Module 3: LAND RIGHTS AND LAND VALUE CAPTURE
1 Brief Review of Modules One and Two1.1 In Module One – “Land Rights and Poverty” – you learned that the ownership and control of land is highly concentrated worldwide and that the human right to land and natural resources is can seldom be found in human rights documents. Democratic institutions have not affirmed the human right to the planet as a birthright, even though land is a gift of nature and without it we cannot live. Module One drew your attention to the injustice of so many people living in poverty when there is land available from which they could make a simple livelihood – if only they had access.
1.2 Module Two –“ Land Price and the Law of Land Rent” – gave a deep historical context (albeit a European one) to our current land problem by describing how land, formerly viewed as a commons, was ruthlessly privatized and enclosed for the exclusive use of a few, resulting in the impoverishment of vast numbers of people. European colonization, which began as internal colonization, spread to vast reaches of the world as this same process of land and resource grabbing continued under the guise of “improvement” and “development.”
1.3 You learned that when land is treated as a commodity for profit and speculation, land prices eventually rise faster than wages of working people. Careful study of the “law of land rent” shows that this problem is the root cause of the maldistribution of wealth. Now just a few hundred multi-billionaires have more wealth than half the population of the planet. Those who have no or few capital or land assets must then borrow and pay interest for housing mortgages or pay high rents relative to wages for the rest of their lives.
2 What is Land Value Capture?2.1 Module Three – “What is Land Value Capture?” – introduces a practical way to build a fair economy via an ethical and practical approach to public finance policy. Simply put, Land Value Capture equitably returns to the people as a whole the value – “land rent” - that attaches to land as economic development proceeds. Taxes on wage income and productive activities can then be reduced or ideally, entirely eliminated.
2.2 When land rent is captured for social purposes and needs, there is no private profit to be made in the unproductive activities of land speculation and real estate investment. Thus land is no longer treated as a for-profit commodity, and the boom (and consequent bust) cycle is eliminated. Land prices are stabilized. In areas experiencing a land price bubble the land costs are reduced significantly, giving more affordable access to land for those who need it. In areas where a few have been hoarding or underutilizing land, land value capture is a steady nudge urging these lands to be released so that others can use them.
2.3 Full implementation of land value capture policy provides a solid source of public revenue to pay for social needs such as water and sanitation systems, education, roads for transport and/or public transport systems, and other public services.
2.5 Production of genuinely needed basic goods and services is encouraged in yet another way with the land value capture policy approach. A corollary of the public collection of land rent is the reduction or best the complete elimination of taxes on wages and productive capital. Removing the tax burden from the backs of workers means they will receive their full payment for their labor. People who want to begin their own individual or family owned enterprise or cooperative will be encouraged to do so because their productive capital – tools, machines, communication and other expenses – would not be taxed. Nor would houses and other buildings be burdened with taxes, further increasing the capacity to buy, build and renovate needed dwellings and other structures.
3 Land Value Capture: “Third Way” Economics3.1 Land value capture is a key policy for building a “third way” economic system which affirms the positives from both the right and left sides of the political spectrum.
3.2 From the right, land value capture retains and furthers the FREEDOM to produce and exchange wealth by untaxing productive efforts and maintaining land affordability. The private sector thrives when transportation and other public benefits are available. Land value capture is a correction to a flawed market system which concentrates wealth in the hands of a few.
3.3 From the left, land value capture is based on the fundamental and equal economic human right to the basic means of all production – surface land and natural resources. The left’s concern for FAIRNESS in the distribution of wealth is affirmed and furthered via land value capture when it is correctly and fully implemented. In tandem with the reduction of most other forms of taxes the stronger the implementation, the faster the wealth gap closes.
Read about Dividing the Fruits of Labor at www.henrygeorge.org/isms.htm.
3.4 In short, this third way policy furthers both economic freedom and fairness, efficiency and equity in wealth production and distribution. People benefit when their wages are not taxed and land and thus housing prices are stable and affordable. Everyone’s life improves when there are well-funded public benefits and services such as sanitation, transportation, education and health care.
3.5 Australia provide evidence of some of these affects. This country's states have had significant experience in land value capture, reported in numerous studies over at least 60 years, proving the comparative advantages of the system.
3.7 Mayor Stephen Reed has written that land value capture “has been and continues to be one of the key local policies that has been factored into this economic success."
3.8 In the case of Allentown, Pennsylvania’s third largest city, the citizens pushed for land value capture by means of a home-rule charter initiative. They voted for a municipal charter that froze or eliminated all other taxes and permitted tax increases on land values only for 12 years. This city now experiences self-sufficient economic revitalization, the logical and expected result of this kind of tax shift. Allentown's new construction and renovation grew by 82% in dollar value, in the 3 years after the system began. This was 54% more than that of Bethlehem, a nearby city of similar size, despite the latter's receipt of much federal grant money.
3.9 In none of the above cases was there full land value capture and national income taxes were still a burden on workers. But since these well-studied examples (just a few of many positive experiences of land value capture around the world) show substantial improvements it can be anticipated that capturing 100% of land values, while shifting taxes away from labor and productive activities, can result in prosperity for all.
4 Land Value Capture is a Sufficient Source of Public Finance
4.1 Economists who have an inadequate understanding of land rent sometimes state their opinion that it is an insufficient base for public finance. They say that land rent cannot provide the required funds needed to finance social necessities. This mistaken perception can usually be traced to the lack of up-to-date and correct land value assessment records. Economists with expertise in land value capture policy have determined that land rent is in fact a substantial amount of the GDP of most countries, ranging anywhere from 20% to 30% and even more.
4.2 For example, please carefully study this graph compiled by land value capture economists with Land Values Research Group in Australia:
4.3 You will note that in 1974, resource rent was only 12% of GDP while net incomes of labour and productive capital was 63%. Taxes amounted to 25% of GDP. By 2004, as the overall economy grew steadily during the twenty year time period, we see the workings of the Law of Land Rent. Resource rent has increased to 31%, or nearly one third of GDP. The tax burden increased 6% during that period while incomes of labour and capital took a big hit, going down to just 38% of GDP, a loss equal to 25% of GDP.
4.4 Taxes currently fall mostly on labour and productive capital. Still using the Australia diagram as our model, removing the 31% of GDP of taxes and adding it to the return to labor and capital increases that percentage to 69%, which is 6% higher than in 1974. The 31% of GDP which is resource rent would be captured back for the benefit of society as a whole. It would adequately provide the funding base for education, transportation and other public infrastructure, police and fire protection, good urban and regional planning, etc. With incentives for investing in the “bads” of profiteering in the gifts of nature eliminated, both public and private funds would be directed to the “goods” that people need and want.
4.5 The following diagram is another way of representing the information based on the Australian data. “As Is” shows the three way division of wealth among:
4.6 The second diagram - “If We Captured Land Values”- is an ideal model which has eliminated taxes on work and production with full rent captured for the benefit of society as a whole.
4.8 In his recent book Double Cross Ron Banks has estimated that if the UK were to raise its revenues from natural resources rather than use existing taxes, each man, woman and child would be better off by an astonishing £15,000 per head, per annum. If Banks is only half-right, this would mean that a family of four could be £30k a year better off!
4.9 Optional Reading: Who Says Cities are Poor? They Just Don't Know How to Tax Their Wealth!
4.10 Student Activity: Please read at least four of these case studies of Land Value Capture and then write a 500 word essay summarizing what you have learned so far in this module. Following your essay write down any questions you have about this material and send to your course instructor.
5 Rent-Seeking5.1 Money is a symbol of wealth, it is not wealth itself although of course it is used to acquire tangible wealth. Money is an efficient mechanism for exchange of wealth. But when land is treated as a market commodity with a monetized price, the price escalates and inflates. There are no land factories making more land so that supply can meet demand at an affordable cost. A productive economy then evolves, or rather devolves, into a “rent-seeking” economy.
5.2 Considering the current nearly worldwide rent-seeking system, it is no surprise that workers desire to own homes not only as a basic necessity but also so in order to have a small stake in the land price inflation game. As wages lose purchasing capacity, the average working person is vulnerable to all sorts of schemes through which they can buy a tiny piece of land for their house to sit upon. The recent and ongoing collapse of the home mortgage system in the United States, sending shock waves throughout the banking systems of the world, is one indicator of the problem of treating land as a for-profit market commodity.
5.3 Here are two more examples of how an improperly harnessed tax system can have disastrous results for so many people:
In a rent-seeking economy, as land prices inflate the “haves” invest their funds into capturing the economic surplus represented by land rent and thus become the “have mores.” The private appropriation of land rent via real estate investment, speculation and profiteering is an unproductive activity lacking any social utility. Rent-seeking is plain and simple an efficient and effective way to concentrate wealth and power in the hands of a few while making life that much more difficult for everyone else.
5.5 Student Activity 1: Please give one or two examples of individual or institutional land rent-seeking in your own city, region or country:
5.6 Student Activity 2: Do a websearch using the phrase “rent-seeking” and scroll through a few of the pages of articles online. What did you learn?
5.7 Optional reading on general rent-seeking: High-Level Rent Seeking and Corruption in African Regimes: Theory and Cases.
6 Real Estate Speculation and Land Price Bubbles6.1 One of the most destructive aspects of finance capitalism is the borrowing of money to purchase land in the expectation that the land rent will increase in order to repay the loan while making a profit from land. In other words, borrowing money to play the game of rent-seeking. There may be different phrases in different languages, but in English this game is sometimes called “making a killing in real estate.”
6.2 Meanwhile tens of thousands of people die of hunger each day because they cannot access productive land from which to make a living. Just as slavery was abolished, so must be real estate speculation and land hoarding.
6.4 Land speculation produces no tangible wealth and leads to land price bubbles. When the bubble bursts, the banking system managers try to stabilize the situation by manipulating interest rates. But if the interest rate is placed too high, the economy slows and the “real” economy goes into recession. Workers lose their jobs and source of income. If the interest rate is placed too low, the real estate speculation game starts again and the land price bubble (and thus the housing price bubble) begins to grow. Once again, those who must work for their living have to work longer and harder to buy their house lot. When they take out a mortgage before the bubble bursts they are left with negative equity.
6.6 There is in fact no “just right” interest rate when the land problem is the real culprit. The average person suffers if the interest rate is high or low. See-sawing the interest rate back and forth in this way is commonly understood as an attempt to stabilize the economy but the end result is the same. The rich get richer at the expense of the rest. The wealth gap grows, sometimes faster, sometimes slower, it is just a matter of speed. Land rent is privatized and those who work for a living are penalized.
6.8 Note again what you have learned about the two dimensions of the land problem: (1) a small percentage of people now own and control a largely disproportionate amount of land and natural resources and (2) as development proceeds, land rent increases faster than wages and the return to other economically productive activities due to the treatment of land as a market commodity.
6.9 The core solution to both market malfunctions and the growing wealth gap lies not with interest rate manipulations but in solving the land problem. This is the primary goal of land value capture and from which flows a number of additional social benefits which we will describe as we continue through this Module Three.
6.10 Student Activity: Please view this Land Values Research Group powerpoint on Land Price Cycles and Wages: www.earthrights.net/pubs/australia.ppt
6.11 The land problem is an ancient one and land value capture or equitable land distribution was used in centuries past to restore economic justice. In this next section you will briefly review a few of these ancient truths.
7 Ancient Truths, Ancient Roots7.1
7.2 Economic historians (see the chapter on Mesopotamia and Classical Antiquity by Michael Hudson in the book Land Value Taxation Around the World) who have studied systems of land tenure and taxation back through antiquity have discovered that the more fiscal policy (from the Persian word “fisc” the basket used to collect money or goods from Persia’s provinces) is related to “benefits received” and “ability to pay” the fairer and more democratic the society. But as public and communal lands were privatized, wealthy landholders increased their political power and democracies devolved into oligarchies. The richest people avoided taxation while shifting the tax burden onto wealth producers. This is the situation again today as can be seen from this diagram from a Worldwatch book by David Roodman - The Natural Wealth of Nations:
7.5 Where once governments relied on property taxes which captured land rent, they have increasingly shifted to sales and payroll taxes that fall mainly on the lower 90 percent of the people. In the ancient past when exploitative conditions of economic injustice emerged there would be declared “clean slates” and “jubilees” which cancelled debt and redistributed land. Land Value Capture is resonant with these earlier ways to end monopoly and build a fair economy.
7.6 Student Activity: Please scroll through these two sets of quotes:
7.7 Optional Student Activity: Those interested in “Liberation Theology and Land Reform” may wish to read articles found here: http://www.landreform.org/reading0.htm
7.8 The remainder of Module Three will describe how land value capture can significantly improve the living conditions of those presently living in slums (a Millennium Development Goal) and its relevance to urban planning, gender equality, environmental concerns and climate change.
8 Land Value Capture as a Key Policy for Improving Conditions of Slum Dwellers
8.1 Slum dwellers have migrated to urban areas either because land conflicts and appropriations have forced them off their rural lands and/or in the hope of finding employment. Their informal settlements have insecure land tenure, very poor quality housing and little or no water, sanitation, transportation and other public services. Many slum dwellers also experience food insecurity and health problems. Yet most slum dwellers are able and willing to work and actively seek wage employment or self employment.
8.3 As we have previously noted, land value is highest in the urban centers of exchange and enterprise and increases as population grows and development intensifies. How could application of a full and robust land value capture system of public finance improve the lives of slum dwellers? Assuming that such a system is gradually but steadily implemented in stages during a five to ten year period, we can expect that:
8.4 Lastly, to secure land tenure for slum dwellers or squatters, land boundaries should be clearly demarcated, use rights for specific parcels clearly established, and land values accurately assessed. These lands might best be legalized as leaseholds at least for a period of time because land values escalate immediately, often substantially, once legal land tenure is established. After such tenure is granted and titles secured for individuals on specific private parcels, poor people sometimes sell their parcels for immediate (but one-time only) cash benefit. In many cases such landless people sink into poverty again. With land value capture by means of government-leased land, land is secured for use rights of occupants, conditional only upon payment of a land lease fee. This could be quite low at first, a kind of subsidy, rising as the occupant¹s economic condition rises.
8.5 With a lease system, poor people do not need to purchase land for housing and thus do not need to pay compound interest on mortgage costs of land. They need borrow funds only if needed, for the cost of the dwelling itself.
8.6 Similarly, the private sector construction industry, when building multi-level apartment units, for instance, need not carry land mortgages for land purchase. Thus they can put more capital directly into increasing the supply of adequate, affordable housing.
8.7 Additionally, municipalities with a strong established land value capture system can use some of these funds to establish zero- or low-interest revolving home loan funds for poor and low-income people.
8.8 Student Activity 1: What questions or concerns do you have about the possible impact of land value capture on slum dwellers? Please send your questions to the course facilitator.
8.9 Here are some questions you might have, for example:
8.10 Question: What if a person living in a slum has no capacity whatsoever to pay their apportioned land value capture payment fee because they have no source of cash income or need what little they have to buy food? Would they be evicted?
Answer: Slum dwellers should have the legal option to contribute a certain number of hours of his/her labor for the benefit of the community equal to what they would pay in cash as their land value capture fee. Grassroots community leaders would decide where such labor would be best directed.
8.11 Question: But what if the person is too weak or sick to work?
Answer: With improving living conditions overall, one or a combination of these possibilities can help such a person: 1. family members of the weak or sick will have increased capacity to care for them; 2. some of the people contributing labor in lieu of cash payments for their land value capture fee could take care of people needing assistance; 3. the stronger basis of public finance can fund social services for people in need; and 4. assistance from private charities can be more readily available for those truly in need of help when those who can help themselves have found opportunities to do so.
8.12 Question: From my experience of living in the slums, it seems a lot of people there really could be productive in some way but there just never seems to be enough money. I still do not understand how land value capture can help people get money when there just are not any jobs.
Answer: There are now a number of examples of communities throughout the world issuing local currencies for local production and exchange. Money is after all not wealth, but rather a symbol of wealth that is useful because it is a great improvement over barter systems. As such, money can be thought of as a public utility. There should be no barriers put in the way of slum dwellers who wish to issue their own local currency. Clear guidelines should be available for “best practices” for slum communities who wish to do so. The acceptance of local currencies for partial or full payment of the land value capture fee also helps to legitimize local currencies.
8.13 Question: Renewing cities in this way seems to decentralize the role of government. What is the role of the national government with this system?
Answer: First of all, the national government can be most helpful by not standing in the way of local public authorities who want to implement land value capture. As the system is put in place locally, national government should be willing to reduce the tax burden on labor and productive activities while shifting its own revenue base to other “domains” of resource rent, such as extractive resources, electromagnetic spectrum for broadcasting and communications, or land rent from carefully managed forest or other public assets.
8.14 Bright minds and caring hearts should be at work on the national government level to curb pollution and provide environmental protection of air and water, encourage renewable energy development, resolve conflicts both within the country and in the surrounding region, and give guidance and support for building an overall balanced and sustainable economy for the entire country.
9 Land Value Capture as a Planning Tool9.1 Taxation can both create and destroy wealth as well as direct the location of wealth creation. For instance, a tax on windows was used in Great Britain from 1696 until 1851. As a result, the poorer people bricked or boarded up their windows while the very rich built mansions with an excessive number of windows to ostentatiously display their wealth. An unpopular tax on date trees caused Egyptian fellahs to cut down their trees.
9.2 Land value capture harnesses economic incentives in ways that facilitate the goals of urban planning. There are compelling reasons to first develop the highest value land found near population centers. With land value capture a developer or investor desiring these sites will not be penalized with a tax increase as a result of each improvement made. But doing little or nothing on a site of high value is discouraged. Thus with land value capture downtown land is put to its highest and best use.
9.3 Growth then radiates smoothly from more intensive use in the urban centers to rural areas without pockets of vacant or poorly utilized land in between. Urban sprawl is curtailed and rural land is more readily retained in its natural state, available for parks and nature preserves. There is also less pressure to build on agricultural land near urban areas. Rational and balanced development which curbs sprawl thus also makes better use of existing infrastructure of transportation, utilities, fire and police protection and other public services. All of these factors increase social cohesion and form the basis for an interesting, safe, “walkable” city.
9.4 Land for safe parks and green spaces in downtown areas is facilitated in at three least ways with land value capture: (1) land is more affordable for public purchase for public spaces because of the elimination of the land price bubble due to land hoarding, under-utilization, speculation; (2) because parks and green spaces are desirable public goods, living close to them enhances land values in their vicinity, thus bringing more revenue into the public coffer; and (3) capturing full land rent yields a strong base of public revenue to fund upkeep and protective services for parks and green spaces.
9.6 Other significant changes detected in similar studies of tax reform through land value capture:
9.7 More efficient land use resulted as a city's idle lots and underused buildings were put into productive use; this in turn reduced the pressure for costly and environmentally harmful urban sprawl.
9.8 Student Activity: Learn about these two projects developed by activists concerned about high housing costs and homelessness in cities with vacant land in Australia and New York.
9.9 Student Activity 2: Call public officials in your city or region and find out who is responsible for planning. Ask if there is a website with planning information. Compose questions about planning. Contact the planners and ask them your questions. Ask if they are aware of the benefits of land value capture (also sometimes called “land value taxation”) and its relevance to planning. If they are, ask them if they are actively working with public finance and budget directors to implement this policy. If they are not aware of this approach, send them information about it by email or post. Call them back in a few days and ask if they have any questions or any interest in more information. If the planners have questions you cannot answer, note these, then get back to your course facilitator who will assist you with answers and possible next steps.
10 Value Capture Can Easily Fund Infrastructure10.1 In his book Taken for a Ride Don Riley explores the impact of the building of the Jubilee Line Extension (JLE) Underground line in London. He visited the tunnelling site in the mid-1990s and has since commented how these men digging the tunnel were sweating hard, risking their lives, not knowing where their next job was coming from, while at the same time he, himself, was making money while he slept as his local land holdings appreciated in value as the line became a reality.
10.2 “Some of this wealth should have been collected by the Government in order to fund the project,” says Riley.
10.3 An independent study carried out for Transport for London estimated that between 1992 and 2002 the JLE caused land values to rise by £2.8bn close to just 2 of the 11 new stations (Southwark and Canary Wharf). This means that the UK Government could have built the JLE at no cost to the public purse if they had just chosen to collect less than one third of the increased land values arising from the scheme.
10.4 “If Governments continue to only tax wages, trade or goods and services to create new transport opportunities then they are choosing to give an unearned bonus to the owners of land,” says London transport consultant Dave Wetzel in his paper on Innovative Ways of Funding Public Transport. “Funding new and improved transport infrastructure from land value gains creates a virtuous economic cycle that provides a win-win situation for all concerned, including the landowners who provide the finance.” (The visual from this jpeg file needs to be inserted here.)
10.5 For those who are interested in further information on this topic here are two articles on Bonding/Funding of Transport through Land Values and Case Studies.
Also see The Nexus of Transportation, Economic Rent, and Land Use.
10.7 Student Activity: (Wetzel powerpoint here?)
11 Land Value Capture and Gender
11.1 There are enormous historical and present day gender disparities in land tenure worldwide. The largest and most valuable individual and corporate landholdings are predominantly owned and controlled by men. Public funds generated by land value capture would come primarily from these lands.
11.3 Women are more likely to be wage earners and small landholders. The land value capture approach includes elimination of taxes on wages and production. Those with smaller holdings use their lands intensively and efficiently and they would be encouraged to produce as much as possible without a tax burden on the products of their labor. Freed from taxation on their productive activities, the purchasing capacity of women would increase. When land speculation and hoarding is curbed, land is released for sale. Land and thus housing becomes more affordable as supply meets effective demand. These conditions increase gender equality with respect to land. Adequate, secure, affordable shelter brings economic and social stability to women and their families.
11.4 Land value capture is a form of land-based taxation that cannot be passed on to apartment renters. One reason landlords can charge rents at the level they do now is that so much land is held out of the market (neither used nor put up for sale or lease) or is represented in the market far below its potential (underdeveloped). Land value capture creates greater competition among landlords. Owners of vacant or underutilized property would be encouraged to construct housing units or sell their land sites to someone with the capacity and willingness to do so. The addition of these properties to the market decreases the competition for housing and so keep housing rents down.
11.5 For women wanting to buy homes, land would inevitably be cheaper as those holding land for speculation sell. Sprawl and the premature development of rural lands would be diminished and so land prices in these areas would not inflate as is often the case under current economic structures. Lands that could be utilized by women growing produce or joining together in various economically productive ventures would thus be located closer to urban markets.
At the Market Odi, Bayelsa State, Nigeria
11.6 The work of women that is not commodified or measured in cash payments makes a considerable contribution to families, extended families, and society in general. Intact, communal land tenure systems, still existent in some regions of the world, often better support contributions of women who, sharing a common and contiguous land base, can better organize for cooperative endeavors. Extreme land privatization, with individual small lots suitable only for nuclear families, weakens and breaks the bonds of extended family and community.
11.7 Because of their role in child rearing and their important roles in community relationships, women are often more tied to place than men. Secure land tenure, affordable land access, and a fair, transparent, orderly system of finance–all promoted by land value capture policy–strengthen women’s power and voices in deciding political and economic policies.
11.8 Land privatization is not necessary to implement land value capture, which accommodates a variety of forms of land tenure. Tribal, clan, and extended family land bases can remain intact with a land value capture system by constituting such lands as types of land trusts or community leaseholds.
11.9 When economic opportunities are strong elsewhere, as in rapidly developing urban areas, women should always be free to choose to migrate to such areas. But where wages and opportunities for secure livelihood diminish in the urban or wage economy, women and their families should always have access to rural land for subsistence agriculture and shelter.
11.10 If, however, rural land has been enclosed as exclusive private property, the safety valve of secure tenure - the “right of return” - to land is no longer an option. Women and their families then become vulnerable to the entrapment of wage slavery, prostitution and beggary. Poorer women can take a stronger stance against labor exploitation when they have the safety valve of land access in rural areas.
Woman with Beans
11.12 The equitable land rights promoted by land value capture furthers a transparent land tenure system that is not mediated by male roles. The exception would be where traditional male dominant tenure systems might endure even with a land value capture policy in place. In such circumstances it is important to have women included equally with men in deciding how land value capture funds are allocated. Women would then be empowered to choose to direct these funds in ways that would make improvements that would be most helpful to women. For instance, women might choose to fund child care centers and schools rather than sports stadiums. If they did choose to fund sports stadiums they might insist that women’s teams have equal access to the field.
11.13 Women might also decide to allot a portion of the land value capture funds for distribution as direct payments, or “citizen dividends” to women (or men) when they are working in non-waged yet socially important roles, such as being the primary caregiver to young children or elderly parents.
11.14 Women might also decide that a portion of the public fund should be made available for low interest revolving loans to build or improve homes.
11.15 Land value capture directly addresses the underlying dynamics of power that currently ensnares the poor, women, ethnic minorities and other vulnerable groups. It is a significant tool to promote both urban and rural land reform.
11.17 Women should become knowledgeable about land value capture in order to secure full economic and human rights to land via:
11.18 Student Activity: Do a websearch on Women and Land and read at least three of the articles that you found. Then write a list of at least four points about the relevance of what you have learned in this section to the issues you read about in the articles.
12 Land Value Capture: Rural Land and Agriculture12.1 We learned in Module one that surface ownership and control of land is highly concentrated in most countries of the world. We hear the cries and demands for land rights and land access from the Brazilian landless and so many others. Big dams, river water diversion and other large infrastructure projects are too often instigated by the same few who own so much of the land and will benefit even more when the value of their lands increase. This is why these types of infrastructure placements, touted as “development projects,” so often do little or nothing to improve the lives of poor people.
12.2 Just as the stated intention of land “improvement” was used as the rational for massive land privatization by the few during the Enclosures period (as described in Module 1), so today this form of “development” is falsely presented as a way to improve living conditions even though village lands are flooded and people are evicted to make way for these big projects.
12.3 The problem of inappropriate and too-large scale systems for energy and other infrastructure is both a democracy and an economic justice issue. It is a democracy issue because this type of infrastructure impacts the lives of many people who rightfully should be included in the decision making process. It is an economic justice issue because the ultimate benefactors of this type of infrastructure development are usually those who have already accumulated far more than their fair share of wealth.
12.4 One example of how land value capture has been instrumental in furthering land reform and a fairer distribution of wealth can be found in large rural areas of central California. In the early 1900s most of the land in this region was owned by only a handful of people. Californians knew that irrigation would enable these vast lands to become fertile and productive for farming. A state legislator who understood land value capture wrote a bill that was passed by the state government which enabled local irrigation districts to be formed and empowered to issue bonds to raise funds to finance the irrigation infrastructure. Irrigation would greatly increase the value of these lands, so the districts were also authorized to capture the increase in land values in order to repay the bondholders.
12.5 These are some of the benefits of this approach to financing infrastructure that were well-documented during the following years:
12.6 Studies of the impact of land value capture and land value taxation as utilized in rural areas of a number of countries have shown these overall benefits of this land rights public finance approach to equitable economic development:
12.7 Land privatization is not necessary to implement land value capture policy, which accommodates a variety of forms of land tenure. Tribal, clan, and extended family land bases can remain intact with a land value capture system, by constituting communal lands as types of leaseholds. People in rural areas and on communal lands can choose whether or not to remit funds to central land value capture authorities, depending on whether or not the community determines itself to be well served by that authority.
12.8 For example, if it is a question of whether to pave a section of road leading to a village, the villagers themselves might decide whether or not to remit funds for the job, after the central authority [in essence] bids to do the job. But they might determine that they could do the job with their own labor and capital, perhaps with a different type of paving material from that chosen by the central authority. They would have that choice, through their own village governance, bolstered by land value capture funding. Villages would, in essence, have decentralized, democratic decision-making power over what to do with their own resources, both labor and capital.
12.9 Similarly, if a village wants electric power, it could decide to buy into a grid system where power is generated from a distance, or find it more advantageous to establish its own utility systems, using wind, solar, or micro-hydro power appropriate to its own needs and local energy generation capacity. If a locality determines it needs improved infrastructure for example, it could freely choose to 1) capture value from its own communities and submit these funds to central authorities; 2) confederate with nearby communities for this purpose; or 3) provide such infrastructure using its own local capacity.
12.10 Overall, decisions on collecting and using land value capture funds can be made in a much more decentralized fashion, by all municipal levels, village, town, or city.
12.11 Worldwide concentration in land ownership has proceeded at an alarming pace for the past several decades. It is essential to now fundamentally reform our systems of land tenure and public finance in such a way that rewards productive labor rather than land speculation, efficiencies of scale and careful stewardship rather than impersonal big farm consolidations. The combination of these ten benefits of land value capture can support the flourishing of ecological villages in rural areas bringing forward an inspiring, hopeful, sustainable new way of living for millions of people around the world.
12.12 Student Activity: Learn about Ecovillages here: Global Ecovillage Network.
Gordon Abiama and the Odi, Nigeria Ecovillage Team
13 Tax Bads, Not Goods! – Integrated Green Tax Shift13.1 Although the Global Land Tool Network’s main focus is on land rent recovery from surface land for public benefit, this next section provides an overview of a broad and holistic “integrated green tax shift” approach to public finance policy which recovers resource rent from other common heritage domains as well.
13.2 The slogan “Tax Bads Not Goods” is a useful way to grasp this newly emerging way of harnessing the incentive power of public finance. If we desire to maximize the human potential for the production of wealth it would seem to make sense to take taxes OFF of:
13.3 On the other hand, if we want to reduce bad things such as pollution of air, water, and soil, land speculation, land hoarding, or depletion of limited common assets then taxing these activities places a financial burden on them and sends the signal that such activities are harmful. Green tax policy accordingly INCREASES taxes and fees on:
13.4 Nearly everyone, except perhaps those who profit from militarization, would agree that wars and destructive conflicts over territorial and natural resources are social “bads.” Charging higher fees and capturing the full rent for the use of common assets, then using these public funds for overall social betterment, is thus a way to share the gifts of nature rather than fighting over them.
13.5 Whenever there is competition for use of common assets there is the potential to capture resource rent for the public good. Capturing rent from the electromagnetic spectrum and satellite orbital zones in addition to the above mentioned natural resource domains is thus a powerful and effective way to ensure peace and resolve territorial conflicts. Funds that currently pour into military industrial activities can instead be directed to the provisioning of public goods and services.
13.7 One practical model of this integrated green tax shift approach to public finance has been developed by researchers with Northwest Environmental Watch. This model was compiled using data from three states in the northwestern United States – Oregon, Washington and Idaho, plus the Canadian province of British Columbia. The researchers presented the results of their analysis of the existing tax structure of the region in this pie diagram:
13.9 As you can see, the great majority of taxes fall on the “goods” of wealth production via taxes on people’s income and the goods and services provided when people work together in business activities. Property taxes, although they do collect some portion of the land rent, mostly fall on homes and other buildings and personal property. At the time of this study the Pacific Northwest collected far more taxes from environmental “green” taxes then most other parts of the world.
13.10 Northwest Environmental Watch (now called Sightline Institute) researchers then compiled a pie diagram demonstrating the components of a strong shift to an integrated green tax system of public finance:
13.11 Note that in this model the “bads” are being more heavily taxed while taxes on the “goods” are greatly reduced. Taxes on income, sales and business have been considerably reduced, replaced by pollution and carbon taxes and the capture of resource rent for the use of common assets such as water, minerals, timber on public lands and wild fish.
13.12 The 27% of property taxes that had in the first diagram fallen mostly on peoples homes and personal property has been in this second diagram converted entirely into a land value only property tax. Hence the property tax falls most heavily on those who have the most land and the most valuable land sites rather than on those who own homes and provide housing.
13.13 In other words, those who have privatized or enclosed the common asset of surface land now pay into the common fund a sum amounting to the resource rental or site value of the land that they claim. An “exclusive” private property rights system, meaning that private property owners are permitted to profit from land speculation and land hoarding, is now converted into a “conditional” private property rights system whereby society will acknowledge and protect private land use rights on condition that those who claim land are paying their fair share of land rent into the common fund, thus compensating society for the benefits they receive from the lands they have enclosed and privatized.
13.14 Under such a system, the incentive is for those who own more land than they really need or can well utilize to release some of their land thus making it available for others to use. With land prices stabilized and working people having greater purchasing capacity due to wage tax elimination, more people can obtain the land they need for housing and to establish farms and businesses and this with much less need to borrow money and take out mortgages.
13.15 Taxes structured along the proposed lines would do much to level the economic playing field worldwide, both within and among nations. A coherent and integrated local-to-global pubic finance system based on capturing land and resource rent for the common good would give each and every person a share in the planet as a birthright.
13.16 Case Study: An example of natural resource value capture is that of Alaska's oil, mentioned in Module 2. Under this state's constitution, natural resources are legally owned by the people as a whole. The Alaska Permanent Fund captures value from oil royalties, then places these moneys in an investment fund, which generates dividends paid annually to all individuals, including children, resident in the state for at least one year. More than $25,000 per person has been distributed in this way during the past 25 years. Alaska is the only state in the United States where the wealth gap has decreased during this period.
13.17 While the Alaska Permanent Fund is in many ways a good example of both resource rent capture and the distribution of citizen dividends, in this time of urgent necessity to develop energy sources other than fossil fuels it would be best to distribute rent for citizen dividends from a portion of surface land values. Rent capture from fossil fuels would best be used to fund the development of renewable energy sources.
13.18 Student Activity: View the Alaska Permanent Fund website. Find and then add the amount of the citizen dividend for the past three years. Write down what you would do with that amount of money.
14 Land Value Capture and Climate Change
14.2 In this Module 4 you have learned about the policy of Land Value Capture and how it addresses the need for improving living conditions in slums, good urban planning, sufficient financing of infrastructure and other public goods, progress towards gender equality, land reform, environmental protection and climate change.
14.3 14.4 This Student Activity will serve as a review of this Section:
Continue next to Module Four on Land Value Capture and the Economics of War and Peace.