Housing solutions

A third letter, from Ron Greer, stresses that the price of land, not bricks and mortar, is at the root of the problem and urges that land values be made the basis for public revenue instead of taxes on earned incomes.

Mr Greer's suggested policy could tackle the problem of high house (ie land) prices more effectively than calls for a state-sponsored boost to affordable (ie, cheaply built and/or heavily subsidised) housing.

The rise in "house" prices is really a rise in the price of land whose overall supply is fixed; "God ain't making it any more". However, its availability for building is subject to planning consent and, more importantly, to speculative demand that involves hoarding in anticipation of price rises that later inevitably crash.

Land prices are the capitalised value of the expected net future stream of rental income that the land can yield. If land rents (a payment for the benefit of exclusive occupancy of our own particular patch of land, and hence a fee not a tax) were collected in lieu of taxes, and diverted away from landlords as private rent or to banks as interest on inflated mortgages, the private net income from land would be reduced correspondingly.

If today land is 50 per cent of the value of a house, full collection of rents by the state would eliminate land's capital value. At the same time, the price of houses would be maintained at a level that reflects building costs alone, to encourage builders and discourage speculators.

One could imagine the price of the average house in Edinburgh falling to around 107,000, with a corresponding dramatic fall in mortgages for first-time buyers and a corresponding potential increase in the supply of affordable, but also good quality housing. There would be a contingent obligation to pay the annual land rent fee, but this could be offset by cuts in taxes on owners' earned incomes that so discourage work, enterprise and jobs.

ROGER SANDILANDS

Professor of Economics University of Strathclyde