As I noted very recently, two-thirds of the world’s national financial wealth is invested in land. Since 2000 that notional value has increased threefold.

No. The majority of that is the price of the permit to build upon a piece of land.

The solution is to issue more permits of course.

Easy enough to prove. UK is quarter million km2. 100 hectares to km2. Land without planning permission is £5k a hectare (-ish,- ish). £125 billion quid.

UK domestic housing is worth £6 trillion or whatever it is.

Ok, we can go further if we want. Costs £100k (-ish, -ish, lower if flats are averaged in) to build a house. That’s actually a bit high but still. 25 million dwellings in the place – ish.

£2.5 trillion to build it all again.

Planning permissions cost us over £3 trillion.

So, which bit’s causing all the cost, which bit do we tackle to lower it?

38 thoughts on “Twat”

  1. Recusant

    If you could lend me your builders, I would be most grateful.

    If they can build me a house, with all associated statutory and regulatory costs, for £100,000, I would be ecstatic.

  2. What is the ‘world’s national financial wealth’? Is there a world national wealth? Is there a world national wealth that is non-financial?

  3. What relevance does “two-thirds of the world’s national financial wealth is invested in land ” have to availability of affordable housing in the UK? My buying a finca in S. America to grow vegetables on makes it harder for a young family to rent a flat in the London post code of their choice? I can only apologise, profoundly

  4. Good point, Adrian. If it’s not “financial” wealth is it land? The money that buys the land could be described as “financial”. But then, if you buy the land you don’t have the money. Although, interestingly enough, therefore someone else must have the money. And that definitely isn’t invested in land.

  5. If it’s all about the scarcity of permits, how come land is most expensive in all the places where the most permits have been issued?

  6. @Dessie
    What would a hectare if land in downtown London be worth if you weren’t permitted to build on it? The permitting is built into the price.

  7. @Adrian

    I think that the Great Potato typed “national” when he meant “notional”.

    Wealth in the form of land is clearly not “notional” but real for the individual owner, although – unlike money held in a bank account – the value can be affected by changes to planning law, or by (say) a sudden general desire to sell.

  8. What is the ‘world’s national financial wealth’?

    I assumed a typo, particularly as the next sentence refers to “that notional value”.

    In typical Ritchie related irony, one definition of “notional” is:

    – (in language teaching) denoting or relating to a syllabus that aims to develop communicative competence

  9. What Recusant said. Our host hasn’t a fucking clue how much it costs to build houses in the UK, to all the UK rules and regs, including all the ‘bribes’ one has to pay to the local authority in the form of S106 payments and CIL charges (I doubt he even knows what CIL is).

    I’ve just sold a chunk of land for development. I know how many houses are going on it, and what I got paid works out at about £25k per house. Probably a bit on the low side but I got paid in full up front, I haven’t got to hang around for years as the developer builds the site out in tranches and pays me top whack as he goes. Take off what the land was worth without planning as pure agricultural land, which is about £2k per house, and the average net cost is about £23k per house built. So if the State compulsory purchased the land from me at ag prices and gave themselves planning permission afterwards the houses might be £20-25k cheaper at the end of it, which knowing the State’s ability to screw everything up, it probably wouldn’t be anyway. Which is also exactly a 10% fall in prices in my area. Thats it. All the rest of the cost is building regs, costs of building itself (rising rapidly at the moment) S106 payments/CIL (which the State won’t ever let fall), costs of utility provision, cost of road improvements etc etc. What the landowner gets on grant of the permission is a fraction of the price of houses, and even if you drove that % down to virtually nothing, houses would not fall in price that much, because the vast majority of the costs are sticky – they are non-negotiable, as most are determined by the State. So if the market price of houses drops too much builders stop building until they rise again and they can make a profit.

    Its that simple. The State has made building houses extremely complicated and expensive even after planning has been gained. Issuing more planning permissions will not make those costs drop one iota.

  10. bloke in spain

    What relevance does “two-thirds of the world’s national financial wealth is invested in land ” have to availability of affordable housing in the UK? My buying a finca in S. America to grow vegetables on makes it harder for a young family to rent a flat in the London post code of their choice? I can only apologise, profoundly

    He needs that money to pay for all the spending he has planned. Additionally that money isn’t being controlled by the state so is automatically suspect

  11. . . . unlike money held in a bank account – the value can be affected by changes to planning law, or by (say) a sudden general desire to sell.

    Other than those directly utilising it, people value land for the same reason they value gold. The believe it can be a better store of wealth than bank accounts (or bonds, or capital investment) which are incredibly prone to being vaporised.

    Hedging, not hedges, are why Bill Gates and Jeff Bezos are owners of massive land holdings.

  12. I’ve just sold a chunk of land for development. I know how many houses are going on it, and what I got paid works out at about £25k per house.

    The way things are going, Jim, maybe you should use some of that to buy more land. Or more guns.

  13. The thing is, everything is owned by somebody. So if the total value, at market prices, of all the land in the world is X, and all the money in bank accounts is Y, and the market value of all the stock-exchange traded companies is Z, this tells you precisely zero.

  14. The restrictions on building over the past couple of generations has enriched many long term homeowners. Their heirs will one day inherit well. Given current demographics in many countries, these home rich homeowners are usually older and substantially white. Priced out of buying a house are the young, who are disproportionately minorities, and who will not one day inherit well. You can argue that planning permissions is a form of Jim Crow. You could possibly also argue that most planners quietly see it as a feature and not a bug.

  15. I think Jim’s point can be interpreted as “Tim’s right; but it’s not just building permits. It’s the whole process”

    And I don’t know that Tim’s point is valid outside the UK. My experience buying a couple of acres and whacking a house on it in Texas was pretty straightforward and not very expensive. Had I tried to do the same thing within the Austin city limits, however, it would have been much more sluggish and cost a great deal more…

  16. It’s a different story in California where per state housing policies, becoming ever more emphasized by the state, 60% of all new housing is supposed to deed restricted affordable units and only 40% market rate. Of course, the 60% being unprofitable to build, is seldom built save to the extent a few affordable units are squeezed into an otherwise market rate development, or as may be built by an affordable developer that somehow cobbles together the subsidies, tax credits, and loans to finance it. However, for those of us who own a home these laws provide a boost, and perhaps one day my kids will inherit enough to live in their 50s as we were able to live in our 30s. Or maybe I’ll sell and go buy Montana.

  17. The US wealth numbes are a little different. But those domestic property wealth holdings are in hte big cities and the coasts, where zoning bites…..

  18. Jim, the s106 payments and CIL (and bribes to local politicians – whether direct or by funding their pet schemes) are part of the cost of the planning permission, it’s just that the political class creams that part off so you as the landowner gets less.

    But yes, it’s not just planning, it’s all that crap, and the building regs, eco standards, “decent homes”, setting aside a percentage for “affordable homes”, etc. etc.

    More complex than Tim talks about, yes, but still all part of the State’s overhead.

  19. “It’s a different story in California where per state housing policies, becoming ever more emphasized by the state, 60% of all new housing is supposed to deed restricted affordable units and only 40% market rate. ”

    How could I have forgot the ‘affordable housing’ requirement of any large development (and maybe small ones for all I know)? Anywhere from 20-30% of the housing numbers has to be be put aside for what is in effect council houses (and in reality is houses for immigrants, as in the absence of mass immigration none of the extra social housing would be needed). Another cost of building houses in the UK that our host thinks will disappear if the planners just ‘issue more chitties’.

  20. BlokeinTejas

    “My experience buying a couple of acres and whacking a house on it in Texas was pretty straightforward and not very expensive.”

    I remember, some 20-odd years ago when I was working in PwC’s expat tax department that Dell computers were sending over executives from Austin to the UK who couldn’t understand why their UK housing allowance didn’t stretch to renting a six bedroom house in 5 acres of land in Berkshire.

    One executive’s wife wanted to know how big UK pillows were because if she had to but new pillow-cases, Dell would have to stump up. Another wanted to bring her horse over with her.

  21. I can remember a time when the implied land value even in quite leafy parts of London such as N Islington or Dulwich was negative. That’s to say the house cost less than its build cost, and much less than its rebuild (if listed) cost.
    Less than thirty years ago.
    In many ways owning a house is just a compulsory savings plan. You have to maintain it, pay tax on it…

  22. I wonder if Ritchie has ever heard of LVT? And understands it?
    @Jim. Yes, and no. I quite like the CIL – it’s a sort of lvt thing. OTOH building costs in the UK are now between £1500 and £3000 per metre squared depending on spec. I used to use 100 quid a foot when I were a lad…

  23. In a nutshell, there exists a building industry that will happily build all the housing it thinks it can sell, which means the housing it believes people want to buy. We have a planning industry that does not think what people want to buy is what they ought to have, and while they are able to throw roadblocks in the way of people buying what they want, they are less successful in providing what they think people should have.

  24. @Jim

    “So if the market price of houses drops too much builders stop building until they rise again and they can make a profit”

    I made that point on this blog 10 or so years ago and backed it up by quoting house building stats, the Chairman’s Statements from many housebuilding companies etc and people refused to believe me and I was roundly abused for being stupid and illogical! When the key metric for such a company is the size of the land bank rather than the number of houses built, you would assume that the people on here might understand the rules of the game…

  25. “So if the market price of houses drops too much builders stop building until they rise again and they can make a profit”

    Developers like to build and almost all get over extended and into financial trouble at some point in their careers. What should be the controlling factor there is that the banks refuse to lend to fund the construction, which they might do even in the middle of a project if they perceive everything is going tits up. Of course, the developers then keep the contractors and subcontractors working with the promise of “don’t worry, the banks will fund the stage you are working on soon” and when it doesn’t happen you’ve got a bit of a cascading effect.

  26. Bloke in North Dorset

    “ If it’s all about the scarcity of permits, how come land is most expensive in all the places where the most permits have been issued?”

    Because it’s not about how many have been issued, it’s about how many are wanted. For some reason people want to live in London, but planners in London won’t allow a mass knockdown and rebuild to happen. As an eg

  27. ““Issue more chitties” is shorthand for “the state fucks off”.”

    Well thats going to work well in a cramped country like the UK isn’t it? Lets say you have a free for all. Anyone can build anything anywhere. No controls on making sure there is enough sewer capacity in the network, or enough schools places, or where the storm water goes or whether the road network can cope with the influx of extra traffic. Or indeed if you’re building on an Ancient Monument, or indeed on the site of some unknown ancient monument. All you’ll get is loads of crappy houses rammed up as cheap as possible in every spot anyone can think of and all the existing residents of an area get their locale turned to shit with ludicrous traffic jams, floods every time it rains, sewers backing up, no space for their kids in the local school and power cuts because the network is overloaded. All you’ve done is socialise the infrastructure cost of the extra housing onto everyone locally rather than the person building the house (and ultimately the person moving into it) having to pay for it. Which doesn’t seem right to me. There are social and infrastructure costs attached to building extra housing in an area, IMO the person creating the problem should have to pay for it, not everyone else.

  28. @ TD – Spot on, as with any govt run enterprise.

    @ Jim – there seems to be a threshold in the UK between small developments where you can stick up a few properties on a parcel of land without worrying about additional infrastructure, and the bigger players building 100’s in several phases where the local councils rape and pillage for new roads, schools, doctors, parks and anything else they think they can get away with.

    All of this of course paid for by the house buyer, which we all then pay again for as part of our council taxes.

    Smaller developers without the same level of cash flow face difficulty with the sheer length of time and uncertainty in the planning process (2-3 years to get a chitty for a handful of houses on a derelict site) and still have to shoulder all the costs of the environmental bullshit.

  29. @ Jim again – I only saw your most recent post after I’d posted.

    You can’t have socialised costs, then charge the direct users (house buyers) again for the same thing. It’s one or the other, and when it comes to infrastructure like gas, electric, water and roads then socialised is the only way that makes sense as there is no realistic competition to that infrastructure investment.

    People buying a used home are not asked to pay extra for those services, so neither should those buying new builds. They are costs we all bear as a society.

  30. @Adrian: “ Is there a world national wealth that is non-financial?”

    Don’t you know anything? The most important wealth is emotional and spiritual wealth. Or something

  31. Our host does know how much it costs to build a house in the UK, to a good approximation. That £100,000 is indeed how much it costs to build a (typical) house. All the other additions to that cost are the costs of having *permission* to build that house, the red tape, the compliance with regulations and prodnoses.

  32. “You can’t have socialised costs, then charge the direct users (house buyers) again for the same thing. It’s one or the other”

    Thats exactly my point – charging those who are creating the extra demand/costs is the fairest way to go. Otherwise you are socialising costs that party A creates on parties B,C and D. Some in cash terms but mainly in loss of amenity. If I build 10 new houses and this results in some existing properties down the road flooding every time it rains who should pay for that? And should such a development even be allowed in the first place? Or should the developer have to pay for flood mitigation as part of planning permission (which the buyer ultimately pays of course)?

    “People buying a used home are not asked to pay extra for those services, so neither should those buying new builds.”

    A non-new build house costs roughly the same as a new build, for similar size, location etc, so the buyer of the non-new build is paying the same to account for all the infrastructure costs that house incurred on a locale. Its not like you can buy non-new builds for half the cost of new builds. All the regulations of how and where houses can be built raise the general price of houses not just new ones.

  33. @ Jim – fair point, I think I perhaps didn’t quite appreciate your angle in the first couple of posts.

    This is the drawback of online discussion; had we both been down the pub over a couple of beers we would perhaps have been in agreement from the outset, or at least had a more interesting and engaged debate 😉

  34. Jim, you make some great points about all the complex interactions and responsibilities. Another reminder of why libertarians are such ridiculous dreamers.

  35. . . . had we both been down the pub over a couple of beers . . .

    You’d have never gotten this far. Personalities and drunkenness would have deviated the conversation, and even if you’d got to the stage of delivering an absolutely blisteringly convincing point some fantastic bird would have walked in, whereupon everyone would give even less of a shit (even about consistent tense) [belch]. No mand is an islan.

  36. PJF – we need to arrange a pub hosted session, arranged seated looking at the bar / door naturally and focussed on discussing the finer points in life.

  37. Peeps saying “oh you can’t build a house for £100k”… two things:

    (1) you’re not allowed to build the vast majority of the extant housing stock as it doesn’t meet regs for new-built properties. Material and construction costs for a 1950s semi would be noticeably lower than for a new-build equivalent. Only one bathroom for a start.

    (2) when looking at the cost of building, it’s not for a one-off design and build, it’s for a whole street or estate of similar houses, all built at the same time. So while one house for £100k seems a little light, 50 for £5M is more reasonable taking into account the above.

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