The Value of Land: How Much are America’s Locations Worth?
|January 4, 2014||Posted by Staff under High Cost of Land|
This 2013 excerpt of Slate, Dec 20, is by Matthew Yglesias, author of The Rent Is Too Damn High.
After yesterday’s post on the aggregate value of all the housing in America, a couple of correspondents noted to me that for recent decades you can actually compute the value of all the land in America from the Federal Reserve’s Flow of Funds report (PDF). The short answer is that all the privately owned land in America is worth about $14.488 trillion—which is a lot.
Now how good is the Fed’s data on this? I don’t know. When David Albouy and Gabriel Ehrlich tried to estimate the total value of residential land through an independent method, they came to the conclusion that “approximately one-third of housing costs are due to land, with an increasing share in higher-value areas, implying an elasticity of substitution between land and other inputs of about one-half.” That’s very similar to the residential piece of the Flow of Funds.
This number is high enough that it tends to confirm that view that taxation of land and other natural resources, supplemented by pollution fees and things like congestion charges, could replace all taxes on labor and investment and still fund an ample welfare state and public sector.
Ed. Notes: The above is based on selling price (“capitalized rent”), not on annual rental value. Rent would be one tenth or less of selling price. However, the total above might not be far off the actual mark.
Once the rental value of land gets recovered (whether by a tax or fee or lease or dues), then its amount will grow. To pay their Land Dues, owners will improve their land, which intensifies the economy and that raises location values. And if the government repeals other taxes, again the rental mount will grow, since de-taxing also stimulates the economy, raising site values.
Plus, the above focuses on the value of land. There’s still natural resources, the EM spectrum, and ecosystem services. Along with nature, there’s also the value of government-granted privileges, such as corporate charters, which are ow handed out for mere filing fees. Instead, government could charge full market value for, say, the privilege to print money, patents and copyrights, and utility franchises. Running government like a business could easily swell the total by at least 50%.
Further, the raised revenue need not fund the things that people don’t want, such as war, corporate welfare, drug war, bridges to nowhere, etc. Minus that waste, not only would the government enjoy a surplus, but also those businesses now not receiving such largesse could compete on a level playing field, profit, make the economy more efficient, and once again swell site values.
Thus, calculating value as rent rather than price, one still finds enough social surplus to fund the public services society may want plus pay citizens a dividend.