If slow broadband reduces house prices, should we subsidize fast broadband?

By Tim Worstall , written on March 5, 2014

From The News Desk

To forestall anyone who has already heard of Betteridge's Law of Headlines, the answer here is no. But the interesting part is why the answer is no.

OK, so this is from an estate agency looking to do a little PR through a survey, but the result it came up with is that houses in areas with slow broadband connections are cheaper than those with fast.

Sluggish broadband speeds could knock 20 percent off the value of your house, according to research by estate agent Rightmove

According to a survey of user searches by over 3,000 Rightmove customers, details of the broadband access available in a property was ranked as a more important feature than information regarding transport links and nearby schools. The survey goes on to point out that house buyers think that having reasonably speedy broadband is like a fourth utility after electricity, gas and water/sewage. Which leads to something of an interesting question: Should we therefore regulate broadband, subsidize its penetration in the same way that we do those other utilities? My answer is no and for the the purest of free market reasons.

It's worth noting that people aren't demanding 100 Mbits connections like Google Fiber, although obviously that would be nice to have. Nor even what probably does count as pretty broad pipes these days, 30 Mbits or so. Rather, that something better than two should be available. So it's not quite watching large screen movies on the 'net, rather being able to surf it in less than geological time.

We should also note that we don't demand that all utilities connect up everywhere. While many places are on mains natural gas for example, there are still large swathes of Europe that rely upon bottled. And you'll not get that far demanding a free connection to the electricity grid if they've got to string a couple of miles of poles to get it to you. So there are already some limits to how much we will force the utility companies to accommodate your desires to live miles away from other humans.

But the real reason we don't need to force anyone to do anything is because that 20 percent price difference is quite enough to incentivize private action. The average price of a dwelling (that includes apartments) in the UK now is around £200,000 (call it $300,000 among friends). The lack of a decent broadband connection could be said to be knocking $60,000 off its value. And that's far more than is needed to produce an entirely private solution to such a lack of connectivity. You could set up your own line of sight base station for that, run your own cable a couple of miles, the various technological solutions are many. It's just not something that the law should insist that someone else subsidize for you through general service provisions.

If you were selling a house and you knew that broadband would add $60,000 then you'd make sure you got it in to make that extra cash. If you wanted broadband and a rural house then there's plenty of incentive there for you to buy it cheap then add one of those private solutions. There's simply no public policy problem here that needs to be solved by collective action. For the private money making opportunities are such that purely private incentives will be sufficient to provide a solution.

Oddly, it's only if non-broadband housing were indeed less desirable but that this was not reflected in prices that there could possibly be an argument for the public solution. But, amusingly, if there were no price difference then we couldn't argue that it was less desirable.

It's exactly because lack of broadband does indeed reduce prices that we don't actually need to do anything about it.