chapter  3
48 Pages

The incidence of costs and revenues

The basis for our financial analysis of the housing development process is the residual calculation of land prices. Ricardo introduced in 1812 in principles of political economy the principles behind this way of calculating the price of land. An often used quote of this author summarises the core of the residual land price theory: ‘com is not high because a rent is paid, but a rent is paid because com is high; and it has justly been observed that no reduction would take place in the price of com although landlords should forego the whole of their rent’ (Ricardo, 1812: 38). In this chapter, it is first shown how a residual land price calculation works when applied to housing. Then we use it to bring to light the incidence and size of a financial margin in the different cases.