Henry George, born in Philadelphia in 1839 (when Philadelphia's population of about 94,000 made in America's 4th largest city (behind Manhattan, Baltimore and New Orleans, but larger than Booston, Cincinnati and Brooklyn), wrote about the relationship between increasing urban land values and poverty. By 1870, he was in San Francisco, by thealready America's 10th largest city with a population of almost 150,000, and making comparisons to Manhattan, whose population was approaching 950,000. In the 1880s and again in the 1890s he ran for mayor of New York City: in the earlier election, he came in second, ahead of a young Theodore Roosevelt; he died a few days before the election of 1897. (By 1900, after the five boroughs of New York were formed into a single city, NYC's population was over 3.4 million.)

George had a great appreciation for cities as the nexus in which civilization could be advanced, and he was troubled by the extent to which America's cities were also the place where one found extreme poverty. He sought the connection between cities and poverty, and worked out the relationship in his first and most famous book, Progress and Poverty: An inquiry into the cause of industrial depressions and of increase of want with increase of wealth ... The Remedy.  He dedicated the book "to those who, seeing the vice and misery that spring from the unequal distribution of wealth and privilege, feel the possibility of a higher social state and would strive for its attainment."

With this in mind, it is somewhat odd that many academic economists, whose exposure to George's ideas was minimal, if queried about George, will tend to come up with the suggestion that his ideas might have been fine for 18th century America when most people lived on farms. But, as my mother was fond of saying in other contexts, their education has been neglected: George's ideas are specificly urban in their focus, and they are more relevant today than ever.

If the solutions commonly proposed to the most serious problems of our cities don't seem to you to have a high likelihood of solving those problems, perhaps it is time, as Clarence Darrow put it,

“The “single tax” is so simple, so fundamental, and so easy to carry into effect that I have no doubt that it will be about the last reform the world will ever get. People in this world are not often logical.”

Henry George: What the Railroad Will Bring Us [Californians, and particularly San Franciscans]  (1868)

Clarence Darrow: How to Abolish Unfair Taxation (1913)

Fundamentally, all law recognizes the right to eminent domain, to take the portion of any human being for the welfare of the public — that no man's claim to any portion of the earth shall stand in the way of the common good. This is a common law, but in practice it only applies where a rich railroad wants to get the land of some poor widow.

Everybody who works is poor; nobody would work if they were not poor, and nobody can get rich working. I never tried it, but I have seen others try it. The land boomer comes along and gets good car service to this poor man's home, and then charges him ten dollars per month instead of five. A lot of reformers are trying to get parks laid out in the slums, which only make the poor move, for they cannot pay the increased rent. The greater the population, the less the worker gets. As the land becomes valuable, more and more goes to rent. The bigger the city, the deeper the poverty; the bigger the city the more degradation, there are the almshouses and gaols filled to overflowing. It is better for the men who own the earth to have big cities — but for no one else. Every man, woman, and child adds to the wealth of the land owner; the others must secure land upon which to live, and they must bid with each other for the right to live. ... read the whole speech

Cities are the site of most “downstream” production, which uses more labor per unit of natural resources than the primary production outside cities. Modern “ecological footprint” thinking seems to deny or overlook this important fact. Cities earn their keep by providing the rest of the world with manufactures, medical care, education, research, and many other urban products and services that enhance rural output and welfare. (Even the Sierra Club and Audubon Society have downtown urban headquarters.) ...

Mason Gaffney: Land as a Distinctive Factor of Production

A great deal of latent rent would be generated by new, full development. It is not just the individual sites that matter here, but the synergistic community effects of active renewal and full, timely development.

• The positive neighborhood effects of replacing old buildings with new are irresistible and contagious, raising land prices all around.
• The converse is also true: the negative neighborhood effects of letting old junkers stand without replacement are depressive.

New development likes to anchor onto healthy neighborhoods. Richard Hurd, father of urban studies in America, taught us in 1902 that land values are marked by continuity in space. It's still so. Fashions and technology change, but principles endure. ...

Urban blight is cumulative and self-reinforcing: blighted buildings cast a pall on land around them, discourage upkeep and stifle renewal. Whatever slows renewal of one site therefore slows the neighborhood, which reflects back blight to the first, a vicious downward spiral.

When a city untaxes buildings its land prices, the new tax base, are pushed up. Competition for sites raises the tax base -- not buildings, now, but land prices derived from ground rents. Using the higher base the city can improve public services, if needed, but without taxing any building, without scaring away any generators of fiscal surpluses. In this scenario, buildings raise the tax base indirectly, by raising the value of land around them. So do productive people, when their wages are not taxed away.

Land prices are raised just by the expectation of new buildings' being tax free. The mere expectation will immediately boost the value of land, even before the new buildings go up. ...

Georgist tax policy helps renew cities, without subsidizing or administering teardowns and "clearance" of old buildings and neighborhoods. Georgist policy does not speed renewal by penalizing old buildings, but by encouraging new ones. It does not subsidize new ones, it just stops penalizing them. Teardown is never an end in itself; it only comes when incidental to releasing land for new buildings of greater capacity. This matter is covered in "How to renew a dying city," bound herein. ...

Georgist policy lets a region, nation, or the world add population and/or capital without diluting its resource base. It is as though rescuers pulled drowning people into a lifeboat, and their presence made the boat expand instead of sink! Call it "The Accommodating Lifeboat Theorem." It sounds like the Miracle of the Loaves and Fishes, but it is a different kind of miracle: synergy. It comes from the power of enlarging the market, as described by George in his chapter on the effects of increased population, and Adam Smith in his aphorism, "the division of labor is limited by the extent of the market." An indication of it is that bigger cities around the world have more land value per head than small ones, as documented by William Alonso.

We must temper this claim. Bigger cities are often located on better land, so size isn't all that accounts for Alonso's finding. However, more than sheer size, and more than good natural location, is the internal circulation of a city. Georgist policies are essential to financing good circulation, containing sprawl, and inducing private land development complementary to the circulatory system.    Read the whole article

Blight is not restricted to stagnant or declining cities. In booming Los Angeles, there is Watts. In nearby Riverside, one of the fastest growing cities in the nation, the CBD [Central Business District] is surrounded by blight which, among other things, frustrates years of subsidies aimed at reviving the moribund CBD itself.

These extreme cases are not anomalies, not simply ghettoes and embarrassments; they are symptoms of systemic malfunction. They could be portents and symbols for the rest of the economy. Blight may be defined as failure to maintain, replace, and renew capital inherited from the past. Studies indicate that all of American industry faces this problem, compared with vigorous foreign competitors. In learning to cure blight, we may learn to restore the greatness and pride of this whole troubled nation.

There is also good news: some cities have risen from the grave. Indeed, all land development is resurrection in a sense: all land has been used before for something. The history of a city lot usually shows that there were several antecedent improvements, layered like the ruins of ancient Troy. The goal should be to make renewal happen faster and more widely, while we are still here to benefit. ...

Some cities should be abandoned.

Towns around played-out mines are obvious examples. A farm town becomes redundant when new roads let customers patronize a larger or better town. Salvage what you can and move on.

Some would apply the same logic to all cities. Dead cities aren't lost, they say, but rebuilt elsewhere; they were cash cows that have been milked dry. Their depreciation allowances are reinvested on new frontiers; people and vitality move with the capital. It is an important half-truth, but a half-truth is also half wrong. The basic original site stays put; land cannot move. Public and private social capital cannot move, either.

We cannot afford throwaway cities in a finite world. New natural sites are not common. There is only one Hudson Valley with only one mouth, and here New York City has stood for 350 years. We cannot abandon the Bronx and duplicate its environment somewhere; we cannot rebuild the natural setting, and the sunk social capital is too costly. Relocating to suburbs involves commuting cost in terms of money and congestion. And then, when we tire of the new suburbs, where will we go next?

Furthermore, blighted areas have high potential market values. Picture a topographic map of a city where the contour lines represent points not of equal elevation, but of equal market value per square foot. The peaks, the Everests and McKinleys, are in the city retail centers, where just one square foot rises to $2,000 (about $90 million per acre). Land just a few miles away from dizzying altitudes can hardly be worthless. Harlem is near Park Avenue; Watts is near Beverly Hills; South State Street is very near the Sears Tower. Newark is 15 minutes by train from Manhattan. Newark office rents are $25/sf per year. That is less, of course, than in Manhattan, but in Riverside, California, we are throwing up offices to get rent of $12/sf per year, while Newark stagnates.

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 rise in 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 $5-$8/sf.
• In Manhattan, rentals are triple those in Riverside; all surplus accrues to ground rent, resulting in land prices 300 times higher than in Riverside.

Land prices across cities and neighborhoods are much more differentiated than other measures economists commonly cite. For example, the median income in upper east side Manhattan is about 8 times higher than north of Central Park, while the price of land per square foot is probably 40 times higher. Urban land is also highly concentrated in ownership; a handful of people and corporations own most of it. A growing share of income property is held by wealthy aliens, who want to diversify and acquire secure wealth they can manage by remote control. Aliens even hold a good deal of residential property in international "jet set" communities.

• Rent control
• "French Equity" (Equity in Kind):  Today we approach French Equity indirectly, and expensively. We distribute land haphazardly, but seek to make every parcel equally good by extending utilities and roads to all parcels on the same terms, regardless of cost or location.

Economists call such schemes "postage stamp pricing," because postal rates do not vary with delivery costs. Manhattan has 64,000 residents per square mile; Montana has 5.4. It costs a lot more to collect or deliver mail in Montana. The reason postal rates rise is that the U.S. urban population is spreading out more like Montana and less like Manhattan (which once had over 100,000 per square mile). Here are five other examples:

• The British Columbia Ferry Service. ...
• British Columbia Hydro....
• Water and sewer service in Milwaukee County, Wisconsin. ...
• State university campuses. ...
• Water supply in California. ...

• First, by George, equity need not be in kind. The monetary mechanism overcomes the clumsiness of in-kind equity. If four families inherit a one-family house, all four don't crowd in; they sell and divide the money, or one buys out the others. There is equity in money as well as in real estate. Money is often better; the reinvestment opportunity puts the house on a magic carpet to follow you anywhere. Money is wonderful!
• Second, by George, use the tax mechanism. Do not divide land into unusable morsels, or shackle the market with rent controls, or dissipate rent in subsidies. Give land to the highest bidder, and tax ground rents to support government.

George's land tax promotes equity toward the landless in at least four ways:

• it relieves them of taxes, to the extent that landowners pay more;
• it supplies them with more goods and services, as land is used better;
• it offers them jobs producing those goods and services; and
• it offers them a better chance to acquire land, as surpluses are released to the market.

The counterpart of sharing rent through taxation is to untax things, like buildings, that involve human endeavor. This doubles the incentive effect. If land tax is the stick, untaxing buildings is the corresponding carrot, and George's program makes both larger. Every lot with an old "Defender" building has a potential replacement, the "Challenger." Taxing buildings rigs the fight against the Challenger. Say the lot-cum-Defender is worth $100K, and the Challenger would cost $500K to build. Challenger cash flow must exceed Defender cash flow by enough to pay $500K, plus added taxes based on it.

Riverside built a downtown pedestrian mall when they were in vogue, and has been sorry ever since. It did not work; retailers deserted, and half the stores are empty. I asked the developer of a successful mall why he thought downtown failed, and got a two word answer: "absentee ownership." I should have known, having preached it for years.

Farm advisers say, "The best dressing for soil is the owner's shadow, applied daily." In town they ask, "Who's keeping the store?" Absentees aren't the only negligent owners, nor are they all bad. Torpid owners are the problem, and they come in many forms. A city wants to be rid of owners who see real estate as a cash cow for their retirement, and to replace them with owners who see it as a vehicle for enterprise and who apply their shadows daily. The shadows follow them to local civic clubs and to enterprising downtown or neighborhood associations for making joint improvements.

The surplus to land attracts outside buyers. Absentees, redundant parties in production, are often top bidders for pure ownership, which is the legal right to receive land rent plus unearned increments that accrue over time. Georgist taxation cuts directly into rents and unearned increments, which attract absentee owners; it spares the rewards of enterprise. It thereby effects a market transfer of ownership from absentees to occupants, with the community benefits that follow. In a period of rising concern over alien takeovers of U.S. real estate, these points merit focused attention. Read the whole article

 The universal state and local revenue problem today is whether we must cap tax rates to avoid driving business away. It is exemplified by Governor Pete Wilson of the suffering State of California. He keeps repeating we must make a hard choice: cut taxes and public services, or drive out business and jobs. (When a public figure gives you two choices you know they're both bad, and he wants one of them.)

 The unique, remarkable quality of a property tax based on land ex buildings is that you may raise the rate with no fear of driving away business, construction, people, jobs, or capital! You certainly will not drive away the land. However high the tax rate, not one square foot of it will put on a track shoe and hop out of town. The only bad thing to say about this tax's incentive effects is that it stimulates revitalization, and makes jobs. If some people think that is bad, maybe this attitude is the problem.

 There is the answer to Governor Wilson' dilemma. I hope here in The Empire State you will supply a practical demonstration of the answer, one we may then use to inspire The Golden State. California now, following Proposition 13, has become a morality play, a gruesome object lesson in what happens when the property tax is pushed down toward zero. It forces higher taxes on production and exchange. Non-property taxes, you know, mostly have the character that they "shoot anything that moves," penalizing and discouraging economic activity. New buildings gain by having a lower property tax burden, it is true; but they bear the brunt of these new taxes and impost fees up front, at the time they are built. These offset the benefits of their lower property tax rate. ...

 The property tax, rather than "shoot anything that moves," is a charge on inactivity. It taxes both lands and buildings on their market value, regardless of how they are used. "Hold on," you might say, "how about the very activity of constructing those buildings?" Yes, touché, the property tax does shoot at that, and shoot hard. However, that is why we are here today, to consider modifying the tax to exempt buildings. The proposal is to make it a tax mainly, or even purely, on "land ex buildings," a tax on inactivity, a tax just for sitting on a piece carved from the world's fixed, limited land supply. ...

I have here data (Gaffney, 1970, submitted herewith) I worked up in Milwaukee from 1969 data indicating that, if land were assessed correctly, the land fraction of the real estate tax base would be over twice what the City Assessor reported. His fraction was 31%; it should have been 70%. 

How does one come to so startling a finding? Wisconsin is not a backward state. It prides itself on the high quality of its public administration. What I did was study sites on the eve of demolition. When you buy an old junker to tear down and replace with a new building, you (the market) are obviously recognizing that the building has no residual value. All the value is then in the land. However, in Milwaukee in 1969 the Assessor was saying the building was worth about three times as much as the land, just before tear-down. That is a good way to measure to what extent land is underassessed.

 Try that in Manhattan. When the visitor first gapes at its skyline from afar, it looks like one big modern high-rise. If you poke around on foot much, though, you soon realize those are the exception. Most of the lots are covered with obsolete junk, some of it tumbledown, commanding rents mainly for their location value.

 Check the Empire State Building. Old as it is, it is still nearly the tallest building in the world. As to its site, it is in a so-so reach of 5th Avenue (34th Street), many blocks from the 100% location (57th Street, I would guess). Even so, when the site and the building sold in separate transactions a few years ago, the site represented 1/3 of the total value. What does that say about the land fraction on neighboring parcels, covered only with the remains of ordinary old structures? What does that say about the land fraction nearer the 100% location?

 Besides that, exempting buildings from the property tax will raise the value of the land that goes with them. When you exempt buildings and uptax land, you are still taxing the same parcel of real estate, you are just taxing it in a different way. What you don't get from the building you can now get from the land, whose taxable capacity is enhanced by your exempting the building, and all potential future buildings, on the parcel. The process of arbitrage, the higgling of the land market, should make the land value rise by about the amount of the discounted present value of the building taxes abated. ...

 "How about corporate stock?", I hear. "Should we exempt corporate wealth from the property tax?" Actually, almost all jurisdictions already exempt stock and all other "intangible" property. Not to worry, however, you tax corporate assets. When you rank property owners by value of holdings, the top ten on most tax rolls are all corporations. None of their multi-national profit-shifting through layered ownership of foreign subs, and creative transfer pricing, can hide their taxable property on your assessor's maps. This makes sense anyway. Why should you think you can tax a corporation for its business in Malaysia? What concerns you is its property in your town. ...

In other cases, industries occupy land of high value that is wrongly assessed low simply because industry occupies it, and it has not been subdivided. What has subdivision to do with it? The bias of assessors is to value industrial "acreage" low, relative to improved "lots," even though they lie cheek by jowl. It is a kind of wholesale discount for owners of "raw" (undivided) tracts.

 For example, in West Allis, Wisconsin, the southwest corner of the Allis-Chalmers plant occupies the northeast corner of the 100% location, the most valuable commercial site in town. That land, with the same retail potential as the other three corners, is assessed as raw industrial acreage, as though it were in the boonies, with no recognition of its high location value for retail/office use. To make a land tax work, the assessor must be reinstructed to value that land at its highest and best use rather than as ordinary raw acreage. Exempting buildings would create the necessary pressure, thus solving the very problem that otherwise might be taken as a point against it. As noted earlier, the U.S. Census of Governments gives us no data on this point. You, however, can find it easily enough: tax assessments are public records, and you know your own town.

In still other cases "industry" surrounds and intersperses itself with vast swaths of vacant land. They hold it for open storage, parking, purported "future expansion," accessways, buffers, backlots, discouragement of competitors, etc. Many of Los Angeles' swankiest buildings of today arose over the former surplus lands of the cinema industry, which disgorged them before 1978 because they used to have to pay substantial taxes on surplus lands. ...

 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.

 To stimulate building is also to uphold and fortify the tax base, even though you do not tax the new buildings directly. Some people fault the "depressing" canyons of Manhattan, between the skyscrapers. In my observation, it is not the canyons that depress Manhattan. When the GM building went up, Fortune Magazine reported it doubled the rents of stores across the deep canyon so formed. Its spillover effects were highly positive. What really depresses Manhattan are rather the centenarian firetraps and the activities they attract. They tend to downvalue other lands nearby, eroding the tax base.

 Consider the effect of floorspace rentals on ground rents and land values. Doubling floorspace rentals will more than double land values, through a kind of leverage effect. That is because all cash flows above a constant amount required for the building will inure as ground rents. The higgling and arbitrage of the market will see to that. Once that constant is met, everything above it goes to landownership as such, raising land prices which are the land tax base.

 When you observe cities much, the positive neighborhood effects of replacing old buildings with new are irresistible and contagious, raising land prices all around. The converse is also true: the negative neighborhood effects of letting old junkers stand without replacement are depressive. Thus, when you take the tax off new buildings, and put it on the land under old tumbledowns, you kick off a general process of revitalization that turns gloom into hope into optimism: optimism that boosts land prices and the land tax base.

 There are three kinds of slums.

• Type I slums develop on land in the van of downtown expansion, on land held for a future higher use. The speculators are milking the old structures for any residual value. They don't much mind when the tenants leave, and spare them the trouble of an eviction when they want to sell or rebuild. That's what they're in it for: the current use is incidental.
• Type III slums (listed here out of numerical order) develop on land that is no good, and may never be, like floodplains and earthquake faults. They also develop around abbatoirs, dumps, stockyards, etc., although these are subject to change. In either case, people are driven there by the inadequate development of good land.
• Type II slums, our focus here, are the most extensive. They occur on good or superior residential land originally developed over fifty or a hundred years ago. It may once have housed the upper crust, but as the buildings aged without replacement they "filtered down," and down, and down, until their occupants began radiating negative neighborhood effects. There comes a tipping point where the neighborhood self- destructs cumulatively, because no one wants to build new in a decayed, menacing neighborhood. The renewal value of land is lost, the tax base is lost, nothing remains but social and public costs: a municipal disaster area. The city that fails to renew itself on time is steering itself to this fate, like Camden, the Bronx, East St. Louis, Benton Harbor, MI, and Detroit.

 That's the bad news. How do you turn it around? When you drop buildings from the property tax base, you change the arithmetic of incentives, as we have discussed. Parachuting into the middle of a slum is still hopeless, as before. Change will come first to the fringes of the Type II slum, where it merges into healthy neighborhoods. New development likes to anchor onto healthy neighborhoods. Richard Hurd, father of urban studies in America, taught us in 1902 that land values are marked by continuity in space. It's still so. Fashions and technology change, but principles last. Hope survives at the edge of the slum; land there retains some renewal value. There is where you'll first see change, because there is where the forces are evenly balanced. Tip the forces for renewal, and there is where it begins.

 Once it begins, it proceeds incrementally through the Type II slum. When it's through, your oldest neighborhood has become your newest, the cutting edge of progress, the showplace of the town. That is how it has got to work; that is how it will work when you exempt buildings and tax only land. When it is through, you have a high tax base where now you have nothing but fire and police calls.

 I once wrote a long chapter on this subject, "The Adequacy of Land as a Tax Base" (Gaffney, 1970). It came out of two years of research, and is too long even to summarize now. I am delivering it to Pat Salkin, however, and hope she may add it to the record of this conference. I also attach a short bibliography of articles that expand on topics covered above, for whoever is moved to study more on this fascinating subject. I hope you think it as important as I do. Please pick up this ball and run with it. Nobody said it was going to be easy. There are some bone-crushing line-backers out there, like Greed, Ignorance, Myopia, and Inertia. So much the more credit to you when you cross the line: your fans will love you for a touchdown. They really need a lift; they've waited so long!   Read the whole article

If we are to sustain our selves, our civilization, and our eco-system, we must make some hard choices about property. What we decide to do with rent, whether we let it reward our exploiting or our attaining eco-librium, matters. Imagine society waking up to the public nature of rent. Then it would collect and share its surplus that manifests as the market value of sites, resources, the spectrum, and government-granted privileges. Then we could forego taxing labor and capital. On such a level playing field, this freed market would favor efficiency -- the compact city -- not waste -- the mall and automobile. ...

Politically connected real estate interests see that they can buy up land in the boondocks for a pittance and then get other taxpayers to build them a superhighway, increasing the value of their holdings by orders of magnitude. With land value tax they would have ultimately paid for their own highway or more likely would not have had it built in the first place.... Read the whole piece

Bill Batt: Who Says Cities are Poor? They Just Don't Know How to Tax Their Wealth!

The problem

It's been an axiom of urban policy for the past half century to lament the plight of American cities — that they have lost their most productive populations, that their infrastructure is deteriorated and obsolete, that they contain people most in need, and that their tax base is limited. This essay argues that none of this needs to be so, and that municipal leaders need only to think "outside the box" as the hackneyed phrase goes, to find undreamed of revenue that will not only provide all the support cities need but enhance the economic vitality of their being by its collection.

As conventionally viewed, cities not only have need for more services but lack the tax base on which to draw from. The services are greater in cities than in suburban and rural communities because that's where streets and other general services are the heaviest, where the schools are the greatest challenge, where the police and fire departments are most relied upon, where the social programs face the greatest pathologies, and where general administration is the most complex and requires the greatest control and coordination. It seems so obvious that it hardly needs mentioning, and no further discussion is required.

At the same time, so the argument goes, the revenue bases upon which to levy taxes are most lacking: the middle class and the wealthier populations have largely moved out, and stores have relocated to malls and highway junctions taking the sales tax base with them. What's left are deteriorating buildings and a complaining citizenry: the footloose commercial and industrial sector also threatens to relocate along with a residential population feeling strangled by growing municipal and school taxes on real property. A few cities have reached beyond taxation of property and sales to impose one more — an income tax — on top of the others. And greater reliance upon user fees and on privatized services shifts the burden increasingly to the poor. ...

One could argue that the failure to tax every bit of economic rent that accretes to land sites also has destructive consequences, although this is somewhat open to debate. Classical economists agree that rent collection ought to be at least the sum of inflation plus interest, otherwise the public is facilitating speculation in ways that distorts urban configurations even more than they constitute an inequity. But land sites frequently rise in market price far more than the rate of inflation, especially in times (as is perhaps true today) that a "bubble" in an economic cycle is in full flower. Some municipalities, especially on the east and west coasts of US, are today claiming to have increases in housing prices of as high as 20 percent per annum, a fever that surely will not last and will be especially destructive when it collapses.[19] Land values are what create that bubble; buildings are subject to continuing depreciation just like cars, computers, refrigerators or any other manufactured (capital) item. Recovering the economic rent reduces and perhaps even eliminates the speculative bubbles and swings that (some argue) account for economic cycles, fostering stability and regularity in economic planning and development that make for improved financial health to all.

This reality brings into stark relief the choices which local political leaders have. They may suggest increasing taxes on economic rent (i.e., on land value) or recognize that most property owners are counting on treating their homes and other property not as places to live and work so much as investments and then lament the poverty of their cities. Owners expect to reap a gain from their property when they sell, and they are often positioned to make any threat to that entitlement politically unpalatable. Farmers sometimes regard selling their farms as their retirement security. Homeowners sell with the expectation that this gain will provide them the means to enter long term end-of-life facilities if necessary. Heirs also oppose that recapture just as with a reverse mortgage. But for every long-term property owner that walks away with a lifetime's benefit of increased rent attached to a land title, there are just as many — if not more — young households or emerging businesses that are prohibited from acquiring a property because of the prohibitively expensive costs. In this sense, a title to a socially created stream of rental benefits constitutes a monopoly privilege to an unearned windfall gain for a lucky few. It is both unjust and is socially and economically destructive to the greater good. ... read the whole article

Mason Gaffney: Interview: Is There a Conspiracy in the Teaching of Economics and History within the American Education System?

TPR - Explain exactly what would happen if America began shifting taxes off of everything else and onto land value.

MG - Exactly? The effects are too great, too pervasive to predict exactly.

• It would unleash massive forces of production, exchange, capital formation, and building, forces now trapped and frustrated in the coils of our complex, counterproductive tax mess.
• It would enhance the supply of goods and services while simultaneously lowering taxes on the poor and the workers, thus reconciling the needs of both efficiency and equity, in one stroke.
• It would raise taxes on the richest Americans, and alien landowners, too, without diluting in the least their incentives to work, to create capital, or to hire workers: it would actually fortify those incentives.
• It would spring people loose to renew large parts of our older cities, and rehab what they do not re place.
• It would let local school districts support education at much higher levels than now, without fear of driving away business.
• It would satisfy the demand for housing on land that Nature suited for housing, without invading flood plains, steep slopes, remote deserts, and other places that cost society dearly to serve and rescue.
• It would raise the demand for labor, taking people off welfare and keeping them out of jails.

• 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

Established cities could adopt some very practical long-term measures that will make the city a place where people can and will want to live, work, and play in safety. What few city leaders understand is the destructive role that taxation has played in the out-migration of people and business.

What is needed is a continuously self-renewing city and a public policy that can work effectively. Buildings have a limited useful life. Continuous maintenance and frequent retrofitting sometimes extends this life span. Other buildings reach a point where they should be replaced. Some buildings sit vacant for decades even in the city's central business district. Valuable parcels of land are left undeveloped or paved over and used as surface parking lots. The result is a lower tax base and an eyesore.

As urban buildings deteriorate, owners often don't renovate, remodel or make repairs because their property tax may rise. Thus the typical property tax creates suburban sprawl and urban decay. Shifting the property tax off buildings and onto land reverses these processes. Taxing land more than buildings usually reduces taxes for homeowners.

One means that has long been available but not brought into general use is to exempt buildings from the real estate tax and begin to impose an annual tax on land sites that makes holding land off the market for speculation a costly proposition. An annual fee on land should be set near what the land site alone would yield if rented by the owner to the highest bidder. Think of how this would change the behavior of land owners. If I owned a parcel of land with a rental value of $6,000 a year and that was near what the city charged me as my annual fee, my return on investment as a land speculator would be greatly reduced. In order to generate positive cash flow I would either develop the land myself or put it on the market so that someone else would develop it. At the same time, if my tax rate on the building I constructed on the land was zero, my incentive is to construct a building that maximizes my cash flow (i.e., to develop the parcel to its highest and best use in the market). At minimum, land prices would stabilize and the increase in land brought onto the market would be somewhat offset by increased demand. Land prices to builders would tend to begin to fall over time.

This is where the anti-sprawl component appears. As the city begins to renew itself -- as property owners are no longer penalized when they renovate or build new structures -- businesses and people will increasingly see the city as a more desirable place and not just in a few neighborhoods that now benefit by abatement programs and public subsidies.

Exempting property improvements from taxation and collecting all of the property tax from land values (which are created by the community as a whole and not by individuals) is the cornerstone to continuous self-renewal and the reduction of urban sprawl. Community leaders, residents and business owners can discuss how this renewal will take place, to ensure that neighborhoods retain existing amenities and create new ones that will make every neighborhood vital and attractive. By correcting this serious structural flaw in tax policy that has existed for so long, people will gradually return to city, contributing to its self-renewal.

By utilizing land within cities efficiently and in response to the demand for its use, open space and natural habitats outside the city will be conserved. If urban land is used to its highest and best use, farm land and environmentally sensitive land will not be required for inappropriate uses. Builders and developers would not have to bypass serviced but vacant land to construct housing at a further distance from where it is needed or wanted.  ... Read the whole article