Land values (2)

In the long run, of course, house prices and hence land values increase roughly in line with average wages, booms and busts notwithstanding. As we see from actual residential land values mentioned in the previous post (the same extreme variations apply to commercial land values, of course), land values are driven by (planning permission) x (local amenities).

1. Without planning permission, land is worth pennies per square yard. With it, it is worth hundred or thousands of pounds per square yard. For a given location value, the more generous the planning permission, the more valuable the land. I remember helping a client negotiate the sale of some land in North London. The purchaser (a builder) let slip that he worked on the basis of £50,000 for each flat that he could build. Halfway through, Red Ken changed his "London Plan" and increased the upper limit on densities. We went back the next day and pointed out that the builder could now build 100 flats on the site, rather than only 80 (as we had previously assumed), hence the land was worth £5 million rather than only £4 million, and the builder was quite happy to pay this (God, that was fun!).

2. Clearly, people are prepared to pay far more for a house that is near the train station with a good service to where the jobs are; within the catchment area of good schools; close to shops/businesses/parks; in low-crime areas; with an undisturbed view over surrounding hills or beaches etc etc. To a large extent, these factors are dictated by 'society' (i.e. NIMBYs who want nothing to be built versus farmers and builders who are fighting to get planning permission; whether the local council spends money on bobbies on the beat or on climate-change-advisors; whether the county council allows grammar schools or wishes to scrap them). And there are natural constraints on this - if more houses are built near a train station, commuters are less likely to get a seat in the morning - the newcomer's gain is the incumbent's loss.