Debate Magazine

Location, Location And, Er, Condition

Posted on the 16 March 2015 by Markwadsworth @Mark_Wadsworth

In some cities oop north, houses are being sold for as little as £1, on condition that the buyers repair them and then lives in them for five years. In Stoke on Trent the local authority is even giving interest free loans to the buyers and it now turns out that the renovated houses are worth £60,000.
So where has all this value come from? The building's location hasn't changed. Some of it has obviously come from the repairs made to the building, but it seems unlikely that the entire value came from that source, after all, the council only lent them £30,000 to begin with. Perhaps the council sold at undervalue, but if you have a house which needs a large amount of money spending on it and no-one wants to rent anyway, what is it worth? Up in Durham, landlords have just abandoned houses as not worth repairing.
There's a clue a bit further down the article: "We're looking forward to it becoming a family area again where we can bring up children and people know their neighbours" says one of the new homeowners. That suggests the rise in value has been partly due to "gentrication", i.e. the aggregate effect of. many properties being repaired in a given area is much greater per property than the cost of repair. Not only that, however, but the aggregate effect in reducing location value of many properties being in need of repair can be so great as to wipe out the location value entirely.

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