The price of land....

daveyjp

The mortgage rationing theory removes the simple fact that for a land sale transaction you need a willing buyer and a willing seller.

At the moment the seller knows the land is worth £30,000. If the price drops to £15,000 you have a very willing buyer, but the seller won't sell, so even if you are a cash buyer no house gets built even though the land is now 50% less.

System

daveyjp wrote: »

At the moment the seller knows the land is worth £30,000

Really? I don't think 99% of the population have ever even considered the price of land itself.

daveyjp

99% of the population don't buy and sell land for houses. Those that do have a very good idea how much its worth.

grizzly1911

HAMISH_MCTAVISH wrote: »

So here is a plot of land, with outline planning permission for a 3 bed detached house, within an easy 45 minute commute of Aberdeen.

http://www.aspc.co.uk/cgi-bin/public/SEARCH/ID?ID=281901

The price is £30,000.

Which funnily enough is almost exactly the average price that big builders are paying for plots of land. (£33K)

If I were to contract with a builder to build that house, I'd get a 160 sq metre detached built for around £160,000. On top of that I'd need to pay for planning and building warrant fees, architect designs, utility connections, sewage/septic tank, driveway, landscaping, and of course all internal fixtures and fittings such as carpets, kitchen, bathroom suites, etc.

The total cost would be in the region of £220K.

If the price of land fell by 50%, the total cost would be in the region of £205K.

Perhaps someone would like to explain how it is that the price of land falling would result in double or triple the number of houses being built as are today?

Or is it the case that the main obstacle to house building is in fact the mortgage famine, not land prices, as almost everyone except a few die-hard crashaholics now accepts is the case.

If we applied your logic to an average sized property built on that average priced plot instead of the distorted build yous suggest.

https://forums.moneysavingexpert.com/discussion/comment/59541035#Comment_59541035

From that report, but importantly for only a 970 sq ft unit...

Build cost 58% 91k

Land cost 21% 33k

Sales cost 4% 6k

Gross Margin (not net profit) 17% 27k

Total ~ £157k

Reduce land cost by 50% revised total ~ £140k

System

daveyjp wrote: »

99% of the population don't buy and sell land for houses. Those that do have a very good idea how much its worth.

Ah sorry, you were talking about the seller of the land rather than a house.

Generali

Isn't this an exception?

A similar sized plot in Streatham (not the ritziest part of London) will give you change from £2,500,000:

http://www.foxtons.co.uk/property-for-sale-in-streatham-common/chpk3591370

The price of the land will be a substantial part of the value of the houses built on it, perhaps £200,000 per house.

A lack of available funds to build or buy is definitely not helping. The cost of land is also a big factor in houses being very expensive in the UK and a large part of the cost is scarcity planning permission. It doesn't have to be one thing or the other. Both can be factors.

HAMISH_MCTAVISH

Generali wrote: »

Isn't this an exception?

No.

For most of the UK, it will be the rule, rather than the exception.

I'd be prepared to bet you can find similar land within an hour of most major employment hubs in the land.

A similar sized plot in Streatham (not the ritziest part of London) will give you change from £2,500,000:

http://www.foxtons.co.uk/property-for-sale-in-streatham-common/chpk3591370
.

Proving only that supply and demand is the major influence on land price, just as it is with house prices.

Houses and land in the most in-demand areas are vastly more expensive than houses and land elsewhere.

The price of the land will be a substantial part of the value of the houses built on it, perhaps £200,000 per house

Not as a national average.

The housebuilders accounts show their average plot price.

It's circa 35K for 1000 sq ft houses, and presumably it upscales form there, but it's still just 20% or so of purchase price.

A lack of available funds to build or buy is definitely not helping. The cost of land is also a big factor in houses being very expensive in the UK and a large part of the cost is scarcity planning permission. It doesn't have to be one thing or the other. Both can be factors.

Sure.

Both are factors.

But the mortgage famine is by far the biggest cause for houses not being built, and reducing the price of land by any foreseeable percentage won't change that.

As a national average, even if land were free, house prices would still be 80% of what they are today.

Meaning that all the tinkering with land values in the world won't result in meaningfully more houses being built.

Generali

You're right about the cost of land, or at least in the right ballpark. I would have imagined it would be more. It is in London as we've seen and that's what I know best.

Bovis claims in the interim report that the average cost of a plot was £42,100 and the average home size was 960ft^2.
http://www.bovishomesgroup.co.uk/pdfs/InterimResults2012.pdf

Graham_Devon

Hamish, it's not one thing or the other, and I fear you are in danger of becomign a little hypocritical, trying to define a 20k reduction in price as nothing, but a 20k deposit required by lenders as the work of the devil.

Let's put this into perspective.Firstly land costs per plot are vague anyway, as it really depends on which land from their land bank they have decided to use.

Secondly, land costs are variable. What I mean by this is Bovis for instance could buy a load of land for say 50k. They then get planning permission and it becomes worth 300k. They then revealue that land and upon building it, each plot is a division of that 300k.

However, it didnt cost 300k to buy that land, it cost 50k and planning costs. (all figures are examples).

Third, a 20k reduction in the cost of a house (based on your 50% reduction in land costs) is actually a lot of money.

That reduces the average £160,000 house to £140,000.

Take a 10% LTV mortgage and it reduces the deposit required by £2,000 (or 12%). It reduces the mortgage payments on that 10% LTV from £894 per month to £728 per month. Thats a saving of £166 PER MONTH.

You are writing this all off as nothing. £166 per month is not nothing. That's what a 20k reduction in the house prices does to mortgage payments at 5.5% on a 10% LTV mortgage.

£166 a month is a good 10% of the average take home pay. Were talking big numbers once you get down to individuals Hamish.

Rinoa

Many houses built 100 years ago have a sale price of £1M plus. The land they were built on perhaps cost less than £100.

It's today's house market prices that set current land price, not the other way round.