Debate Magazine

Killer Arguments Against LVT, Not (326)

Posted on the 15 May 2014 by Markwadsworth @Mark_Wadsworth

Sobers, who actually understands this all too well, is going on about how to calculate the "site premium" of unsual homes, his example is a £10 million mansion set in fifty acres of countryside:
[Me} "It is the rental value of the DEVELOPED LAND which matters."
[Sobers] Well it's not site only value you are taxing then is it?
The location value of just the plot of a stately home in the middle of nowhere is the same as an adjoining piece of farmland, because that is its location, in farmland.(1)
The entire value of the property is in the improvements - the grand house, the formal gardens, the outbuildings, the avenue of trees up the drive. The value of the property is entirely in the quality of the improvements.(2)
50 acres with a prefab post war bungalow in the middle of them is worth considerably less than the same acres, in the same location with a stately home on it.(3) Ergo the location value is just that of the surrounding land not what is on it.(4)

1) He knows this is not true. If the local council came along and said to stately home owner, we're awfully sorry but we're building a motorway here and have to knock down your house, we'll offer you £5,000 an acre for the agricultural value of your land, then I doubt whether the owner would happily accept; if the council offered to pay for the rebuild cost of the home on top, then the owner still would not accept. We know this from all the people whining about HS2 going anywhere near their houses.
2) That element of the total rental value of such a stately home which relates purely to the location might be trickier to establish than for a house or flat in an urban area, but it still clearly has one.
We could, for example, compare like with like. There are stately homes in the wilds of Scotland or Wales (Area A) and stately homes in the Home Counties (Area B). If you take a home/building in each area of similar size, you will find that the ones in Area B sell or rent for considerably more than in Area A.
That difference can only be down to the site premium; the upkeep and maintenance costs are much the same in either case, and the costs of keeping the garden looking nice is irrelevant, that is an entirely voluntary hobby/pastime and has little to do with the site premium.
We know from reading the property porn pages that stately homes near London are worth a lot more than stately homes a bit further away (Oxfordshire). There are even stately homes in areas which are so uninteresting that they sell for scrap value or have long been abandoned. The site premium of those homes is to all intents and purposes £zero.
3) Correct.
The site premium depends on "optimum permitted use". Whether that is dictated by planning controls, local democratic votes or free markets is neither here nor there. We shall have to assume for the time being that most plots are actually being put to their optimum use.
Again, if the local council came along and said to the owner of a stately home, awfully sorry old chap, but actually your building does not comply with the new building reg's, you're going to have to knock it down and replace it with a prefab bungalow, then clearly, that is a restriction on use and the site premium comes down accordingly, probably to a few thousand pounds a year.
4) What is worth more - a home with views over 'unspoiled' countryside with a massive garden, a few miles from a motorway junction or railway station half an hour from London, or an identical home with the same sized garden in the Scottish Highlands, miles from anywhere? The former, and that higher value relates to the site premium, not to the physical building.
Or as a thought experiment, what all the farmland/forests in the UK (50 million acres) were split up into one million plots of 50 acres each, and a lovely big house were built in the middle of each.
Would those million houses all be worth the same? Of course not. Some would be worth less than what they cost to build, some would be worth £millions.

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