The other component of a real property parcel is the land value, which reflects
a market price based on very different criteria. Despite the apparent reality
that land is visible and tangible, land prices reflect the value of location
more than they do the material content they contain. This is easy to understand
when one reflects that if some earth is removed from a site and brought to
another place, the prices of each site is largely unaffected.21 Location
value has duration, and the value of this flow of rights for exclusive use
of a site requires a flow price rather than a stock price. This flow is really
what classical economists refer to as ground rent or economic rent.22 Also
known as “land rent,” it is defined as “a payment to a
factor beyond what is needed to put that factor into use; [it is a price
for use] beyond what is needed to maintain a market for land.”23 Land
has a selling price because we have come to regard land sites as objects,
as commodities to be traded,24 and they are understood to have a static price,
as a stock rather than as a flow. That stock price really needs to be understood
instead as the “present value” of the flow of ground rent minus
taxes. “Present value” is an economic term that refers to “the
worth of a future stream of returns or costs in terms of their value now.”25
Consideration in this way brings to the fore other concerns and factors.
The market price of a location depends not only on ground rent and taxes,
effectively its present value, but also upon the “discount rate,” or
interest rate, that prevails in the market used to calculate its returns
and costs. When interest rates go up, the market prices of sites fall, just
as for any other economic encumbrances placed on locational sites.
The market prices of sites also fall if taxes go up and nothing else changes.
However, an increase in taxes is often accompanied by improvements in any
obligations linked to parcel locations. These too are sometimes easily “commodified,”26
and may vary according to time period, changed neighborhood expectations,
emergency conditions, government regulations, and so on.27 These contingent
links often constitute services that raise the market prices of sites more
than the taxes depress them. Still another way of understanding the value
of locations is to see them as capitalized transportation costs.28 Savings
in transportation are likely to be expressed in the market price of sites.
One way or another people are willing to pay for access to exchange markets:
either in the form of site proximity or in the form of travel expenses. It
is the reason why urban cores have higher site rents than peripheral areas
and hinterlands. Hence the differential value of locations, dependent, not
on anything titleholders do, but rather on the quality of community amenities.
These all have a price.
The prices for services that raise land rents, like the services themselves,
should be regarded as flows rather than as stocks. But, ironically, our payments
for such services are not understood as flows affecting site values at all,
but are seen rather as related to stock prices. The values of our property
parcels are viewed solely as stocks, and therefore our taxes are seen as
stock taxes. ... read the whole commentary