Land is a Big Deal by Lars Doucet
Why rent is too high, wages too low, and what we can do about it
We are confronted with the stark reality of rising economic inequality in today's society. The gap between the rich and poor continues to widen, as income and wages stagnate for many while the cost of living continues to rise. This disparity has far-reaching consequences, impacting millions of people's access to healthcare, education, and overall quality of life. It raises the critical question: is there a way to address this economic imbalance and create a fairer, more equitable society?
This is the premise of Land is a Big Deal: Why Rent is Too High, Wages Too Low, and What We Can Do About It by Lars A. Doucet. This book, which began as a series of blog posts, revisits the ideas of the 19th-century economist Henry George for a modern audience. In his 1879 book Progress and Poverty, George argued that land ownership is the key driver of poverty and wealth disparity.
Poverty and wealth disparity appear to be perversely linked with progress; The Rent is Too Damn High, and it is all because of land.
The main tenet of George’s philosophy, known as Georgism, is a Land Value Tax (LVT), a tax on the value of land itself, which, unlike a property tax, taxes both the land and the buildings on it. Once considered a fringe economic theory, Georgism is experiencing a resurgence in popularity, a movement Doucet’s book has contributed to. Proponents of Georgism argue that LVT is both a more efficient form of taxation because it doesn’t tax production and that it is a more equitable and moral form of taxation because land is something nature provides for free and no one should be able to lay claim to.
The Core of Georgism
Georgism is an economic philosophy that challenges traditional notions of wealth distribution. It hinges on the idea that land stands apart from labor and capital as a distinct factor of production. While labor represents human effort and capital signifies accumulated wealth used for production, land encompasses all natural resources, including physical land itself, minerals, water, and even orbital space. In essence, land represents the resources that exist independent of human creation.
By George, land is not wealth. And it is definitely not capital. The unique specialness of land is George’s entire schtick and the very core of his philosophy…Land is the ultimate source of all wealth, but it is most useful to think of it as a generator, a completely separate entity from the wealth that human labor and desire draws from it.
The Trouble with Land
If you want to produce nails you need to pay for factors of production such as metal, labor, and land for a factory. In a perfectly efficient market, the price of the factor will be equal to the cost of producing it—if someone is charging more for metal than it costs to produce that metal, a competitor will swoop in and undercut them.
Land predates humans and costs nothing to make, hence following the above logic, its price should be zero. But since it’s a fixed resource and not all land is created equal, a landowner can’t simply be undercut. Thus a surplus value accrues to landowners merely because they possess the land.
As populations grow and economies expand, the demand for land intensifies, driving up its value. This allows landowners to charge higher rents—not because they've improved the land or contributed to its productivity, but simply because they own it.
Speculation
One of the main reasons that land and housing prices are going up is speculation. If you buy land with an apartment building on it, you won’t make a good return on your investment if all you can do is charge the same rent until the end of time. Baked into the price you paid is the belief that its value will increase.
These beliefs are best illustrated by looking at price-to-rent ratios in different cities. In San Francisco, buying a house costs 38 years of rent; in Detroit, it costs only 6 years of rent. Of course, the rent is too damn high in San Francisco, but relatively, it’s cheaper to rent than buy in San Francisco versus Detroit. Why? Because people believe that property values will keep going up in San Francisco; it’s ok if they don’t make their money back in rent—they’ll make it back when they sell.
Speculation creates very perverse incentives, where it often makes more sense to leave your land fallow than invest in improving it.
The Land Value Tax: A Potential Solution
To tackle this, George proposed the Land Value Tax (LVT), a tax levied solely on the unimproved value of land. This means the tax targets the value inherent to the land itself, not the buildings or improvements on it. It differs fundamentally from property tax, which taxes both the land and the structures upon it.
Having established that ground rent is bad, how much should we tax it? By George, One Hundred Percent. Take the rent the tenant has to pay each month, calculate the portion attributable to the value of the unimproved land itself, and send it to the taxing agency.
Assuming a 100% LVT was assessed properly and frequently, it would make investing in land impossible (or stupid). Even though the land value could still go up, you could never make a profit from purely owning the land because any increases in the rents you could charge would be eaten up by increasing taxes. Therefore demand for land would decrease and productive use of land would increase, both contributing to increased affordability.
Pragmatic Georgists discuss an 85% LVT, which they believe would give much of the same benefits while leaving room for error in assessments to not accidentally tax at greater than 100%.
LVT is considered an efficient tax because it does not distort desirable economic activity. As we’ve seen, property taxes discourage developing land, while income taxes and sales taxes discourage production. For this reason “prominent economists from competing and outright hostile schools such as Milton Friedman, Friedrich Hayek, Marx & Engels, and Paul Krugman who have either advocated for some form of LVT themselves or openly acknowledged it as the “least bad” tax.”
The Benefits of a Land Value Tax
While the concept might seem radical at first glance, a closer look reveals a range of economic, environmental, and social benefits that make LVT a policy worth serious consideration.
Economic Benefits
To reiterate, at the heart of LVT's economic appeal lies its potential to curb the detrimental effects of land speculation. When land is treated primarily as a commodity to be hoarded and traded for profit, its productive use suffers. As the book notes, a 100% LVT would render land speculation unprofitable, encouraging landowners to use their land productively or sell it to those who will. This shift would lead to a more efficient allocation of resources and stimulate economic activity. By removing the speculative premium on land prices, LVT would make land more affordable for both developers and individuals seeking to build or buy homes. This effect is especially critical in urban areas where land scarcity drives up prices, making housing unattainable for many.
Moreover, the revenue generated from LVT can be utilized to fund public goods and services, potentially leading to a reduction in other taxes that can hinder economic growth.
Conservative estimates show that we can entirely pay for any one of the following: Defense, Social Security, or Medicare + Medicaid, using land rents alone. Optimistic estimates suggest that we’re within striking distance of the Single Tax—replacing all labor and capital taxes with taxes on land rents (on the federal level, at least).
Social Benefits
Beyond economic considerations, there is a moral case for LVT rooted in the nature of land ownership and wealth distribution. The book emphasizes that land, unlike labor or capital, is a natural resource that no one created. Therefore, monopolizing land for private profit is inherently unfair, especially when it creates a system where landowners benefit disproportionately from community-generated wealth.
That’s the real injustice of land rent—the community produces the value, but the landlord charges rent to access it.
Land values are primarily determined by the efforts and activities of the community rather than individual landowners. Factors like population growth, infrastructure development, and the overall desirability of an area contribute to increasing land values. This means that the community plays a vital role in generating the wealth associated with land. LVT aims to rectify this imbalance by ensuring that the community shares in the benefits derived from rising land values.
One way to achieve this is through a system where a portion of LVT revenue is distributed back to the community. This distribution could take various forms, such as funding public services or providing a basic income to all citizens. By returning a portion of the community-generated land value to the community, LVT seeks to create a fairer and more equitable system of wealth distribution.
Environmental Benefits
LVT's potential to reshape land use patterns directly translates into environmental benefits. By promoting denser, more walkable cities, LVT can help reduce sprawl, which is associated with a host of environmental issues. As discussed in my summary of Arbitrary Lines, sprawl leads to increased car dependence, contributing to air and water pollution, habitat loss, and the consumption of valuable natural resources.
In contrast, LVT encourages the efficient use of land. As landowners are incentivized to use their land productively, they are less likely to leave valuable land sitting vacant or underutilized. This shift towards more efficient land discourages sprawl, reducing the environmental footprint of cities and contributing to the preservation of natural habitats outside of cities.
By discouraging the inefficient use of land for purposes like excessive parking, LVT also aligns with the arguments presented in Paved Paradise. Reducing the need for vast parking lots can free up valuable urban land for housing, parks, and other community-oriented uses, further enhancing the environmental and social benefits of LVT.
Challenges to Implementing a Land Value Tax
While Land is a Big Deal argues in favor of a Land Value Tax (LVT), it also addresses potential criticisms and shortcomings.
Will it Hurt Tenants?
If Land Value Tax is easily passed on to tenants, then it has no power to curb land speculation, and you can stop reading this book.
A common concern about LVT is its potential impact on tenants. Some worry that landlords will simply pass the tax burden onto tenants through higher rents. Land is a Big Deal, however, argues that this is unlikely due to the concept of full capitalization.
Full capitalization means that the LVT is absorbed into the price of the land itself. Instead of raising rents, the tax reduces the market value of land. This happens because landlords are already charging the highest rent the market will bear. Increasing rent further or decreasing quality would make the property less competitive and likely result in vacancies. Consequently, the burden of the tax falls primarily on the landowner in the form of a reduced land value.
The book cites several empirical studies that support the theory of full capitalization. One notable example is a detailed analysis from Denmark. Researchers examined property transactions and tax records to assess the impact of LVT on land values and rental prices. After controlling for other factors, they found that increases in LVT were directly correlated with decreases in land values, but not with increases in rental prices.
Complexity of Implementation - Assessing Land Values
One of the most significant hurdles is accurately assessing land value, especially when transitioning from traditional property tax systems. The book explores various assessment methods noting the strengths and weaknesses of each.
So, can we accurately assess land and improvements separately? Given the literature, and the state of the research, I think the answer is yes—it is quite plausible to believe that we can do so. That does not mean that there are no problems or difficulties left to navigate, but certainly, if the objection can be stated as 'valuing land separately from improvements is fundamentally impossible, and we can never get better at it, so we shouldn’t try,' I think that’s plainly ruled out.
While it’s reasonable to claim that accurate assessment is key to implementing an LVT, it’s worth noting that Doucet has skin in the game as he founded a company to build assessment software.
Political Feasibility and Need for Other Reforms
A successful LVT implementation likely requires reforms beyond taxation policies, including zoning regulations. Restrictive zoning, often driven by misaligned incentives, can hinder the efficient use of land. Aligning land-use policies with the goals of LVT could maximize its benefits and promote more sustainable and equitable urban development. Similar to the challenges described in Arbitrary Lines, opposition from landowners who stand to lose from the proposed changes presents a major hurdle.
While Land is a Big Deal convincingly argues for the benefits of LVT, it is crucial to acknowledge that its implementation faces real challenges. As economist Warren J. Samuels points out, the concept has struggled to gain widespread acceptance due to a complex interplay of ideological resistance, practical difficulties, and historical circumstances. Deeply ingrained beliefs about the sanctity of property rights and the equation of income with productivity have created barriers to embracing the idea of taxing unearned income from land. Additionally, the complexity of implementing a fair and accurate land valuation system has posed significant obstacles.
However, there is reason for optimism. Land is a Big Deal itself is a testament to the renewed interest in Georgist principles, spurred by the increasingly pressing issues of housing affordability, wealth inequality, and unsustainable urban sprawl. This resurgence is reflected in the growing support from influential figures and the proliferation of online discussions and resources dedicated to exploring LVT. While Samuels' analysis, written 20 years ago, highlights the historical challenges faced by the Georgist movement, the current landscape offers a different picture. The very factors he identified as obstacles—ideological resistance, practical challenges, and historical events—may be shifting in favor of LVT. Perhaps Henry George, despite his impactful work, was not the ideal leader to usher in this change. The current generation of advocates, equipped with modern technology, data analysis, and a growing awareness of these issues, may be better positioned to champion this cause and translate these ideas into tangible policy changes.
Land is a Big Deal doesn't just explain the problem; it offers a vision for a future where the benefits of land, a gift of nature, are shared more equitably, paving the way for a more just, prosperous, and sustainable world.