The City of Edinburgh (Edinburgh Council) is introducing this in September. Not for everything - focusing on greener initiatives I think. But interesting to see it starting.
If St Paul's lamd is currently worth 6 billion with no land tax, wouldn't charging 15% of its value annually immediately make the land worth much less?
And paying 15% of an assets value in rent or land tax every year seems insane.
If a house is worth 100k, the 25yr mortgage at 5% payment would be around 7k per year, and then I'm free and clear after 25yrs. A 15% annual tax would be 15k, more than double the amortized purchase price, and it never stops.
Hey Joel, this is meant more as a thought experiment, not a proposal that we can go from where we are now straight over to the world I sketched out in the piece.
What I wanted to highlight are the ideas that a) urban wealth is fundamentally land value, b) individualized land ownership creates a bunch of bad incentives, and c) if a municipality collected all those values and used them in the public interested (plus remitted the leftovers back into folks’ pockets) we would all be more on board with the things required to build prosperity.
In that toy world, no one gets privately internalized home equity (in as far as home equity = land value). There’s no 25 year mortgage because the problem that that particular policy instrument was created to solve doesn’t exist. Now, again, there’s no direct route from here to there. If we suddenly expropriated all land values overnight we’d trigger a financial crisis since the privitised value of land is collateral backing a pyramid of financial assets.
The actual incremental step would be to do a tax shift wherein a city raises rates on land and lowers them on buildings such that it’s a wash for homeowners. This hoses surface parking lots and otherwise underutilized parcels, giving the muni an immediate increase in revenue and pushing all that land into more productive use (and also removing a disincentive against incremental construction). And, ofc, leasing out public land at a profit.
After the revenue model is right, it’s possible to imagine the other half of what I was describing which is really just a city-level UBI designed to make longer-tenured residents more interested in growth.
I understand that, and I enjoyed the article overall, but you said, "and yes it's possible for a city to make most of its revenue from land values."
Then you went on to use your St Paul's example at 15% tax rates, value of the land remaining unchanged - which does more to undermine your point than support it.
Chat tells me that there is a substantial body of evidence on tax capitalization that estimates a 15% land tax would lower the lands value by 75% or more.
St Pauls would then need to raise the rate to 60% to generate the same revenues, which will have further price depressing effects, in a vicious cycle.
So it seems like it would be impossible for St Paul's to fund itself entirely from LVT alone.
I am a fan of LVT, but the tax revenues from it literally can't exceed the annual rental value of the land, which is usually 1-2% of its current purchase value.
Let me separate out two things — and preemptively acknowledge that the St. Paul example may have been a bad rhetorical choice given what I was trying to do with the piece.
1) Is a world where a city generates most of its revenue from land rent possible?
I still think the answer is yes. Stiglitz’s Henry George theorem is the classic theoretical version of the argument. Battery Park City is a close-ish real-world example of a public entity capturing land value through ground leases. And at a more mundane level, this is also a riff on how malls — and, famously, McDonald’s — make money: control valuable locations, then monetize the location value over time.
Obviously, that then turns into a separate debate over what a city ought to be doing, how much that would cost, and what “covering most operational expenses” actually means.
2) Is it remotely conceivable that we could go from here to there?
That is a different question, and your point about land prices is important here.
Yes: if a city aggressively raised an LVT overnight, it would lower the private sale price of land as future land rents are de-capitalized. So we agree on that.
But the private market sale price of land is not the same thing as the annual rental value of the location. Under a serious LVT, sale prices fall because less of the future rent stream is available to private owners. The rent stream itself has not necessarily disappeared; more of it has been shifted into public revenue.
So I don’t think the [economic] “doom spiral” you’re describing is quite right. It would be a problem if assessments mechanically treated post-tax sale prices as the entire tax base. But conceptually, a proper land-rent assessment would be trying to estimate the gross annual value of the site, not simply taxing the de-capitalized resale price over and over again.
The real problems are [political-economy] issues
One problem is that a serious LVT would devalue land as collateral, and land currently backs a huge amount of financial assets.
A second problem is that many landowners cannot actually realize the full productive value of their land because land-use restrictions prevent more intensive development. So if you tax land as though it could support much more productive use, while still legally forbidding that use, you just get a tax revolt instead of more development.
So to bring it back to the piece: I still believe a city could run a mostly land-based revenue strategy. I do not believe we could flip a switch overnight and get the benefits I’m gesturing at. Part of the issue is the transition problem you’re calling out. Part of it is the political economy of existing land use regimes and the present degree of land-based financialization.
My reason for invoking St. Paul was to give readers who have never thought about these issues some frame of reference — a rough sense of magnitude for how much urban land is actually worth. But I agree that, if read as an immediate policy model rather than a thought experiment about a different municipal revenue structure, the example should raise the kinds of questions you're asking.
This idea appeals to me because it treats residents as actual participants in the value of a city, not just consumers of services or obstacles to development. So much urban wealth comes from the collective life of a place: the workers, the schools, the small businesses, the transit, the culture, the people who stay long enough to make a city feel like itself.
Right now, too much of that value gets captured by whoever bought the right patch of dirt early enough. This idea feels powerful because it asks a better question: if residents help create the city’s value, why shouldn’t they share in its growth?
I also like that the proposal rewards tenure without turning the shares into another inherited asset game. That matters. Otherwise, we just reinvent the same inequality with shinier paperwork, and please, we already have enough expensive nonsense wearing a reform costume.
This is an interesting change in weights, with management elected on a per-head basis and the dividends released on a per-share basis. I think it's worth thinking out the dynamics, because it sounds like voters would be more short-term focused than the shareholders would want.
In general, I would rather be a customer than a shareholder or board voter. Organizations listen harder to their customers. So it's really my actions in buying or selling land (taxable assets) that influences the city council and administration.
Also note that while annual budgets sound doable, a lot of capital investment around a city comes from State and Federal grants and funding. At which point, those bureaucracies become the real "customers" of the city admin, not the residents (which angers them but they don't know why). I think it would be hard to institute this vision without cutting that Gordian knot first.
Being a customer is certainly the better position in a competitive market. In a monopoly, I'd rather be a shareholder. A city obviously lies somewhere along the spectrum, and YMMV on what model is more appropriate. Given how high the rents can get in cities that seem badly mismanaged, I'd lean away from the competitive model. That said, I don't see how this proposal would undermine anyone's leverage as a city consumer.
Hey Drea, this is something struggled with in this post. This isn’t really intended as a policy piece, though I get why folks are reading it as a concrete proposal.
What I want to assert is that municipal governments and the communities they serve create value that shows up in land prices. Further, that the best “business model” is one where the monetizes that value. And, finally, that there might be ways to deploy that value to get everyone on board with the type of development that creates even more prosperity. (Contra the current political economy)
So yes - the modern American municipality fundamentally does not work like this and the folks who serve in them don’t think about their finance in the way I’m framing it. But, for my purposes, it’s kinda beside the point.
Here, the specifics are meant to serve as an illustrative tool and preempt a few obvious what abouts. I’m not personally married to specifics.
On the question of customers in my toy scenario though, the residents are both owner and customer. Anybody who does anything in the local economy is definitionally increasing demand for space and increasing locational value. So, same same unless I’m misunderstanding your point.
Yes! And even if people, inhabitants, residents, or citizens do not own shares in their city, they could, or likely should, be offered stock in the service provider or providers that administer or operate their city. This makes all the sense in the world.
There is also little to preclude those who want to buy preferred shares in their city from doing so as a further vote of confidence and as a fundraising device. And if that results in those preferred shareholders receiving an extra dividend, which is not uncommon in that class of shares, then so be it.
Though, in an ideal sense, it may be better for common shareholders to have more of a say in the hiring and firing of management, or simply to leave that up to voters regardless of the kind of stock they hold in their city.
Let the cities of the future compete for new citizens by offering not only the best places to live, but places that even pay you to do so, and not merely through those one-off stories about a rural Italian village or a remote Greek island.
A condo arrangement doesn’t separate the cost of housing provision from a claim on residual revenues. A condo arrangement keeps everyone locked in on home (read: land) equity. The thought experiment here is to imagine abstracting away land rents so as to reapportion them on an ongoing basis. Fractional owners in a condo are as illiquid as the owner of a single family home. So the underlying political economy retains all its negative features.
(Not that I have anything against condos in the real world, housing is housing)
I still think it's splitting hairs. There's all kinds of ownership mechanisms.
The thing I don't like about yours, if I'm understanding correctly, is that people are invested, but with no initial investment. Alaska oil is there by nature. Sharing revenue with citizens seems reasonable. But cities are there because they were built. The land by itself is worth very little until it's built out. If you don't factor that, you are ignoring reality.
And, "Excess revenues, after the city’s operational needs are met, flow back to residents as dividends." Have you noticed that city's operational needs are never met? They always 'need' more. So, forget about dividends.
And if I can't vote in this Utopia; if other people are making the plans and I don't get a say-so, count me out.
- I hear you saying it sounds like splitting hairs; my response is that none of this makes sense if you don't look at land value as something fundamentally different from capital and, therefore, see the second order effects the flow from the questions of a) who gets to collect it / monetize land and b) how it's spent / disbursed.
If insufficiently set that up in the top half of the post, I'll unfortunately not up to the task here in the comments. So, maybe some other time.
- As to who ought to get the benefit of land value, I'm not sure if your concern is about incentives (things don't get built if the builders don't get the land-specific upside) or normative (a citizens dividend disbursement is unfair because a random person didn't help build some apartment building or road on the other side of town.
For the incentives question, all I can say is this happens all the time in places both within and without the U.S. Developers build, they get the upside from the development they undertake, but have to pay for the use of the land in perpetuity. Municipal land leasing well established practice.
For the normative concern, well, that's a discussion about the nature of land value. At the end of the day, everyone in a city contributes to the value of land in that city in an individually unattributable way. Yes, the public park makes everything immediately around it more valuable, but you put that park (or road, or apartment building or sewer system) in the middle of the sahara desert and no value has been created. Land values are created communally in a whole that's greater than the sum of it's parts kind of way that makes it impossible to disentangle some original source.
- and on excess revenues, that's why I pulled the numbers for St. Paul. Value of land in a non tier 1 US city is significantly higher than what the municipal government annually spends. Now, I want to triple underscore this is a hypothetical intended to provoke thought, not a set of policy proposals. If cities everywhere suddenly expropriated way more land value overnight, that would likely cause a financial crisis since so much american land is securitized as collateral for financial instruments.
The source of funds for the city is taxation on land value. How does a person pay the taxes if they don’t have the liquidity? That is, they are land-rich but cash poor.
Many people borrow against the equity in their property to be able to make personal decisions about how to run their own lives and improve their properties. Businesses do the same to be able to make decisions on how to improve their own businesses.
Once you start taxing someone’s wealth you take away their ability to make decisions that they individually believe are needed. The individual still takes the risk but now has no incentive.
Moreover, your model neglects to deal with accountability. Look at all the failures of government, the graft and corruption (CA train, CA fire suppression and utilities), USAID, US SNAP scams, Medicaid fraud, and on and on). Yes a person is sacrificed here and there but there is never any real accountability.
Collectivism is always and necessarily de minimus. On the contrary, as has been demonstrated everywhere governmental collectivism has been implemented, it does not create a rising tide. It creates a swamp. How’s New York doing with Mamdani?
Utopias fail because they don’t account for reality.
Will your model rely on experts in a central committee to set prices? Whose values determine what people should have? Why should your values dominate that person who owns the 5,000 square foot lot? And then what are you going to do to enforce your system?
We seem to be talking about different things. The most mundane example I can provide is the classic American mall, and even that is arguable more “centrally planned” than the hypothetical in the post.
Oh, also, another fun one is MacDonalds (contrary to popular belief, they’re more a real estate company than they are a burger company - corporate’s real customers are the franchise owners who are obligated to pay them rent on corporate owned real estate. People buying burgers are on the other side of the franchise owners).
Nothing about there being an overarching, final landlord precludes the price system from coordinating the distribution, development, and use of real estate.
I don’t think the economics would work well in your model. Let’s take your example from Seattle. On a small scale that collective ownership may work because that small group owns the property and is assuming all the risk. If/when maintenance is required or if they want to improve their own businesses property they can leverage their equity to cover the costs. Where is all this cash coming from in your model? Government redistribution? And then why improve properties. There is no incentive if property is collective. This has been proven time and again.
Collectivism comes at the cost of individual liberty.
Yes, as you mentioned, government can develop the environment to enable economic growth (and they can and many time do the opposite as well), but it is the individual who takes the risks for the rewards that build value. Take away the rewards and you take away the ability to build value and innovate and improve things. We need systems that enable (or get out of the way) personal agency.
I'm not seeing the incentive problem. A developer still builds on the land and has every incentive to monetize their physical capital to whatever extent the market will bear.
There's plenty of real world precedent for separating land ownership from ownership of the buildings/infrastructure, too. This is, again, just how Battery Park City got built (to name a single example).
For the liquidity bit, I'll say the the idea I'm thinking through here is a world without privatized real estate equity. In this world, no one is living in, say, a house on a 5,000 sqft lot in an inner ring suburb. The built environment, and how people inhabit it, would look much much different. Which is to say, the system I'm imagining would mean no one could ever be land rich and cash poor. The point is to produce the opposite, thereby enabling people to have the resources they need to take all the risks we both agree are so important for society.
Now, if you own a house and lever up to get cash and start a business, if that business fails you just lose your house. I'd prefer a world where that value doesn't stay locked up in land and, instead, is used to make everyone more liquid all the time.
Now, as for the corruption issue, two responses here. First, this is a work of semi-speculative institutional design. If you're interested in conversations of organizational efficacy or state capacity, that's a whole separate topic (which I'll be writing about later this year at Urban Proxima!). Second, there are plenty of examples of well functioning institutions. The Hong Kong Metro Railway Corporation Limited, the Battery Park City Authority in NYC, the West Falls Community Development Corporation...these are just a few I happen to be familiar with.
But let's talk about “governmental collectivism”. What I’d offer to you is we, in the United States, already live in the quickly desiccating corpse of post-war collectivism.
Coordinated government policy at all levels conspired to create the land use regime we live in today on the basis of a centrally planned mortgage market whose explicit goal was to enable homeownership at a level that undirected credit markets would have never been able to achieve. Now, we could argue about whether this was good or bad policy (obv I have critiques), but if we want to describe the world I’ve sketched our here on a napkin as collectivist, we also need to acknowledge the degree of central planning that went into the system of homeownership we have in the U.S. today.
I love this idea which really incentivizes all long term development which will add the most future value to benefit all residents, regardless if they will personally use the value generating asset or not.
Jeff, this is extraordinarily provocative and ingenious. Kudos to you for putting this concept together. The best observation you make is that the PARTS of this proposal already exist--and simply require "assembly." I'm an architect writing a substack about Modern Money Theory https://johnalt.substack.com/ and will now be giving thought to how the mechanisms of modern fiat money might assist and contribute to the concept you've described. Thanks for your provocation!
The City of Edinburgh (Edinburgh Council) is introducing this in September. Not for everything - focusing on greener initiatives I think. But interesting to see it starting.
If St Paul's lamd is currently worth 6 billion with no land tax, wouldn't charging 15% of its value annually immediately make the land worth much less?
And paying 15% of an assets value in rent or land tax every year seems insane.
If a house is worth 100k, the 25yr mortgage at 5% payment would be around 7k per year, and then I'm free and clear after 25yrs. A 15% annual tax would be 15k, more than double the amortized purchase price, and it never stops.
Hey Joel, this is meant more as a thought experiment, not a proposal that we can go from where we are now straight over to the world I sketched out in the piece.
What I wanted to highlight are the ideas that a) urban wealth is fundamentally land value, b) individualized land ownership creates a bunch of bad incentives, and c) if a municipality collected all those values and used them in the public interested (plus remitted the leftovers back into folks’ pockets) we would all be more on board with the things required to build prosperity.
In that toy world, no one gets privately internalized home equity (in as far as home equity = land value). There’s no 25 year mortgage because the problem that that particular policy instrument was created to solve doesn’t exist. Now, again, there’s no direct route from here to there. If we suddenly expropriated all land values overnight we’d trigger a financial crisis since the privitised value of land is collateral backing a pyramid of financial assets.
The actual incremental step would be to do a tax shift wherein a city raises rates on land and lowers them on buildings such that it’s a wash for homeowners. This hoses surface parking lots and otherwise underutilized parcels, giving the muni an immediate increase in revenue and pushing all that land into more productive use (and also removing a disincentive against incremental construction). And, ofc, leasing out public land at a profit.
After the revenue model is right, it’s possible to imagine the other half of what I was describing which is really just a city-level UBI designed to make longer-tenured residents more interested in growth.
I understand that, and I enjoyed the article overall, but you said, "and yes it's possible for a city to make most of its revenue from land values."
Then you went on to use your St Paul's example at 15% tax rates, value of the land remaining unchanged - which does more to undermine your point than support it.
Chat tells me that there is a substantial body of evidence on tax capitalization that estimates a 15% land tax would lower the lands value by 75% or more.
St Pauls would then need to raise the rate to 60% to generate the same revenues, which will have further price depressing effects, in a vicious cycle.
So it seems like it would be impossible for St Paul's to fund itself entirely from LVT alone.
I am a fan of LVT, but the tax revenues from it literally can't exceed the annual rental value of the land, which is usually 1-2% of its current purchase value.
Let me separate out two things — and preemptively acknowledge that the St. Paul example may have been a bad rhetorical choice given what I was trying to do with the piece.
1) Is a world where a city generates most of its revenue from land rent possible?
I still think the answer is yes. Stiglitz’s Henry George theorem is the classic theoretical version of the argument. Battery Park City is a close-ish real-world example of a public entity capturing land value through ground leases. And at a more mundane level, this is also a riff on how malls — and, famously, McDonald’s — make money: control valuable locations, then monetize the location value over time.
Obviously, that then turns into a separate debate over what a city ought to be doing, how much that would cost, and what “covering most operational expenses” actually means.
2) Is it remotely conceivable that we could go from here to there?
That is a different question, and your point about land prices is important here.
Yes: if a city aggressively raised an LVT overnight, it would lower the private sale price of land as future land rents are de-capitalized. So we agree on that.
But the private market sale price of land is not the same thing as the annual rental value of the location. Under a serious LVT, sale prices fall because less of the future rent stream is available to private owners. The rent stream itself has not necessarily disappeared; more of it has been shifted into public revenue.
So I don’t think the [economic] “doom spiral” you’re describing is quite right. It would be a problem if assessments mechanically treated post-tax sale prices as the entire tax base. But conceptually, a proper land-rent assessment would be trying to estimate the gross annual value of the site, not simply taxing the de-capitalized resale price over and over again.
The real problems are [political-economy] issues
One problem is that a serious LVT would devalue land as collateral, and land currently backs a huge amount of financial assets.
A second problem is that many landowners cannot actually realize the full productive value of their land because land-use restrictions prevent more intensive development. So if you tax land as though it could support much more productive use, while still legally forbidding that use, you just get a tax revolt instead of more development.
So to bring it back to the piece: I still believe a city could run a mostly land-based revenue strategy. I do not believe we could flip a switch overnight and get the benefits I’m gesturing at. Part of the issue is the transition problem you’re calling out. Part of it is the political economy of existing land use regimes and the present degree of land-based financialization.
My reason for invoking St. Paul was to give readers who have never thought about these issues some frame of reference — a rough sense of magnitude for how much urban land is actually worth. But I agree that, if read as an immediate policy model rather than a thought experiment about a different municipal revenue structure, the example should raise the kinds of questions you're asking.
This idea appeals to me because it treats residents as actual participants in the value of a city, not just consumers of services or obstacles to development. So much urban wealth comes from the collective life of a place: the workers, the schools, the small businesses, the transit, the culture, the people who stay long enough to make a city feel like itself.
Right now, too much of that value gets captured by whoever bought the right patch of dirt early enough. This idea feels powerful because it asks a better question: if residents help create the city’s value, why shouldn’t they share in its growth?
I also like that the proposal rewards tenure without turning the shares into another inherited asset game. That matters. Otherwise, we just reinvent the same inequality with shinier paperwork, and please, we already have enough expensive nonsense wearing a reform costume.
Someone get this post in front of Zohran!
This is an interesting change in weights, with management elected on a per-head basis and the dividends released on a per-share basis. I think it's worth thinking out the dynamics, because it sounds like voters would be more short-term focused than the shareholders would want.
In general, I would rather be a customer than a shareholder or board voter. Organizations listen harder to their customers. So it's really my actions in buying or selling land (taxable assets) that influences the city council and administration.
Also note that while annual budgets sound doable, a lot of capital investment around a city comes from State and Federal grants and funding. At which point, those bureaucracies become the real "customers" of the city admin, not the residents (which angers them but they don't know why). I think it would be hard to institute this vision without cutting that Gordian knot first.
Being a customer is certainly the better position in a competitive market. In a monopoly, I'd rather be a shareholder. A city obviously lies somewhere along the spectrum, and YMMV on what model is more appropriate. Given how high the rents can get in cities that seem badly mismanaged, I'd lean away from the competitive model. That said, I don't see how this proposal would undermine anyone's leverage as a city consumer.
Hey Drea, this is something struggled with in this post. This isn’t really intended as a policy piece, though I get why folks are reading it as a concrete proposal.
What I want to assert is that municipal governments and the communities they serve create value that shows up in land prices. Further, that the best “business model” is one where the monetizes that value. And, finally, that there might be ways to deploy that value to get everyone on board with the type of development that creates even more prosperity. (Contra the current political economy)
So yes - the modern American municipality fundamentally does not work like this and the folks who serve in them don’t think about their finance in the way I’m framing it. But, for my purposes, it’s kinda beside the point.
Here, the specifics are meant to serve as an illustrative tool and preempt a few obvious what abouts. I’m not personally married to specifics.
On the question of customers in my toy scenario though, the residents are both owner and customer. Anybody who does anything in the local economy is definitionally increasing demand for space and increasing locational value. So, same same unless I’m misunderstanding your point.
It's more than a municipal corporation - it's actually a consumer cooperative!
Yes! And even if people, inhabitants, residents, or citizens do not own shares in their city, they could, or likely should, be offered stock in the service provider or providers that administer or operate their city. This makes all the sense in the world.
There is also little to preclude those who want to buy preferred shares in their city from doing so as a further vote of confidence and as a fundraising device. And if that results in those preferred shareholders receiving an extra dividend, which is not uncommon in that class of shares, then so be it.
Though, in an ideal sense, it may be better for common shareholders to have more of a say in the hiring and firing of management, or simply to leave that up to voters regardless of the kind of stock they hold in their city.
Let the cities of the future compete for new citizens by offering not only the best places to live, but places that even pay you to do so, and not merely through those one-off stories about a rural Italian village or a remote Greek island.
This power hopes when everything around us makes little sense.
In other words, these are condos. It's ben done.
more like a mall where the tenants own equity in the legal entity that owns the entire property
In other words, condos.
A condo arrangement doesn’t separate the cost of housing provision from a claim on residual revenues. A condo arrangement keeps everyone locked in on home (read: land) equity. The thought experiment here is to imagine abstracting away land rents so as to reapportion them on an ongoing basis. Fractional owners in a condo are as illiquid as the owner of a single family home. So the underlying political economy retains all its negative features.
(Not that I have anything against condos in the real world, housing is housing)
I still think it's splitting hairs. There's all kinds of ownership mechanisms.
The thing I don't like about yours, if I'm understanding correctly, is that people are invested, but with no initial investment. Alaska oil is there by nature. Sharing revenue with citizens seems reasonable. But cities are there because they were built. The land by itself is worth very little until it's built out. If you don't factor that, you are ignoring reality.
And, "Excess revenues, after the city’s operational needs are met, flow back to residents as dividends." Have you noticed that city's operational needs are never met? They always 'need' more. So, forget about dividends.
And if I can't vote in this Utopia; if other people are making the plans and I don't get a say-so, count me out.
Taking these order...
- I hear you saying it sounds like splitting hairs; my response is that none of this makes sense if you don't look at land value as something fundamentally different from capital and, therefore, see the second order effects the flow from the questions of a) who gets to collect it / monetize land and b) how it's spent / disbursed.
If insufficiently set that up in the top half of the post, I'll unfortunately not up to the task here in the comments. So, maybe some other time.
- As to who ought to get the benefit of land value, I'm not sure if your concern is about incentives (things don't get built if the builders don't get the land-specific upside) or normative (a citizens dividend disbursement is unfair because a random person didn't help build some apartment building or road on the other side of town.
For the incentives question, all I can say is this happens all the time in places both within and without the U.S. Developers build, they get the upside from the development they undertake, but have to pay for the use of the land in perpetuity. Municipal land leasing well established practice.
For the normative concern, well, that's a discussion about the nature of land value. At the end of the day, everyone in a city contributes to the value of land in that city in an individually unattributable way. Yes, the public park makes everything immediately around it more valuable, but you put that park (or road, or apartment building or sewer system) in the middle of the sahara desert and no value has been created. Land values are created communally in a whole that's greater than the sum of it's parts kind of way that makes it impossible to disentangle some original source.
- and on excess revenues, that's why I pulled the numbers for St. Paul. Value of land in a non tier 1 US city is significantly higher than what the municipal government annually spends. Now, I want to triple underscore this is a hypothetical intended to provoke thought, not a set of policy proposals. If cities everywhere suddenly expropriated way more land value overnight, that would likely cause a financial crisis since so much american land is securitized as collateral for financial instruments.
- and the voting thing., I’m not following.
Fascinating idea on how to rethink home ownership, belonging, and funding government.
The source of funds for the city is taxation on land value. How does a person pay the taxes if they don’t have the liquidity? That is, they are land-rich but cash poor.
Many people borrow against the equity in their property to be able to make personal decisions about how to run their own lives and improve their properties. Businesses do the same to be able to make decisions on how to improve their own businesses.
Once you start taxing someone’s wealth you take away their ability to make decisions that they individually believe are needed. The individual still takes the risk but now has no incentive.
Moreover, your model neglects to deal with accountability. Look at all the failures of government, the graft and corruption (CA train, CA fire suppression and utilities), USAID, US SNAP scams, Medicaid fraud, and on and on). Yes a person is sacrificed here and there but there is never any real accountability.
Collectivism is always and necessarily de minimus. On the contrary, as has been demonstrated everywhere governmental collectivism has been implemented, it does not create a rising tide. It creates a swamp. How’s New York doing with Mamdani?
Utopias fail because they don’t account for reality.
Without a free market, how is value determined?
Will your model rely on experts in a central committee to set prices? Whose values determine what people should have? Why should your values dominate that person who owns the 5,000 square foot lot? And then what are you going to do to enforce your system?
We seem to be talking about different things. The most mundane example I can provide is the classic American mall, and even that is arguable more “centrally planned” than the hypothetical in the post.
Oh, also, another fun one is MacDonalds (contrary to popular belief, they’re more a real estate company than they are a burger company - corporate’s real customers are the franchise owners who are obligated to pay them rent on corporate owned real estate. People buying burgers are on the other side of the franchise owners).
Nothing about there being an overarching, final landlord precludes the price system from coordinating the distribution, development, and use of real estate.
I don’t think the economics would work well in your model. Let’s take your example from Seattle. On a small scale that collective ownership may work because that small group owns the property and is assuming all the risk. If/when maintenance is required or if they want to improve their own businesses property they can leverage their equity to cover the costs. Where is all this cash coming from in your model? Government redistribution? And then why improve properties. There is no incentive if property is collective. This has been proven time and again.
Collectivism comes at the cost of individual liberty.
Yes, as you mentioned, government can develop the environment to enable economic growth (and they can and many time do the opposite as well), but it is the individual who takes the risks for the rewards that build value. Take away the rewards and you take away the ability to build value and innovate and improve things. We need systems that enable (or get out of the way) personal agency.
I'm not seeing the incentive problem. A developer still builds on the land and has every incentive to monetize their physical capital to whatever extent the market will bear.
There's plenty of real world precedent for separating land ownership from ownership of the buildings/infrastructure, too. This is, again, just how Battery Park City got built (to name a single example).
Hey Tim, thanks for the read!
For the liquidity bit, I'll say the the idea I'm thinking through here is a world without privatized real estate equity. In this world, no one is living in, say, a house on a 5,000 sqft lot in an inner ring suburb. The built environment, and how people inhabit it, would look much much different. Which is to say, the system I'm imagining would mean no one could ever be land rich and cash poor. The point is to produce the opposite, thereby enabling people to have the resources they need to take all the risks we both agree are so important for society.
Now, if you own a house and lever up to get cash and start a business, if that business fails you just lose your house. I'd prefer a world where that value doesn't stay locked up in land and, instead, is used to make everyone more liquid all the time.
Now, as for the corruption issue, two responses here. First, this is a work of semi-speculative institutional design. If you're interested in conversations of organizational efficacy or state capacity, that's a whole separate topic (which I'll be writing about later this year at Urban Proxima!). Second, there are plenty of examples of well functioning institutions. The Hong Kong Metro Railway Corporation Limited, the Battery Park City Authority in NYC, the West Falls Community Development Corporation...these are just a few I happen to be familiar with.
But let's talk about “governmental collectivism”. What I’d offer to you is we, in the United States, already live in the quickly desiccating corpse of post-war collectivism.
Coordinated government policy at all levels conspired to create the land use regime we live in today on the basis of a centrally planned mortgage market whose explicit goal was to enable homeownership at a level that undirected credit markets would have never been able to achieve. Now, we could argue about whether this was good or bad policy (obv I have critiques), but if we want to describe the world I’ve sketched our here on a napkin as collectivist, we also need to acknowledge the degree of central planning that went into the system of homeownership we have in the U.S. today.
If you're interested, I have some thoughts related to the topic here: https://urbanproxima.substack.com/p/how-we-build-housing-is-how-we-build
I love this idea which really incentivizes all long term development which will add the most future value to benefit all residents, regardless if they will personally use the value generating asset or not.
Jeff, this is extraordinarily provocative and ingenious. Kudos to you for putting this concept together. The best observation you make is that the PARTS of this proposal already exist--and simply require "assembly." I'm an architect writing a substack about Modern Money Theory https://johnalt.substack.com/ and will now be giving thought to how the mechanisms of modern fiat money might assist and contribute to the concept you've described. Thanks for your provocation!