Wednesday, 22 March 2017

Do we obsess too much about land?

Let's start by agreeing with this statement (and I think the recent Housing White Paper starts to help):
Secrecy surrounds much of the country’s land ownership. It’s time for the Land Registry database to be completed and opened up to all
And then let's not disappear down the rabbit hole of believing that somehow everything in our economy is ultimately derived from land ownership or that what matters is acres not five pound notes. This is the mistake that Guy Shrubsole makes in this article:
“The ownership of land,” wrote the 19th-century radical economist Henry George, “is the great fundamental fact which ultimately determines the social, the political and … the moral condition of a people.”

Who owns land matters. Landowners get to choose how their land is used, and that has big implications for almost everything: where we build our homes, how we grow our food, how much space we set aside for nature. Owning land confers wealth, status and often political power.
Shrubsole goes on to talk about how many acres the Ministry of Defence owns and how much of the UK is grouse moor. The thing is that, as even Henry George knew, what matters is land value not acreage. Self-described 'radicals' have an unhelpful obsession with how much land folk own rather than how much that land is worth. This obsession harks back to a nineteenth century viewpoint that saw land as the sole source of value and the ultimate store of wealth.

Housing covers just 10% of the UK's land but represents by far the largest proportion of land value (I appreciate that part of Guy Shrubsole's mission is to answer the question 'what's all that land worth'):
The value of all the homes in the UK has reached a record £6.8tn, nearly one-and-a-half times the value of all the companies on the London Stock Exchange.
Since agricultural land values are typically about 1% of housing land values meaning that, for a back-of-the-envelope guesstimate, the rest of the UK's land outside cities is worth between £600bn and £1tn. And, discounting mortgage lending, owner-occupied property accounts for £4.4tn of that value (65% of £6.8tn). Back in the 1880s when Henry George was writing, land value probably was in the hands of a relative few men. Today this just isn't true - for all the 'Generation Rent' stuff (and this really only applies to London and the South East) we remain a property owning society.

The problem is that George and other 'radicals' were focused on rents and saw that much of the UK's national income came in the form of rents to that land meaning that taxing land value represented an effective and fair way to tax those rents. Not only does most of the UK's land value - all those owner-occupied properties - not generate any actual cash rent but most people's income comes from the less aristocratic process of trade. And there is precious little link between trade and land values.

Nor does land ownership have very much to do with the UK's (or rather London and the South-East's) problems with housing supply. I'm pretty confident that, were we to designate some land currently used for agriculture as housing land, there will be some happy smiling land-owners. Grubsole talks about the housebuilders sitting on land, something that may or may not be true, but fails to recognise that the amount of land actually allocated for housing in the UK is tiny (less than 1% of the UK's land area) and the housebuilders own only a small part of that housing land.

Our obsession with landed estates strikes me as an unhelpful hangover from a time when these estates really were where the UK's land wealth was held. Those estates are still pretty big and pretty valuable but they are pretty marginal to the UK's economy - the existence or not of moorland maintained for shooting may be a public policy issue but it isn't a matter of any real consequence for the economy or indeed for the majority of the population. And, for all its importance, agriculture is similarly insignificant as an economic sector.

Overwhelmingly the value added in our economy - our national income - does not come in the form of rents and is not dependent in any way on land values, however much you contort the concept. Yet people still look back wistfully to those nineteenth century 'radicals' as if people actually want "three acres and a cow"! Today, our obsession with land only continues because the systems we've created to govern the use of land make it that way. Our planning system creates that huge disparity between agricultural values and development values, local taxes are based (admittedly poorly) on land values, and because house prices are a staple of private conversation the experts in real estate become a mix of celebrities and exploiters of innocent punters.

But it's not the grand acres that this system is bothered with but rather the millions of little plots on which our homes sit. That's where the 11 million mortgages worth £1.1tn are found not on Lord and Lady McMuck's hundred thousand acres of Scottish moorland. Yet Guy Grubsole and the land obsessed fret more about the latter than the former. I agree that knowing who owns stuff would be useful but let's not allow this to distort our view of the UK's wealth simply to satisfy some sort of agrarian radical wet dream based on a world long gone.


1 comment:

ThomasBHall said...

Agree- agricultural land is not very important in the scheme of things, and the vast majority of land wealth is in the cities.

I do however disagree that rental value is no longer an issue; Ricardo's law of rent still applies regardless of whether it was commerce or farming that created the economic surplus fuelling rent increases.

The fact that a Maida Vale 2 bed flat has the same rental value as a mid-sized Scottish farm does not alter the fact that ownership of rental streams is a hugely important political issue.

George stated that land rents should belong to the community- as it is they, and not the landowner, who create the rental value. This is as true today as it was in the 19th Century.