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