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Our green and expensive land: why the UK’s £10 trillion price-tag adds to its housing problem

Anna Isaac
Rising land prices have made it even harder to generate affordable homes - © Roger Bamber / Alamy Stock Photo

The sums are in and on the open market, the UK would fetch £9.8 trillion. That’s what the Office for National Statistics has revealed in its latest report on the National Balance Sheet.

While it is not always a very helpful measure of value – who has a current account or even credit card that could afford that price tag? – this data offers a useful indication of economic trends.

For a small island nation it might seem surprising, but the UK is land rich. More than half of the UK’s value comes from land: £5 trillion. And understanding rising land values helps explain why the UK housing market has seen such strong growth in house prices in recent years.

“When you look at land value – that curve – it is more or less reflecting the progress of house prices, in an amplified way. Whereas construction prices might also be reflected in house prices this shows you how the land component has appreciated so quickly,” explains Daniel Bentley of thinktank Civitas.

A rough guide to land’s impact on house prices is this: 30pc of the value of a house comes from construction, 70pc from the land it sits on. That’s changed over time. In 1995, if you bought a house the split was roughly 50-50. That is because the value of land in the households sector has risen by 544pc, while assets on top of it have grown 219pc.

“The growth [in value of land] since 2012 has been staggering, up to 2016. There are likely to be a range of factors driving this, but Help to Buy was introduced in 2013,” Bentley adds.

Sitting on land is a valuable enterprise Credit:  Danny Lawson/PA

Realising the value of land as a commodity also helps to illustrate why local authorities might face such an uphill struggle in building affordable homes. It comes at a huge premium, particularly when it is sited near the infrastructure needed in order to transport people to jobs. It also reveals why the Government’s £44bn package for housing announced in November’s Budget, will most likely fall woefully short of what is needed.  

Bentley and other experts agree that the problem is not building houses, and it is not finding the right places to build them. It is not even necessarily the UK’s creaking infrastructure: it is finding the money needed to buy land in the right place, and still then making the purchase price affordable for most buyers.

While lending money added £170bn to the UK’s value last year, and shares bolstered the UK’s price tag by £109bn, these activities were dwarfed by land’s appreciation, which saw a 5.9pc rise in value, increasing by £280bn between 2015 and 2016.

As the pressure to build houses increases, landowners are sitting pretty: watching their assets tick up in value. Why not hold out for as long as possible? It is far more lucrative than current interest rates would be on capital, for instance.

Land is not entirely safe as an asset class. In the financial crisis 23pc of its value was wiped out. The cost of buildings remained fairly constant during that time, according to the ONS, so it was the land itself – the 70pc – that took the hit.

While the UK saw a record increase in value in 2016, becoming £803bn more expensive, its spending habits are a cause for concern.

Debt made the Government the least valuable sector in the UK, with a value of negative £845bn. This was driven by central government, the value of which now stands at negative £1.2 trillion. By way of perspective, the UK’s Regional Gross Value Added, often used as a more accurate assessment of the size of its economy than GDP, is also £1.2 trillion.