Why Houses in the UK Are So Insanely Expensive

The United Kingdom has the highest proportion of wealth tied up in land of any G-7 country, according to estimates of total net worth published by the Office for National Statistics (ONS) last week.

Land accounts for $ 6.5 trillion out of a total of $ 12.7 trillion worth of net wealth at market value in the U.K., meaning it makes up about half of the country’s total wealth.

That compares with 42 percent in France, 39 percent in Canada, 35 percent in Japan and 26 percent in Germany. Data for the U.S. and Italy, the other two G-7 countries, were not available, the ONS said.

But some economists warn that the high price of land in the U.K. represents a failure of decades of economic policy, as planning law artificially restricts the supply of land, driving up housing costs and preventing workers from moving to better-paid opportunities.

“Instead of screwing ourselves to buy a house, we could be investing in a new business,” says Paul Cheshire, professor emeritus of economic geography at the London School of Economics.

While the U.K. used to expand the supply of urban land by building transport networks to link parts of southeast England and London, Cheshire says, new developments, such as the in-progress Crossrail regional railway project, would simply inflate the value of existing houses as building on the city’s greenbelt, a ring of countryside encircling London, is restricted.

“It’s pure dead-weight loss in some sense, just a transfer of value to existing homeowners,” Cheshire says.

In addition to 5 trillion pounds worth of land, the U.K. also owns 1.8 trillion pounds worth of housing, 1.7 trillion pounds worth of other buildings, such as office blocks, and 823 billion pounds worth of machinery and equipment, according to the ONS. The U.K. also has 31.8 trillion pounds worth of financial assets, which are more than offset by 31.9 trillion pounds of financial liabilities.

“Today’s figures give a new estimate of the total value of the land, housing, machinery and financial assets held by U.K. individuals and companies,” says Daniel Groves, ONS senior statistician.

The ONS calculated the total net worth of the U.K. by subtracting the value of financial liabilities from the total estimated market value of financial and nonfinancial assets.

Net wealth increased by 492 billion pounds in 2017, despite a slight rise in borrowing from abroad. The increase is smaller than during the previous year, when the fall in the value of the pound inflated the value of the U.K.’s assets held abroad in sterling terms.

“The increase in the net worth of the U.K. was driven by continued increases in the value of housing and land,” Groves says.

The U.K. has one of the highest levels of average household wealth in the developed world, in part due to its high rates of homeownership and the use of private pension funds, according to separate data published earlier this year by the Organization for Economic Cooperation and Development.

The OECD found that the average household in the U.K. had wealth of $ 511,000 — the third highest out of the countries examined, following the U.S. and Luxembourg.