Wednesday, October 25, 2006

Funding new railways

Ben Webster in The Times (12th October 2006) reports that developers are proposing to open a closed railway line between Oxford and Cambridge (UK). They are trying to strike a deal with planners: The £100m needed would be paid for by a new 'roof tax' on new homes near the opened line. Even with the extra cost the homes would be attractive because of the new railway.

Fred Harrison in Wheels of Fortune (2006. Institute of Economic Affairs) writes that London's Metropolitan Railway was funded in a similar way in the early 1900's. The land values near the route doubled as soon as a proposal was made and doubled again when it opened (p.157). The developers of the railway bought land near their proposed route and were left with good profits from selling land for housebuilding and for paying for the railway. In the modern case above, let us suppose that a developer has plots of agricultural land totalling 100 hectares bought at £5000 /ha along the 75 mile route between Oxford and Cambridge. With planning permission for housing the land value would be £3,500,000 / ha. For an investment of £0.5m the gross profit would be £350m. Deduct the land and railway costs (£100.5m) and the net profit is £249.5m. Every £1 invested multiplies to £499! For up-to-date land prices see the official property market figures on : .

The term 'roof tax' is misleading, as what is proposed is actually 'land value tax'. Fred Harrison has written several books on the topic including Power in the Land (1983); Boom and Bust: House prices, banking and The Depression of 2010 (2005). His latest is available at Ricardo's Law - House prices and the great tax clawback scam. Subtitle: Why Tony Blair's Project failed.

The Free Lunch shows that that many factors trigger land price rises and house price gains.
Anyone thinking about investment in property needs to read it, see: .

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