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Land, Housing and the British Economy: background paper

Author

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  • Muellbauer, John

Abstract

The multiple ways in which land and the economy interact underline the importance of entrenching socially beneficial policies for land and housing. Many of the UK's current economic and social problems can be traced to decades of related policy failure. The role of land is strongly dependent on institutions, including land use regulation, financial regulation and property taxation. Subject to deleterious but transformative changes in the 1980s, and persisting to this day, these resulted in high and volatile land prices (with several booms and busts in credit and house prices). The associated speculation diverted financial flows from more productive investment, damaging growth and competitiveness, and increasing financial instability risk. The UK holds the record for the extent of value embedded in the underlying land rather than in buildings. House prices are a weighted average of land prices and housing construction costs (with volatility of the former greatly exceeding the latter). High and volatile land prices are also closely connected with the UK's housing affordability crisis. Policy remedies require a holistic package. This includes planning reform, land value capture, expanding the social housing stock and reforming a dysfunctional property tax system. The current government recognizes the relevance of the first three, but not yet the fourth. This article details a holistic package of measures and the potential gains from a Green Land Value Tax in property tax reform. Politically feasible designs for less ambitious first steps are discussed.

Suggested Citation

  • Muellbauer, John, 2025. "Land, Housing and the British Economy: background paper," INET Oxford Working Papers 2025-25, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford, revised Feb 2026.
  • Handle: RePEc:amz:wpaper:2025-25
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    References listed on IDEAS

    as
    1. John V. Duca & John Muellbauer & Anthony Murphy, 2021. "What Drives House Price Cycles? International Experience and Policy Issues," Journal of Economic Literature, American Economic Association, vol. 59(3), pages 773-864, September.
    2. Tomohiro Hirano & Joseph E. Stiglitz, 2025. "Credit, Land Speculation, and Low-Interest-Rate Policy," NBER Working Papers 33661, National Bureau of Economic Research, Inc.
    3. Gavin Cameron & John Muellbauer & Anthony Murphy, 2006. "Was There A British House Price Bubble? Evidence From A Regional Panel," ERES eres2006_150, European Real Estate Society (ERES).
    4. Aron, Janine & Muellbauer, John, 2016. "“Modelling and forecasting mortgage delinquency and foreclosure in the UK.”," Journal of Urban Economics, Elsevier, vol. 94(C), pages 32-53.
    5. Daniel Albuquerque & Thomas Lazarowicz & Jamie Lenney, 2025. "Monetary transmission through the housing sector," Bank of England Staff Working Paper series 1115, Bank of England.
    6. Hau, Harald & Ouyang, Difei, 2024. "Can real estate booms hurt firms? Evidence on investment substitution," Journal of Urban Economics, Elsevier, vol. 144(C).
    7. Muellbauer, John & Murphy, Anthony & Cameron, Gavin, 2006. "Housing Market Dynamics and Regional Migration in Britain," CEPR Discussion Papers 5832, Centre for Economic Policy Research.
    8. Tomohiro Hirano & Joseph E. Stiglitz, 2025. "Credit Expansion, Land Speculation, and Low-Interest-Rate Policy," Papers 2503.23552, arXiv.org, revised Feb 2026.
    9. Indraneel Chakraborty & Itay Goldstein & Andrew MacKinlay, 2018. "Housing Price Booms and Crowding-Out Effects in Bank Lending," The Review of Financial Studies, Society for Financial Studies, vol. 31(7), pages 2806-2853.
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