What Are the Differences Between Rampant Land Speculation and Solid Land Investment in the UK?

With foreign investment driving up land prices, speculation strategies beckon. But land development investments are more stabilising for investors – and the country.

The discussion about the differences in land investors – those who speculate on rapid value increases versus those who make their money by building things – is nothing new in England or elsewhere. But the rhetoric in the UK has ratcheted up a bit in 2014, along with the rise in real estate prices.

Does the fact that land funds largely involve the conversion of unused land into developed property – housing and commercial use – place such an investor in one category and not the other?

A laissez faire advocate would suggest that natural market forces should be allowed to rule, meeting the demands for commercial, residential and agricultural uses at the simple intersections of supply-demand curves. If holding land for several years turns into healthy profits, why should it matter? At the other side are those who present the housing shortage as cause for different kinds of regulation, incentives and taxation, and that even greater value increases can be realised by the mid-term investor compared to the speculator.

An example of the latter is advocated by ShiftingGrounds.org, an independent organisation that proposes alternatives to the status quo of British politics. In a recent (November 2014) post by economist Joe Sarling, an argument is put forth to impose a land value tax on the ownership of land, irrespective of buildings that sit on it.

Among Sarling’s principal points for this is it would prevent speculative buying-and-holding. “It would encourage land owners to better use their land… bring it forwards for development… [and]… stabilise land prices as investors would have to think carefully about how they use the land and their build-out rates,” says. “As a result, land speculation would be discouraged and prices would stabilise. This, in turn, will stabilise house prices which helps the consumer plan to buy and the developer as they have confidence in predicted values – i.e., it would dampen the boom-bust cycles and bring developments forward more quickly.”

Labour shadow housing minister Emma Reynolds has her own beef with unused land, more specifically large empty homes that are often owned by foreigners as mere investments. She points out that the very active home-sales market in Cambridge provides a good example of this happening – which she would like to slap with a large council tax to discourage.

Looking at these and other arguments on land speculating vs. investing, one must also consider the farmers who remain engaged in the business of agriculture. Investments by billionaires, both from within and outside of the UK, of prime arable land illustrate how they too have their economic equations to consider. Over the past decade, the better tracts of farmland have appreciated by 210 per cent, including an average increase of 11 per cent in 2013 (and up to £11,000 per acre in Herefordshire and Eastern England, according to the Knight Frank Farmland Index).

Speculators can be big winners or big losers, depending on the larger forces of global economies. But developers and farmers, working closer to the ground (so to speak) at making land productive are subject to less volatility. Getting past the rhetoric, investors who consider strategic land development programmes (i.e., buying land to achieve planning authority permission to build) are nonetheless advised to speak with an independent financial advisor to examine more closely which type of land investment best suits their needs.

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