Spencer Heath Archive

Item 971

Article published in The Appraisal Journal, Vol.7, No.3, July 1939. A second article, under the title, “Why Land Value Should Not be Taxed” (see Item 972), was to have been published subsequently as a follow-up but was rejected as too controversial when the manuscript was submitted.

 

 

WHY DOES “VALUABLE” LAND LIE IDLE?

 

Why is land not occupied, and why does rent not rise in proportion to the amount of public services provided in the different parts of the community? If two or more sites are equally well served, how can it happen that one of them is used and improved and yielding a large amount of rent, while the others remain unoccupied and yield no revenue at all in exchange for the like and equal public services supplied to them? Why is not the entire area of a community developed and occupied and improved evenly, or in proportion to the amount of municipal services provided in its different parts and localities?

In asking these questions it is unconsciously assumed that there is or will be an equal demand for public services in all parts of the community, or at least that the demand for these services will exist in the same proportion as the supply. It must be remembered that the value (not utility) of any service or commodity depends upon its exchangeableness, which is to say, upon the amount of demand for it; and this does not mean mere desire, but the amount of other services or commodities that are offered and can be obtained in exchange.[1]

There can be no doubt but that the total of ground rent that the land of any community actually yields to its owners is the total present exchange value of all of the public services that all of the land receives. The question is:  How does it happen that the total rent is collected from only a portion, often less than one-half, of the area, even though it be a small community and all of its parts be about equally well served with police, fire, water, sewers, parks, schools, and other community services?  The answer is that there is an outlay of capital in municipal enterprises beyond the economic capacity of the people of the community to use and to pay for its use.

Although in the entire absence of community services no property could be owned or any wealth produced or exchanged, still the amount of production possible in the community is severely limited by the manner in which the public services, as a whole, are conducted. It is only the net services that remain after all dis-services have been deducted that can be taken into account as creating land value. The positive services just enumerated are to a great extent offset by the dis-services public servants and authority carry on. These dis-services or negative services consist almost entirely in the seizure of property by taxation or other penalization of the ownership and exchange of goods and services, and this, together with its grave indirect effects of limiting business profits, operations and volume, must be set off against all of the real and positive services the community receives. Only thus can the net, that is, the real, amount of public services be ascertained. This, of course, cannot be arrived at by any computation, but, in a very definite and practical way, the population shows exactly what the net value of the public services is by the amount of ground rent that it pays in exchange for them, plus the amount of ground rent that land owners who are also occupiers could command.

 

Ground Rent as Business Index

Since the public dis-services that limit business are exactly the same dis-services that limit rent, it may be said that the ground rent is the index of the amount of business that can be done in any community. The volume of business that can be done and the volume of income to land are both directly limited by the taxation and similar disservices that reduce the value of land. Rents are low for the same reason that business is poor. It is obvious to all that what raises business raises rents. It should be equally clear that whatever reduces business reduces rent also. Both depend at all times, other things being the same, upon the excess of public services the community can enjoy above the public dis-services that it must endure. When this difference is large, production increases and rents rise. When it is small, business breaks down and little rent is paid. When there is no difference, business and rent both disappear. The historian, Edward Gibbon, cites graphically how Roman taxation canceled the benefits of Roman protection so that in hundreds of Gallic cities the populations disbanded to join the barbarians and became, as he says, more barbarous than they.

Since, therefore, the amount of rent collected and the amount of business that can be done is so rigorously limited, the question of why “valuable” land lies idle is not far to seek. It is simply that, if the limited amount of business were to be spread out over the whole community, it could not be done efficiently. If, for example, the other tax-burdened business in a town can support no more than one hotel, that hotel will occupy and pay rent for, only one of two equally available sites, each of which could well be occupied by a hotel if twice as much business were being done.

The hotel could not be conducted at all if its limited amount of business were compelled to be spread out over all of the sites equally suitable for a hotel, even if it paid for all of the sites taken together only the same amount of ground rent that it now pays for the one. The same is true of every other kind of business. The town simply cannot make use of all of its streets and other public services and improvements upon the restricted amount of business that its inhabitants are permitted to carry on. The “valuable” sites are not idle because the rents that are paid are so high, but because, business and production being restricted, rents and land values, in the aggregate, are so low.

If, without any relief from taxation and its attendant evils, the business of the town, county, city, or state could be forced to occupy more land than it now does, then this business would be done less efficiently and would pay, not only less wages and profits, but also, in the aggregate, less ground rent. Any attempt to “force idle land into use” by levying taxes nominally upon it or upon its supposed value would, in fact and in reality, only impose a further burden on the production of wealth upon the land that is now being used, for out of that wealth the new taxes would have to be raised. The supposed tax on idle land would be really a further tax on wealth and would have, therefore, precisely the contrary effect from that intended, for the increased burden of taxation upon wealth would further reduce production and thus throw still more land and its public services into idleness and out of use.

Business and production consist in voluntary exchange for mutual profit. Exchanges cannot be compelled by taxation or otherwise forced. On the contrary, taxation on wealth and on the use of wealth, including prohibitions and penalties, is the only force by which business can be prevented and land thrown out of use and out of revenue and its value destroyed.

 

Public Dis-services Cause Idle Land

Much land lies idle, then, in a community having public works and services, not because of any perversity on the part of land owners, but because, under the public dis­services (of taxation and the like) to which the community submits, only a limited amount of business and production can be carried on, and under these conditions the restricted amount of business, if spread over a larger area, would be less efficiently done; and if spread over the entire area, probably could not be done at all. This is why only the land that is occupied and used yields any rent or has any income value and why so much of the so-called “valuable” land is out of use, and therefore out of value, in any but an imaginary and speculative sense of the word.

What has been said of idle land is, of course, equally true with respect to idle buildings or other capital improvements on real estate. The capital thus invested yields little or no returns, not because of any defect or deficiency in the capital itself or on the part of its owners, but the same unwise conduct of public affairs in ways that make it unsafe or unprofitable to use land also makes it unprofitable to use the improvements that now exist upon the land. Whenever the forces that restrict production tend to outrun production itself, then there is necessarily a decline in the use and occupancy of improvements on land. This causes existing capital improvements, in a large measure, to fall into the same general category as idle lands—and from the same general causes.

It may be added that transactions in idle land are transactions in hopes and fears, and not the doing of any business in the sense of creating and exchanging wealth or services. Such speculation neither increases nor diminishes wealth.