Land prices fall 15pc, biggest drop in 5 years

Falling land prices could mean cheaper new homes in future

Land prices in Spanish cities fell 14.9pc over 12 months to the end of June, reveals a closer inspection of the latest property prices figures from the Ministry of Housing.

The 15pc annualised fall in Q2 was the biggest fall on record since the Ministry of Housing started publishing this data in 2005. As a result, the average cost of building land in Spanish cities now stands at 210.7 Euros/m2.

However, on a quarterly basis (Q2/Q1), land prices actually rose, by 3pc from the all-time low of 205 €/m2 in Q1, at least according to the Ministry’s notoriously unreliable figures.

Dramatic increases in land prices were one reason why Spanish house prices went through the roof during the boom, as land prices (driven by land speculators) accounted for an ever greater share of the cost of property (as much as 60pc in some cases).

Lower land prices mean cheaper homes in future, once the new-build glut has been dealt with, which could take years.

SPI Member Comments

Thoughts on “Land prices fall 15pc, biggest drop in 5 years

  • You remark that lower land prices should result in cheaper houses (in the free market, it is understood). That the price of land affects the price of houses is a common misconception, one that was treated by the economist Milton B. Redman in his book 21 Popular economic fallacies of which Penguin Books published an edition in 1969. The error is to assume that the costs of production determine the price of the produce. That house builders today have to sell at a loss whereas a few years back they sold at a ‘super-profit’ should be sufficient for one to realise the error of the assumption.

    The misconception is extremely common, though difficult to understand why it should be so since it is commonly accepted in other spheres of economic activity that it is the interplay of supply and demand for the finished product that determines price and not the cost of production. It would appear that the promoters of the Ley de Suelo, Ley 8/2007, introduced measures to restrict the price at which rural building land might be sold (to a public body) on this assumption that the price of land was the major determinant of the (then) high price of housing.

    Effect is mistaken for cause. In October last year was published the erudite and well-researched report, “El stock de capital en viviendas en España y su distribución territorial, 1990-2007”, emanating from the Fundación BBVA and the Instituto Valenciano de Investigaciones Económicos (IVIE). Unfortunately, it would appear, the quality of the research stopped with the statistics. The authors allowed themselves to suggest that house prices increased as they did because of the increase in the price of land, basing their conclusion on the rise in the proportion of the land cost as a component of the price of the finished dwelling from 29% in 1990 to 46,2% in 2008, and the annual average increase of 25% in land prices being the double of the average annual increase of 12% in house prices.

    The value of building land essentially results from the use that may be made of it. It is more that the price of such land is derived from the price of the completed houses than that the price of land affects the price of housing.

    J.M. Anthony Fisher, Fisher i Associats, Chartered Surveyors, Barcelona.

  • I take your point. There is a mistake in my last sentence; there should be a ‘could’ between mean and cheaper (‘could mean cheaper homes in future’). Lower production costs facilitate lower prices, but don’t guarantee them.


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