How does the price of land affect the cost of a new house?

The old rule of thumb for property developers used to be one-third, one-third and one-third: one-third of the price of a new house would be the cost of the land, one-third would be the cost of the build, and one-third would be the developer's profit.

But now, in some areas, such as Cambridge, the price of the land amounts to a half or more of the cost of the new house.

So to protect their profit margins and keep the houses affordable, developers have to either make the build of the house cheaper - using less expensive materials, perhaps, or build it quicker - or they can build more properties on the land. This has certainly been part of the Government's strategy, towards higher density of housing, often with smaller houses, built closer together, or by building flats.

Whatever way the developers deal with it, the cost of land is a fundamental influence on house prices.

How is this impacting on house prices generally? And what regions are most affected?

The Government wants a less volatile housing market. Nothing makes consumers - and voters - happier than rising house prices, since we are increasingly an owner-occupier society. So the Government is also keen to avoid seeing house prices going down. Increase land costs in many areas is something that should help avoid that happening.