburbs is required. This needs the full involvement of stakeholders and full, generous compensation for the upheaval and inconvenience.

Say no to zoning and low density housing

Let’s look at how we got here. The aim of architects and planners to separate urban functions and to allocate more space to housing was well-intentioned. Industry in the 1930s was pretty malodorous and it made sense to get it out of city back yards. And people needed better housing.

The beneficial effects were immediately apparent and the downside a matter of a bit more driving, perhaps. The disadvantages are what we suffer now. Low-density planning increased the demand for land. It raised the cost of housing and added to the time taken to get around. Higher house prices cost us socially, economically, healthwise and environmentally.

Looking just at the economics, low-density housing means bigger mortgages and long commutes. Overworking and commuting takes time from families and from community involvement.

At the core of the problem is the fact that, other things being equal, the further a property is from the city centre and other amenities, the less desirable it is and the more desirable a central location becomes. Limited supply and high demand for central locations raises the cost of every other house. Every increase in the cost of city centre locations raises the cost of every other property or else increases the need to commute – or usually both.

Social costs

There will always be some price differential related to distance from city centres and amenities. Ireland is an extreme case of the hazards of low-density, urban sprawl. The ambition to give everyone a front and back garden turns out to be as problematic as promising to put everyone at the front of a queue. It worked for a while but now we have paralysis.

At the core of the problem, we can see that high housing costs drives up rents which destroys people’s ability to save. High land prices drive up retail costs which also makes saving harder.

Needing two jobs to pay for a home necessitates a second car and childcare. The social costs from the despair of eternal renting to the stress of paying for it and time in traffic are plainly horrendous.

 

The solution? Not easy!

What we can understand from this is that the dramatic acceleration in the use of land has had very costly consequences. Reversing that won’t be easy. The housing crisis truly is a wicked problem. Defining it correctly is part of the problem; there is no single right answer.

Solutions will change the system irreversibly and quite possibly some will feel a loss due to any policy solution being implemented. But as it is, everyone except those in a paid-for home and with large salaries is being crushed by housing costs. Even grandparents bear a burden as they see their children leading tiring lives and perhaps are even tired themselves from obligatory grandchildcare.

Renewed Town Planning: Changing the Housing format.

The solution is not a market fix, tempting though that may be. Solving this demands political vision, economic investment and the involvement of communities and architects. Policymakers must engage with something they tend to avoid: architecture and design.

This is because design and architecture are fundamental to the solution and are not merely a matter of decoration. Specifically, policymakers have to buy into a solution with a specific architectural expression. The exact format of the housing in an affordable city is as important as the exact procedure a surgeon follows to treat a patient.

So, what does the solution look like? It will offend Ireland’s particularly vociferous high-rise boosters and fans of the three-bed-semi equally. The solution looks like the 19th-century city: streets with modern construction standards, a minimum of 120 sq m for each family and a variety of single family homes, up to five or six floors.

This pattern exists already – it’s the standard in Germany and many north European cities (the ones we like to visit). So, it’s nothing strange. Modern building technology can mitigate or eliminate neighbour noise.

There are no technical barriers to the affordable, medium-density city. It must be reiterated that it involves a mix of housing formats so there is something even for those who insist on a single-family home.

We’ve tried the low-rise city suburb, and we’ve tried high-rise apartments.

The solution is moderate density, high-design standards and political will.

 The result is a chance of freedom from the tyranny of life-long mortgages or life-long housing insecurity.

 Author Richard Herriott is associate professor of industrial design at the Kolding Design School, Denmark

From https://www.irishtimes.com/opinion/moderate-density-design-and-political-will-can-solve-housing-crisis-1.4585862

(with edits)