This article was co-authored by James Marshall and Martin Adams. James is the author of What Does Green Mean?, a history of the Green Party in Canada and abroad. Martin Adams is the author of Land: A New Paradigm for a Thriving World, a book on the economic importance and potentials of private and community land-ownership. Both live in Vancouver.

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Earlier this month, Vancouver Mayor Kennedy Stewart announced that the City’s finances were in dire straits. The COVID-19 virus has hammered many of the revenue streams that the City has been counting on to pay for its expenses. Many of the services that we all rely on — firefighting, policing, and waste pickup, for example — need to be paid for, and the City needs money to do so.

Canadian cities are extremely limited in how they can raise funds to pay their bills. The Provincial and Federal governments have broad powers to raise funds, but our cities have to rely almost exclusively on property taxes and program fees. Unlike the Provincial and Federal governments, Canadian cities are banned by law from running budget deficits; they have to balance the books every year.

This puts a unique pressure on cities. To make matters worse, higher levels of government have tended to pass the responsibility for addressing problems down to cities, while simultaneously preventing those cities from using creative solutions to address them. For every tax dollar that an individual Canadian contributes, less than ten cents is collected by your local city administration. Our cities are reliant on transfers from the Provincial and Federal governments for whatever else is needed.

When Mayor Stewart announced Vancouver's financial troubles, the Twittersphere immediately began spit-balling ideas for how the City could raise the needed funds. A few Twitter-users quipped that the City should simply buy a half-dozen single-family lots in Point Grey, rezone them for condos, and then immediately sell the land to developers. Changing the land from single-family to condo zoning would produce a massive increase in the value of the land, and the City could fill its budget hole by pocketing the land-value increase from just a handful of lots.

This idea is actually feasible (more on that below): perhaps unbeknownst to them, the Tweeters were entertaining an economic and moral question that has existed for as long as human history: “Who should profit from the value of land?”

Under our modern system, most land (especially land in urban areas) is owned by private individuals and companies and can be bought and sold on an open market. If the value of a parcel of land goes up during one person’s ownership, that person is able to pocket the entire increase in value when they sell it to the next owner.

Two interesting questions: “Why did this land increase in value, and who is responsible for that increase?” The answer to “why” is widely agreed-upon by economists: the value of land increases gradually over time because of what surrounds that land. It’s not so much that the land itself has become more valuable; rather, it’s the property’s locational advantage that grows over time. As the realtor motto goes: “Location, location, location!”

Take, for example, urban land: if you buy a property, and then the city invests in additional infrastructure near your property, your land becomes more valuable — even if you haven’t invested a penny into further developing that property. Likewise, if a grocery store or a fitness centre opens up nearby, guess who benefits? More firms and more businesses in the surrounding area mean more jobs and therefore a greater demand — and more money — for your property.

Increases in the value of the land are created by the surrounding community: city improvements are paid for with taxes we have funded; desirable neighbourhoods are created by ordinary people whenever they open businesses, beautify streets, create community programs, and raise their families.

If a community agrees to a zoning change it means that the community believes that someone will be able to more fully utilize the land’s community-created locational advantage. In other words, the moment it is decided that a zoning change for a particular property should occur, its purchase price immediately increases because the local community had already caused its underlying value to increase — it’s just that the earlier zoning had prevented its price from catching up to its value. However, when the land in question is sold, the additional money made from the increase in the land’s price doesn’t return to the local community. That money is captured by the seller of the land, who is usually able to reap a large profit.

This phenomenon underpins most of our modern economy, and it even has a name: Rentier Capitalism. And like any economic philosophy, it has its fair share of thinkers who point out its inefficacy and systemic unfairness.

In their pithy suggestion, the Tweeters proposed a simple alternative to fund our cities: when urban land value increases, that increase in value should go to the community responsible for creating it. 

This is by no means a new idea. Alternative systems of taxation and land-ownership have been proposed by the likes of American economist Henry George in 1879, British Prime Minister Winston Churchill in 1909, and a coalition of economists and writers including George Monbiot in 2019. Scotland is currently one of the leading countries trying to reform their land laws and direct the value from land to their people.

A number of progressive cities around the world (such as Singapore and Hong Kong) have systems in place that Vancouver could emulate — assuming that the Provincial government granted its permission. Rather than rezoning properties and then reselling them only once (and thereby only making a short-lived profit), Vancouver could instead acquire properties, rezone them, and then resell the property’s building but not its land. The City could rent out that underlying land in perpetuity at market rates to those who own the buildings. That way the City will give itself a growing, perpetual income and thus move to safeguard its financial future. 

The squeeze caused by our current economic downturn makes these ideas even more relevant. Due to our current system of land-ownership, our cities and communities have created a staggeringly high amount of land value, and the profits from these land-value increases have been pocketed mostly by property developers and financial institutions (via interest payments on mortgages). The ordinary person has been left behind scrambling for crumbs.

Perhaps the global pandemic and unprecedented economic disruption we’re all living through will give us cause to rethink many of our economic models, and perhaps even the courage to try something different.