When an urban lot is left vacant, or used as a parking lot, or left with an
empty building on it, or operated with a one- or two-story building when the
surrounding neighborhood is five-story or ten-story buildings, all those who
live or workin the area must expend their footsteps or purchased energy to
get around the underused property. It isn't supplying services the neighborhood
needs. Local government still pays for police and fire protection, and city
water and sewer pipe goes by the property.
When a downtown acre is properly developed, ten or more acres on the fringe
can be protected from premature development, and instead of sprawling or growing
hopscotch into agricultural land or wilderness, the town or city can remain
compact and dense.
Why do urban lots remain underused? The owner is waiting for his "ship
to come in." He hopes or expects that at some point the city —
his fellow taxpayers — will invest in the area, increasing his land's
value and allowing
reap a windfall gain. And as long as his property taxes are low, his holding
costs are not enough to bother him. He can afford to wait. Our incentives
are perverse: we don't charge him much in property taxes compared to his
who has developed his land well.
How do we improve the situation? Reduce the tax rate on the buildings, and
nudge it upwards on the land value. The disincentives to improving the property
go down, and the incentives for either improving the land or selling it to
someone who will improve it rise. Who wins? The entire neighborhood, which
gets the benefit of some useful addition to the area. The environment. Those
who want jobs. Those who want to open a business. Who loses? The fellow who
is waiting for the rest of the neighbors to make his
valuable, or wants to leave his heirs a nice present.
Harrisburg, Pennsylvania, now taxes its land at 6 times the millage rate
it taxes its buildings, and has experienced many kinds of gains as a result.
other towns and cities in Pennsylvania also tax land values more heavily
than buildings, and have found it beneficial.
H.G. Brown: Significant
Paragraphs from Henry George's Progress & Poverty,
Chapter 4: Land Speculation Causes Reduced Wages
If the land of superior quality as to location were always fully used before
land of inferior quality were resorted to, no vacant lots would be left as
a city extended, nor would we find miserable shanties in the midst of costly
buildings. These lots, some of them extremely valuable, are withheld from use,
or from the full use to which they might be put, because their owners, not
being able or not wishing to improve them, prefer, in expectation of the advance
of land values, to hold them for a higher rate than could now be obtained from
those willing to improve them. And, in consequence of this land being withheld
from use, or from the full use of which it is capable, the margin of the city
is pushed away so much farther from the center.
But when we reach the limits of the growing city the actual margin of building,
which corresponds to the margin of cultivation in agriculture — we
shall not find the land purchasable at its value for agricultural purposes,
would be were rent determined simply by present requirements; but we shall
find that for a long distance beyond the city, land bears a speculative
value, based upon the belief that it will be required in the future for
and that to reach the point at which land can be purchased at a price not
based upon urban rent, we must go very far beyond the actual margin of
urban use. ... read the whole
H.G. Brown: Significant
Paragraphs from Henry George's Progress & Poverty:
10. Effect of Remedy Upon Wealth Production (in the unabridged P&P: Part
IX — Effects of the Remedy: Chapter 1 — Of the effect upon the
production of wealth)
The elder Mirabeau, we are told, ranked the proposition of Quesnay, to substitute
one single tax on rent (the impôt unique) for all other taxes,
as a discovery equal in utility to the invention of writing or the substitution
of the use of money for barter.
To whosoever will think over the matter, this saying will appear an evidence
of penetration rather than of extravagance. The advantages which would be gained
by substituting for the numerous taxes by which the public revenues are now
raised, a single tax levied upon the value of land, will appear more and more
important the more they are considered. ...
And will not the community gain by thus refusing to kill the goose that lays
the golden eggs; by thus refraining from muzzling the ox that treadeth out
the corn; by thus leaving to industry, and thrift, and skill, their natural
reward, full and unimpaired? For there is to the community also a natural reward.
The law of society is, each for all, as well as all for each. No one can keep
to himself the good he may do, any more than he can keep the bad. Every productive
enterprise, besides its return to those who undertake it, yields collateral
advantages to others. If a man plant a fruit tree, his gain is that he gathers
the fruit in its time and season. But in addition to his gain, there is a gain
to the whole community. Others than the owner are benefited by the increased
supply of fruit; the birds which it shelters fly far and wide; the rain which
it helps to attract falls not alone on his field; and, even to the eye which
rests upon it from a distance, it brings a sense of beauty. And so with everything
else. The building of a house, a factory, a ship, or a railroad, benefits others
besides those who get the direct profits. ...
And to shift the burden of taxation from production and exchange to the value
or rent of land would not merely be to give new stimulus to the production
of wealth; it would be to open new opportunities. For under this system no
one would care to hold land unless to use it, and land now withheld from use
would everywhere be thrown open to improvement.
The selling price of land would fall; land speculation would receive its death
blow; land monopolization would no longer pay.* Millions and millions of acres
from which settlers are now shut out by high prices would be abandoned by their
present owners or sold to settlers upon nominal terms. And this not merely
on the frontiers, but within what are now considered well settled districts.
* The fact that a tax on the rental value of land cannot
be shifted by landowners to tenants, though recognized by all competent
economists, is sometimes a stumbling block to persons untrained in economics.
The reason such a tax cannot be shifted is that it cannot limit the supply
of land. Landowners are presumably, before the tax is laid, charging all
the rent they can get. There is nothing in a tax on the rental value of
land to make tenants willing to pay more or to make land more difficult
to hire. On the contrary, more land will be on the market, because of such
a tax, rather than less, since the tax puts a heavy penalty on holding
land out of use and unimproved for mere speculation. The competition of
former vacant land speculators to get their land used will make land cheaper
to rent rather than more expensive. And since only the net rent remaining
after the tax is subtracted is capitalized into salable value, land will
be very much cheaper to buy. H.G.B.
And it must be remembered that this would apply, not merely to agricultural
land, but to all land. Mineral land would be thrown open to use, just as agricultural
land; and in the heart of a city no one could afford to keep land from its
most profitable use, or on the outskirts to demand more for it than the use
to which it could at the time be put would warrant. Everywhere that land had
attained a value, taxation, instead of operating, as now, as a fine upon improvement,
would operate to force improvement. Whoever planted an orchard, or sowed a
field, or built a house, or erected a manufactory, no matter how costly, would
have no more to pay in taxes than if he kept so much land idle.
- The monopolist of agricultural land would be taxed as much as though
his land were covered with houses and barns, with crops and with stock.
- The owner of a vacant city lot would have to pay as much for the privilege
of keeping other people off of it until he wanted to use it, as his
neighbor who has a fine house upon his lot.
- It would cost as much to keep a row of tumble-down shanties upon valuable
land as though it were covered with a grand hotel or a pile of great
warehouses filled with costly goods.
Thus, the bonus that wherever labor is most productive must now be paid before
labor can be exerted would disappear.
- The farmer would not have to pay out half his means, or mortgage his
labor for years, in order to obtain land to cultivate;
- the builder of a city homestead would not have to lay out as much for
a small lot as for the house he puts upon it*;
- the company that proposed to erect a manufactory would not have to expend
a great part of its capital for a site.
- And what would be paid from year to year to the state would be in lieu
of all the taxes now levied upon improvements, machinery, and stock.
... read the whole chapter
Henry George: Why The Landowner
Cannot Shift The Tax on Land Values (1887)
Here, let us say, is a lot on
the principal select street of a city having an annual or rental value
of $10,000. Such a lot would now command a selling price of some
$250,000. An increased tax upon Land Values would not reduce its rental
value, except as it might have an effect in forcing into use unoccupied
land at a greater distance from the center of the city. But as less of
this rental value could be retained by the owner, the selling price
would be diminished. And if a tax on Land Values could be imposed with
such theoretical perfection that the whole rental value would be taken
by the community, the owner would lose both his income from its present
value and any expectation of profit from its future increase in value.
While it would be still worth as much as before to the user, it would
be worth nothing at all to the mere owner. Instead of having a selling
value of $250,000, it would not sell for anything, since what the user
paid for the privilege of using it would go in full to the community.
Under a tax of this kind, even though it could not be imposed with
theoretical nicety, the mere owner of land would disappear. No one
would care to own land unless he wanted to improve or use it. ... read the whole article
Charles B. Fillebrown: A Catechism
of Natural Taxation, from Principles of
Natural Taxation (1917)
Q41. Why would the single tax be an improvement upon present systems
A. Because: (1) The taking for public uses of that value which justly belongs
to the public is not a tax; (2) it would relieve all workers and capitalists
of those taxes by which they are now unjustly burdened, and (3) it would make
unprofitable the holding of land idle.
Q50. How could the landowner escape the alleged burden of an increase in
his land tax?
A. Simply by assuming the legitimate role of a model landlord, by putting
his land to suitable use, in providing for tenants at lowest possible price
the best accommodations and facilities appropriate to the situation that
money can buy.
Q52. In old cities, it is not nearly all the land in use?
A. About one half the area of New York and Chicago is classed by the assessors
as vacant. In Boston the proportion is: occupied, 45 percent; vacant, 43
percent; marsh, 12 percent. ... read the whole article
Clarence Darrow: How to Abolish
Unfair Taxation (1913)
The single tax theory is that the public should take all the value of land,
as it was made by the public. Land value goes up because of population, and
not because of the owner of the title deed, and the value should be taken by
the community, and thus create a natural fund from which to make improvements
for the comfort of all, and thus make life easier. It would abolish poverty,
that crime of the century, which has always come with civilization; inequality
of wealth, which comes as the world grows older, and which we have never been
able to cure, because man wants to hold what he cannot use, and pass
on to future generations what they will not use. ... read the whole speech
Upton Sinclair: The Consequences of Land
Speculation are Tenantry and Debt on the Farms, and Slums and Luxury in the
I know of a woman — I have never had the pleasure of making her acquaintance,
because she lives in a lunatic asylum, which does not happen to be on my
visiting list. This woman has been mentally incompetent from birth. She is
care of, because her father left her when he died the income of a large
farm on the outskirts of a city. The city has since grown and the land is
at conservative estimate, about twenty million dollars. It is covered with
office buildings, and the greater part of the income, which cannot be spent
by the woman, is piling up at compound interest. The woman enjoys good
health, so she may be worth a hundred million dollars before she dies.
I choose this case because it is one about which there can be no disputing;
this woman has never been able to do anything to earn that twenty million dollars.
And if a visitor from Mars should come down to study the situation, which would
he think was most insane, the unfortunate woman, or the society which compels
thousands of people to wear themselves to death in order to pay her the income
of twenty million dollars?
The fact that this woman is insane makes it easy to see that she is not
entitled to the "unearned increment" of the land she owns. But how about all
the other people who have bought up and are holding for speculation the most
desirable land? The value of this land increases, not because of anything these
owners do — not because of any useful service they render to the community — but
purely because the community as a whole is crowding into that neighborhood
and must have use of the land.
The speculator who bought this land thinks that he deserves the increase,
because he guessed the fact that the city was going to grow that way. But it
seems clear enough that his skill in guessing which way the community was going
to grow, however useful that skill may be to himself, is not in any way useful
to the community. The man may have planted trees, or built roads, and put in
sidewalks and sewers; all that is useful work, and for that he should be paid.
But should he be paid for guessing what the rest of us were going to need?
Before you answer, consider the consequences of this guessing game. The
consequences of land speculation are tenantry and debt on the farms, and
slums and luxury
in the cities. A great part of the necessary land is held out of use, and
so the value of all land continually increases, until the poor man can no
own a home. The value of farm land also increases; so year by year more
independent farmers are dispossessed, because they cannot pay interest on
So the land becomes a place of serfdom, that land described by the poet, "where
wealth accumulates and men decay." The great cities fill up with festering
slums, and a small class of idle parasites are provided with enormous fortunes,
which they do not have to earn, and which they cannot intelligently spend. ... read the whole article
Louis Post: Outlines of Louis F. Post's
Lectures, with Illustrative Notes and Charts (1894)
d. Effect of Confiscating Rent to Private Use.
By giving Rent to individuals society ignores this most just law, 99 thereby
creating social disorder and inviting social disease. Upon society alone,
therefore, and not upon divine Providence which has provided bountifully,
nor upon the disinherited poor, rests the responsibility for poverty and
fear of poverty.
99. "Whatever dispute arouses the passions of men,
the conflict is sure to rage, not so much as to the question 'Is it wise?'
as to the question 'Is it right?'
"This tendency of popular discussions to take an
ethical form has a cause. It springs from a law of the human mind; it
rests upon a vague and instinctive recognition of what is probably the
deepest truth we can grasp. That alone is wise which is just; that alone
is enduring which is right. In the narrow scale of individual actions
and individual life this truth may be often obscured, but in the wider
field of national life it everywhere stands out.
"I bow to this arbitrament, and accept this test." — Progress
and Poverty, book vii, ch. i.
The reader who has been deceived into believing that Mr.
George's proposition is in any respect unjust, will find profit in a
perusal of the entire chapter from which the foregoing extract is taken.
Let us try to trace the connection by means of a chart, beginning with the
white spaces on page 68. As before, the first-comers take possession of the
best land. But instead of leaving for others what they do not themselves
need for use, as in the previous illustrations, they appropriate the whole
space, using only part, but claiming ownership of the rest. We may distinguish
the used part with red color, and that which is appropriated without use
with blue. Thus: [chart]
But what motive is there for appropriating more of the space than is used?
Simply that the appropriators may secure the pecuniary benefit of future
social growth. What will enable them to secure that? Our system of confiscating
Rent from the community that earns it, and giving it to land-owners who,
as such, earn nothing.100
100. It is reported from Iowa that a few years ago a workman
in that State saw a meteorite fall, and. securing possession of it after
much digging, he was offered $105 by a college for his "find." But
the owner of the land on which the meteorite fell claimed the money,
and the two went to law about it. After an appeal to the highest court
of the State, it was finally decided that neither by right of discovery,
nor by right of labor, could the workman have the money, because the
title to the meteorite was in the man who owned the land upon which it
Observe the effect now upon Rent and Wages. When other men come, instead
of finding half of the best land still common and free, as in the corresponding
chart on page 68, they find all of it owned, and are obliged either to go
upon poorer land or to buy or rent from owners of the best. How much will
they pay for the best? Not more than 1, if they want it for use and not to
hold for a higher price in the future, for that represents the full difference
between its productiveness and the productiveness of the next best. But if
the first-comers, reasoning that the next best land will soon be scarce and
theirs will then rise in value, refuse to sell or to rent at that valuation,
the newcomers must resort to land of the second grade, though the best be
as yet only partly used. Consequently land of the first grade commands Rent
before it otherwise would.
As the sellers' price, under these circumstances, is arbitrary it cannot
be stated in the chart; but the buyers' price is limited by the superiority
of the best land over that which can be had for nothing, and the chart may
be made to show it: [chart]
And now, owing to the success of the appropriators of the best land in securing
more than their fellows for the same expenditure of labor force, a rush is
made for unappropriated land. It is not to use it that it is wanted, but
to enable its appropriators to put Rent into their own pockets as soon as
growing demand for land makes it valuable.101 We may, for illustration, suppose
that all the remainder of the second space and the whole of the third are
thus appropriated, and note the effect: [chart]
At this point Rent does not increase nor Wages fall, because there is no
increased demand for land for use. The holding of inferior land for higher
prices, when demand for use is at a standstill, is like owning lots in the
moon — entertaining, perhaps, but not profitable. But let more land
be needed for use, and matters promptly assume a different appearance. The
new labor must either go to the space that yields but 1, or buy or rent from
owners of better grades, or hire out. The effect would be the same in any
case. Nobody for the given expenditure of labor force would get more than
1; the surplus of products would go to landowners as Rent, either directly
in rent payments, or indirectly through lower Wages. Thus: [chart]
101. The text speaks of Rent only as a periodical or continuous
payment — what would be called "ground rent." But actual
or potential Rent may always be, and frequently is, capitalized for the
purpose of selling the right to enjoy it, and it is to selling value
that we usually refer when dealing in land.
Land which has the power of yielding Rent to its owner
will have a selling value, whether it be used or not, and whether Rent
is actually derived from it or not. This selling value will be the capitalization
of its present or prospective power of producing Rent. In fact, much
the larger proportion of laud that has a selling value is wholly or partly
unused, producing no Rent at all, or less than it would if fully used.
This condition is expressed in the chart by the blue color.
"The capitalized value of land is the actuarial 'discounted'
value of all the net incomes which it is likely to afford, allowance
being made on the one hand for all incidental expenses, including those
of collecting the rents, and on the other for its mineral wealth, its
capabilities of development for any kind of business, and its advantages,
material, social, and aesthetic, for the purposes of residence." — Marshall's
Prin., book vi, ch. ix, sec. 9.
"The value of land is commonly expressed as a certain
number of times the current money rental, or in other words, a certain
'number of years' purchase' of that rental; and other things being equal,
it will be the higher the more important these direct gratifications
are, as well as the greater the chance that they and the money income
afforded by the land will rise." — Id., note.
"Value . . . means not utility, not any quality inhering
in the thing itself, but a quality which gives to the possession of a
thing the power of obtaining other things, in return for it or for its
use. . . Value in this sense — the usual sense — is purely
relative. It exists from and is measured by the power of obtaining things
for things by exchanging them. . . Utility is necessary to value, for
nothing can be valuable unless it has the quality of gratifying some
physical or mental desire of man, though it be but a fancy or whim. But
utility of itself does not give value. . . If we ask ourselves the reason
of . . . variations in . . . value . . . we see that things having some
form of utility or desirability, are valuable or not valuable, as they
are hard or easy to get. And if we ask further, we may see that with
most of the things that have value this difficulty or ease of getting
them, which determines value, depends on the amount of labor which must
be expended in producing them ; i.e., bringing them into the place, form
and condition in which they are desired. . . Value is simply an expression
of the labor required for the production of such a thing. But there are
some things as to which this is not so clear. Land is not produced by
labor, yet land, irrespective of any improvements that labor has made
on it, often has value. . . Yet a little examination will show that such
facts are but exemplifications of the general principle, just as the
rise of a balloon and the fall of a stone both exemplify the universal
law of gravitation. . . The value of everything produced by labor, from
a pound of chalk or a paper of pins to the elaborate structure and appurtenances
of a first-class ocean steamer, is resolvable on analysis into an equivalent
of the labor required to produce such a thing in form and place; while
the value of things not produced by labor, but nevertheless susceptible
of ownership, is in the same way resolvable into an equivalent of the
labor which the ownership of such a thing enables the owner to obtain
or save." — Perplexed Philosopher, ch. v.
The figure 1 in parenthesis, as an item of Rent, indicates potential Rent.
Labor would give that much for the privilege of using the space, but the
owners hold out for better terms; therefore neither Rent nor Wages is actually
produced, though but for this both might be.
In this chart, notwithstanding that but little space is used, indicated
with red, Wages are reduced to the same low point by the mere appropriation
of space, indicated with blue, that they would reach if all the space above
the poorest were fully used. It thereby appears that under a system which
confiscates Rent to private uses, the demand for land for speculative purposes
becomes so great that Wages fall to a minimum long before they would if land
were appropriated only for use.
In illustrating the effect of confiscating Rent to private use we have as
yet ignored the element of social growth. Let us now assume as before (page
73), that social growth increases the productive power of the given expenditure
of labor force to 100 when applied to the best land, 50 when applied to the
next best, 10 to the next, 3 to the next, and 1 to the poorest. Labor would
not be benefited now, as it appeared to be when on page 73 we illustrated
the appropriation of land for use only, although much less land is actually
used. The prizes which expectation of future social growth dangles before
men as the rewards of owning land, would raise demand so as to make it more
than ever difficult to get land. All of the fourth grade would be taken up
in expectation of future demand; and "surplus labor" would be crowded
out to the open space that originally yielded nothing, but which in consequence
of increased labor power now yields as much as the poorest closed space originally
yielded, namely, 1 to the given expenditure of labor force.102 Wages would
then be reduced to the present productiveness of the open space. Thus: [chart]
102. The paradise to which the youth of our country have
so long been directed in the advice, "Go West, young man, go West," is
truthfully described in "Progress and Poverty," book iv, ch.
iv, as follows :
"The man who sets out from the eastern seaboard
in search of the margin of cultivation, where he may obtain land without
paying rent, must, like the man who swam the river to get a drink,
pass for long distances through half-titled farms, and traverse vast
areas of virgin soil, before he reaches the point where land can be
had free of rent — i.e., by homestead entry or preemption."
If we assume that 1 for the given expenditure of labor force is the least
that labor can take while exerting the same force, the downward movement
of Wages will be here held in equilibrium. They cannot fall below 1; but
neither can they rise above it, no matter how much productive power may increase,
so long as it pays to hold land for higher values. Some laborers would continually
be pushed back to land which increased productive power would have brought
up in productiveness from 0 to 1, and by perpetual competition for work would
so regulate the labor market that the given expenditure of labor force, however
much it produced, could nowhere secure more than 1 in Wages.103 And this
tendency would persist until some labor was forced upon land which, despite
increase in productive power, would not yield the accustomed living without
increase of labor force. Competition for work would then compel all laborers
to increase their expenditure of labor force, and to do it over and over
again as progress went on and lower and lower grades of land were monopolized,
until human endurance could go no further.104 Either that, or they would
be obliged to adapt themselves to a lower scale of living.105
103. Henry Fawcett, in his work on "Political Economy," book
ii, ch. iii, observes with reference to improvements in agricultural
implements which diminish the expense of cultivation, that they do not
increase the profits of the farmer or the wages of his laborers, but
that "the landlord will receive in addition to the rent already
paid to him, all that is saved in the expense of cultivation." This
is true not alone of improvements in agriculture, but also of improvements
in all other branches of industry.
104. "The cause which limits speculation in commodities,
the tendency of increasing price to draw forth additional supplies, cannot
limit the speculative advance in land values, as land is a fixed quantity,
which human agency can neither increase nor diminish; but there is nevertheless
a limit to the price of land, in the minimum required by labor and capital
as the condition of engaging in production. If it were possible to continuously
reduce wages until zero were reached, it would be possible to continuously
increase rent until it swallowed up the whole produce. But as wages cannot
be permanently reduced below the point at which laborers will consent
to work and reproduce, nor interest below the point at which capital
will be devoted to production, there is a limit which restrains the speculative
advance of rent. Hence, speculation cannot have the same scope to advance
rent in countries where wages and interest are already near the minimum,
as in countries where they are considerably above it. Yet that there
is in all progressive countries a constant tendency in the speculative
advance of rent to overpass the limit where production would cease, is,
I think, shown by recurring seasons of industrial paralysis." — Progress
and Poverty, book iv, ch. iv.
105. As Puck once put it, "the man who makes two
blades of grass to grow where but one grew before, must not be surprised
when ordered to 'keep off the grass.' "
They in fact do both, and the incidental disturbances of general readjustment
are what we call "hard times." 106 These culminate in forcing unused
land into the market, thereby reducing Rent and reviving industry. Thus increase
of labor force, a lowering of the scale of living, and depression of Rent,
co-operate to bring on what we call "good times." But no sooner
do "good times" return than renewed demands for land set in, Rent
rises again, Wages fall again, and "hard times" duly reappear.
The end of every period of "hard times" finds Rent higher and Wages
lower than at the end of the previous period.107
106. "That a speculative advance in rent or land
values invariably precedes each of these seasons of industrial depression
is everywhere clear. That they bear to each other the relation of cause
and effect, is obvious to whoever considers the necessary relation between
land and labor." — Progress and Poverty, book v, ch. i.
107. What are called "good times" reach a point
at which an upward land market sets in. From that point there is a downward
tendency of wages (or a rise in the cost of living, which is the same
thing) in all departments of labor and with all grades of laborers. This
tendency continues until the fictitious values of land give way. So long
as the tendency is felt only by that class which is hired for wages,
it is poverty merely; when the same tendency is felt by the class of
labor that is distinguished as "the business interests of the country," it
is "hard times." And "hard times" are periodical
because land values, by falling, allow "good times " to set
it, and by rising with "good times" bring "hard times" on
again. The effect of "hard times" may be overcome, without
much, if any, fall in land values, by sufficient increase in productive
power to overtake the fictitious value of land.
The dishonest and disorderly system under which society confiscates Rent
from common to individual uses, produces this result. That maladjustment
is the fundamental cause of poverty. And progress, so long as the maladjustment
continues, instead of tending to remove poverty as naturally it should, actually
generates and intensifies it. Poverty persists with increase of productive
power because land values, when Rent is privately appropriated, tend to even
greater increase. There can be but one outcome if this continues: for individuals
suffering and degradation, and for society destruction. ...
Q32. Is not ownership of land necessary to induce its improvement? Does
not history show that private ownership is a step in advance of common
A. No. Private use was doubtless a step in advance of common use. And because
private use seems to us to have been brought about under the institution of private
ownership, private ownership appears to the superficial to have been the real
advance. But a little observation and reflection will remove that impression.
Private ownership of land is not necessary to its private use. And so far from
inducing improvement, private ownership retards it. When a man owns land he may
accumulate wealth by doing nothing with the land, simply allowing the community
to increase its value while he pays a merely nominal tax, upon the plea that
he gets no income from the property. But when the possessor has to pay the value
of his land every year, as he would have to under the single tax, and as ground
renters do now, he must improve his holding in order to profit by it. Private
possession of land, without profit except from use, promotes improvement; private
ownership, with profit regardless of use, retards improvement. Every city in
the world, in its vacant lots, offers proof of the statement. It is the lots
that are owned, and not those that are held upon ground-lease, that remain vacant.
Q44. Though some people have made money by owning land, isn't it true
that others have lost? And don't the losses more than off-set the gains?
A. Possibly. But that has no bearing upon the question. What men lose through
investments in land, the community does not gain; but what they gain the community
does lose. Therefore, as between land speculators and the community, the losses
cannot be charged against the gains.
Q46. How can it be possible that speculative land values cause business
depressions when, as any business man will tell you, the whole item of
land value — whether ground rent or interest on purchase money — is
one of the smallest items in every business?
A. You overlook the fact that the item of speculative rent is the only item which
the business man does not get back again. The cost of his goods, the expense
of clerk hire, the rent of his building, the wear and tear of implements, are
all received back, in the course of normal business, in the prices of his goods.
Even his ground rent, to the extent that it is normal (i.e., what it would be
if the supply of land were determined alone by land in use, and not affected
by the land that is held out of use for higher values), comes back to him in
the sense that his aggregate profits are that much greater than they would be
where ground rent was less. But the extra ground rent which he is obliged to
pay, in consequence of the abnormal scarcity of land, is a dead weight; it does
not come back to him. Therefore, even if infinitesimal in amount, as compared
with the other expenses of his business — and that is by no means admitted — it
is the one expense which may break a thriving business down. Besides, it is not
alone the ground rent paid by the business man for his location that bears down
upon his business prosperity; the weight of abnormally high land values in general
presses upon business in general, and by obstructing the flow of trade forces
the weaker business units to the wall. It is not altogether safe to deduce general
economic principles from the ledgers of particular business houses.
Q59. How would you compensate the man who has bought a lot in order
to make a home upon it, but is not yet able to build?
A. By letting him, when he is ready to build, have a better lot for nothing.
The single tax would do this by discouraging the cornering of land which now
makes all good lots scarce. When land was no longer appropriated except for use,
and that would result from the operation of the single tax, there would be an
abundance of building lots to be had for the taking, which would be far more
desirable than the kind to which men who cannot afford to build homes now resort
when they buy lots for a home. ... read the book
Charles T. Root — Not a Single Tax! (1925)
... But before this time the reader, unless he has given previous attention
to the subject, is full of objections to the above doctrine: "How about
the law?" he is asking. "Hasn't a man the right to buy a piece of
land as cheaply as he can, to do what he pleases with it, and hold on to it
till he gets ready to sell?" The answer is that at present he certainly
has this statutory right, which has been so long and so universally recognized
that most people suppose it to be not only a legal, but a real or equitable
right. A shrewd man, foreseeing the direction of growth of population in
a city, for example, can buy a well-located block at a moderate figure
less far-seeing owner, can let it grow up to weeds, fence it off against
all comers and give it no further attention except to pay the very small
imposed upon vacant land.
Meantime the increasing community builds up all around it with homes, banks,
stores, churches, schools, paving and lighting the streets, giving police and
fire protection, etc., and at last comes to need this block so urgently that
the owner is fairly begged to sell it, at three or ten or fifty times what
it cost him. Quite often the purchaser at this enormous advance is the very
community which has through its presence and the expenditure of its taxes created
practically the whole value of the land in question!
It was said above that an individual has a statutory right to pursue this
very common course. That was an error. The statement should have been that
he has a statutory wrong; for no disinterested person can follow the course
of land speculation as almost universally practiced, without feeling its rank
An illustration has already been given of the case of a piece of farm land.
Let us take an example in a large city. Let us take a corner lot centrally
located in New York City, the title to which lot is held by, say, Mr. John
William Rhinelastor. This lot was a part of an old Dutch farm, and is an heirloom.
It did not cost the present owner anything, nor his father nor his grandfather.
There is a little old building on it, which has always been rented at a figure
ten times as large as the taxes imposed, so that the owner has been handsomely
subsidized each year for storing his title-deeds during a period of the city's
growth in which the increase in population and the expenditure of public money
in that neighborhood have raised the value of this corner location to, say,
two hundred times its early value.
About now, Mr. Rhinelastor decides that he will go abroad to live, and can't
be bothered with this piece of property. But knowing that the pressure of population
is sure to increase and that the expenditure of public money to the benefit
of this land must continue, he will not sell it. So he gives a twenty-one year
lease to the corner for, say, $20,000 a year net, with a privilege to the lessee
of renewals at advancing figures. The lessee agrees to pay all taxes.
Now what is this net $20,000 a year, which will be regularly remitted to
Mr. Rhinelastor, in Europe or wherever he may be, given in payment for? Not
the old building — the first thing the lessee does is to pull it down.
Not for the land itself — it is all rock, which has got to be blasted
out as part of its improvement.
Clearly it is paid for a location or site value, which the community, and
the community only, has built up and paid for. In other words, the present
$20,000 rental, and the larger one which that location will command in later
years, is strictly a community product, and as such belongs to the community
and not to Mr. Rhinelastor. ...
Again, while it must be firmly insisted that the economic rent is the rightful
property of the community and not of the landowner, the community would probably
never take it all. Communal ownership of land is not desirable, even if it
were practicable. Individual ownership and management are best, and it is not
at all improper for the community to allow the owner something for caring for
the land to which he holds title, and for collecting and transmitting to the
treasury the economic rent.
But — and right here is one of the prime advantages of the abolition
of taxation — Mr. Rhinelastor, in order to get satisfactory return
from his land, must improve it. Unless he is satisfied with a small income
it, to wit, the proportion of the economic rent which the community chooses
to leave in his hands, he must put upon his land the best building the
location will warrant. The rents of this building will be his in their
one dollar of them being taken from him by taxation. If he is not prepared
or not willing to do this he would probably find it more profitable, before
he leaves the country, to sell the land to some one of the many persons
who are eager to build upon it. It will always be salable, although not
means at present figures.
Now imagine for a moment the effect upon the appearance of a city and upon
the comfort of its population which would result from the change of fiscal
policy which this article proposes. At present, a tempting premium is placed
upon keeping land unimproved or inadequately improved, while a heavy penalty
is imposed upon improvement. Most land appreciates constantly. All buildings
depreciate from the moment of completion. Yet the building is taxed equally
with the land.
What incentive does such a system offer the speculative landowner to put up
a commodious, well-lighted modern structure in place of the old ruin which
now pays him so well? The old one cannot depreciate much more, and while paying
a trifling tax because of its physical worthlessness, he is thereby enabled
to collect and pocket the economic rent of the ground, which the community
is continually rendering more valuable. The new building would absorb a large
amount of capital, would begin to run down even before it could be occupied,
and would be taxed to the limit. Why then is not the landlord justified in
letting well enough alone, enjoying the growing economic rent, and waiting
till he can get a fancy price for the right to collect it?
But reverse the conditions. Reclaim for the community its natural income,
making it expensive either to keep needed land vacant or to withhold it from
the ready and willing to improve it to the full extent of its possibilities.
Does it require severe intellectual effort to foresee the results? Better
and better houses, apartments, tenements, offices and stores, more employment
for labor in all enterprises now held back by the shadow of the tax-gatherer,
an end of all tax-lying, tax-evasion and tax-injustice, and withal, a public
revenue adequate to all real public needs.
What a contrast to the existing plan of pouring public money into the laps
of individual landowners to their own moral disadvantage and that of their
children, as well as the economic disadvantage of their neighbors, while constantly
cudgeling the civic brains, straining the public credit, impoverishing widows
and orphans, and increasing the exactions from every citizen and corporation
that can be caught, in the effort to raise more and more money to bestow upon
the same beneficiaries. ... read the whole article
Bill Batt: Painless Taxation
Real tax reform could do away with those taxes that are resented
by the large proportion of our population. We could replace all taxes on
wages and on interest by instead taxing economic rent. Rent is windfall income;
it is income that arises not from the efforts of any person or corporation;
it comes about as a surplus gain from common social enterprise. There is
ample moral warrant for society to lay claim to that which it has created,
as well as to that which no individual or party has earned. Analysis increasingly
makes clear that economic rent in all its forms is far larger than official
government figures indicate; in fact it is likely sufficient to supplant
all current taxes on labor and capital (wages and interest) which are acknowledged
to have so many negative effects. Recovering economic rent in all its manifestations
by taxing its various bases actually can foster economic performance and
yield other benefits that make it the natural source of revenue for governments.
Such a tax is essentially painless. ...
The Possibility of Land (Rent) Taxation
The key to understanding how taxing various forms of land conform to sound
tax theory comes with an appreciation of the importance of economic rent.
Largely discarded in 20th century economic analysis, rent is the price for
the use of land. Just as the price of labor is paid in wages and the price
of capital is paid in interest, land rent is the unearned increment that
attaches to land in the form of a surplus when its price is not paid by its
users. All taxes, ultimately, come out of rent; however, by collecting revenue
from other sources, the rent is left to settle in ever increasing encrustations
on land sites, i.e., capitalized, ultimately raising their market price.
In so doing, these land prices are distorted so that their optimal use is
Examples of such distortion are not difficult to identify. Consider,
first of all, the use of locations in our urban environments, many of which
underused while prospective entrepreneurs are driven to second-best locations
because titleholders opt to let the rent accrete and passively raise their
market price. Land speculation is rife most of all in instances where there
is a great disparity between the tax rate on these sites and the rate of
rent appreciation. When the holding costs of ownership are nominal, there
is no incentive for improving them or selling to others who will, and urban
environments suffer as a result. Another example is rent that collects
to the electromagnetic spectrum, making it attractive for owners of electronic
media, communications networks and so on, to rely on returns to their investments
even when the resource itself is sparsely used. So also with the time slots
for take-offs and landings at airports. These opportunities are respected
as private property, even while they gain in market value in response to
the general traffic volume of the facility. This occurs regardless whether
the particular airlines use their slots or not. London Mayor Ken Livingstone
has proposed to tax the rent from Heathrow and Gatwick both for their revenue
advantage and to assure their more optimal use. One
could go on, pointing to any number of instances where economic rent is available
to be had for the support of public services in lieu of conventional taxes
which we recognize as destructive in their effects. It
is not surprising that when pressed even conventional (neoclassical) economists
are often willing to concede that the best possible tax of all is one placed
on land rent. ... read the whole article
Jeff Smith and Kris Nelson: Giving
Life to the Property Tax Shift (PTS)
John Muir is right. "Tug on any
thing and find it connected to everything else in the universe." Tug on
the property tax and find it connected to urban slums, farmland loss,
political favoritism, and unearned equity with disrupted neighborhood
tenure. Echoing Thoreau, the more familiar reforms have failed to
address this many-headed hydra at its root. To think that the root
could be chopped by a mere shift in the property tax base -- from
buildings to land -- must seem like the epitome of unfounded faith. Yet
the evidence shows that state and local tax activists do have a
powerful, if subtle, tool at their disposal. The "stick" spurring
efficient use of land is a higher tax rate upon land, up to even the
site's full annual value. The "carrot" rewarding efficient use of land
is a lower or zero tax rate upon improvements. ...
regions) provide resources as urbs (cities)
provide services. Yet neither does so efficiently now. Allowed by a
present property tax that takes aim at buildings while treading lightly
on sites, owners of sites and resources both overextract and withhold
appropriate land from use, speculating on a higher future return.
Vacant and underused sites waste on the average about 22 percent of
city surface. Using land less than optimally means more land must be
used. Clark County, Washington, combines the empty storefronts,
vacant lots, run-down buildings in Vancouver, the county seat, with one
of the fastest growth rates in the nation. The inflated prices are
hardly affordable by governments intending to purchase open space;
hence parks are smaller and fewer. ...
A big problem needs a big solution which in turn
matching shift of our prevailing paradigm. Geonomics -- advocating that
we share the social value of sites and natural resources and untax
earnings -- does just that. Read the whole article
Lindy Davies: Land
If we just look at the "ecological footprint," it's easy to be scared
of the seemingly unavoidable damage we are doing to the earth. But seeing "the
footprint" in terms of its components — subsistence, wealth, and
illth — makes it clear that the fact of persistent and growing global
poverty is not the inevitable result of population growth. I believe it’s
true that the world cannot long support current levels of pollution, waste
and habitat destruction — but these problems spring not from production
itself — and certainly not from trade, itself — but from privileges,
granted to individuals and corporations — things that we can correct,
if we choose to.
To solve the problem of land and justice is to remove unjust privilege, by
instituting an economic system that rewards production and prohibits extortion.
It’s all about the land: not only is land necessary for all life — land
is also necessary for all production. So, as human population increases,
and as the production of wealth gets more and more efficient, the demand
goes up, and, of course, the land factories start cranking out more land!
Wait! They can't DO that, can they?
Wealth — products, widgets — these things are made by human
beings. If customers are willing to buy more of them, then manufacturers
more of them. But human beings can't make land. The supply of land cannot
be increased. If the demand for land increases, only one thing can happen:
price will go up.
The owners of land see population and production go up, up, up — and
no more land. So, they will only put their land to use if they have an immediate
need for the cash. If they can afford to wait, they will wait, because they
expect the land's value to increase with time.
That, in a nutshell, is the key to the land problem — the problem
That is why millions upon millions of people who are willing and able to
work cannot find work, even while millions upon millions of acres of useable
land (city land, industrial land, farm land, you name it) are held idle.
This leads to no end of problems. In the United States, it brings urban
blight and suburban sprawl, which disrupt communities, and waste energy and
You don’t think under-use of land is that big a deal? Consider the fact
that in the five boroughs of New York City, 7.5% of its land, or 18.6 square
miles, is vacant. That’s buildable land, not parks or streets. And, of
course, a great deal more land in New York, as in every other city, is used
somewhat, but far less than the local economy would support. New York City
has about 80 people per acre of residential land. That means that New York’s
vacant land could house another 956,000 people at current density levels,
without even starting to use its vast stock of under-used land. ... read
the whole speech
Tony Vickers: From Zee to Vee:
using property tax assessments to monitor the economic landscape
The ‘real world’ in which human
society exists is not
confined to natural, physical phenomena. From earliest times, human
beings have interacted socially and economically. As they do so, they
have specialised and traded in goods and services which are the
products of combinations of labour, capital, enterprise and the
fourth – often forgotten but distinct – factor of all production:
Land comprises all natural
resources, not just ‘terra
firma.’ It is the universe minus man’s products. Even the
simplest of human activities, sleep, requires each of us to occupy
exclusively a space, a location, preferably a bed in a home of our
own. But that word ‘own’ conjures emotions and political
The author came to this field of
work from a career in defence
mapping, where he dealt with a wide range of applications for GIS
using geospatial physical map data of variable quality from/of many
countries and sources. Prior to that he was a construction engineer
and planner with several firms in England generically known as
‘speculative developers’. Their core business, he
learned from experience, was not necessarily to create homes, office
blocks and factories but to manipulate the property market in order
to profit from the uplift in land values that follows from decisions
by public officials and other entrepreneurs. His on-site
construction management skills were needed to produce a steady
turnover, employ a minimum of labour and capital and minimise
inevitable losses on operations. The real profits were made on
land deals, buying speculatively and holding sites out of use until
‘ripe’ for development. ...
land from buildings
The Nobel-winning economist
William Vickrey said that the property
tax is actually two different taxes (Vickrey 1991). That is because
buildings are capital, not land, in the economic sense – even
if, in most legal codes, there is no distinction between land and
improvements made to it which are all lumped together as ‘landed
property’ or real estate. Buildings and other improvements to
land all depreciate over time unless further capital is expended.
Eventually the market value of such improvements may become
negative, owing to the costs that would need to be incurred by
someone wishing to redevelop the site for an alternative use. But
that does not necessarily take away the rental value of the
Much urban blight is caused by
these so-called ‘brown
field’ vacant and under-used sites. However they are often in
valuable locations, with good transport connections. It may be that
owners are speculating that land prices will rise and enable them to
sell at greater profit in the future than now, or it may be that
there is genuinely no market for sites in a particular location
unless the cost of remediation is subsidised as a form of public
investment. Such investment, according to Vickrey and other followers
of Henry George, can be entirely funded from LVT. In a lecture given
in 1991, first published last year, Vickrey claimed:
“Cities have the
capacity to be fully self-financing without dependence on either
federal assistance or on general taxes that are unrelated to benefits
The proviso, according to Vickrey,
is to replace the tax on
buildings with a tax on land value alone – LVT:-
“The property tax
combines one of the best and one of the worst taxes we have. The
portion that falls on sites or land values is the only major tax that
is reasonably free of distortionary effects and is not intolerably
Taxing buildings and work done to
improve them discourages such
work. Un-taxing them and taxing land more highly, irrespective of its
actual state of development but based upon its highest and best
immediate potential use, will encourage owners to maintain their
sites and buildings in such a way as to maximise their income. A
remote site or one with conservation or other restrictions will have
a low site value, hence attract low taxes, whereas a high value city
centre derelict site will very soon be redeveloped. The extra
property tax revenue from extending the tax base to sites that are
currently under-taxed (because the tax is based primarily on
building/rental value not site/owner value), ensures public
infrastructure projects can be funded without resource to general
taxes or excessive borrowing on the financial markets.Read
the whole article
Winston Churchill: The
Fancy comparing these healthy
processes with the enrichment which comes
to the landlord who happens to own a plot of land on the outskirts or
at the centre of one of our great cities, who watches the busy
population around him making the city larger, richer, more convenient,
more famous every day, and all the while sits still and does nothing.
Roads are made, streets are made, railway
services are improved, electric light turns night into day, electric
trams glide swiftly to and fro, water is brought from reservoirs a
hundred miles off in the mountains -- and all the while the landlord
sits still. Every one of those improvements is effected by the labour
and at the cost of other people. Many of the most important are
effected at the cost of the municipality and of the ratepayers. To not one of those improvements does the
land monopolist as a land monopolist contribute, and yet by every one
of them the value of his land is sensibly enhanced. He renders
no service to the community, he contributes nothing to the general
welfare; he contributes nothing even to the process from which his own
enrichment is derived. If the land were occupied by shops or by
dwellings, the municipality at least would secure the rates upon them
in aid of the general fund, but the land may be unoccupied,
undeveloped, it may be what is called 'ripening'
-- ripening at the expense
of the whole city, of the whole country, for
the unearned increment of its owner. Roads perhaps may have to be
diverted to avoid this forbidden area. The merchant going to his
office, the artisan going to his work, have to make a detour or pay a
tram fare to avoid it. The citizens are losing their chance of
developing the land, the city is losing its rates, the State is losing
its taxes which would have accrued if the natural development had taken
place; and that share has to be replaced at the expense of the other
ratepayers and taxpayers, and the nation as a whole is losing in the
competition of the world -- the hard and growing competition of the
world -- both in time and money. And all the while the land
has only to sit still and watch complacently his property multiplying
in value, sometimes manifold, without either effort or contribution on
his part; and that is justice! ... Read the whole piece
Ted Gwartney: Estimating
THE SOURCE OF PUBLIC
What are the factors that cause land to have market value and to
whom does this market revenue advantage properly belong? Land has
market value for three reasons:
- the limited supply and "natural"
productivity of the soil and natural resources,
- the publicly provided
services, including planning, improvements that increase the market
value of land and
- the growth of communities and peoples' competitive
demand for the exclusive use of prime locations.
Land rent is the price that
people and businesses are willing to
pay for the exclusive right to possess and use a good land site for a
period of time. For example, people prefer to use sites of good
location because it gives them an advantage of spending less time in
travel by being near what they choose to do and where they work. A
businessman can sell more goods at a site where many people pass each
day, compared to a site where only a few people would pass.
The collection of land rent should
be used as revenue, by the
community for supplying public needs. This returns the advantage an
individual land possessor receives from the exclusive use of a land
site, to the balance of the people who live within the community and
have allowed the land possessor the exclusive use of the land site
for the period of time.
It is the responsibility of the local communities to insure that
the market rent of land is collected for public purposes. When a
major part of land rent is not collected, which is the case in most
of the world today, land title holders obtain rights to sell the
value of the public improvements which were made by the whole
community. The community added to the market value of land by making
improvements which increases demand and rent for the land. The longer
the possessors hold the land out of use the greater will be the bonus
By prohibiting people from using
good land, the possessors force
the premature use of other less desirable land, which is more distant
from the city. This raises the cost of community improvements and the
rental value of the unused, but better located, land. This
precipitates the degradation of the rural environment by using city
land inefficiently -- and creates huge unnecessary pressures on the
A problem that we face is that
cities throughout the world are
spreading out and using land prematurely which is not needed and
should not be used. That is because failure to collect land rent
subsidizes the waste of natural resources and clutters the
environment. Cities that collect the full rental value of land are
more compact and provide greater and less costly amenities for their
Any moves to enact good government
principles without collecting
the full market rent of the land may result in a failure. People are
guided by the profit motive. When people can make a larger profit by
doing nothing, but keeping the land they possess out of use for a
long period of time, they will do so. When the community collects the
full market rent of land, they eliminate the motive for keeping land
out of efficient use, because the unearned profit has been collected
as public revenue.
Efficient land use appeals to all
people because it surpasses the
political constraints of most people. Everybody understands that the
earth belongs equally to all people. They want a clean environment on
earth and to leave a healthy inheritance to the future generations,
regardless of their political viewpoints.
major function of a competent city government is to provide
good community services by collecting the land rent created within
the community to ensure the efficient use of land and equal
opportunities for all of its citizens. Transportation is an
function of government which would facilitate the creation of a
compact city, where people can easily find the facilities they desire
for education, commerce, religion and recreation. Good
land use, with the freedom of individuals to achieve the highest and
best use of land, would ensure a desirable community. A compact city
would reduce the need to invade the wilderness and devastate the
environment. ... 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
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. ...
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.
Nationwide 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.
Ted Gwartney: A Free
Market Strategy to Reduce Sprawl
- Unused land is far more abundant than we realize.
- End the Public Subsidy of Land Speculation and Sprawl
- Counterproductive growth limitations and regulations
should be abolished.
- A Strategy for Urban Renewal
- A Strategy for Economic Development
- Public Finance by Self-Financing
land is far more abundant than we realize.
We utilize less than 5% of the total land area in the United
States for urban purposes, including housing, commerce, and
manufacturing. As you fly across the country all you see is farm,
timber, desert and an occasional small community. While less than 5%
of our nation's land area is needed for urban purposes, much vacant
land within existing cities is bypassed because it is cheaper to
build further out than pay the high prices demanded for the more
efficient, better located, land. The result is urban sprawl.
- Why do
we choose to utilize land distant from employment, social, and civic
needs while bypassing superior land?
- Why do many of us choose to
spend two hours each day commuting to work?
- Why do our older cities
fail to renew or rebuild obsolete buildings?
is not just about
the density of land use. In many cities only one half of the land is
devoted to housing and commercial uses while the other half is vacant
or under-improved. Could it be that there are inefficient
requirements built into some public policies? Smart growth should not
be constrained by archaic patterns that impede or misappropriate free
and open urban land usage. Local ordinances and practices within
cities that force accelerated suburban sprawl should be abolished. We
don't need more regulation, we need greater freedom to act
responsibly. Individuals should have the opportunity to decide
whether they want to live in the suburbs or in the city. This should
not be a coerced decision because of a public policy that impedes
growth within the city. Simple tax reform can help to achieve some of
the goals and objectives of smart growth without government
intervention and wasteful subsidies.
the Public Subsidy of Land Speculation and Sprawl
If land holders can produce a higher return on investment by not
using land for productive purposes but rather hold it for a higher
price from those willing and able to pay the higher price in the
future, there is a flaw in public policy. Public policy thereby gives
speculative, nonproductive investment a higher return than productive
investment. Sprawl is subsidized by taxes on production and
distribution and the failure to recapture the benefits resulting from
public improvements. If we choose to end this subsidy, we would
One example that I know is that of
a friend who bought land within
the city but did nothing with it. I asked him why he put good money
into an investment that had no visible return? He replied that, by
holding the land for future sale or development, his long term
return, in capital gains would exceed 18% annually. If he built a
building on the site now, his long term return would only be 12%
annually, including both net income plus capital gains. Why should he
use his land now when it would be more profitable for him to not use
it, but to hold it for a larger future gain?
Most major cities have a
substantial amount of fully serviced but
unused or underused land sites. It is estimated that 38% of the land
area in Los Angeles is unused, 30% in New York City and 25% in
Washington, D.C. Intercity sites are bypassed because land
speculators receive a greater benefit by ignoring the highest and
best use of land sites. A greater profit is made when development is
delayed and the land price increases to higher levels. But building
within existing developed areas uses the existing and underused
infrastructure, roads, transit, public facilities, and services.
Sprawl requires new expenditures on public goods and services, more
government, more taxes, more dislocation. ... Read the
Wyn Achenbaum: Eminent
Domain and Government Giveaways
It seems to me that there are
better ways than eminent domain to
provide the incentives that will lead the private sector to develop
... our system wasn't
designed to send signals all that well -- Connecticut
law required properties to be reassessed once every decade (and I've
heard that once in early '70s and once in the late 80's was construed
to satisfy that requirement).
But if the properties had been reassessed on a regular basis,
market-based values assigned first to the land and the residual being
assigned to the existing buildings, the homeowners themselves would
have been in a position to make their own rational decisions on whether
it was worth it to them to continue to occupy extremely valuable land
(and pay the taxes on it), or more to their advantage to accept an
offer from someone who was prepared to put it to a higher and better
use, and take that equity and buy elsewhere.
I am sympathetic to those who want to occupy their homes
if those homes are located on land that is valuable (because of its
views or water access or transportation services, for example) or
becomes valuable because of surrounding development, it seems fair that
they compensate the rest of us for holding up progress, for continuing
to occupy as single-family residences, land which it is now time to
develop into something that produces good results for the entire
Most of us know of an older home, or perhaps a diner, or
that was a highly appropriate use for its site -- and typical of the
neighborhood -- 50 years ago, which stubbornly remains in the middle of
a neighborhood which has been redeveloped with taller commercial
buildings. The home or diner is something everyone else has to walk
around, drive around. If that site were well developed, it could
prevent the premature development of far less desirable sites on the
fringe of town -- an acre downtown well developed, can save 10 or so
acres on the fringe.
Should we protect the right of elderly people to stay in their
at the expense of the rest of the community? Should we protect the
right of a young person who shares that home to stay there for an
entire lifetime, at the expense of the community? I'm comfortable with
the idea of allowing the elderly person to defer payment of the
property taxes, with interest-bearing debt accruing against the
property until it is sold or transferred. It seems to me to be an
acceptable tradeoff, even if it creates potholes in the redevelopment.
But his heirs should not inherit it until the lien is satisfied, which
will usually mean that at last it will be developed consistent with the
But unless the properties are regularly and correctly assessed,
first and buildings as the residual, we won't have the signals which
tell us when it might be time to move on. ... read
the entire article
Mason Gaffney: The Taxable Surplus
of Land: Measuring, Guarding and Gathering It
Taxable surplus is also what you
can tax without driving land into the wrong use. It is not enough
that the land supply is fixed: a tax must not force underuse or other
misuse of the fixed supply.
A great advantage of taxing rent
is that it does not change the ranking of land uses in the eyes of the landowner. Let
In a free market, the function of rent is to sort and arrange land uses:
landowners allocate land to those uses yielding the most net product, or
rent. Economists have shown (and you can easily see) that this is socially
advantageous: the net product is the excess of revenue over all costs, so
land yielding the highest rent is adding its utmost to the national product.
When you base your tax on the net product (or rent), the ranking of rival
land uses remains the same after-tax as it was before-tax. That is, if use "A" yields
20% more rent than use "B", and a tax takes 50% of the rent, then use A still
yields the owner 20% more after-tax than use B, and the owner still prefers
use A. We will see below, (Section
D), that when you tax something other than rent (say the Gross Revenue,
G), you will drive the land into less intensive uses, or out of use altogether.
A related advantage of taxing rent
is that you can often levy the tax on the land's potential to
yield rent, regardless of what use the owner actually chooses. This
is, indeed, a standard way of taxing rent in most capitalist nations. It
is possible because buyers and sellers trade land based on their careful
estimates of its maximum rent-yielding capability. The tax valuer observes
and records these value data, and uses them to place a value on all comparable
lands. Many books and manuals and professional journals have been published
on the techniques used: it is a well established art, with its own professional
associations, of which our speaker Mr. Gwartney is a leading member.
Such a tax is limited to the maximum possible
rent, and so will not exceed a landowner's ability to pay - provided he uses
the land in the most economical manner (which is not always the most intensive
manner). It will surely not interfere with his using the land in the best
way, but will discourage using it any other way. ... read
the whole article
Al Hartheimer: Affordable
Housing and the Land Value Tax Perspective: a letter to Asheville, North
To make housing more affordable we advocate
the reduction of the tax on buildings and a simultaneous rise of the tax
on land to yield the same or more revenue. This is called Land Value Taxation.
It is also called the two-rate tax, incentive taxation and the split-rate
We know, from studies of the twenty Pennsylvania taxing jurisdictions that
use LVT, that every time the tax on buildings is reduced, and simultaneously
the tax on land is increased, that there is a spurt of construction. According
to Plassmann and Tideman (A Markov Chain Monte Carlo Analysis of the Effects
of Two-Rate Property Taxes in Pennsylvania, Florenz Plassmann and
T. Nicholas Tideman, September 1997, p19), "This means that, for an average
municipality, an increase in the adjusted tax differential of 1 mil will
yield an expected increase in the total value of construction of 1.58%".
Much of this increase in construction comes from people improving their homes
with the knowledge that the penalty for making improvements is being reduced.
Does this provide more affordable housing? Pittsburgh has used the two-rate
tax since 1915, 85 years. Recently, Lew Sichelman (The Housing Scene, by
Lew Sichelman, the Los Angeles Times, Sunday, June 4, 2000) said "According
to the federal government's latest tabulation, the average of both new and
existing houses sold in 31 key markets nationwide reached $200,300 during
the first three months of this year…. The San Francisco Bay Area…remains
the most expensive place in the country in which to buy a house. The average
price there is now $384,700. …At the other end of the price spectrum,
the average remains under $150,000 in only two places: Pittsburgh at $143,300….and
St. Louis at $145,100." So Pittsburgh, the only sizeable city in the United
States to use the two-rate tax, has the lowest cost housing in the country.
A coincidence? Perhaps not.
An interesting and amazing thing about the Pittsburgh experience is that
the two-rate tax in Pittsburgh applies only to the city tax, not to the school
tax and not to the county tax. It's impressive to say that for the city tax
the tax rate on land is six times higher than the tax rate on buildings,
but because of the much higher value of buildings, only about 57% of the
city tax is from land. When you add the school tax and the county tax, less
than 40% of the tax yield is from land.
So a modest land tax applied over a long time (85 years) results in the
lowest average cost of housing in the country. Imagine what would happen
if the tax on buildings were eliminated and all of the city revenue came
from the land tax. It boggles the mind to think about it. ... read
the entire article
Jeff Smith: Sharing Natural Rents to Sustain
- Cars vs. a Mix of Modes
- Rent. Not having to pay Rent to their community, urban owners
awaiting a higher future return under-use prime sites, forcing development
outward. Sprawl requires cars, displacing buses, bikes, and people.
- Taxes. The tax on income makes capital less remunerative,
so a blue chip stock, not quite so visionary, becomes more attractive
than a risky new start-up trying to make money doing good. A hybrid electric
or a fuel-cell light enough to power buses and trucks begs for funds
while a GM doesn't. Tariffs fall on imported vehicles, which tend to be
than their domestic counterparts. Thus the market share of efficient
cars is kept smaller than it otherwise would be.
- License. The price of gasoline does not include all the
costs from smog - damage to crops, lungs, buildings, etc - disadvantaging
- Subsidy. Freeways, overly wide streets, highway patrols,
traffic courts, ambulances, and free military chastisement of overseas
suppliers that everyone pays for, not just drivers, pave the way for car
not an integrated use of bikes and buses. Gasoline ought to cost at
least $7.00 per gallon figures the World Resources Institute (Green Fees,
Henry David Thoreau said the best thing government can do for business is
get out of it. Nevertheless, some hope to shift subsidies from grey bads to
green goods. Yet the state need not subsidize at all. It's dauntingly difficult
to know whom to fund; a solar steam generator may be the most promising idea
one day while photovoltaics are the next. Efficient alternatives don't need
largesse but fairness. A handout shields new industry from the forces that
compel efficient growth. The best thing government can do for the environment
is exit environmental enterprise. ... read the whole article
Land value taxation generalizes into the principle that people should
pay for all of their appropriations of natural opportunities, according
to the opportunity costs of those appropriations, and the resulting revenue
should be shared equally. ...
Taxing land has an additional effect that increases the stock of capital.
A tax on land represents a redistribution from living adults to the young
and unborn, who will now be born with rights to land. Unless there is a
perfectly offsetting reduction in the desire to accumulate assets to transfer
to the next generation, this redistribution will induce the living, who
now have fewer assets, to accumulate at a more rapid rate than they would
otherwise do. That is, saving and capital accumulation will increase.
Taxing land also increases the efficiency with which land is used. This
occurs through three paths.
- First, a tax on land reduces the return to land speculation, and therefore
reduces the quantity of land speculation.
- Second, as taxes on land are capitalized into the selling price of land,
the result is the substitution of a recurring cost (the annual tax)
for a one-time cost (the purchase price). This makes land relatively more
to bidders with high discount rates and relatively less attractive
to bidders with low discount rates. To the extent that the former are more
and the latter more passive investors, land will tend to flow into
the hands of persons who will choose to use it more intensively.
- The third path by which a tax on land increases the efficiency with
which land is used is that, for those who are using land inefficiently,
an explicit cost (the tax) for an implicit one (the income foregone
by inefficient use).
Psychologically, explicit costs
tend to be more effective in motivating efficient behavior than implicit ones.
... read the whole article