The ONS makes a category mistake | Brussels Blog

The ONS makes a category mistake

posted by on 22nd Aug 2022
Gilbert Ryle: Category Mistake

Over recent decades, large increases in property prices have given considerable wealth to house owners. Many of these are affluent people in affluent areas. The less affluent in less affluent areas are paying more rent.

Housing supply, inequality and the under 30s

Recently the BBC reported research by DataLoft showing that people under 30 are facing a growing “cost-of-renting” crisis due to a lack of supply of housing, as demand for housing rises.

Elton Papri, a lettings manager at a Dudley-based branch of estate agent Shipways, said under 30s were “struggling at the moment” as there were not enough homes on the market.

Growing share of under-30s pay unaffordable rent

Housing is a major cause of inequality as old and affluent property owners increase their wealth and the young and the poor pay more rent.

Housing affordability and housing demand

Dame Kate Barker’s evidence to the Treasury Select Committee’s inquiry into housing policy noted the role of incomes in determining housing demand:

Indeed, house prices respond a lot to income growth […] the result of that is that people with money do get the space they want. People without money do not get the space.

So, people who are better off, drive market rates, increasing housing demand. The less well off are squeezed.

Planning Gain and Property Location Rights

When planning permission is granted for a building on a plot of land, it becomes more valuable:

In York, an area of agricultural land big enough for a house has a value of less than £700. This increases to around £200,000 when planning permission is given to locate a house on the plot.

Planning gain in the York Local Plan

This increase in value is planning gain, due to the right to locate a house on the land. Planning permission has created a new legal right: a Property Location Right.

A Property Location Right is a considerable proportion of the value of most buildings. If a building is removed but the right to have a building located on its plot remains, there can be considerable value left because of this Property Location Right. That’s why buildings are usually insured for less than their market value because even when a building is burnt down, value remains.

At the time planning permission is granted planning gain is equal to the Property Location Right that is created. At other times the value of Property Location Rights could be estimated but rarely are. They should be because of their enormous value.

Office of National Statistics & Property Location Rights

The Office of National Statistics do estimate the combined value of land and Property Location Rights for the UK but use the term land value for this combination. But land is a physical asset and a Property Location Right is a form of intellectual property, like patents. They are separate categories, and can be valued separately.

The article, Planning Permission is not a Natural Resource, attempts to separate the two. It calculates the value of Property Location Rights to be 50% of UK national wealth. The total value UK land, separated from Property Location Rights is only 3%.

The Category Mistake

Adding the value of a physical resource, land, to the value of a legal entity, a Property Location Right is not a Category Mistake in inself. The mistake occurs when the property “natural resource” is assigned to the combination.

Land my be a natural resource, a Property Location Right is not.

This “mistake” helps to disguise the artificial nature of the planning system, which is being used to transfer vast wealth from young and poor to old and affluent.

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