Can this crisis make land value visible?
Instead of reaching for our wallets, let’s open our minds
| Despite all this recent attention to the economy, and despite some commentators even citing the role of the “housing”, is anyone doing anything constructive, or using the crisis to tap the Treasury? |
by Jeffery J. Smith, October 2008
A show of hands. How many see buying a building and hoping to squeeze the people who lease it, or reselling it later for a higher percentage of the buyer’s income than you paid out of yours, as OK? That’s what I thought. The practice of using land -- locations, actually -- for dog-eat-dog self-enrichment remains sacrosanct.For our reliance on land speculation, we pay the price: this bailout of the wealthiest speculators on the face of this planet. And we’ve indebted our children and their children. All for a handout when no subsidy of any size to anyone was or is needed.
First, it won’t work. It will not keep the US economy out of recession.
Second, it’s not fair. The bankers and brokers getting the money don’t deserve it. But neither does anyone else.
Third, it’s not necessary. There are a myriad of alternatives. And the remedy is not re-regulation, which is no substitute for economic justice and for keeping wealth from getting concentrated in the first place. Here’s how to meet challenges that not bailing out Wall Street might cause:
- Not enough money to extend as credit? Let the Treasury return to issuing its own notes and expand legal tender to include community currency, something that worked wonders for the Austrian town of Worgl between the world wars.
Foreclosures? Empower borrowers by requiring lenders to first pay the debtor’s due property taxes, as buyers do when getting a mortgage. Then banks would happily renegotiate.
Consumer confidence? De-tax earnings up to $36,000. Make up the difference with higher rates on incomes over $248,000. Something similar once worked in Denmark.
Recession? Make land affordable again to homebuyers and businesses. Shift the property tax off buildings, onto locations, so owners quit speculating and get busy in-filling cities, which reignites the rest of the economy. It’s how some Australian towns stayed out of a recession that engulfed the rest of the country.
Infrastructure? New or better bridges, etc, pump up nearby site values. Nobel laureate Bill Vickrey noted there’s never been a desired public works project that could not pay for itself from the surrounding values it generates.
Pensions at risk? Start paying a Citizens Dividend, beginning with the bottom and working our way up. Get the money from the multi-trillion dollar flow of spending for sites, resources, privileges like patents/copyrights, etc, a la Alaska’s oil dividend.
Medical insurance? Bring up one’s ability to pay with the Citizens Dividend and bring down its cost by repealing the anti-competitive favors AMA lobbyists have won over the years.
All these remedies in some form do or did exist and do or did work. Yet they remain little used. People suffer from an enormous blind spot when it comes to realizing the role of land in economies, politics, society, even in our relationship with the environment. But ponder this:
1) Location (the three most important things in real estate) absorbs the value of progress; e.g., from mighty silicon chip to unaffordable Silicon Valley.
2) People spend more on housing -- half of which is the cost of the underlying land -- than any other item in their lives.
3) Banks make over 35% of their loans for something never produced -- land.
4) Most investment goes into real estate and much of that is land cost; in the official GDP, FIRE (Finance, Insurance, Real Estate) much of which, simply put, is mortgages, is the biggest sector, twice the runner-up, manufacturing.
5) One duke owns central London; yet concentration is nearly as bad here. USDA says 95% of the privately held land is owned by 3% of the population.
6) Ranking of nations by GINI correlates with poverty, landlessness, oppression and negatively with having a middle class, owner occupancy, civic participation.
7) Everywhere, land (not the building, which depreciates) is the shelter of choice for the rich; Bill Gates bought 10,000 acres of Pennsylvania.
8) Speculation in sites drives sprawl, in resources degrades habitat.
9) Each 18-year land-price cycle brings the economy to its knees.
10) A business that does not own the land under its premises is more likely to fail than one that does.
11) Despite the fluctuations, land tends to stay ahead of (and may cause via mortgages) inflation.
12) Without taxes on our efforts, our extra commerce would pump up site values.
13) Taxing land (half of what the property tax does) not only generates public revenue which can be used to reduce other taxes and public debt but it also lowers the price of land which curbs private debt, too, stabilizing an economy.
Land is the most powerful sector in any economy. And the most invisible. Perhaps the proposal to share its value can rectify that.
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Jeffery J. Smith runs the Forum on Geonomics.
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Also see: Why Oil Prices Are So High
Debt = profit so inflated homes = more profit
Property bubble leads to crash landing |
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