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Urban Land Values Relative to Rural Land Values
Henry George: The Crime of Poverty (1885 speech)
... Nature gives to labour, and to labour alone; there must be human work before any article of wealth can be produced; and in the natural state of things the man who toiled honestly and well would be the rich man, and he who did not work would be poor. We have so reversed the order of nature that we are accustomed to think of the workingman as a poor man.
And if you trace it out I believe you will see that the primary cause of this is that we compel those who work to pay others for permission to do so. You may buy a coat, a horse, a house; there you are paying the seller for labour exerted, for something that he has produced, or that he has got from the man who did produce it; but when you pay a man for land, what are you paying him for? You are paying for something that no man has produced; you pay him for something that was here before man was, or for a value that was created, not by him individually, but by the community of which you are a part. What is the reason that the land here, where we stand tonight, is worth more than it was twenty-five years ago? What is the reason that land in the centre of New York, that once could be bought by the mile for a jug of whiskey, is now worth so much that, though you were to cover it with gold, you would not have its value? Is it not because of the increase of population? Take away that population, and where would the value of the land be? Look at it in any way you please. ...
Now, supposing we should abolish all other taxes direct and indirect, substituting for them a tax upon land values, what would be the effect?
Henry George: The Savannah (excerpt from Progress & Poverty, Book IV: Chapter 2: The Effect of Increase of Population upon the Distribution of Wealth; also found in Significant Paragraphs from Progress & Poverty, Chapter 3: Land Rent Grows as Community Develops)
Henry George: The Wages of Labor
The value of things produced by labor tends to decline with social development, since the larger scale of production and the improvement of process tend steadily to reduce their cost.
But the value of land on which population centres goes up and up.
Take Rome, or Paris, or London, or New York, or Melbourne. Consider the enormous value of land in such cities as compared with the value of land in sparsely settled parts of the same countries. To what is this due? Is it not due to the density and activity of the populations of those cities – to the very causes that require great public expenditure for streets, drains, public buildings, and all the many things needed for the health, convenience, and safety of such great cities? See how with the growth of such cities the one thing that steadily increases in value is land; how the opening of roads, the building of railways, the making of any public improvement, adds to the value of land. ... read the whole articleHenry George: The Great Debate: Single Tax vs Social Democracy (1889)
Whether the rent is large or small is not of importance to the principle. I would take rent – always meaning by rent economic rent – for the community because it belongs to the community. (Cheers.) I would not abolish it; I would exact it from anyone who used land wherever it was used; because that is the only way in which all can be put upon an equality. (Hear, hear.)
If you are to leave to the man who gets possession of a piece of land in the centre of London the whole rent you give him an enormous advantage over the man who for his purposes, to get his land, has to go to some out of the way district or up to the Highlands of Scotland. (Hear, hear.)
The importance that we attribute to this taking of rent is that it is not merely taking that much from a source that will not restrict industry, will not oppress labour, will not hamper production; but it will make mere landownership utterly valueless. (Applause.) By taking the rent
Tax land values up to the full and what would you have? The land that has no value, that is to say, the land that two men do not want to use could be had by labour not merely without price, but without tax. The selling value of land would be destroyed, and all that the user of land need pay would be a price amounting to the special advantage that he had above his fellows by the possession and use of a particular piece of land. ... Read the entire article
Henry George: The Single Tax: What It Is and Why We Urge It (1890)
The taxes we would abolish fall most heavily on the poorer agricultural districts, and tend to drive population and wealth from them to the great cities. The tax we would increase would destroy that monopoly of land which is the great cause of that distribution of population which is crowding the people too closely together in some places and scattering them too far apart in other places. Families live on top of one another in cities because of the enormous speculative prices at which vacant lots are held. In the country they are scattered too far apart for social intercourse and convenience, because, instead of each taking what land he can use, every one who can grabs all he can get, in the hope of profiting by its increase in value, and the next man must pass farther on. Thus we have scores of families living under a single roof, and other families living in dugouts on the prairies afar from neighbors -- some living too close to each other for moral, mental, or physical health, and others too far separated for the stimulating and refining influences of society. The wastes in health, in mental vigor, and in unnecessary transportation result in great economic losses which the Single Tax would save. ...
Think about what the value of land is. It has no reference to the cost of production, as has the value of houses, horses, ships, clothes, or other things produced by labor, for land is not produced by man, it was created by God. The value of land does not come from the exertion of labor on land, for the value thus produced is a value of improvement. That value attaches to any piece of land means that that piece of land is more desirable than the land which other citizens may obtain, and that they are willing to pay a premium for permission to use it. Justice therefore requires that this premium of value shall be taken for the benefit of all in order to secure to all their equal rights.
Consider the difference between the value of a building and the value of land. The value of a building, like the value of goods, or of anything properly styled wealth, is produced by individual exertion, and therefore properly belongs to the individual; but the value of land only arises with the growth and improvement of the community, and therefore properly belongs to the community. It is not because of what its owners have done, but because of the presence of the whole great population, that land in New York is worth millions an acre. This value therefore is the proper fund for defraying the common expenses of the whole population; and it must be taken for public use, under penalty of generating land speculation and monopoly which will bring about artificial scarcity where the Creator has provided in abundance for all whom His providence has called into existence.
It is thus a violation of justice to tax labor, or the things produced by labor, and it is also a violation of justice not to tax land values. ... read the whole article
Louis Post: Outlines of Louis F. Post's Lectures, with Illustrative Notes and Charts (1894) — Appendix: FAQ
Winston Churchill: The People's Land
The exemption of agricultural land from taxation It is said that the land taxes fall too heavily upon the agricultural landowner and the country gentleman. There could be no grosser misrepresentation of the Budget. Few greater disservices can be done to the agricultural landowner, whose property has in the last thirty years in many cases declined in value, than to confuse him with the ground landlord in a great city, who has netted enormous sums through the growth and the needs of the population of the city. None of the new land taxes touch agricultural land, while it remains agricultural land. No cost of the system of valuation which we are going to carry into effect will fall at all upon the individual owner of landed property. He will not be burdened in any way by these proposals. On the contrary, now that an amendment has been accepted permitting death duties to be paid in land in certain circumstances, the owner of a landed estate, instead of encumbering his estate by raising the money to pay off the death duties, can cut a portion from his estate; and this in many cases will be a sensible relief. ... Read the whole piece
Lindy Davies: Land and Justice
Turning land-value gains into capital gains
Hiding the free lunch
Two appraisal methods
How land gets a negative value!
Where did all the land value go?
A curious asymmetry
Site values as the economy's "credit sink"
Immortally aging buildings
Real estate industry's priorities
THE FREE LUNCH
* Its cost to citizens
* Its cost to the economy
Hiding the free lunch
BAUDELAIRE OBSERVED that the devil wins at the point where he convinces humanity that he does not exist. The Financial, Insurance and Real Estate (FIRE) sectors seem to have adopted a kindred philosophy that what is not quantified and reported will be invisible to the tax collector, leaving more to be pledged for mortgage credit and paid out as interest. It appears to have worked. To academic theorists as well, breathlessly focused on their own particular hypothetical world, the magnitude of land rent and land-price gains has become invisible.But not to investors. They are out to pick a property whose location value increases faster rate than the interest charges, and they want to stay away from earnings on man-made capital -- like improvements. That's earned income, not the "free lunch" they get from land value increases.
Chicago School economists insist that no free lunch exists. But when one begins to look beneath the surface of national income statistics and the national balance sheet of assets and liabilities, one can see that modern economies are all about obtaining a free lunch. However, to make this free ride go all the faster, it helps if the rest of the world does not see that anyone is getting the proverbial something for nothing - what classical economists called unearned income, most characteristically in the form of land rent. You start by using a method of appraising that undervalues the real income producer, land. Here's how it's done.
Two appraisal methods
PROPERTY IS APPRAISED in two ways. Both start by estimating its market 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 accordingly.
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.
How land gets a negative value!
THE DRIVING FORCE behind the anomalies is the political lobbying eager to depict real estate gains simply as "protecting capital from inflation." In reality, it helps land owners and their creditors get a free ride out of land asset-price inflation -- that is, The Bubble.
... This leaves in limbo the macro-economists and business analysts whose business is to explain the finance, insurance and real estate (FIRE) sector's dominant role in the economy. According to the land-residual appraisal technique, high-rise buildings seem to have the lowest land values. Real estate interests argue that this is realistic, because at least in New York City the higher a building is, the more of a subsidy its developers need, given the economics of space involved for elevators, surrounding air space and so forth. The land itself is assigned a negative value as a statistically balancing residual reflecting the difference between the building's high construction costs and its lower market value.
On this basis much of New York's most highly built-up land would seem to have a negative value, including the World Trade Center even before its Sept. 11 destruction. While a low-rise building might be built on this site without subsidy, a skyscraper would need a subsidy, implying a negative land value.
Where did all the land value go?
AS REAL ESTATE AGENTS explain to prospective buyers, the three keys are "location, location, and location." So we are brought back to the role played by land-value gains in the strategy pursued by investors and developers. ... read the entire article
Mason Gaffney: Land as a Distinctive Factor of Production
There is a sort of supply response to increased demand for one use of land, and reduced demand for another, because land use can be changed in response to a new structure of rents. Many micro theorists, focusing narrowly on economics as "the allocation of limited resources among competing ends," advance this to aver that land is as mobile as capital. However, reallocating land has tight limits. It is uncommonly slow because land is mostly committed to existing uses, encumbered with durable capital specialized to the existing use, and as yet not fully depreciated. Only a fraction of the potential change occurs in one year. In addition, potential reallocation is often limited by the spatial fixity or other qualitative peculiarity of specific lands. Tundra and Alpine meadow cannot be converted to the loams and warm climate of the corn belt; Utica cannot move to Manhattan, nor Dubuque to Chicago, nor Death Valley to Newport Beach. The essence of land value is location; it is not easily duplicated, and of course totally stationary, by definition.
The most favorable case for supply response is where the growing use is of high value and the shrinking one of no value, as with a city growing out into a desert. Here the change of land use is even tantamount to increasing the aggregate supply, it is said or implied by some Chicago School theorists.
One problem with such a model is that deserts do not spawn great cities: even Denver, Phoenix, Albuquerque, Salt Lake City and Los Angeles all developed in oases of intensive farming. As cities spread they destroy part of what they serve and what serves them, and the reverberations ripple out vastly. Land boundaries are common and interdependent, so a change in one ecotone entails "repacking" entire regions, a long, sticky, disruptive process indeed. Expanding cities send out shock waves into the surrounding farms that travel through the entire hierarchy of farm land uses, as higher uses displace lower uses, from market gardens down to sheep grazing. Even grazing is not the lowest use: it then pushes on forestry and recreation where it finally meets the wrath of the Sierra Club (with headquarters in downtown San Francisco and offices in Washington, D.C.). Growing cities also destroy part of the natural beauty that many people value so highly that they devote their lives to protecting it.
Las Vegas, not a typical city, is the largest I know of that indeed grows in worthless desert. Here another factor stands out clearly: new lands are peripheral and only imperfect, partial substitutes for central land. The city must range farther for water, power, waste disposal, raw materials and markets.
The high marginal cost of adding to spreading cities, and the low true net value of the additions, are concealed, in our culture, by an elaborate and pervasive system of subsidies and cross-subsidies built into our institutions and political power structures. These drain the old centers to feed the fringes. In a systemwide accounting we find the true social cost of urban sprawl as we know it today to exceed the gains at the margins. We are not so much adding land to cities as wasting capital, dissipating central rents to do it. Thus the private rent gradient and resulting land-value gradient that we observe in the marketplace is much flatter than the true gradient that is hidden under the subsidies. Even so, the visible gradient remains impressive: values rise to $2,000/psf in San Francisco, Chicago and Manhattan, and $25,000/psf in Tokyo.
Land of rare and limited qualities is often the basis of market control: retail sites, rights-of-way, rare ores, water rights, are familiar examples. Even land of less rare qualities is often used for market control. American farm output is controlled by means of acreage limitations; Texas and now OPEC oil production by oil well protates; and so on. ...
Land is traditionally subject to a host of legal and customary limits on use and ownership. Covenants are found in land titles: seldom in titles to cars or canned goods. Divided ownership is common, there is so much about land to be owned. There are easements through, air rights over, mineral rights under, and neighbors and zoning all around any parcel of land. Changing lot lines is unavoidably a social process, there is no other way.
A large share of the more valuable land in cities is held by estates. Public and eleemosynary [non-profit] holders are preferentially tax exempt and often without any visible motive to economize. Water licenses are held subject to "use it or lose it" traditions leading to appalling waste. Broadcasting/telecasting licenses are highly political. And so on. Only a resource with the characteristics of land could be subject to such a wide range of non-economic pressures.... read the whole article
Mason Gaffney: The Red and the Blue
Several modern economists minimize the role of land prices in home values. Thomas Sowell, now a voguish columnist, was only recently a Professor of Economics at U.C.L.A. Sowell endorses Professors Edward L. Glaeser of Harvard and Joseph E. Gyourko of the Wharton School, whom he quotes as follows: "America is not facing a nationwide affordable housing crisis. --- In large areas of the country housing costs are quite close to the cost of new construction." These areas "represent the bulk of American housing" and they are areas where "land is quite cheap." I can’t confirm the quote, but it reads like something Glaeser and Gyourko might have written: they also claim that the apparent price of land in Manhattan is only an illusion, the product of zoning laws. The true or “hedonic” price is not much above farmland. How do they figure that? Don’t ask! It’s exclusionary obscurantism at its worst.
In a Brookings paper, housing authority Karl Case of Wellesley and financial prophet Robert Shiller of Yale write on housing. This is a hasty paper, not of the same quality as their previous work, but there it is under their names. They write that housing became more affordable from 1995 to 2003 “in the vast majority of states.” Thus easily they dismiss the minority of states with the majority of the U.S. population and land values, and the highest ratio of land prices to building prices. Metropolitan New York, with 10% of the U.S. population, and a higher percentage of its land value, is a big chunk of the U.S.A. all by itself.
3,000 miles west, Deborah Reid of the Public Policy Institute of California delivers a parallel locution: “there is no housing shortage in California outside of Los Angeles, the Bay Area, and San Diego.” Yes, and Switzerland is all flat, outside of The Alps. Is this a new conventional wisdom to help vitriolic columnists like Sowell ignore land values? ... Read the whole article
Mason Gaffney: The Taxable Capacity of LandTed Gwartney: Estimating Land Values
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? ... Read the whole article
Land, in an economic sense, is defined as the entire material universe outside of people themselves and the products of people. It includes all natural resources, materials, airwaves, as well as the ground. All air, soil, minerals and water is included in the definition of land. Everything that is freely supplied by nature, and not made by man, is categorized as land.
Land holds a unique and pivotal position in social, political, environmental and economic theory. Land supports all life and stands at the center of human culture and institutions. All people, at all times, must make use of land. Land has no cost of production. It is nature's gift to mankind, which enables life to continue and prosper.
Land's uniqueness stems from its fixed supply and immobility. Land cannot be manufactured or reproduced. Land is required directly or indirectly in the production of all goods and services. Land is our most basic resource and the source of all wealth.
Land rent is the price paid annually for the exclusive right (a monopoly) to use a certain location, piece of land or other natural resource. People receive wages for work, capital receives interest for investment, and land receives rent for the exclusive use of a location. Equity and efficiency require that the local general public, who created land value, should be paid for the exclusive use of a land site. That Payment is in the form of a land tax.
When considering world-wide economics, most people think that land rent contributes only a small insignificant portion of value. But as societies progress, land has become the predominant force in determining the progress or poverty of all people within a community. Land in major or cities is so costly that people are forced to move further away and travel great distances in order to get to work and social attractions. In the more developed countries of the world, land rent represents more than 40% of gross annual production.
UTILITY, SCARCITY AND DESIRABILITY
Land value can be thought of as the relationship between a desired location and a potential user. The ingredients that constitute land value are utility, scarcity and desirability. These factors must all be present for land to have value. ...
Land that lacks utility and scarcity also lacks value, since utility arouses desire for use and has the power to give satisfaction. The air we breathe has utility and is generally considered important, since it sustains and nourishes life. However, in the economic sense, air is not valuable because it hasn't been appropriated and there is enough for everyone. Thus there is no scarcity -- at least at the moment. This may not be true in the future, however, as knowledge of air pollution and its effect on human health make people aware that clean and breathable air may become scarce and subsequently valuable.
By themselves, utility and scarcity confer no value on land. User desire backed up by the ability to pay value must also exist in order to constitute effective demand. The potential user must be able to participate in the market to satisfy their desire. ...
FACTORS THAT CONTRIBUTE TO LAND VALUE
The physical attributes of land include
The legal or governmental forces include
The social factors include
The economic forces include
It is the influences of these forces, expressed independently and in relationship to one another, that help the people and the assessor measure value.
HIGHEST AND BEST USE OF LAND
A land site should be made available to the users who can make the highest and best effective use of the site and maximize the site benefits for all people. The proper system of assessment and taxation of land can provide for the proper economic use of the land. A high land tax on an improperly improved site tends to cause the site holder to either better improve his site to obtain greater return with which to pay the land tax, or to look for someone else with the means to properly improve the site. A land tax can also provide the source of public revenue which the local governing body could use for the benefit of all people. Before an assessment can proceed, the highest and best use must be determined for each site.
The economics of production should provide the atmosphere for the most efficient use to be made of all land. The assessment process is based on the highest, best and most profitable use of land. The highest and best use considers only the uses that are legally permissible (meeting zoning, health, and public restrictions), physically possible (has adequate size, soil conditions, and accessibility), and is economically feasible (income is anticipated). The use that meets these criteria and produces the greatest net earnings (best returns) is the highest and best use.
THE SOURCE OF PUBLIC REVENUE
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:
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. ...
HOW MUCH LAND RENT SHOULD THE COMMUNITY COLLECT?
In order to preserve the environment, it is necessary and possible to better utilize our communities. If the producers of the land market value (nature, government and people) don't utilize land rent, someone else will. This is why efficient land use fails under contemporary land systems in most countries. All countries collect some of the land rent, perhaps 10%, 20% or 30%, but none yet, collect all of the market rent of land.
Studies have been produced that demonstrate that communities prosper and succeed in proportion to the percentage of the land rent that they collect. The first communities that decide to collect all of the ground rent will have an enormous competitive advantage over all other communities. They will be able to reduce or eliminate regressive taxes on labor and capital. They will attract new business and industry and become prosperous.
To determine how much land rent the community should collect let's consider the alternatives. Whatever is not collected will be capitalized into market value by land owners. Buying land at inflated market prices is a block to new industry. Land owners sell the capitalized land rent (known as land value) which is uncollected by the community even though it is unearned income. This causes a disparity between landowners and non-landowners. In the United States 5% of the population, which does not include many homeowners or farmers, own 70% of the total national land and natural resource values.
People will come to a well run community because they will be better off than living by themselves or in an impoverished locale. A city must secure revenue in order to provide good quality services.
This revenue can best be procured when the community recaptures the value of the benefits and services that it provides. This is done by collecting the rental revenue from land that reflects the value of the services and facilities provided in that community. The land rent belongs equally to all people that live in the locale who helped to produce that value. In a well run community. there is sufficient land rent to provide adequate funding for the social purposes requested of, and provided by, the local city government
Cities which choose to collect land rent as their primary source of revenue have the advantage of not requiring burdensome taxes to be paid by workers, businesspeople, entrepreneurs or citizens. Individuals who work to create wealth should be allowed to keep what they produce. When labor is not taxed, greater production and consumption occurs. Investment capital is formed which is used to produce more wealth. New jobs are created and economic diversity results.
Each person has a right to keep what he or she produces, but no one has the right to waste what belongs to all people, the land which includes the natural environment. Each person should have an opportunity to use the best land for his business or personal needs, as long as they are willing to pay the land rent that other land users are willing to pay.
If the value of land rent exceeds the community's needs for public services a method of dispensing of the surplus revenue can easily be found. To maintain an equitable society, where nobody has special benefits that they do not pay for, it is important to collect all of the land rent. The community should use what is needed for public services and improvements such as schools, hospitals, parks, police, roadways, utilities and defense -- and reserve a fund for emergencies.
An ethical proposal might be to then divide the excess revenue that is not needed for public facilities and services at the end of each year and send each citizen in that community an equal portion of the remaining revenue. This is similar to the method used in Alaska and Alberta. Equality of opportunity to be productive can only be accomplished by recapturing all of the market rent of land and ensuring that all people benefit from its value.
Not only is land rent potentially an important source of public revenue, collecting all of it would ensure that the equal opportunity to be productive would be available to all citizens. People could fund useful buildings, equipment and wages, rather than having to buy land at inflated prices. Many countries, including the United States, were started on the premise of using land rent to fund public services. Many countries suffer economic loss because they no longer collect the market rent of land.
The value of land can be estimated with an acceptable accuracy, at a cost which is very small compared to the revenue to be obtained. A proper system of assessment and taxation of land can provide for the proper economic use of the land. A land site should be available to the user who can make the highest and best use of the site and maximize the site benefits for all people. A land tax can provide a major source of public revenue which the local governing body could use for the benefit of all people. A land tax can prevent the dispossession of our children, the future producers in the society. Justice requires that land values, which are created by society and nature, be made available for public improvements. This is the responsibility of good government.Read the whole article
James Kiefer: James Huntington and the ideas of Henry George
Bill Batt: The Merits of Site Value Taxation
... To a land economist, the land value and any building value must be regarded separately: each has its own economic dynamic. As to the land component, one must understand that the value of that site is due not to how the owner uses it but rather due to the activity of the whole neighborhood or even the region. Any value which a land parcel accrues above the cost of its creation is due to the accretion of what economists call economic rent. The word rent has a very different meaning than that used in everyday discourse. Since the community is responsible for the rise or fall in the value of a land site, or rather of all those in the neighborhood, any increase in the value of that location can be reclaimed by that community more than by the titleholder alone. Were it not for the accretion of land rent on a parcel, all land would have the same market value.
When one looks at the value of land in any broad way, its value will be highest at the center and falls as one looks out to the frontier. The highest value land, that with the greatest accrued rent, is at the very center of the city -- usually where the commercial parcels are located. In the spring of 1998, one land parcel (the building was to be razed) of less than an acre and split in two pieces in New York City's Times Square was sold by Prudential Life to Disney for an estimated $240 million,19 more than the value of all the land and buildings together in the lands north of the Mohawk River/Erie Canal in New York State. The highest value land is typically surrounded by a belt of residential areas, and with farmlands starting at the fringe. The more valuable parcels are taxed, the more their titleholders will find ways to recover their carrying costs. And it cannot affect the behavior of tenants as any change in burden is not passed through. In this sense, land value taxation fosters clustered development and reverses the egregious patterns of sprawl. Jessica Matthews, now with the Council on Foreign Relations, recently wrote a syndicated piece observing that,
In a now familiar sequence, developers reach for the cheapest land, out in the cow pastures. Government is left to fill in behind with brand-new infrastructure -- roads, sewerage systems and schools -- paid for in part by those whose existing roads and schools are left to decline. Property values rise in a ring that marches steadily outward from the city and fall in older suburbs inside the moving edge.
Because residential development can't meet the public bills, local governments compete for commercial investment with tax discounts that deplete their revenues still further. Property taxes then rise, providing an incentive for new development.
Years of such leapfrogging construction devours land at an astonishing pace.20
Taxing high value land parcels encourages their efficient use. The highest value parcels will then be settled at sufficient density that public transportation services become economically viable -- experts recognize that it typically takes at least 10-12 households per acre for this to happen.21 This both relieves dependency upon motor vehicle transportation and enhances the livability of communities. Taxing land alone also removes the penalty for titleholders who want to improve their properties. Under current property tax structures, one is penalized if one adds a garage, an extra wing of rooms, or in any way makes an upgrade. This is perverse: when people maintain and improve their homes and other buildings it is a social and economic benefit.
Taxing land by its value has many economic advantages. The first is that it is equitable: those who have title to the most land value will pay the most taxes; those who have no land pay no taxes. Because a tax on land alone cannot be passed on to tenants, this means that all those households that do not own their own home will pay no taxes. Nationally only 65 percent of households are homeowners; in New York State, it's only 52 percent.22
Bill Batt: The Nexus of Transportation, Economic Rent, and Land Use
And since we know that it is typically the wealthier element of the society that owns there is a certain fairness in this. Of those parcels that currently pay taxes on their real property, about half are homeowners, and the remainder are commercial, industrial, and agricultural titleholders. Agricultural parcels typically have very little market value because their location is so remote; they would have little if any tax burden. Commercial parcels, in contrast, are usually sited in very high value locations, and therefore would pay the most. A shift of taxes away from buildings and onto land alone typically relieves homeowners, and adds to the burden of high value parcels (usually in commercial cores) that are underused relative to their value -- fully depreciated structures, parking lots, drive-in banks, gas stations, fast food services, and so on. ... Read the whole piece
What is Land Rent?
John Houseman, an actor perhaps most widely known as Professor Kingsfield in the long-running TV series, The Paper Chase, later became the pitchman for Smith Barney. In that advertisement, his tag line was "We make money the old-fashioned way -- we earn it."
That we should earn our money rather than live off the efforts of others seems a simple enough moral tenet. But it seems to have lost its cogency in contemporary economic thought. More than a century ago John Stuart Mill noted that
Landlords grow richer in their sleep without working, risking or economizing. The increase in the value of land, arising as it does from the efforts of an entire community, should belong to the community and not to the individual who might hold title.(1)
Today, on the other hand, the unearned surplus which classical economists called rent attaches to monopoly titles -- largely the scarce goods and services of nature like locational sites, and has totally disappeared from economic calculus. Yet this is the primary vehicle by which wealth is captured by economic elites. If government recaptured the socially-created economic rent from land sites that comes from the investment of the collective community, we could eliminate other taxes that are both more onerous and create a drag on the economy that makes us all poorer. There are many websites that explain how this can be done, ways that not only beget greater economic efficiency but also bring about economic justice.(2) The surplus economic rent that derives from community effort is its rightful entitlement.
Where does economic rent most tend to lodge? In the center of cities where people are. And also proximate to heavy social investments -- such as railroad and metro stations, public and office buildings, hotels and conference centers, and anywhere there is high traffic in personal or market exchanges. The land value in New York City is higher than all the rest of the New York state combined, even though it is only a minute fraction of the area. One 9-acre site south of the United Nations Building was recently sold to a developer intent on building luxury condominiums facing the East River. That site sold for $680 million, and would have been higher had the existing structure, an obsolete power plant, not have to be razed.(3) Land values in any given area tend to rise and fall together, and tend also to form a contour somewhat comparable to a topographical survey map. In a city's center are the highest value locations, analogous to a mountain peak. Once one departs from that center, land values fall in direct proportion to the value of their use, made more or less attractive by whatever social attributes are provided in the proximate areas. Two illustrations from small and medium sized cities in the United States illustrate the point.
Case 1: Ithaca, New York: Tompkins County, where the city of Ithaca sits at the center, has land values many times those within a short walk. Dividing the county land parcels into quintiles, the highest fifth have values of $56,000 per acre and above. The lowest fifth have a value of less than $3,000 per acre. The high value area collectively constitutes only a minute proportion of the total number of square miles because most of it is farm or forest land. [see map]
Case 2: Des Moines, Iowa: Polk County, where Des Moines sits near the center, has land values even more disparate between urban and rural locations. The highest quartile there are those $97,400 per acre and above, the single highest parcel of all worth an astonishing $31.4 million per acre. Yet, the lowest quartile, a roughly equal number of far larger parcels, all have a value of less than $30,000 per acre. [see map] ... read the whole article
Bill Batt: The Compatibility of Georgist Economics and Ecological Economics
Sites have value relative to their location, and this is largely a function of where people choose to congregate. The highest value lands, in urban areas and in developed nations, have market worth many times that of sites even short distances away. Remote land sites sometimes have no market value whatsoever, and they are typically not “owned” by private individuals or corporations because they are not attractive for economic use. In New York City, for example, the ownership of one small parcel of less than an acre in Times Square was transferred from Prudential Life Insurance Company to the Disney Corporation in 1998 for an estimated $240 million.11 This is more market value than all the land and buildings together in the region north of the Mohawk River/Erie Canal in New York State. More recently, a nine-acre parcel just south of the United Nations complex, also available for development in New York City, was estimated to have a site value of $750 million.12 In both these cases, the cost of razing the existing obsolete buildings was included in these prices, a factor which suggests that the market value of the land would have been still higher were it not for this condition.13 In contrast there are land areas in Northern Canada and in the polar regions for which there are no private bidders at all. ...
Rent becomes critically important in Georgist economics, because rent is the increment of market gain that accrues to choice land parcels. This insight arose originally in the context of agricultural societies, where differential qualities of land were recognized by varied payment in rent. An individual’s return on investment was represented by his labor — that was his and his alone to keep. So also were whatever capital goods he acquired through the efforts of his past labor. On the other hand, whenever land offered a higher yield separate from whatever the individual’s labor investment might represent, this constituted a windfall gain above and beyond what might be minimally expected. This is land rent, and it exists even if it isn’t collected. Today, as earlier noted, the greatest land rents derive from their location, grown out of nearby social investment.
The concept of rent needs further explication precisely because it is so foreign to 20th century students, even those who have been schooled in economics at it is currently taught. Land rent has no relationship to the word rent as it is used in contemporary vernacular, that is, when one rents a car or an apartment. Rather, rent is a surplus, defined as the return on investment above and beyond what is minimally required to bring a service into production. To take just an elementary example, consider that there are three parcels of land available for farming and three farmers of equal ability and enterprise. But suppose the parcels differ in their productive capacity, due perhaps to their fertility, access to water, and so on. If planted with similar quality seed, the three parcels will yield different quantities of harvest, the one with the highest quality land having the best return. The one with the lowest quality land would in like fashion have the lowest return. Economic rent is defined as the amount of surplus harvest qualitatively measured by the difference between the parcel with the highest return and that with the lowest return.
Even though its originator, David Ricardo, had in mind the differential return from agricultural lands, the concept of rent applies to other natural services as well. Consider what happens in the case of urban communities, using the simplest comparison with a tic-tac-toe board. When the lattice is completely undeveloped and consists only of vacant land squares, the locational sites have inconsequential value. But let us suppose that each square is then settled — the first by a hotel, the second by a department store, the third by a restaurant and so on — and supposing that the owner of the center square is reticent to build at all. Reserving his prerogative as titleholder he may intend ultimately to sell. Given the rules of economics as they apply today he may be wise to do so, keeping his money for other uses, as his square will have increased in market value more than all the others despite his having done nothing to improve it. It was this that prompted John Stuart Mill to observe that “Landlords grow richer in their sleep without working, risking or economizing. The increase in the value of land, aris[es] from the efforts of an entire community.. . .” 27 As will be discussed later below, the single greatest factor in determining the economic rental value of land today results not from nutrients or access to water but rather due to site value determined by location. And that can be priced and collected easily.
Lastly, one must appreciate that the market value of “land” of every sort is entirely rent, as there is no human factor of labor that accounts for its origination. Services of nature have no prior cost to bring them into production existence — the electromagnetic spectrum, for example, exists regardless of human presence on earth and so presumably does time. Ocean fish, fossil fuels, and heavy metals are all found in nature, not the result of human creation. They are, in 19th century classical economics, the fruits not of man’s labor but of God’s. And it is to God, or at least to God’s representative on earth — the lords and kings — that rent was owed, just as much as it was their role to provide reciprocal services to the tenants of the land. That bargain, so well refined in feudal economic arrangements, was an equilibrium balance, disrupted, one might say, by the annulment of rent collection and the exploitation of land without recognition of its price. The practice effectively ended with what in Britain is known as the “enclosure movement” of the early Tudor reign, driving the peasants off the land into cities to provide cheap labor for the early English industrialists.28 But the theory continued long afterwards. Georgists today argue that land rent should be collected from titleholders so that it is not left to render economic distortions. This in turn affects the price of labor and the price of money. Government’s role, whatever else it does, is at the very least responsible for defending the commons, to ascertain titles and to collect rent. Although there are many differences about the proper role, scope and domain of government among Georgist adherents, the collection of rent and the supervision of open markets is central to its tenets. ...
Any failure to pay back that increment to society, or of government to recapture it in the form of taxes, constituted not only an injustice to the poor but a distortion of economic equilibrium. He witnessed first hand the perverted configurations of land use that today we know as sprawl development — even in his time it was apparent that urban, high value land parcels were being held off the market for speculative gain by meretricious interests. He witnessed also the boom and bust cycles of the land markets on account of such speculation, effects which spread far wider than just land prices. These inevitable cycles would dislocate labor and capital supply, giving impetus to the impoverishment and suffering which he himself had experienced. He understood that holding the most strategically valuable landsites out of circulation constituted a burden on the economy. He understood that financial resources spent to pay exorbitant land prices had a depressing effect on capital and labor. And because government was taxing labor and capital instead of recovering land rent, it was further restricting the job market and the growth of capital. He realized that people who captured monopoly control of strategically valuable landsites could do so because they were privy to information prior to its public release. It was not by any means his insight alone; it was captured also by George Washington Plunkett writing at the same time:
There’s an honest graft, and I’m an example of how it works. I might sum up the whole thing by sayin’: “I seen my opportunities and I took ‘em.”
Just let me explain by examples. My party’s in power in the city, and it’s goin’ to undertake a lot of public improvements. Well, I’m tipped off, say, that they’re going to lay out a new park in a certain place.
I see my opportunity and I take it. I go to that place and I buy up all the land I can in the neighborhood. Then the board of this or that makes its plan public, and there is a rush to get my land, which nobody cared particularly for before.
Ain’t it perfectly honest to charge a good price and make a profit on my investment and foresight? Of course, it is. Well, that’s honest graft. 32
32William L. Riordan, Plunkett of Tammany Hall. New York: Dutton, 1963, p. 3.
All society needed to do was to collect the economic rent from landholders as its rightful due, a solution that became part of the subtitle of his book, “the remedy.” Taxing the land (or, alternatively, collecting the economic rent) was something common citizens could understand.
The collection of land rent has other consequences for the smooth and effective functioning of the economy as well. With respect to the configurations of land use in urban areas, the collect of land rent neutralizes, and even reverses, the centrifugal forces which the current real property tax (i.e. that on both land and improvements) exerts on the values of locational sites. In fact one eminent economist argues that a tax on land sites is “better than neutral,” because it fosters activity in the highest value areas and removes the factor of adverse timing that often stalls economic investment.51 This all leads to the economic vitality of high-land-value cities, simply by virtue of concentrating activity in central areas instead of peripheral and remote regions. It discourages the extravagant and careless development of land sites, thereby also fostering development densities conducive to community welfare and to the success of public transit services.52 Experts agree that the minimum density necessary to make public transit services economically viable is 10 to 12 households per acre; without this, there is little prospect of altering private automobile dependency.53 And given the widespread environmentally and socially destructive consequences of motor vehicle dependency, collecting rent is half the answer toward the goal of engendering livable urban areas. (The other half — see below — is pricing motor vehicle use at its true marginal cost to society.) ... read the whole article
Bill Batt: Stemming Sprawl: The Fiscal Approach
Karl Williams: Landlording It Over Us
Here we’re going to look at one of the most obvious examples of unearned wealth – the massive riches accumulated by the great landowners of Britain. Remember, it’s not the acreage of land that is important, but the value of the land. Australia doesn’t have quite the disparities of land wealth of Britain, being a newly-settled/colonised country, but each so-called property “boom” in Australia is widening the gulf between the haves and the havenots.
But the rewards of land go far beyond status, evidenced by how, over the centuries, the land-owning elite has pulled the levers of power in society, politics and the world of commerce. The Earl of Derby’s 1881 candid analysis of the benefits of owning land perhaps says it best,
Since then, the reform of the House of Lords has dented the political influence that was previously wielded by the landowning class (titles and land were once synonymous). But who needs status? – let’s get crass and just go for the cash. The great windfall profits which are dropped into landowners’ laps (which rightly belongs to the community) occurs with rezoning and the growth in residential/industrial values. In the UK between 1991 and 2001, the total return by this measure (including capital growth and rental income) averaged a healthy 12.6% per year.
The gross injustice of handing over community-created values to landowners is revealed by cold, hard figures. According to Yolande Barnes, head of research at FPD Savills, the average UK building plot – at £709,650 for a greenfield acre – is worth around 403 times the equivalent agricultural land. Nationwide, through this form of rezoning, around £5bn. windfall profit is handed over to UK landowners each year.
Barnes explains further, “In many parts of the South and Southeast, it is certainly true that prices are paid for agricultural land that wouldn’t be justified by its agricultural value.” ... farmers buy around towns because they can’t lose. They’ll farm the land anyway, and if permission is given to build, they’ve won the lottery.
A great way to run a casino, but what sort of way to run an economy and a society? ...
Britains' wealthiest man gets rich the easy way -- he has his underlings collect and bank his rent. And if the rents from his vast land holdings weren’t enough, soaring property prices have escalated his net worth sky high – to be exact, UK£11.5 billion. To give him his full title, he is His Grace, Gerald Grosvenor, OBE, Sixth Duke of Westminster.
Forget the vast tracts of rural land, including a 100,000-acre estate in Scotland which contains no less than three mountains. The 300 acres the duke owns in central London, comprising Mayfair and Belgravia, are today one of the most valuable patches of ground on the planet. ... Back in his tract of Mayfair, land values are in the stratosphere: in 2001, BP’s pension fund sold ten acres of Mayfair for a cool £335m.
Is it any wonder that, given how there is little or no land value taxation, the duke has all his many eggs in the land investment basket? But it’s not just for economic considerations that he could never contemplate selling his vast acreage, for he has a philosophical reason for not selling. (Have a bucket ready before reading the following!) “This is part of my heritage, my birthright. It is not to do with anything materialistic, but is deeply ingrained.” Read the whole article
The value of a parcel of land is initially based on the natural endowments of the location (“location, location, location”), created not by an owner but by whatever created all of us. Next, land value rises with the presence of society, and grows with the population of society. It’s highest where society is densest, in the city centers, typically 2000 times more valuable than sites in the boondocks. Land values as economic values disappear whenever society quits respecting one’s claim, as in a war zone; there, real estate offices nimbly shut down. And while land titles may be the holy grail of wannabe homeowners, they’re also the ticket to pocket unearned rent by absentee landlords, such as Donald Trump. Read the whole articleHenry George: How to Help the Unemployed (1894)
May it not be seen, from our greatest cities to our newest territories, in the speculation which has everywhere been driving up the price of land -- that is to say, the toll that the active factor in all production must pay for permission to use the indispensable passive factor. Across the street from the City Hall of Chicago, where 1,400 men, "the great majority Americans by birth and almost all of them voters," have been this winter sleeping in the stone corridors, stands the Chamber of Commerce Building, thirteen stories high. This great building cost $800,000. The lot which it covers is worth over $1,000,000! A few blocks from where the New York World is today distributing free bread, land has been sold since the bread distribution began at the rate of over $12,000,000 an acre! As for the remotest outskirts, who has not heard of the mad rush for the Cherokee Strip? Read the entire article
Henry George: Justice the Object -- Taxation the Means (1890)
We do not propose a tax upon land, as people who misapprehend us constantly say. We do not propose a tax upon land; we propose a tax upon land values, or what in the terminology of political economy is termed rent; that is to say, the value which attaches to land irrespective of any improvements — in or on it; that value which attaches to land, not by reason of anything that the user or improver of land does — not by reason of any individual exertion of labour, but by reason of the growth and improvement of the community. A tax that will take up what John Stuart Mill called the unearned increment; that is to say, that increment of wealth which comes to the owner of land, not as a user; that comes whether he be a resident or an absentee; whether he be engaged in the active business of life; whether he be an idiot and whether he be a child; that growth of value that we have seen in our own times so astonishingly great in this city; that has made sand lots, lying in the same condition that they were thousands of years ago, worth enormous sums, without anyone putting any exertion of labour or any expenditure of capital upon them.
Now, the distinction between a tax on land and a tax on land values may at first seem an idle one, but it is a most important one. A tax on land that is to say, a tax upon all land — would ultimately become a condition to the use of land; would therefore fall upon labour, would increase prices, and be borne by the general community. But a tax on land values cannot fall on all land, because all land is not of value; it can only fall on valuable land, and on valuable land in proportion to its value; therefore, it can no more become a tax on labour than can a tax upon the value of special privileges of any kind. It can merely take from the individual, not the earnings of the individual, but that premium which, as society grows and improves, attaches to the use of land of superior quality. Read the entire article
Henry George: Causes of Business Depression (1894)
Wherever you may be that scarcity of employment is felt -- whether in city or village, or mining district or agricultural section -- how far will you have to go to find land that labor is anxious to use (for land has no value until labor will pay a price for the privilege of using it), but from which labor is debarred by the high prices demanded by some non-user? In the very heart of New York City, two minutes' walk from Union Square will bring you to three vacant lots. For permission to use the smallest and least valuable of these a rental of $40,000 a year has been offered and refused.Mason Gaffney: Two-Rate in Reverse
In 1955, Spiro Agnew was a Maryland State Assemblyman on the rise. He carried a new law that let tax assessors value farmland on its "use-value" as farmland, instead of market value. It let owners who were farming for unearned increments around Baltimore and D.C. hold out with low carrying costs. "Farmland" meant land used for farming, and any play at farming would qualify. Under this law, a relative of mine with 102 acres in Maryland near Western Avenue, the D.C. line, kept just two steers thereon to validate his farmland assessment status. Holding for the rise "never crossed his mind." Right -- except, whenever such land is condemned for public use, courts everywhere have held that compensation must be based on speculative market value. ...
It is not just peri-urban land speculators who gain. A large chunk of land value in rural regions is not based on cash flow from food and fiber, but on amenities. Wisconsin is a major playground for rich urbanites from nearby Chicago, Milwaukee, Minneapolis and St. Paul. "Use-value" assessment exempts this chunk of value completely, for use-value is based on capitalizing the net cash farm income from growing crops, and, in the Wisconsin law, specifically corn. The highest land values per capita in the State are in Vilas County up in the north woods, once dismissed as worthless "cutovers." Vilas' barren podzol soils are worthless for corn, but sparkling lakes bedizen the County. Values per capita in Vilas are 6 times those in Milwaukee. Rich recreationists and "investors" (read speculators) are gobbling up the "wild forties." Shoreline parcels are like diamonds among coal. ...
100 years ago, American Georgists made a big point that city land outvalues rural land many times over. One implication is that taxing city land is taxing the rich, and we can ignore farmland. Some land-taxers counsel that farmers are easily misled to oppose us, so leave them alone and convert the cities. But rich city folks also own choice rural lands.
those are a few of the struggling family farmers whom use-value assessment of farmland saves from destitution.
The privilege of use-value assessment stretches even beyond farmlands, vast as they are. Timberland in most states gets the same preferred treatment, only better. About 1/3 of the privately owned land in the U.S. is in timber. In California, owners (mostly huge corporations) may put the land into the "TPZ" class. The standing timber is then exempt, and taxed only at harvest, at 2.9%, much too low a rate to make up for a 60-year lifetime of exemption. County assessors have to value the land separately on its putative value for growing timber, following a State-legislated formula that is tailored drastically to understate even that low value (California Revenue and Tax Code, Section 434.5). Much of that land, though, has alternative uses, e.g. for retirement and vacation homes and resorts, the outliers and pioneers of urban sprawl. There are also mineral values, hunting, fishing, rifle ranges, grazing, campsites, tourism, rights of way, lumber camps, loading sites, water sources, lakes, log storage, landings - there are many things to do with 1/3 of a nation's land. Those uses are all declared "compatible" with timber, hence land values derived therefrom are tax-exempt. Read the whole articleMason Gaffney: Cannan's Law
Differences among city tax bases are actually, however, extreme. One desperate little farm town in Fresno County, Parlier, has just $10,000 of assessed value per head. Here are some assessed values per head from different California cities in The County of Los Angeles:
Destitute Slab City (Unincorp.) in Riverside County has no land values at all. (It is an abandoned military base between a bombing range and the fragrant southern end of the Salton Sea, with rotting algae and dying fish.) One would not expect much support in The City of Industry for a proposal to share land as common property with the transients who park in Slab City, which has no public services except a species of public schooling, nor would we expect the transients to stay in or return to Slab City if they could park on the streets of Beverly Hills, camp in its parks, attend its schools, and beg or "work for food" on Rodeo Drive.
This is why some critics have called the property tax "regressive." Balkanization of the property tax gives some plausibility to the otherwise bizarre claim that switching to a sales tax is less regressive than sticking with a property tax. Within each city the property tax is progressive, but when your data meld cities like poor little Parlier and Lynwood with Beverly Hills you sometimes find poor people paying more of their income in property taxes than rich people, and getting less for it.
Then there are resource tax enclaves. Hydrocarbons and hardrock minerals are unevenly distributed, geographically. McLure tells us that the Siberian oblast of Tyumen, with 2% of Russia's people, yields 65% of Russia's oil. There are similar regional disparities worldwide.
Rich farm counties are not, generally, resource tax-enclaves (except by comparison with poor farm counties). The "rural" counties today with high values per head are resort counties, like Vilas and Walworth in Wisconsin, with their prized lake frontages; or "exurban" counties like Napa in California; or Berkshire in Massachusetts. In California, you might think that fruitful farming counties like Tulare have a lot more taxable real estate value per head than urban ones. Such is a durable belief, but it is wrong.
You might also think that Tulare, being rural, has a lot higher fraction of land value in its mix, but again, not so. The Land Share of Real Estate Value (LSREV) in Tulare County is 28%, compared to a statewide mean of 40%, and 47% in Orange County. Grazing and mining counties like Inyo have high values of LSREV, but they are a small share of the farm economy. Counties with intensive working farms, like those of the San Joaquin Valley, have low values of LSREV.... read the whole article
Leapfrogging, floating value, and compensation
The environmental damage from those attitudes might not be so bad were it not for leapfrogging, urban disintegration, and floating value. Leapfrogging is when developers jump over the next eligible lands for urban expansion, and build farther out, here and there. This has been a problem in expanding economies ever since cities emerged from within their ancient walls and stockades, but in our times and our country it has gone to unprecedented extremes, with subsidized superhighways and universal auto ownership and truck shipping.
Alfred Gobar, savvy real estate consultant from Placentia, has recorded the amount of land actually used by city and suburban dwellers for all purposes. From this, he calculates that the entire U.S. population could live in the state of Missouri (68,965 square miles). That would be at a density of 3625 people per square mile, or 5.67 per acre. That is 7683 square feet per person. On a football gridiron, this is the area from the goal to the 16-yard line.
He is not being stingy with land, at 3625 persons per square mile. The population density of Washington, D.C., is 10,000 per square mile, with a 10-story height limit, with vast areas in parks, wide baroque avenues and vistas, several campuses, and public buildings and grounds. This is also the density of Whitefish Bay, Wisconsin, a well-preserved upper-income residential suburb of Milwaukee, with generous beaches and parks, tree-lined streets, detached dwellings, retailing, and a little industry. San Francisco, renowned for its liveability, has 15,000 per square mile. More than half the land is in non-residential uses: vast parks, golf courses, huge military/naval bases, water surface, industry, a huge regional CBD, etc., so the actual residential density is over 30,000 per square mile.
On Manhattan's upper East Side they pile up at over 100,000 per square mile. They do not crowd like this out of desperation, either. You may think of rats in cages, but some of the world's wealthiest people pay more than we could dream about to live that way. They'll pay over a million dollars for less than a little patch of ground: all they get is a stratum of space about 12 feet high on the umpteenth floor over a little patch of ground they share with many others. They could afford to live anywhere: they choose Manhattan, they actually like it there!
Take 10,000 per square mile as a reference figure, because it is easy to calculate with, and because it works in practice, as noted. You may observe and experience it. At that density, 250 million Americans would require 25,000 square miles, the land in a circle with radius of 89 miles, no more. That gives a notion of how little land is actually demanded for full urban use. It is 9.4% as big as Texas, 4.2% as big as Alaska, and 7/10 of 1% of the area of the United States.
And yet, the urban price influence of Los Angeles extends over 89 miles east-south-east clear to Temecula and Murrieta and beyond, at which point, however, it meets demand pushing north from San Diego. Urban valuation fever thus affects much more land than can ever actually be developed for urban use. Regardless, most owners come to imagine they might cash in at a high price, with high zoning, at their own convenience, with public services supplied by "the public," meaning other taxpayers. This is the meaning of "floating value."
If their land is downzoned for farming, open space, or habitat, they regard it as a "taking," and plead the 14th Amendment. Once we buy into the Sanctity (Holiness, Sacredness) of private property, we owe them. If we think of the public's buying large quantities of it to preserve habitat or open space, the price is already high above its aggregate value, and the new demand will push the price higher yet.
Here is a case showing how this works. The Los Angeles Metropolitan Transit Authority (MTA) needed the old Union Station, northeast of downtown in a run-down neighborhood, as the centerpiece of its new, integrated mass transit system. With the decline of interurban passenger rail traffic, the old station was unused. The owners, mainly Southern Pacific, asked more than MTA offered, so MTA invoked its power of eminent domain and condemned the land. The case went to judgement, and in 1984 the court awarded SP an amount about twice the going price for land in the area. The court's reason was that the coming of mass transit would raise values around the new central station, and SP should be paid as much as neighboring landowners would be able to get after the station was built.
Thus, land originally granted to SP to help subsidize mass transit was used instead to obstruct and penalize mass transit. Private property had become an end in itself, Holy and Sacred, a welfare entitlement, rather than a means to an end. MTA (the taxpayers) had to pay a price for land based on the unearned increment that its own construction and operation was expected to create in the future.
Later, MTA was to stint on subway construction, resulting in subsidence on Hollywood Boulevard, but there was no stinting on paying off SP for doing nothing: the award came to $84.7 millions. This is how the 14th Amendment works in practice, making private property an end, sanctified for its own sake, rather than a means to a higher end. It makes landowners the spoiled children of the national family, inflating the cost of every program that entails acquiring land. It means there is no chance that the public, whether through government or the Nature Conservancy, can preserve more than token areas of habitat by buying it: it would bankrupt us. ... read the whole article
Nic Tideman: The Case for Site Value Rating
Mason Gaffney: How to Revive a Dying City
Building investment exhibits diminishing marginal productivity. For example, the first $10K spent yields 30%, or $3K; but $1K (10%) is paid in interest, leaving a $2K surplus. To acquire a superior location that confers this surplus, the buyer can spend up to $2K annually, which means paying up to $20K for the land (at 10%, $20K costs $2K/year). The next $10K spent may yield more than 10% too, say 20%, conferring more surplus and adding more value to the land. The idea is to invest until the last $10K unit yields 10%, just enough to pay interest. To understand ground rents and land prices is to understand cities; not to understand is to remain mired forever in confusion and fallacy. Ground rent continues forever, generally tending to rise; therefore, to buy title to land, people pay prices that look high relative to current cash flows. In Riverside, a low density city of 208,000, land prices go up to $18/sf. In San Francisco, with high density and 800,000 people, prices reach $1,000/sf; in Manhattan they exceed $2,000. In Tokyo, probably the top of the line, one sale is reported at $25,000/sf. Urban land prices take your breath away.
Land prices vary extremely from city to city or block to block. The cost to build a square foot of floor space is fairly constant from place to place, but demand varies with location. A small 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,
At key locations in bigger cities, land prices are not just high per square foot, they are higher per capita than in small cities. They are even higher relative to building values, in spite of the high-rise buildings. Remember that each additional floor adds more ground rent, because floor space rental is more than enough to cover the added cost.
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.... read the whole article
Mason Gaffney: Introduction: The Power of Neo-classical Economics (Introduction to The Corruption of Economics, London: Shepheard-Walwyn, 1994)
7. George's land tax lets a polity attract people and capital en masse, without diluting its resource base. This is by virtue of synergy, the ultimate rationale for Chamber-of-Commerce boosterism. Urban economists like William Alonso have illustrated the power of such synergy by showing that bigger cities have more land value per head than smaller ones. (Land value is the resource base of a city.) Urbanists like Jane Jacobs and Holly Whyte have written on the intimate details of how this works on the streets. Julian Simon (The Ultimate Resource) philosophizes on the power of creative thought generated when people associate freely and closely in large numbers. Henry George made the same points in 1879. ... Read the whole article
Mason Gaffney: Property Tax: Biases and Reforms
The acre value of timberland is low compared with downtown values in San Francisco, where one little square foot in the hottest spot may fetch $2,000. That is $87 million per acre! However, there are very few such golden acres, compared to a million acres of timberland in Mendocino County, some 35 million acres in California, and 737 million acres in the U.S. That is 32 percent of the area of the 50 states. (The fraction of private and public land in forests is, by coincidence, the same: 32 percent.) ... Read the whole article
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Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper