In response to Allister Heaths article "UK needs to stop deliberately inflating residential land prices" city am , IEA economist Kristain Niemietz made this comment:
"Since you mention Hong Kong: I recall a study which showed that even in this extreme example, a substantial share of house prices is explained by building restrictions as opposed to a genuine shortage of land. Physical scarcity of land is mostly a theoretical possibility. There are hardly any places in the world where that is a binding constraint yet.
And of course, national figures on population density are entirely misleading. If that was a factor, house prices in Australia should be close to zero, but in fact they're among the highest in the world because Australia operates British-style planning restrictions. For obvious reasons, people don't want to live in the Australian outback, but in commutable distance to the population centres, which is where the planning constraints apply."
Leaving to one side Australian homes are three times the size here in the UK, is Niemietz really saying that if the Government just got out of the way of free-markets, not only would land values fall to zero, but so would the price of bricks and mortar?
The power of free-markets. Wow!!
18 comments:
He didn't actually say house-prices, as in bricks and mortar, would fall to zero though did he?
It is amazing how people can just ignore FACTS when proposing theories. That's a sign of a true Faux Lib.
Fact - some places in the world have no planning restrictions and land is not noticeable cheaper there than anywhere else.
If he can't accept this as a fact then he will never look for an explanation.
The fact that someone in a probably high-paying job can spout something that a moment's reflection shows is untrue (think of London in the C19th), shows that there's not much thinking going on in these think tanks. In fact they resemble schools of religious thought propagating their version of the Holy Word.
Kj, it wouldn't actually make any difference if the cost of bricks and mortar did fall close to zero - see my earlier post about agglomeration.
B, a couple of them - including Tory ones - are mildly in favour of LVT, so we do our best to chivvy them along.
Actually he is a bit of a dick.
Physical scarcity of land is mostly a theoretical possibility...
people don't want to live in the Australian outback, but in commutable distance to the population centres, which is where the planning constraints apply.
Planning constraints make everything a bit worse, but we are agreed that the "places where people want to live" are near population centres.
By definition, there is a limited amount of land near population centres. And a very limited amount of land in the middle of population centres. And that is where location values are highest.
Mark - Where are the places in the developed world where there are no planning restrictions and urban land is as expensive as land with planning permission in equally wealthy countries?
I didn't read it as saying land prices would fall to zero. In my opinion if there were no government parasites preventing modern mass production techniques we woukd not be building houses with bricks but unloading them as 2 or more factory produced modules so the cost of bricks would be irrelevant.
NC, there are enough examples.
The Germans are very liberal with planning, they have nice big houses, but building land is just as expensive as anywhere else.
The Hallowed Green Belt is an arbitrary thing - even without it, towns and cities would only expand to a certain size and the population density within them would be no lower.
Your idea about mass production is superficially great, like they do in Southern US states, but it wouldn't matter if build costs fell to £nil - land rents would simply increase to soak up the difference.
I urge you to read the post about agglomeration - link as above.
We see a market in Ukraine with practically no planning restrictions and near-zero build costs and the monthly rent is still a thousand dollars per container.
NC, planning restrictions don't put land prices up, they hold them down. In the absence of planning restrictions, all land near to a centre of population is worth a lot. With planning restrictions, most of it is worth very little, as it cannot be used for building. The only way that planning restrictions put prices up is by ensuring that the houses that do get built are surrounded by green fields and not other houses. There is no such thing as scarcity value, there is only location value, although the one leads to the other because there cannot be more than 314 hectares of land within one kilometre of a city centre.
Thanks to Mark's routine pastiching of other people's work , I was surprised to find that Heath had really said that the government was deliberately inflating residential land prices.If he could stop obsessing about Green belts he might clue in.
NB Henry George clued in when he found that they were selling land in Oakland for $1000 an acre in 1870 in anticipation of a railroad extension from Sacramento (then terminus of transcontinental railway).California's population was then 500,000, now 37 million, so density of population had nothing to do with it.
I am puzzled because isn't Hong Kong a place where there is a land value tax?
B, thanks for back up.
DBC, Heath is spot on in many respects, but when it comes down to the hard bit of LVT, he is the Homey From Hell.
And of course "density" is just one aspect, "good transport links" is another - it comes to the same thing really because what really matters is "how many people are within an hour's travelling distance".
G, no they don't. What the government does is own the freehold and it auctions off long leases of thirty years approx, and this collects about a third or a half of government revenues.
And KN is of course double twat if he says there is no shortage of buildable land in Hong Kong, clearly there is, try looking at a contour map.
... you have to remember that the up front cost of a thirty year lease is something like eighty per cent of a freehold, so the land is still very expensive.
so fairly close to a LVT....which can be seen by the lack of undeveloped land along the harbour frontage...or on the "peak"
HK also have rates on top.
"What the government does is own the freehold"
Well it depends which government you are talking about. AFAICS, there were originally no sales of freehold land, precisely because the British gov't didn't own the freehold, all they held was a lease from the Chinese gov't. Presumably, the Chinese gov't, now that the lease to the British has ended, could start selling freeholds and perhaps it has.
G, exactly. Their airport was not just macho engineering, it was because land rents are so high it was cheaper to start again on the sea bed.
Kj, that's the puzzling thing. They auction leases, have rates, have high stamp duty and high taxes on rental and construction companies, which is like three bites of the same cherry. And these taxes raise nearly half of govt revenues which is why their income/corp tax is so low and they have no general "sales tax".
B, fair point. Which illustrates that it doesn't matter WHY a government collects land rents, it just "works", always has done, always will.
MW: - and still manage to cook up a bubble every now and then.
Kj, as I said above, "... you have to remember that the up front cost of a thirty year lease is something like eighty per cent of a freehold, so the land is still very expensive."
So of course there are bubbles in the price of leases - if rents have gone up a bit and interest/discount rates have gone down a bit, then the cost/value of a new leasehold is considerably higher than it was a few years earlier, so the value of existing leases with plenty of years to run goes up as well etc.
If the leaseholds were only auctioned off for very short periods, the bubbles would much reduced, and if they were (effectively) auctioned off every year for one-year leases (i.e. if they had LVT) then the bubbles would be much smaller still*.
* Mathematically, there would still be price rises for completed buildings if rents were constant and interest rates went down, so be it, they can always put up the LVT to match the interest rate reduction and vice versa.
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