"The neoclassical economists' view of
their proper role is rather like that in The Realtor's Oath, which includes
'To protect the individual right of real estate ownership.' The word 'individual'
is construed broadly to include corporations, estates, trusts, anonymous
offshore funds, schools, government agencies, institutions, partnerships,
the Duke of Westminster, the Sultan of Brunei, the Medellin Cartel, Saddam
congregations, Archbishops, families (including criminal families) and so
on, but 'individual' sounds more all-American and subsumes them all. This
potent chant that stirs people to extremes of self-righteousness and siege
when challenged." — Mason Gaffney
Alanna Hartzok: CITIZEN
DIVIDENDS AND OIL RESOURCE RENTS
In the US about one half of
profits comes from real
estate related activities so we know that resource rents from surface
lands could be a substantial source of funds for basic income and
citizen dividends. In addition to land sites, rents from the
electromagnetic spectrum, water power points and satellite orbital
zones should be sourced for citizen dividends in the future. ... Read the
Jeff Smith: What the
Left Must Do: Share the Surplus
Given the collateral damage by most taxes, the Left must make clear
that the extra income is to come not from taxes upon people’s
legitimate earnings but from rent, making it a social salary from
society’s surplus. While opponents
will cry “redistribution”, the Left can point out that sharing the
commonwealth is actually “predistribution.” Acting like a REIT (Real
Estate Investment Trust) for the public, government would merely
recover and disburse rents before the elite or their friendly
politicians have a chance to misspend society’s surplus. Read the whole article
Dan Sullivan: Are you a Real
Libertarian, or a ROYAL Libertarian?
We call ourselves the "party of
principle," and we base property
rights on the principle that everyone is entitled to the fruits of
his labor. Land, however, is not the fruit of anyone's labor, and our
system of land tenure is based not on labor, but on decrees of
privilege issued from the state, called titles. In fact, the term
"real estate" is Middle English (originally French) for "royal
state." The "title" to land is the essence of the title of nobility,
and the root of noble privilege. ... Read
the whole piece
Mason Gaffney: 18 Fallacies
2. "Real Property
is Sacred and Untouchable"
Wrong! Suppose this layman writer
and the Oregon Chief Justice
were in error, and water permits were real property. That is out of
the frying pan, into the fire.
What does 'real' mean, applied
to property or estate? It is not
the opposite of 'imaginary.' No, 'real' is an elided English form of
the French 'regal' taken into English when English kings spoke their
native French. Real property is The King's.
We threw out kings in 1783, but
not the royal powers. Rather, we
transferred those powers to our State governments. By succession,
real property means government property!
Every landowner is a tenant of the
king or his successors in
interest. The very word 'own' comes from 'owe.' An owner is one
who owes. What he owed historically was fealty to his sovereign.
That used to mean bending the
knee, kissing the royal foot,
swearing allegiance, and showing up on demand to smite the enemy.
It has evolved into servitudes
like eminent domain, police
power, the public trust doctrine, and something else that our lawyers
may have glided over, but economists underline: the tax power.
These concepts are basic to common
law which has been brought into
every U.S. state constitution (save Louisiana's). Moses was not just
whistling Dixie when he quoted The Lord as saying "The land shall not
be sold forever; for the land is mine, and ye are strangers and
sojourners with me."
Chief Seattle would have approved.
So would Brigham Young, who
founded the once-independent nation of Deseret on that principle.
Moses was also speaking just as
William the Norman spoke after
conquered England, except that Moses was also a theocrat. "You hold
title to this land from me; observe my rules."
That's the law we have
inherited; that's how the system works. In
one form or another it is found around the world, except in the minds
abstract economic theorists like those of the Chicago School.
the whole article
Mason Gaffney: How to
Revive a Dying City
Building investment exhibits
For example, the first $10K spent yields 30%, or $3K; but $1K (10%)
is paid in interest, leaving a $2K surplus. To acquire a superior
location that confers this surplus, the buyer can spend up to $2K
annually, which means paying up to $20K for the land (at 10%, $20K
costs $2K/year). The next $10K spent may yield more than 10% too, say
20%, conferring more surplus and adding more value to the land. The
idea is to invest until the last $10K unit yields 10%, just enough to
pay interest. To understand
ground rents and land prices is to
understand cities; not to understand is to remain mired forever in
confusion and fallacy. Ground rent continues forever, generally
tending to rise; therefore, to buy title to land, people pay prices
that look high relative to current cash flows. In Riverside, a
density city of 208,000, land prices go up to $18/sf. In San
Francisco, with high density and 800,000 people, prices reach
$1,000/sf; in Manhattan they exceed $2,000. In Tokyo, probably the
top of the line, one sale is reported at $25,000/sf. Urban land
prices take your breath away.
Land prices vary extremely from
city to city or block to block.
The cost to build a square foot of floor space is fairly constant
from place to place, but demand varies with location. A small
floor rental translates into a large rise in ground rent and land
price, because the land owner gets everything above what is required
to operate and amortize the building. Thus,
- in Riverside,
neighborhood mall space rental of $12 just pays for the building,
with only a little left over, resulting in land prices of perhaps
- In Manhattan, rentals are triple those in
surplus accrues to ground rent, resulting in land prices 300 times
higher than in Riverside.
At key locations in bigger cities,
land prices are not just high
per square foot, they are higher per capita than in small cities.
They are even higher relative to building values, in spite of the
high-rise buildings. Remember that each additional floor adds more
ground rent, because floor space rental is more than enough to cover
the added cost. ... read the whole article
Lindy Davies The Top
Reasons Why Land is More Important than Ever
economic proposal insists on the primary importance of land as a
factor in the economy. Many people dismiss that as a quaint, agrarian
notion. "Perhaps," they scoff, "land was that significant back when
most people had to work the soil for a living, but modern agriculture
has moved far past that! Nowadays we deal with modern issues of
technology, global markets, information -- land is no longer a big
10. There's no place to dump your trash for free. ...
9. Scratch a financial crisis, find a real estate bubble. ...
8. Information (like railroads) needs routes. ...
7. Cities can no longer afford to be inefficient. ...
6. Global climate change is too likely to ignore. ...
5. The loss of biological diversity cannot be reversed. ...
4. Two out of every five people lack a safe and dependable
source of drinking water. ...
3. The myth of overpopulation causes cultural sickness. ...
2. We have forgotten what nations are. ...
1. "The land shall not be sold forever, for ye are strangers
and sojourners with Me." ...
Mason Gaffney: The Taxable
Capacity of Land
Another attractive feature of
land taxation is its interesting positive effect on the economic base
of a city. It strengthens it by its tendency to hit absentee owners harder
than resident owners. The
land fraction in real estate is generally highest in the CBD of any city,
so that is a favorite place for absentees to buy and hold. They like
the steady income, and the "trophy" quality. The
surplus in real estate is what attracts outside buyers, and land is what
yields the surplus. About 2/3 of downtown Los Angeles is owned
by non-resident aliens, for example. In a more workaday city, Milwaukee,
the absentee owners consist of former residents, or their heirs, who
grew too rich to abide the harsh winters.
Consider the effect on your balance
of payments. When you get more tax money from absentees, money that used
to flow to Tehran, Zurich, or Palm Beach now flows into your local treasury
to pay your local teachers and city workers, and relieve your builders
and building managers. In this way taxing land actually acts to undergird
the value of its own base. ... Read the whole article
Michael Hudson: The Lies of
the Land: How and why land gets undervalued
Turning land-value gains into
Hiding the free lunch
Two appraisal methods
How land gets a negative value!
Where did all the land value go?
A curious asymmetry
Site values as the economy's "credit sink"
Immortally aging buildings
Real estate industry's priorities
THE FREE LUNCH
* Its cost to citizens
* Its cost to the economy
Hiding the free
BAUDELAIRE OBSERVED that the devil wins at the point where he
convinces humanity that he does not exist. The Financial,
Insurance and Real Estate (FIRE) sectors seem to have adopted a
kindred philosophy that what is not quantified and reported will be
invisible to the tax collector, leaving more to be pledged for
mortgage credit and paid out as interest. It appears to have worked.
To academic theorists as well,
breathlessly focused on their own
particular hypothetical world, the magnitude of land rent and
land-price gains has become invisible.But not to investors. They
out to pick a property whose location value increases faster rate
than the interest charges, and they want to stay away from earnings
on man-made capital -- like improvements. That's earned income, not
the "free lunch" they get from land value increases.
Chicago School economists insist
that no free lunch exists. But
when one begins to look beneath the surface of national income
statistics and the national balance sheet of assets and liabilities,
one can see that modern economies are all about obtaining a free
lunch. However, to make this free ride go all the faster, it helps if
the rest of the world does not see that anyone is getting the
proverbial something for nothing - what classical economists
unearned income, most
characteristically in the form of land rent.
You start by using a method of
appraising that undervalues the real
income producer, land. Here's how it's done.
PROPERTY IS APPRAISED in two ways.
Both start by estimating its
- The land-residual approach subtracts the value of
buildings from this overall value, designating the remainder as the
value of land. Building values may be estimated in terms of their
replacement cost (which usually produces a very high estimate, leaving
little land value) or their depreciated value (which gives an
unrealistically low building estimate, inasmuch as maintenance and
repairs save most buildings from deteriorating through wear and tear).
Using the depreciated value method leaves a higher residual land value.
The Federal Reserve Board recently has experimented with a hybrid
intermediate method that values buildings on the basis of their
- The building-residual approach starts by valuing
and treats the difference as representing the building's value. The
first step in this approach is to construct a land-value map for the
district or city. This displays fairly smooth contours for land values.
Overlays would show zoning variations. Most of the variations in
property prices around this normalized map will be for structures,
along with a sizable component of "errors and omissions." This approach
rarely is used, and most assessed land values vary drastically from one
parcel to the next. The problem is especially apparent in the case of
parking lots or one-story "taxpayers," that is, inexpensive buildings
in neighbourhoods that are heavily built up. Their purpose is simply to
be rented out at enough to carry the property's tax bill, not to
maximise the site's current economic value.
Note that the Fed's land-residual
appraisal methods do not
acknowledge the possibility that the land itself may be rising in
price. Site values appear as the passive derivative, not as the
driving force. Yet low-rise or vacant land sites tend to appreciate
as much as (or in many cases, even more than) the improved properties
around them. Hence this price appreciation cannot be attributed to
rising construction costs. If every property in the country were
built last year, the problem would be simple enough. The land
acquisition prices and construction costs would be recorded, adding
up to the property's value. But many structures were erected as long
ago as the 19th century. How do we decide how much their value has
changed in comparison to the property's overall value?
The Federal Reserve
multiplies the building's original cost by the
rise in the construction price index since its completion. The
implication is that when a property is sold at a higher price (which
usually happens), it is because the building itself has risen in
value, not the land site. However, if the property must be sold at a
lower price, falling land prices are blamed.
If it is agreed that any
explanation of land/building relations
should be symmetrical through boom and bust periods alike, then the
same appraisal methodology should be able to explain the decline of
property values as well as their rise. The methodology should be as
uniform and homogeneous as possible. By
that, I mean that similar land should be valued at a homogeneous
price, and buildings of equivalent worth should be valued
If these two criteria are
accepted, then I believe that economists
would treat buildings as the residual, not the land. Yet just the
opposite usually is done.
FORCE behind the anomalies is the political lobbying
eager to depict real estate gains simply as "protecting capital from
inflation." In reality, it helps land owners and their creditors get
a free ride out of land asset-price inflation -- that is, The
For hundreds of years property's
value has been calculated by
discounting its flow of rental income at the going rate of interest.
The lower the interest rate, the higher the price a given rental
stream will justify -- or as property owners express it, the more
years' rent a property will bring. What is so striking about land
values today is that they are rising for reasons independent of their
earnings stream. The major new consideration is their prospect for
future "capital" (that is, land-price) gains. In sum, the ultimate
aim of real estate investors no longer is so much to seek income --
most of which is pledged to their bankers as interest payments on the
property they acquire -- as much as to seek property gains.
Politically opportunites abound. Merely changing zoning in New
York City in the 1980s to allow using commercial loft spaces for
residential purposes had the effect of multiplying asset values five
Whether the gains come from
selling the property or from borrowing
more money against it, the essential phenomenon is the rapid growth
in asset values and real estate's uniquely favored tax treatment.
That's why investors choose real estate instead of bonds or stocks,
and much of the strategy underlying corporate takeovers has followed
the strategies they developed over the past half century.
the capital-gains dimension needs to be incorporated
into the rental revenue statistics to measure real estate's total
returns. This sector's
nearly complete success in escaping the tax
collector has placed an enormous tax burden on everyone else.
Henry George: The Savannah (excerpt
from Progress & Poverty, Book IV: Chapter 2: The Effect of Increase
of Population upon the Distribution of Wealth; also found in Significant
Paragraphs from Progress & Poverty, Chapter 3: Land Rent Grows as Community
Here, let us imagine, is an unbounded savannah, stretching off in
unbroken sameness of grass and flower, tree and rill, till the traveler tires
of the monotony. Along comes the wagon of the first immigrant. Where to settle
he cannot tell — every acre seems as good as every other acre. As to
wood, as to water, as to fertility, as to situation, there is absolutely
no choice, and he is perplexed by the embarrassment of richness. Tired out
with the search for one place that is better than another, he stops — somewhere,
anywhere — and starts to make himself a home. The soil is virgin and
rich, game is abundant, the streams flash with the finest trout. Nature is
at her very best. He has what, were he in a populous district, would make
him rich; but he is very poor. To say nothing of the mental craving, which
would lead him to welcome the sorriest stranger, he labors under all the
material disadvantages of solitude. He can get no temporary assistance for
any work that requires a greater union of strength than that afforded by
his own family, or by such help as he can permanently keep. Though he has
cattle, he cannot often have fresh meat, for to get a beefsteak he must kill
a bullock. He must be his own blacksmith, wagonmaker, carpenter, and cobbler — in
short, a "jack of all trades and master of none." He cannot have his children
schooled, for, to do so, he must himself pay and maintain a teacher. Such
things as he cannot produce himself, he must buy in quantities and keep on
hand, or else go without, for he cannot be constantly leaving his work and
making a long journey to the verge of civilization; and when forced to do
so, the getting of a vial of medicine or the replacement of a broken auger
may cost him the labor of himself and horses for days. Under such circumstances,
though nature is prolific, the man is poor. It is an easy matter for him
to get enough to eat; but beyond this, his labor will suffice to satisfy
only the simplest wants in the rudest way.
Soon there comes another immigrant. Although every quarter section* of the
boundless plain is as good as every other quarter section, he is not beset
by any embarrassment as to where to settle. Though the land is the same,
there is one place that is clearly better for him than any other place, and
that is where there is already a settler and he may have a neighbor. He settles
by the side of the first comer, whose condition is at once greatly improved,
and to whom many things are now possible that were before impossible, for
two men may help each other to do things that one man could never do.
*The public prairie lands of
the United States were surveyed into sections of one mile square, and a
quarter section (160 acres) was the usual government allotment to a settler
under the Homestead Act.
Another immigrant comes, and, guided by the same attraction, settles where
there are already two. Another, and another, until around our first comer there
are a score of neighbors. Labor has now an effectiveness which, in the solitary
state, it could not approach. If heavy work is to be done, the settlers have
a logrolling, and together accomplish in a day what singly would require years.
When one kills a bullock, the others take part of it, returning when they kill,
and thus they have fresh meat all the time. Together they hire a schoolmaster,
and the children of each are taught for a fractional part of what similar teaching
would have cost the first settler. It becomes a comparatively easy matter to
send to the nearest town, for some one is always going. But there is less need
for such journeys. A blacksmith and a wheelwright soon set up shops, and our
settler can have his tools repaired for a small part of the labor it formerly
cost him. A store is opened and he can get what he wants as he wants it; a
postoffice, soon added, gives him regular communication with the rest of the
world. Then come a cobbler, a carpenter, a harness maker, a doctor; and a little
church soon arises. Satisfactions become possible that in the solitary state
were impossible. There are gratifications for the social and the intellectual
nature — for that part of the man that rises above the animal. The power
of sympathy, the sense of companionship, the emulation of comparison and contrast,
open a wider, and fuller, and more varied life. In rejoicing, there are others
to rejoice; in sorrow, the mourners do not mourn alone. There are husking bees,
and apple parings, and quilting parties. Though the ballroom be unplastered
and the orchestra but a fiddle, the notes of the magician are yet in the strain,
and Cupid dances with the dancers. At the wedding, there are others to admire
and enjoy; in the house of death, there are watchers; by the open grave, stands
human sympathy to sustain the mourners. Occasionally, comes a straggling lecturer
to open up glimpses of the world of science, of literature, or of art; in election
times, come stump speakers, and the citizen rises to a sense of dignity and
power, as the cause of empires is tried before him in the struggle of John
Doe and Richard Roe for his support and vote. And, by and by, comes the circus,
talked of months before, and opening to children whose horizon has been the
prairie, all the realms of the imagination — princes and princesses of
fairy tale, mailclad crusaders and turbaned Moors, Cinderella's fairy coach,
and the giants of nursery lore; lions such as crouched before Daniel, or in
circling Roman amphitheater tore the saints of God; ostriches who recall the
sandy deserts; camels such as stood around when the wicked brethren raised
Joseph from the well and sold him into bondage; elephants such as crossed the
Alps with Hannibal, or felt the sword of the Maccabees; and glorious music
that thrills and builds in the chambers of the mind as rose the sunny dome
of Kubla Khan.
Go to our settler now, and say to him: "You have so many fruit trees which
you planted; so much fencing, such a well, a barn, a house — in short,
you have by your labor added so much value to this farm. Your land itself
is not quite so good. You have been cropping it, and by and by it will
need manure. I will give you the full value of all your improvements if
you will give it to me, and go again with your family beyond the verge
of settlement." He would laugh at you. His land yields no more wheat or
potatoes than before, but it does yield far more of all the necessaries
and comforts of life. His labor upon it will bring no heavier crops, and,
we will suppose, no more valuable crops, but it will bring far more of
all the other things for which men work. The presence of other settlers — the
increase of population — has added to the productiveness, in these
things, of labor bestowed upon it, and this added productiveness gives
it a superiority over land of equal natural quality where there are as
yet no settlers. If no land remains to be taken up, except such as is as
far removed from population as was our settler's land when he first went
upon it, the value or rent of this land will be measured by the whole of
this added capability. If, however, as we have supposed, there is a continuous
stretch of equal land, over which population is now spreading, it will
not be necessary for the new settler to go into the wilderness, as did
the first. He will settle just beyond the other settlers, and will get
the advantage of proximity to them. The value or rent of our settler's
land will thus depend on the advantage which it has, from being at the
center of population, over that on the verge. In the one case, the margin
of production will remain as before; in the other, the margin of production
will be raised.
Population still continues to increase, and as it increases so do the
economies which its increase permits, and which in effect add to the productiveness
of the land. Our first settler's land, being the center of population,
the store, the blacksmith's forge, the wheelwright's shop, are set up on
it, or on its margin, where soon arises a village, which rapidly grows
into a town, the center of exchanges for the people of the whole district.
With no greater agricultural productiveness than it had at first, this
land now begins to develop a productiveness of a higher kind. To labor
expended in raising corn, or wheat, or potatoes, it will yield no more
of those things than at first; but to labor expended in the subdivided
branches of production which require proximity to other producers, and,
especially, to labor expended in that final part of production, which consists
in distribution, it will yield much larger returns. The wheatgrower may
go further on, and find land on which his labor will produce as much wheat,
and nearly as much wealth; but the artisan, the manufacturer, the storekeeper,
the professional man, find that their labor expended here, at the center
of exchanges, will yield them much more than if expended even at a little
distance away from it; and this excess of productiveness for such purposes
the landowner can claim just as he could an excess in its wheat-producing
power. And so our settler is able to sell in building lots a few of his
acres for prices which it would not bring for wheatgrowing if its fertility
had been multiplied many times. With the proceeds, he builds himself a
fine house, and furnishes it handsomely. That is to say, to reduce the
transaction to its lowest terms, the people who wish to use the land build
and furnish the house for him, on condition that he will let them avail
themselves of the superior productiveness which the increase of population
has given the land.
Population still keeps on increasing, giving greater and greater utility
to the land, and more and more wealth to its owner. The town has grown
into a city — a St. Louis, a Chicago or a San Francisco — and
still it grows. Production is here carried on upon a great scale, with
the best machinery and the most favorable facilities; the division of labor
becomes extremely minute, wonderfully multiplying efficiency; exchanges
are of such volume and rapidity that they are made with the minimum of
friction and loss. Here is the heart, the brain, of the vast social organism
that has grown up from the germ of the first settlement; here has developed
one of the great ganglia of the human world. Hither run all roads, hither
set all currents, through all the vast regions round about. Here, if you
have anything to sell, is the market; here, if you have anything to buy,
is the largest and the choicest stock. Here intellectual activity is gathered
into a focus, and here springs that stimulus which is born of the collision
of mind with mind. Here are the great libraries, the storehouses and granaries
of knowledge, the learned professors, the famous specialists. Here are
museums and art galleries, collections of philosophical apparatus, and
all things rare, and valuable, and best of their kind. Here come great
actors, and orators, and singers, from all over the world. Here, in short,
is a center of human life, in all its varied manifestations.
So enormous are the advantages which this land now offers for the application
of labor, that instead of one man — with a span of horses scratching
over acres, you may count in places thousands of workers to the acre, working
tier on tier, on floors raised one above the other, five, six, seven and
eight stories from the ground, while underneath the surface of the earth
engines are throbbing with pulsations that exert the force of thousands
All these advantages attach to the land; it is on this land and no
other that they can be utilized, for here is the center of population — the
focus of exchanges, the market place and workshop of the highest forms
of industry. The productive powers which density of population has
attached to this land are equivalent to the multiplication of its original
fertility by the hundredfold and the thousandfold. And rent, which measures
the difference between this added productiveness and that of the least
productive land in use, has increased accordingly. Our settler, or whoever
has succeeded to his right to the land, is now a millionaire. Like another Rip
Van Winkle, he may have lain down and slept; still he is rich — not
from anything he has done, but from the increase of population. There
are lots from which for every foot of frontage the owner may draw more
than an average mechanic can earn; there are lots that will sell for
more than would suffice to pave them with gold coin. In the principal
streets are towering buildings, of granite, marble, iron, and plate glass,
finished in the most expensive style, replete with every convenience.
Yet they are not worth as much as the land upon which they rest — the
same land, in nothing changed, which when our first settler came upon
it had no value at all.
That this is the way in which the increase of population powerfully acts
in increasing rent, whoever, in a progressive country, will look around
him, may see for himself. The process is going on under his eyes. The increasing
difference in the productiveness of the land in use, which causes an increasing
rise in rent, results not so much from the necessities of increased population
compelling the resort to inferior land, as from the increased productiveness
which increased population gives to the lands already in use. The most
valuable lands on the globe, the lands which yield the highest rent, are
not lands of surpassing natural fertility, but lands to which a surpassing
utility has been given by the increase of population.
The increase of productiveness or utility which increase of population
gives to certain lands, in the way to which I have been calling attention,
attaches, as it were, to the mere quality of extension. The valuable quality
of land that has become a center of population is its superficial capacity — it
makes no difference whether it is fertile, alluvial soil like that of Philadelphia,
rich bottom land like that of New Orleans; a filled-in marsh like that
of St. Petersburg, or a sandy waste like the greater part of San Francisco.
And where value seems to arise from superior natural qualities, such
as deep water and good anchorage, rich deposits of coal and iron, or
heavy timber, observation also shows that these superior qualities are
brought out, rendered tangible, by population. The coal and iron
fields of Pennsylvania, that today  are worth enormous sums, were
fifty years ago valueless. What is the efficient cause of the difference?
Simply the difference in population. The coal and iron beds of Wyoming
and Montana, which today are valueless, will, in fifty years from now,
be worth millions on millions, simply because, in the meantime, population
will have greatly increased.
It is a well-provisioned ship, this on which we sail through space. If
the bread and beef above decks seem to grow scarce, we but open a hatch
and there is a new supply, of which before we never dreamed. And
very great command over the services of others comes to those who as the
hatches are opened are permitted to say, "This is mine!" ... read
the whole chapter of Significant Paragraphs