Comment by YmiYugy
1 year ago
I recognize that this goes a bit against the spirit of the article, but I struggle to even conceptualize what land value means and how it can possibly be independent of its use. Land doesn’t really have inherent value, it comes from what you could do with it, but that depends a on a lot of factors including what it’s currently used for and who owns it. One problem to illustrate is that land value is typically calculated per area, but the value obviously depends on how you subdivide a particular piece of land. If I try sell a single sqft in my backyard it’s obviously pretty useless and so the value is low. But if I sell the entire plot the value of that backyard will be much higher, and a developer who manages to buy the whole neighborhood would probably value that even higher
In “Radical Markets” by Posner and Weyl they show that for any plot of land, if you run a continuous auction on it, meaning whoever pays the most tax on it gets to own it immediately, including all assets contained within, then you get both maximum tax revenue and maximum utility.
Is this accounting for path-dependent utility? The utility of getting enough land to build a house to live in, and then losing it as soon as the house is built is severely negative.
Does it also account for actors who aren't perfect economic calculators with infinite information processing capacity?
In other words, does that system work for grandma?
A realistic system would definitely need to tack on an extra fee say 10% to account for real world friction.
So the selling price would be 110% the highest bid.
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I think that model will fall apart when you include transactional costs
Not just transaction cost, but also the whole point of Georgist theory which is that it's supposed to stimulate development. Putting a skyscraper on a piece of land costs a lot of money, paid for by the returns to development. If someone who hasn't paid the capital costs of building that skyscraper (and the admin costs of letting it out) then has the right to buy the land under the developers and charge them the highest possible ground rent, the thin profit making opportunity disappears, and it becomes less costly to relinquish landholdings than to develop them only to lose them to the first entity that wants to capture the value of your investment in the skyscraper in ground rent.
Probably the only stable state for that sort of market is for the government (which not only usually has the lowest costs of capital, but also sets the ratio of LVT to property prices) to end up owning all the land. That model can work (see Singapore) but it very much depends on the quality of the government and doesn't replace tax revenue...
That's still value that's inherent to the land, it's just that you destroy/create value when you change the boundaries of the property.
Land value is not supposed to be attached to what you use it for, but what you _could_ use it for. This is inherent to its location and the natural resources that are on/in it. (Plus, as I guess you have hinted, its shape and what it's adjacent to).
The idea of land value is to separate those inherent things, which weren't created by the owner, from the things they actually did create.
The main things we are interested in here are exactly what I mentioned:
- Land in NYC is valuable because it's in NYC. Landlords didn't create that value so we want to stop them capturing rent on it (while allowing/encouraging them to capture rent on the expensive buildings they fund)
- Some land has oil under it. Private individuals shouldn't be able to get rich just be owning that oil, they didn't create it (but they _should_ be able to get rich by funding drilling projects, if it satisfied a demand).
> Land doesn’t really have inherent value, it comes from what you could do with it
If that's true for land, isn't it true for almost everything? Ultimately you just end up with what other people will consistently pay for it.
> If I try sell a single sqft in my backyard it’s obviously pretty useless and so the value is low. But if I sell the entire plot the value of that backyard will be much higher
This is true of a bag of a single pea from a bag of frozen peas too. I don't think is anything specific to land.
no one can sell 1 sq ft, they can sell the minimum zoned lot size for which the price would be maximum per sq ft price which would decrease as lot size increased.