British house prices are a disgrace.

House price increase since 1980 adjusted for inflation:

Above chart is from here.

I’m not sure that it’s totally accurate because I’ve seen other sets of figures which indicate that house price increases in some other countries are a bit higher than in the UK. But certainly UK house prices are amongst the highest in the world. (The Economist interactive house price index is a useful source of information.)

And the explanation for high UK house prices is simple: reluctance on the part of the authorities to release land for house building, i.e. to allow building to take place on land currently used for agriculture - or which is OSTENSIBLY used for agriculture. I say “ostensibly” because a significant proportion of so called agricultural land is nothing of the sort: thanks to Europe’s crazy agricultural policies, such land is actually not being used at all.

The extent to which that reluctance to permit building contributes to the rise in house prices is easly calculated by looking at the difference between the price of agricultural land and land with building or planning permission.

The price of agricultural land HAS RISEN substantially in the UK in recent decades. But that is completely DWARFED by the price of land with planning permission. According to this article, the price of farmland rose from £54 an acre 60 years go to £6,900 today.

In contrast, the average price of land with planning permission in the UK rose to £4million per hectare in 2008 (roughly £2million per acre). That’s according to this source.

That £4million per hectare DID FALL BACK to £2,400,000 in 2010. Nevertheless, hopefully I have established that the rise in the price of farmland over the decades is near irrelevant. The important point is the PREMIUM that has to be paid to obtain land with permission to build.

As an Institute of Directors publication put it in bold type on its first page, “At the root of high prices and small new houses is the high price of land with planning permission for residential construction.” (Publication title: “Land Supply and the Housing Market”.)

Or as this Policy Exchange work on the subject concluded, “Our planning system set out to predict and provide the housing we need, but as the flaws in the socialist model of provision became obvious it evolved to become a system that constrained development in order to protect the countryside. This has significant costs – we now live in some of the oldest, pokiest and most expensive housing in the developed world.”

As to the actual extent to which artificial restrictions on permission to build contribute to the cost of the average house, this work estimates that those restrictions added £40,000 to the cost when the average house price was £120,000. I.e. a substantial relaxation on those restrictions would cut the cost of the average house by approaching one third.


Let’s provide immigrants with nowhere to live!

One of the barmy elements in all this is the fact that the average Brit adheres to two mutually exclusive ideas on this subject. First the average Brit favours mass immigration (probably because it’s PC to favor immigration, and/or because some nastly little leftie will scream “racist” at you if you aren’t too keen on immigration).

Second, Brits almost invariably oppose housing development in their own neighbourhood. All of which raises the question: where does the average Brit suppose that immigrants are going to live? The Outer Hebrides perhaps?

As the above Policy Exchange work puts it in reference to the question as to why the UK has such severe restrictions on allowing houses to be erected on greenfield sites: “Why has this come about? One answer is that the political alliance to protect the countryside is very strong.  The Campaign to Protect Rural England is one of  the most successful pressure groups in Britain with about 59,000 members.”

Incidentally, I’m not suggesting immigration is necessarily the biggest factor on the DEMAND side of the equation: another important factor is the decline in the number of people per household in the UK over the decades. But immigration is certainly a SIGNIFICANT contributor.

To summarise, Brits need to get something into their thick skulls. If they want mass immigration and fewer people per household, and a garden and assuming Brits don’t want to live in the smallest and most expensive houses in Europe, then more countryside will have to be allocated to house building.


Does the bank system contribute to house price increases?

And finally, a currently popular explanation for recent house price increases is that private banks can create money out of thin air and lend it, for example to mortgagors. Unfortunately there is a very obvious flaw in that argment, namely that we’ve had that bank system for almost two hundred years. Thus there is no reason it should have contributed to house price increases just in RECENT decades. (That system is sometimes called “fractional reserve”).

It may of course be that lending standards HAVE BEEN relaxed in recent decades, and no doubt that would contribute to a rise in house prices. But then WHATEVER bank system you have, and given a relaxation of standards, the effect would probably be the same.