Monday, 16 March 2015

Location, location and, er, condition

In some cities oop north, houses are being sold for as little as £1, on condition that the buyers repair them and then lives in them for five years. In Stoke on Trent the local authority is even giving interest free loans to the buyers and it now turns out that the renovated houses are worth £60,000.

So where has all this value come from?

The building's location hasn't changed. Some of it has obviously come from the repairs made to the building, but it seems unlikely that the entire value came from that source, after all, the council only lent them £30,000 to begin with. Perhaps the council sold at undervalue, but if you have a house which needs a large amount of money spending on it and no-one wants to rent anyway, what is it worth? Up in Durham, landlords have just abandoned houses as not worth repairing.

There's a clue a bit further down the article: "We're looking forward to it becoming a family area again where we can bring up children and people know their neighbours" says one of the new homeowners.

That suggests the rise in value has been partly due to "gentrification", i.e. the aggregate effect of. many properties being repaired in a given area is much greater per property than the cost of repair. Not only that, however, but the aggregate effect in reducing location value of many properties being in need of repair can be so great as to wipe out the location value entirely.


Curmudgeon said...

Location can have a massive effect on valuation down to a very micro level.

Rich Tee said...

There just aren't any jobs in these areas, that is the problem.

Mark Wadsworth said...

"The building's location hasn't changed."

Well it very much has.

It has changed from being a street with predominately empty and/or derelict houses into a street with predominantly owner-occupied houses which are in good condition.

Mark Wadsworth said...

I've read articles saying that one derelict house on a street can drag down values of all the others by 10% - 15%. So if half the homes on a street are derelict, then the rest might be worthless. Except on The Bishops Avenue, of course.

Bayard said...

"Well it very much has."

Yes, I suppose it has, if you use "location" to mean "neighbourhood", but I don't think that's what it's meaning is in the famous "location, location, location" phrase.

Mark Wadsworth said...

B, that's the whole point.

Krusty Allsop's list of "how to spot up and coming areas" i.e. how to identify community generated land values akak "location location location" is "there is lots of renovation going on and lots of skips outside houses".