Wednesday, 7 August 2013

"Parking space near Hyde Park goes on sale for £300,000"

From The Daily Mail:

A parking space has been put on the market for a record-breaking £300,000 - almost twice the price of the average UK home.

The spot in London's exclusive Hyde Park Gardens measures just 11ft x 12ft, but its price tag is almost double the £162,000 paid for the average house sold in England and Wales last month...

Matthew Abernethy, associate director at Kay & Co, said: 'There are a number of properties in the area which range from £1 to £15 million and there are not enough parking spaces for all the residents..."

Parking fines in Westminster range between £80 and £130 depending on the severity of the offence, and they are halved if paid in less than 14 days. This means, on the basis of the £40 fine, it would take more than 20 years - 7,300 days - to rack up £300,000 in fines. However, over the period of the 91 year lease, it works out at just £9.20 per day to park in the space.

For some reason, they don't report which horrendous crimes have been committed on that parking space as is traditional at The Mail, just to spice things up, but hey, their maths isn't quite correct:

The true daily cost of a permit which costs you £300,000 and is valid for 91 years is not £9 per day but about £26 per day, because you are losing interest on the money you spend (Excel =PMT(0.03,91,300000)/365.25), however £26 or thereabouts is the normal daily rate for a 24-hour parking space in central London. If you don't consider the lost interest you would end up with a nonsensical answer for the daily cost of a freehold parking space, i.e. virtually zero.

The other way of looking at this is to assume that in the long run, land in any vicinity will be put to its most profitable use.

If car parks are more lucrative than housing, then houses get knocked down and if housing is more lucrative than car parks, car parks get built on. So the equilibrium is that the purchase price of a unit area of land in a vicinity is the same whatever it is currently being used for.

£300,000 divided by 16 sq yards = approx. £20,000, which is much the same as the cost of a residential plot in that area, i.e. a terraced house on a small 200 sq yard plot = £4 million, plus a bit extra for the actual building.

(All of which makes valuations for LVT much easier. Assuming that the "bricks and mortar" value of a parking space is more or less nothing, you could tax everything - regardless of what is on it - on the income per square yard generated by the nearest private car parking spaces, in this case £26 per square yard per day, for sake of argument).