Tuesday, 5 April 2016

People value their own time at £10 an hour: shock

Pub Curmudgeon emailed in this article from The Daily Mail:

The cost of a home on London's commuter belt rises by £3,000 for every minute the property is closer to the city centre by train, a study has revealed.

A survey of 100,000 house sales recorded around 314 stations on the outskirts of the capital found how prices rise as addresses edge closer to the city. It concluded that for each minute less spent on the train into central London, buyers should expect to pay a further £3,048 to secure the property.

Good research (and splendid interactive map), but it just confirms Von Thünen's Law of Rent:

Let's assume two commuters per home, that's 2 people x 10 trips/week x 46 weeks/year = 920 minutes/year = 15 hours time saved/year. People value their time at about £10/hour and/or are happy to pay £10 extra to save one hour's commuting = £150 a year.

If a couple is prepared to spend an extra £150 a year on rent or mortgage repayments, that means they will be prepared to pay about £3,000 extra to save that one minute per journey.

This is what we refer to as 'location, location, location' or 'community generated land values'. A lot of it is down to simple spatial geometry.
Which nukes the argument that people would all downsize to reduce their Land Value Tax bills. Quite clearly, if we assume that a home ninety minutes away has a zero 'near London premium', then a home sixty minutes away has a £4,500 annual premium and so on. If the tax on the ninety-minute home is £nil, people will pay £4,500 LVT to live in the sixty minute home and so on.

Let's say there are eight million homes within ninety minutes of London with an average premium of 90 x £150/2, that's a total annual premium/value of £54 billion (plus minus huge margin of error), which is twice as much as the whole of the UK pays in Council Tax.


JJ said...

But this headline figure doesn't take into account fares, train frequency or where in Central London the train ends (termini are not create equal).

Also there are lots of inconsistencies, for example:
Ashford International / 36 minute commute / 6.8K season ticket / 196K house price. Epsom / 37 minutes / 2.7k / 450K

Whilst I don't doubt the assertion that people pay more for a shorter commute, the numbers need to take these variables into account too.

Mark Wadsworth said...

JJ, it's just one variable, there are many others.