Property prices have not kept up with the soaring cost of development land, according to the latest data. The value of household land grew 40% in 2017, according to ONS data, making building homes on them increasingly unaffordable.
Land accounted for 51% of the UK’s net worth in 2016, higher than any other measured G7 country. In 2017, land in the household sector was worth £4.1 trillion, increasing by £302 billion from 2016 and representing 76% of the total value of UK land.
This contrasts with the household sector being worth just 61% of the total value in 1995, showing that the growth of household land has outpaced all other sectors.
“Today’s figures give a new estimate of the total value of land, housing, machinery and financial assets held in the UK by individuals and companies. The increase in the net worth of the UK was driven by continued increases in the value of housing and land,” said Daniel Groves, National Accounts and Economic Statistics, Office for National Statistics.
Since 1995, the value of land in the UK has increased by 412%, from £918 billion to over £5 trillion. The value of land held by households has soared since 1995 by 544% to £3.9 trillion, while the combined value of the property built upon it has risen by only 219%, according to the Progressive Policy Think Tank.
In 1995, the price paid for a home was almost evenly split between the value of the land and the property. In 2016, the cost of the land had risen to over 70% of the price paid for a home. New IPPR projections suggest that on current trends this will rise to 83% over the next two decades (by 2036).
The value of household land has grown from 21% of UK net worth in 1995, to a peak of 41% in 2007, then down to 40% in 2017. Volatility in UK net worth is heavily influenced by changes in the value of land.
The growth of land values has had a significant effect on growth in UK net worth since 1995. Before the economic downturn, there was a rapid increase in the value of land, principally in the household sector, between 1999 and 2007. This meant that annually, UK net worth rose by 8.4%, though when land is not included, UK net worth grew annually by 5.2%.
A similar growth in land can be seen between 2012 and 2017, resulting in annual net worth growth increasing to 5.2%. When land is not included it increased by 3.6% between 2009 to 2017. Between 2017 and 2016, the UK net worth rose by 5.1% but if the growth of land is excluded then this goes down to just 0.9%.
“Since the most significant cost involved in building a new home is the land it sits on, the price of a new home is driven by the cost of land,” the Progressive Policy Think Tank said. “The high cost of land makes it more expensive, difficult and risky to build homes at affordable prices, all of which reduces the rate at which new homes are built.”
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