Friday, November 02, 2007

Property Truth – Developers’ Secrets

Who will make a TV programme to show clearly the secrets of the property market that a successful developer uses to make his profit? In his final Truth about Property programme on 1st November, BBC2’s Andy Verity brought to a close his interesting series (to re-run it: It included renting, planning, unaffordability, the desirability of ownership, nimbys, 800,000 empty homes, low house-building numbers, and so on. He mentioned the total cost of land as the largest single item in the price of a house and quickly moved on. He quoted Adam Smith to illustrate the monopolistic character of the housing market.

The programme visited a large site that one major national property developer had bought in the early 1990s – Verity might have pointed out that this was the low point of the approximate 18-year land price cycle. Wise developers will now be taking their gains. They know when to buy and when to cash in their profits. This will give them funds for buying cheap land at the bottom of the coming slump. For more on property price cycles see Fred Harrison’s book: Boom and Bust. Shepheard Walwyn.

Adam Smith’s answer to the land monopoly was to tax the value of the land of each plot. If you owned an empty house or flat, or empty land with planning permission, you would have to pay this tax whether empty or occupied, so you would rent it, sell it or build on it. Prices would drop and become less volatile over time. Rents would drop. Pressure to build on green fields would reduce. More people could buy their own home. Yvette Cooper the Housing Minister who spoke on the low supply of new homes should love this tax which increases supply at a stroke – but no one mentioned it! All monopolies are the target of democratic governments except the land monopoly. Why?

There are several factors that need to be sorted out to bring a fairer housing market – read The Free Lunch – Fairness with Freedom and find out how they would work. See also this BLOG July 9 & 19.

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