The inflation-adjusted price of residential land in the U.S. quadrupled between 1975 and 2006. By 2025, New York City’s land values were estimated at $2.84 trillion. Manhattan’s land alone is valued at approximately $3,500 per square foot. Urban land, in other words, is increasingly valuable. But how “natural” is this growth? What are the effects of this seemingly unending rise in urban land values on our economy and society? And if the effects are potentially perilous, what, if anything, could we do about them?
Those with large investments in high land values—real estate investment trusts (REITs), banks, insurance companies, local governments hoping to tax a bit off the top—don’t believe anything is wrong. These values, they claim, are nothing more than market signals that “naturally” occur in the context of a high demand for a limited supply of central-city parcels. Provided a few regulations are in place, the growth of urban land values is both desirable and sustainable.
But there’s another perspective. Many economists in New York’s history have seen the rapid capitalization of urban real estate as neither natural nor benign. People like Henry George, the 19th century political economist, social philosopher, and journalist, argued that high urban land values were often the product of financial speculation and the public policies that empowered them: speculation that eroded economies, corrupted politics, and exploited people. Only by deflating the burden of artificially high land values, George and others argued, could New York and other cities reach their economic and social potential. And in the wake of New York’s fiscal crises of the 1870s and 1930s, these figures attempted to do just that, with a surprising degree of success.
Today, as Gotham’s fiscal strains and rising land values once again claim headlines, we should learn from these past efforts to tame financialized growth. Three sets of policies in particular are needed: (1) reducing the future income streams land can command through taxation; (2) placing more land away from speculative circuits and into the hands of public or community ownership; and (3) targeting the financial loopholes that make real estate a speculative asset class in the first place.
All of these strategies will be difficult to carry out, given the amount of public and private wealth currently tied up in land. But the question isn’t whether this landed wealth will dissipate—it will. The only question is whether this wealth will be gradually reallocated to safe and productive channels through the policies noted above, or if it will vanish catastrophically through crisis. The choice is ours.
Read the rest here: https://commonedge.org/back-to-earth-the-case-for-lowering-speculative-land-values/