Monday, 23 July 2012

British planning restrictions boost the cost of the average house by about £40,000.

At least that is the case if my back of the envelope calculations below are right.

Looks like about half the rise in British house prices over the last 20 years is attributable to inflation, with the rise in the cost of residential land or “planning permission” land accounting for a smaller but significant portion of the rest.

The price of the average house rose from £52k in 1992 to £165k in 2012 according to this Nationwide site.

As to inflation, according to this Bank of England calculator, goods costing £1 in 1991 would cost £1.76 in 2011.

So if house prices had risen just in line with inflation, the average house would have risen to £92k (1.76 x 52).

Residential land prices.

According to this site, the average cost of residential land, or land with planning permission rose from £174k per hectare to £1.6m twenty years later (that’s around 1986 to 2006).

The same site cites research by the Halifax bank which more or less ties up the above figures. It claims residential land prices rose nine fold between 1983 and 2003.

As to the number of houses per acre, this site says new housing was being put up at rate of 16 per acre in 2005 in Britain.

There are about two acres per hectare. So taking the above £1.6m, that means £800,000 per acre. And that at 16 houses per acre means about £50,000 land cost per house.

That ties up quite nicely with a figure given by a Policy Exchange work: £45,000 per dwelling (in 2009-10).

As to the average cost of land WITHOUT planning permission (agricultural land) in 2011, this is given as £6,156 here and £8,500 here. So let’s take a rough average: say £7,000.

There is obviously a “mark-up” when planning permission is obtained for land on which to build. This mark-up for an average size house was between £43k (£50k less £7k) and £38k (£45k less £7k), a year or two ago. Hence the £40k figure given in the title of this article.

The rise in the cost of getting planning permission.

As distinct from the ABSOLUTE portion of house prices attributable to the cost of residential land, there is the INCREASE in that portion over the last 20 years.

As noted above, the cost of land with planning permission has risen from £174k to £1.6m over the last 20 years. So the cost of land with planning permission for one house would have been £4.3k (£40k x (174/1600)) twenty years ago. £4.3k adjusted for inflation is £7.6k (£4.3k x 1.76). So the portion of the RISE in the cost of the average house over twenty years attributable to the increased cost of getting planning permission is about £32.5k (£40k less £7.6k).


Local authorities have been too stingy in granting planning permission.



  1. "Local authorities have been too stingy in granting planning permission."

    (ii) Large building companies have become much cleverer at hoarding land - given that it costs next to nothing to do that in the UK.

    Conclusion - impose very large levy on land with planning permission on it, recoverable only when the houses built on it are sold.

    1. Yes, some sort of land tax seems to be an idea with a lot going for it – not that I’m the expert on that. Mark Wadsworth is a keen advocate of the idea. See:

  2. £45,000 seems about right, i.e. half the average land value per home.

    If demand is fairly price inelastic (which it is, although nowhere near as inelastic as supply), then even the smallest reduction in quantity supplied leads to a large increase in price paid.

    As NW says, this is yet another job for LVT man!


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