Going back to land used for agricultural/primary production, the demand for this land depends upon the amount of such production to be undertaken, and that depends not only on the demand for such production, but the amount of that demand satisfied by other producers, i.e. the import of cheaper agricultural/primary products. If market prices fall, because cheap imported agricultural/primary products are available, then surplus profits/rent on domestic production will fall, and land prices will fall along with it. That is why landlords opposed the Repeal of The Corn Laws.
Land prices have risen astronomically, along with the prices of other assets, over the last 40 years, but the cause has not been increased surplus profit/rent, but falling interest rates, leading to higher capitalised values of those rents. But, that is not the only, or main, cause. As Marx points out, landowners do not have to rent out the land they own, or sell it, for agricultural/primary production purposes. They can sit on it, or rent it, or sell it for other purposes, where a higher rent or price can be obtained. So, when property prices soared, beginning in the 1980's, and then again in the late 90's, the surplus profit available to builders rose sharply, but this surplus profit, was then absorbed as rent/land prices appropriated by landlords. After WWII, in Britain, land accounted for about 10% of the cost of building a house, whereas, today, it accounts for around 70% of the cost.
If the average price of a new house is £300,000, then £210,000 of this is accounted for by the price of the land, and the other £90,000 by the cost of production, and profit. Assume the rate of profit is 100%, so that it is equal to £45,000, and represents an annual rate of profit of 30%, on advanced capital of £150,000. If land fell back to being just 10% of the cost, that would be only £10,000, reducing the cost of the house to £100,000, assuming £45,000 profit. But, for the builder, before they start building, and commit capital, they must also consider the price of the land, which appears to them as much a cost of their production, as the bricks and other materials, and labour-power they must employ. The actual capital they had to advance, to build the house was, then, originally, £360,000, including the price of the land, giving an annual rate of profit of 12.5%, which we will take as being the average annual rate of industrial profit.
So, now, to make this average rate of profit, on advanced capital of £160,000, the profit falls to just £20,000, so that the price of the house falls to just (45,000 + 10,000 + 20,000) = £75,000, or a quarter of its current price. Of course, at this much lower price, the demand for houses would increase substantially, because all of those millions of people who cannot, now, afford to buy, or even to raise a sufficient deposit, would be enabled to do so. All those who seek to solve the housing crisis on the basis of increasing supply, must, first, address this question of land prices, so that builders can produce many more houses at prices that would still enable them to make the average annual rate of profit on their advanced capital. And, to address the question of land prices it is necessary to burst the existing property bubble inflated on the back of artificially low bond yields, caused by inflated bond prices from QE, and to end the absurdity of large amounts of land that could be used for development, in the Green Belt, being sterilised from such use.
A builder will be prepared to buy land at these inflated prices, if they know that they can sell the houses they build on it at £300,000, because that is what existing houses of that type are selling for, and it is these sales of existing houses that determine the market price. Sales of new houses, account for only about a seventh of total house sales, each year. To reduce the price of new houses, its necessary to reduce the price of land, and to reduce the price of land its necessary to reverse the inflation of the price of existing houses, which arose on the back of excess liquidity directed into that sphere.
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