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We are committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. We ask you to keep your comments relevant and respectful. Visit our community guidelines for more information. A new study drawn from a review of almost research publications shows that new housing construction does end up making housing more affordable. Haider-Moranis Bulletin. Murtaza Haider and Stephen Moranis.
Economics Real Estate Supply Land by Alan Evans
Filed under Real Estate. Real estate 'supply skeptics' have it all wrong: Building more houses really does improve affordability. Increasing supply needs to be a big part of that solution. Both plans put 'modest' amount of pressure on the federal budget, at 1. The Oshawa, Ont. Martin Pelletier: There are some opportunities out there for those willing to take a bit of a contrarian position. Comments Postmedia is pleased to bring you a new commenting experience. Sign in to Comment. Indeed, although land values change with — or some would say drive — economic and financial cycles , in the long run land value usually appreciates rather than depreciates like capital.
This is inevitable when you think about it — as the population grows, the economy develops and the capital stock increases, land remains fixed. The result is that land values ground rents must rise, unless there is some countervailing non-market intervention. Indeed, there is good argument that as economies mature, the demand for land relative to other consumer goods increases. In many advanced economies land values — and capital gains made from increasing property prices — are not properly measured and tracked over time.
As Steve Roth has noted for Evonomics , the U. Even progressive economists such as Thomas Piketty have fallen in to this trap. In the UK, land is not included as a distinct asset class in the National Accounts, despite being one of the largest and most important asset classes in the economy.
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Figure 2 : Growth in the value of non-financial assets in the UK, The puzzle is explained by the fact that the majority of the growth in wealth has come from capital gains rather than increased profits or savings derived from productive investment, Savings are at a fifty year low in the UK even as the wealth to income ratio hits record highs. When the value of land under a house goes up, the total productive capacity of the economy is unchanged or diminished because nothing new has been produced: it merely constitutes an increase in the value of the asset.
For classical economists, it was a factor of production, and the source of “rent.”
This may increase the wealth of the landowner and they may choose to spend more or drawn down some of that wealth via home equity withdrawal. But they equally many not. Moreover, the rise in the value of that asset has a corresponding cost: someone else in the economy will have to save more for a deposit or see their rents increase and as a result spend less or, in the case of the firm, invest less.
In current national accounts, however, only the increase in wealth is recorded, whilst the present discounted value of the decreased flow of resources to the rest of the economy is ignored as Joe Stiglitz has pointed out.
Economics, Real Estate and the Supply of Land | Wiley Online Books
Rising land values suck purchasing power and demand out of the economy, as the benefits of growth are concentrated in property owners with a low marginal propensity to consume, which in turn reduces spending and investment. In addition, most new credit creation by the banking system now flows in to real estate rather than productive activity.
This crowds out productive investment, both by the banking system itself and non-bank investors who see the potential for much higher returns on relatively tax free real estate investment.
Land values also fundamentally effect the impact of monetary policy, particularly in financially liberalized economies. If a central bank lowers interest rates to try and stimulate capital investment and consumption, it is likely to simultaneously drive up land prices and the economic rent attaching to them as more credit flows in to mortgages for domestic and commercial real estate.
Local and national events can also influence real estate prices
This has a naturally perverse effect on the capital investment and consumption effects that the lowering of interest rates was intended to achieve. But for mainstream economists and policy makers these connections between the value of land and the macroeconomy are ignored. Housing demand is assumed to be subject to the same rules that drive desire for any other commodity: its marginal productivity and utility.
Rising house prices or rents relative to incomes — an urgent problem in countries such as the United Kingdom — can be attributed to insufficient supply of homes or land. As with other policy challenges, such as unemployment, the focus of is on the supply side.
The distribution of land and property wealth across the population, its taxation and the role of the banking system in driving up prices through increases in mortgage debt are neglected. Planning rules and other easy targets such as immigration are then blamed for the loss of control people feel as a result of insecure housing rather than its true structural causes in the land economy. Although presented as an objective theory of distribution, in fact marginal productivity theory has a strong normative element.
Ultimately it leads us to a world, where, so long as there is sufficient competition and free markets, all will receive their just deserts in relation to their true contribution to society. But marginal productivity theory says nothing about the distribution of the ownership of factors of production — not least land. Landed-property is implicitly assumed to be the most efficient organisational form for enabling private exchange and free markets with little questioning of how property and tenure rights are distributed nor of the gains rents that possession of such rights grants to its holders.
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First published: 26 May About this book The book draws together the economic literature relating to the supply of land for development. The standard view appears to be that the owners of land have no interest other than to allow their land to be used for the activity which would yield the highest income. But in reality this is not so and the book's aim is to demonstrate this, to set out the reasons and to show the economic effects of the fact that landowners have other motives. Reviews Excellent in the way it brings together in a coherent whole, various approaches to the analysis of the supply of land for development.
The issues covered are pertinent for both practitioners and academics in providing a useful theoretical framework based on sound economics.