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EmmaRoid

The Illogical Pricing Of Property - Frances Coppola

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Interesting, but a bit naive.

Land does increase in value, even if you do nothing at all, simply because it provides access to a growing economy.

If you have a growing economy, of course.

So how come agricultural and industrial land is so much cheaper per acre than residential land, which is for the most part non-productive?

Over the very long term, land value in real terms stays pretty much flat. It just wildly oscillates around the mean as shown in the records for the Herengracht properties in Amsterdam.

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So how come agricultural and industrial land is so much cheaper per acre than residential land, which is for the most part non-productive?

Over the very long term, land value in real terms stays pretty much flat. It just wildly oscillates around the mean as shown in the records for the Herengracht properties in Amsterdam.

It's not the land itself that is productive, its that the location grants access to a local economy and local resources.

If there are restrictions on the land, then that reduces its value.

If you can't live on it, for example, it doesn't grant you access to the local job market (or, it doesn't grant your tenants access).

If all you can do is grow food, then you only get to participate in growth in the agricultural economy.

Also, bubbles exist. Debt wildly magnifies the growth in the economy, and that causes land price bubbles.

Those bubbles burst, so the value of land can oscillate on shorter time scales, particularly the value of residential land.

I don't agree that land value in real terms stays flat over time, but I'd need to see your evidence before I can really comment on it.

Edited by (Blizzard)

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When prices are increasing over and above annual inflation rates, people invest in looking after, painting decorating upgrading....when prices are flat/falling in real terms people neglect their 'investment' that turns out not to be and invest their spare money in better growth and yield paying places......past history clearly shows this has happened and can happen again. ;)

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Over the very long term, land value in real terms stays pretty much flat. It just wildly oscillates around the mean as shown in the records for the Herengracht properties in Amsterdam.

If all you can do is grow food, then you only get to participate in growth in the agricultural economy.

Also, bubbles exist. Debt wildly magnifies the growth in the economy, and that causes land price bubbles.

the Dutch solution to this dilemma - hedge your bets and grow tulips!

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The basic price of land depends on the income you can generate from it. So if you can rent land out for 100GBP per annum, and interest rates are 5%, then the economic value is 100/.05 = 2000.

Agricultural land doesn't generate much income, so price is low. In cities, you can rent out land (or property) for large amounts, and the price is high. There is a speculative element on top of that will vary over time.

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At some point, there must be a reckoning: either the elderly must sell their assets, causing a significant fall in property prices, or they will have to be taxed on those assets to subsidise younger people's purchase of property that is priced out of their reach.

There's one old home-owner on HPC who is convinced the problem is wages not rising fast enough to solve the problem of high house prices. That no reckoning is required on older owners assets at the mid/top of the market, from the insane levels they've been bid up to over 2 decades.

If property prices continually rise faster than wages, then the amount of spending that is taken out of the economy and diverted into payments to lenders constitutes a serious reduction in demand.

The arguments in that article aren't some revelation. They were obvious to many of us when we began saving some16 years ago, but HPI was allowed to rip away. Too many older owners, and borrowers who had no caution, protected from true market forces via policies of the authorities, overriding all market norms on a topped out market.

That serious reduction in demand for other things in the economy, due to people having less money to spend, with Gov trying to encourage more younger people into big mortgage debt (HTB1/2) to keep house prices high, is beginning to have an countering affect. I'm hearing of a few businesses right on the edge.

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Very interesting, thanks for posting.

I wish I had time to look at it in more detail, and without doing that I don't have a good rebuttal.

There are a few things that make it less than a conclusive counter argument to my post though, or at least, things that I'd want to investigate more. The main one is the use of a hedonic estimate, which at least suggests that they might not be taking into account improvements in the quality of the land itself, which was sort of my point.

Still, like I said, interesting.

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