land value – The Menace of Privilege

Land Value vs. Land Rent

Altho Henry George’s proposal is “to abolish all taxation save that upon land values,” his objective really is to collect land rent for the community. Of course land value is, ultimately, determined by anticipated land rent, but rent is more stable.

This is illustrated by a recent article in the Wall Street Journal (“Tax Break Divides Large, Small Builders,” Feb 11 ’09). In an example cited as typical, Pulte Homes is reported to have sold, for $2 million, land they had “originally paid $28 million for.” So if land value declined by over 92%, how much did land rent decline?

Probably quite a bit less than 92%, because the $28 million was based on Pulte’s guess as to what the future land rent would be. The actual rent, the amount that someone would have paid to use the land at the time Pulte bought it, was doubtless much less than their expectation of its future amount.

Some opponents of land value taxation cite cases of great declines in land prices to claim that LVT wouldn’t be a stable source of revenue. But LVT moderates speculation, and land prices would be more stable if more of the land rent was collected for public use.

One illustration of this is that states where real estate tax is relatively high have experienced more stable prices for homes and lots.

Olcott's Land Values Blue Book

One of the challenges for many beginning Henry George School students is to understand that land has value, and that the value of land is really not very difficult to determine. One example that we used to use was Olcott’s Land Values Blue Book, an annual publication that, until the early ’90s, reported the estimated land value for every block in Chicago and much of suburban Cook County. I don’t know exactly why the series was discontinued, but I assume it was because professionals now find the Internet a more convenient source of information.

The 1939 edition of Olcott’s has been scanned and posted to the Internet Archive. Below is an example page.

The numbers in most areas are value per front foot for a standard-sized lot. The book includes adjustment factors for use where lots are other than standard. For unsubdivided parcels, a value per acre is shown.

Price of land in NY/NJ area

A new report from the New York Federal Reserve Bank looks at land price patterns around their metropolis (specifically, New York City less Richmond, plus ten New Jersey counties). Like Barker’s work noted here last year, they used sales of vacant land to indicate the value of land in general. But while Barker’s purpose was to estimate total land value and land rent, the New Yorkers’ objective is to see how land prices relate to parcel location and other characteristics, and describe trends over the 1999-2006 period.

Defining the center of New York as the Empire State Building, of course they found that the distance thereto is inversely proportional to land value. They observed a very sharp increase in average prices, from $46.65 in 1999 to $366.08 in 2006, with the increase especially pronounced in land intended for residential use. Of course this rate of increase cannot be sustained, as a subsequent analysis might document.

The paper notes that even vacant land may be “improved,” for instance by having been graded and having utilities. Improved lots of course are more valuable than otherwise identical lots. So do Georgists want to tax the improved value or the “raw” value? I think it was William Vickerey who pointed that this really isn’t a big problem. Either could be used as a base, as long as assessment practice is consistent.

Thanks to Richard Biddle and CityEconomist