Geonomics: Financing the Ecologizing of Cities
Jeffery J. Smith
GroundSwell, March-April 2006]
[editor's note:. Jeff Smith made the presentation in
September 2002 to the 34th International Conference on Making Cities
Livable, in Austria. Robert F. Schalkenbach Foundation helped
At the party celebrating making their city more livable -- by
clearing a plaza, day-lighting a stream, planting edible landscaping
-- a landlord pats one of the urban activists on the back for his
good deeds well done. Then the owner notes how properties will be
worth more. One can't argue with that; public improvements do raise
site values. Next, he delivers to his tenant a letter announcing
that he's raising his building's rent, then walks away. Ironically,
if urban advocates cannot afford the increase, all their hard work
to improve their city could end up improving their city for someone
Not only does the money at the tail end of civic betterment flow
to those who put none up -- absentee owners -- but typically, the
upfront money comes from non-beneficiaries, too -- from state and
federal taxpayers who don't live in the city. And without money, no
one is going to make any city any more livable. Funds are the sine
For most local governments, the ideal source of funding is Other
People's Money, or OPM. It sounds like "opium" and is
likewise addictive. But there is a better way, one that protects
hard-working residents from surprise jumps in building rents.
Even when they want to, citizens don't ecologize their city
because they cannot afford to. They know about the great green ideas
-- personal rapid transit, underground transmission lines -- but not
how to pay for them. One way is to let appropriate technology
(apt-tech) pay for itself.
When people improve cities -- zone for bikes, construct an
amphitheater -- they cut long-term costs and draw in new people. The
newcomers moving in bid up the value of land. Local government can
recover this ground rent to pay off the earlier investment in
Clever jurisdictions in the past did. Some sold bonds then paid
off the debt with the resultant rise in nearby land values,
collected via a site-value tax. Such self-financing paid for the
initial stages of the Eire Canal in New York and for the first
irrigation dams and channels in California. Without bonds, just a
land tax, Uruguay and Colombia paid for new roads. Kansas City built
its airport and Hong Kong its light rail without a penny of outside
subsidy. (Land-Value Taxation Around the World, 2001) Nobel laureate
William Vickrey said there's never been a public improvement that
couldn't pay for itself from the land value it raises.
Failure is costly
Normally, jurisdictions fail to recover land rent. Leaving
publicly-generated Rent in private pockets widens the eyes of
landowners; some turn into speculators. Their withholding sites from
best use, waiting for the price to rise, inflates the cost of land
and further jacks up the cost of homes. Withholding sites from use
also distorts the settlement pattern of the city. To accommodate
sprawl-style growth, local government must expand infrastructure
past vacant lots. To provide utilities at a higher per capita cost,
cities and counties must raise taxes or borrow. Rather than pay
higher property taxes, voters cap them and end up paying higher
sales taxes and user fees - a higher total cost but being
nickel-and-dimed-to-death lets homeowners and renters grudgingly
suppress awareness of the fact.
Now localities tax buildings, which breeds slums. Were homeowners
to improve their buildings by adding thicker insulation, for
example, they'd increase the value of the structure and their tax
liability, unless exempted. If the locality does not exempt, it
makes apt-tech more expensive, discouraging most owners from making
extra improvements. Knowing they'd be hit with a higher levy, many
owners don't even dream of improving their property, ecologically or
otherwise. For years, economists at HUD and in academia have watched
the property tax drive both urban decay (Little, 1973) and urban
sprawl (Neuner, 1974).
Besides burdening buildings, governments also tax sales and
income. These taxes leave people with less discretionary income.
Many people cannot afford to purchase apt-tech for making cities
livable, unless it's a very high priority. Seeking a lower cost of
housing or the next better-paying job, many people keep moving all
over the map. Communities, so-called, become way stations for
itinerant workers. Not staying long enough to put down roots,
transients care less about the livability of their temporary city.
Now cities leak. Residents pay site rent out as mortgages to
distant lenders. And they pay taxes to distant capitols. There,
politicians create subsidies for activities that make cities less
livable, such as more and wider roads. Other subsidies, for trucking
and fossil fuels, make imported foods and energy artificially cheap,
stunting local economic growth. As long as cities leak economic
values, it's difficult for them to be healthy organisms.
Affordable Urban Living
Grasping the power of revenue reform, some jurisdictions have
recovered land rent while reducing damaging taxes. Frank Lloyd
Wright in his Living City advocated the system. Ebenezer Howard
started the Green Cities to implement it. They either shifted the
weight of the property tax off buildings, onto land, or replaced
that levy with a site-value tax, or replaced it or other taxes with
land-use fees, land dues, land leases, or resource royalties. Doing
so rearranged incentives for landowners.
Owners in such areas, carrying a higher overhead, could no longer
afford to speculate. Plus, they were no longer penalized for
improving their property. Hence they put their land to better use,
or sold to someone else who did. In Australia, towns taxing land,
not buildings, enjoy 50% more built value per acre (Lusht, 1992). As
untaxed owners implement efficient technologies, they can do so
without incurring a tax penalty.
Building more, of course, increased the city's housing stock and
decreased its housing costs. In the 1920s, New York solved its
housing shortage by exempting new construction but not the
underlying sites (Charles Johnson Post, 1931?, Schalkenbach Fdn).
Pittsburgh, while it was the flagship geonomic city in America, year
after year had the most affordable housing of any major US city.
Because most residents owned their homes, neighborhoods were
stable and safe. The Steel City had by far the lowest crime rate of
any major US city. In the 1980s, Rand-McNally named Pittsburgh "America's
Most Livable" twice. Higher ownership rates is not only good
for families and children, but also for community. The 1940s
Goldschmidt study of Arven and Dinuba in California's San Joaquin
Valley showed the town with more owners was much more livable:
higher voter turnout, potholes got filled, parks were clean,
libraries stayed open longer, etc.
Putting land to use means landowners must build and
building-owners must find tenants. The Pennsy towns getting more
Rent from land, less tax from buildings, experience 16% more
economic action each year (Tideman & Plaschman, 1997). Spurring
so much activity carries a town thru a recession. In Australia
during the previous downturn, while everywhere else was losing
business, the land-taxing towns were expanding manufacturing by 10%
per year. All this business adds up to more jobs, and more dollars
spent locally. In New Zealand for the 10 years that 80% of the towns
taxed only land value, the national rate of employment was 99%. When
citizens are financially secure, they can afford both the money and
the mental energy for less immediate issues, such as sustainability.
Prodded owners also in-fill their city. Since a city's most
valuable sites are in the center, the fee or tax there is the most
expensive. To pay it, owners of central lots feel the greatest
motivation to develop their land. They absorb development that now
sprawls onto suburban farmland and open space. The National Tax
Journal ran a computer model of the property tax shift, sucking
Boston's sprawl back into Boston's doughnut core (DiMasi, 1987).
Speculating landowners are not alone in keeping good land fallow.
City governments themselves also hold title to vast tracts of public
urban wasteland. Yet if the city treasury were fed by ground rent
exclusively, city councilors would quit procrastinating and lease
out or auction off this surplus land. When owners upgrade, one of
the blights quickly covered by a high-rise is the parking lot. Other
parking spaces might disappear, too. Make a city dependent upon site
rent and to raise revenue, the city councilors would soon trim
their overly-wide, car-doting streets by designating bike lanes and
widening sidewalks for trees, pedestrians, and cafes. Conscientious
governments could also place a surcharge upon fuel, raising the cost
of driving up to its true cost. Facing higher costs and less
convenience, more people would turn from driving to riding, easing
the auto infestation of cities.
With both city hall and urban owners spurred to develop, there's a
worry that the city would become wall-to-wall buildings. However, a
prickly carpet of high-rises does not raise overall site values to
their peak. Overall land value is maximized where land use is
optimized, where open space gives relief to built use. In New York
City, each year the city council denies a permit to build luxury
condos in Central Park because they'd depress site values and reduce
tax revenue. Pittsburgh turned its most valuable site, where the
three rivers meet, into a park without an agonizing grassroots
effort or developer resistance. When there's not so much ground rent
up for grabs, planners enjoy a much easier job.
Another typical worry is that there's not enough resultant Rent to
finance government or a public improvement. Like a secret formula
for turning lead into gold, outside of the cabal of real estate
investors and lenders, few realize that site values ascend by the
power of ten; from the rural fringe to the urban center, the ratio
is one to 2000, rising steeply over downtown. Where politicians do
collect site rent, the challenge is spending the public revenue
without losing it to corruption, as happened in New York, which
under Robert Moses pioneered the betterment district, and in San
Diego, which leases the land surrounding the port, all of it
Not only is there enough Rent (the money we spend on the nature
we use) for ecological projects, there's enough to forgo other
taxes. Instead of lose revenue, the absence of taxes on residences
and businesses would raise site value. Charging Rent, thereby
bringing prime sites into use, heals the local economy, which raises
land value. Similarly, repealing taxes not just on homes but on
sales and income, too, frees businesses to invest and hire more and
thus produce more. Both the heftier output and the zero taxes drop
the prices of goods and boost the value of land. Hong Kong did not
abolish taxes but kept them way low, thanks to collecting fistfuls
of Rent, and made itself the world's best city for business,
according to Fortune magazine, with one of the world's highest per
After funding its functions, a government rolling in Rent could
share the surplus with its citizens, as Alaska does with the revenue
from oil. Receiving this dividend would replace any lost "home
equity" (actually, "location equity"). Residents
could always afford apt-tech. And knowing these social shares come
from Rent, they'd have a powerful motive to maintain maximal land
value from optimal land use. Letting citizens spend the revenue
instead of politicians also mitigates the corruption problem.
Organisms, to keep balance, need feedback loops, many and
accurate. Michael Rothschild noted in his Bionomics the most crucial
feedback loop in economies, price. This we distort with taxes and
subsidies, thereby distorting people's choices. Seeing economies as
part of the eco-system leads one beyond conventional economics to "geonomics"
(economics minus the superstition) and to a non-left, non-right but
organic policy. Thereby, to quit distorting price and choice,
society would replace taxes with user-fees and replace subsidies
with a dividend, as William Ashworth suggested in his Economy of
Win/Lose or Win/Win?
Cities as organisms also need feedback loops; they need homegrown
Rents to be recycling locally. Yet wanna-be reformers try to sustain
city while letting owners retain Rent. Meanwhile, even as the
environment improves, it raises site values and widens the gap
between real estate investors and lenders and the rest of society.
Leaving Rent -- publicly generated and rapidly rising -- in private
pockets guarantees that land remains an object of speculation, and
that cities remain a less livable habitat for humanity.
To share Rent and de-tax effort, sustainable developers could cite
famous backers (Einstein, Churchill, and Tolstoy), the dozens of
places that recover Rent with success (Allentown, PA, and Mexicali,
Baja California), and ally with many environmental groups (Friends
of the Earth et al), neighborhood associations working on housing,
jobs, and crime, and business lobbies for productive development.
Advocates could begin with shifting the local property tax from
buildings to locations and collect the Rent monthly instead of
annually. Then they'd graduate to shifting state and federal taxes
off sales and salaries, onto resources and environment as sink.
It wouldn't be long before any city today could be made
rewardingly livable. When Johannesburg (South Africa) taxed land, it
enjoyed the fastest site-recycling rate in the world (Dunkley,
1990). Within a score of years, the urban built environment could be
transformed into a balanced blend of homes, shops, and community
plazas in a healthy, green setting.
Realize the ideal
Besides improve existing cities, green city builders could start
from scratch and without impediment, realize their vision. Like
flowers, orient buildings to face the sun, besides the street. Like
bodies, give building both a walkway to the front entrance and an
alley from the back exit. Put buildings close enough for community
and apart enough for privacy.
Make streets not all straight, corners not all right angles.
Instead, have avenues honor the contour of the land, evoking old
paths honed not by machine but by muscle of beast and man, trodding
and plodding generation after generation. Draw lanes and boulevards,
whose curves reward the beauty-starved eye, with inclines that are
bikable. Like wrinkles, roads lead to the center. Once there, people
out of the metal cocoons of cars need a place to congregate; amid
the buildings, they need the market square and plaza, the heart and
soul of a city. Pedestrians animate a settlement, making it more
social than a mud pit peopled by a herd of elephants.
Ebenezer Howard's Garden Cities, Frank Lloyd Wright's Living City,
and Paolo Solari's Arcosanti, try not to conquer nature but blend
in. Other new towns, too, could settle not on erodable cliffs,
floodable plains, nor wooded ridges but on nature's table tops. Let
streams flow free, their banks left pristine as habitats and
wildlife corridors. Broader patches of environment would stay open
as parks. The result is nature in the city and the city in nature,
an eco-system whole and healthy serving all life.
In California outside the capitol in Davis, people built an
eco-village, New Homes, which now has higher land values.
Bottom-line, as long as the multi-trillion dollar flow of Rent
rewards the hoarder, the city remains unlivable. To heal cities, and
put their economies in an interdependent balance with federal
economies, citizens must geonomize -- forgo taxation and share the
worth of Mother Earth.