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Module 3: LAND RIGHTS AND LAND VALUE CAPTURE

1 Brief Review of Modules One and Two

1.1 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.

2.4 When land speculation is no longer an economic incentive, funds previously directed to profiteering in land become available to invest in productive enterprise and for improving the stock of housing and other buildings. With no or greatly reduced need to borrow to buy land people are also freed from the extra burden of high land mortgage interest payments..

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.

"Pure rent is in the nature of a ‘surplus’ which can be taxed without affecting production incentives" - Samuelson Hancock and Wallace, Economics, 2nd Australian ed., p. 623

3 Land Value Capture: “Third Way” Economics

3.1 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.

• Malvern (city): A marked construction spurt was experienced after the municipality adopted land value capture, the most extensive building occurring in Malvern's most blighted neighborhoods. Before the tax shift, they accounted for only 22% of building permits, but in the 5 years following initiation of land value capture, that percentage climbed to 47%.
• Victoria (state): 12 studies of rural communities show that towns using land value capture averaged construction and renovation growth of 29%, compared to 2.6% in neighboring communities which taxed buildings much more heavily than land values.
• Western Australia (state): 17 localities taxing land values only, experienced a 34% increase in total number of new dwellings built during the period studied, compared with 0.02% decrease in new dwellings in nine neighboring localities taxing buildings as well as land.

3.6 Harrisburg, the capitol city of Pennsylvania, was once the second most economically distressed city in the US and had high unemployment and large areas of blight and boarded up buildings. Harrisburg gradually implemented land value capture and now taxes land values six times more than building values. During a 20 year period thousands of buildings were renovated, good jobs created, and there has been very significant drops in rates of crime and arson. The city’s economic resurgence has garnered national acclaim and Harrisburg has won a number of civic awards.

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

Most often, the taxable capacity of land is such that land value capture can yield more than local government needs to fulfill its basic responsibilities for the provisioning of basic services for all. – Joshua Vincent, Director Center for the Study of Economics

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:

1. Rent
2. Taxes
3. Net Income of Labor and Productive Capital

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.


4.7

"How much revenue can land yield by itself?" I assure you it can yield more than local governments need. The taxable capacity of land is camouflaged in our times by a consistent modern tendency to underassess it, relative to buildings. – Mason Gaffney, The Taxable Capacity of Land

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-Seeking

5.1 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:

1. As China's economy rapidly heats up, those dealing in rising urban land values have been making enormous profits from real estate while others plunge into poverty. For instance, Yuchen Zhang, a Beijing real estate developer, built his $50 million castle complete with moat, uniformed guards, and a spiked fence to defend it. The 800 peasants who used to grow wheat on Zhang's 1.5 square mile estate are now landless.
2. The Rand Corporation, a U.S. think tank, in its 2001 annual report, listed the April, 2001, sale of 11.3 acres of its Main Street, Santa Monica, California property for $53 million, or $4.69 million per acre. The gain on sale of Rand's land was shown to be $44.984 million, making the original purchase price $8.016 million, or $709.38 per acre. Who created this land value boon for Rand? The 84,084 people of Santa Monica as a whole, who would have each received $534 if the land value increase had been captured by the city and distributed to all residents as their fair share of the profits from such a spectacular rise in city land values.

5.4

Pius Fischer in his book Rent-Seeking,Institutions and Reforms in Africa...identifies rent-seeking behaviour as one of the main causes of poor economic performance, observed, among other places, in many countries of Africa. Rent-seeking describes the ability to capture incomes without producing output or making a productive contribution.

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 Bubbles

6.1 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.

6.3


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.

6.5


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.

6.7


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 Roots

7.1

Confucius (BC 551-479), Chinese philosopher, said, "When the Great Way prevailed, natural resources were fully used for the benefit of all and not appropriated for selfish ends... This was the Age of the Great Commonwealth of peace and prosperity." Mencius, the philosopher and contemporary of Confucius in ancient China, said: “In the market places, charge land-rent, but don't tax the goods.” Sun Yat-sen (1866-1925), Chinese revolutionary, "Father of the Nation", first president of the Republic of China, wrote: The (land tax) as the only means of supporting the government is an infinitely just, reasonable, and equitably distributed tax... The centuries of heavy and irregular taxation for the benefit of the Manchus have shown China the injustice of any other system of taxation… When modern, enlightened cities levy land taxes, the burdens upon the common people are lightened, and many other advantages follow.”

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:

7.3


7.4

Approximating the composition of the world's $7.5 trillion tax pie reveals that 93% of taxes fall on work and invesntment while only 3% is collected from environmentally damaging activities. A mere 4% of global tax revenue is captured from natural resource use and access fees.

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:

1. Philosophers, Statesman and Other Notables on the Land Problem and Land Value Capture / Taxation www.earthrights.net/wg/q-philostatenot.html
2. Quotes from the Ancients, Scriptural and/or Religious www.earthrights.net/wg/q-ancients-scriptural-religious.html
3. Economists Quotes www.earthrights.net/wg/q-economists.html

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.

8.2

A resident of Cambodia writes: There has been a lot of coverage lately about the problem of child prostitution in our homeland. It has stir quite emotions here and abroad. There are many contributing factors that may cause child prostitution. I have picked one big and general contributing factor that seems to be the underlying factor to this sickening act. First, please forgive me while I vent my emotions a bit. Around the world, Cambodians people are viewed as a peaceful, conservative, traditional people. Now, as these stories being bombarded in the press, Cambodia and its people are being mentioned with such countries such as Vietnam and Thailand...where child prostitution have been known to occur as frequent as the ticking of the clock. URBAN SPRAWL is defined as a movement of residences of "good" and "richer" people from the big cities to the outskirt of towns and cities. While at the same time, the less fortunate families such as the farmers and the ranchers are moving into the cities. The farmers are moving into the cities in hope of finding better paying jobs (like the textile factories) or they have lost their land due to corruptions. Now since there is a continuous mass migration of the farmers into the cities and all are looking to find that "better" paying job and when there are not enough jobs for everybody, what are these people going to do to put to feed their families? Most cannot return to their farms because they have lost it or sold it. Moms, dads, aunts, uncles, and strangers are selling kids to the brothels. Khmers was once a proud race. Our ancestors have left us with a historical monuments (Ankors) as to how they use to ruled this region in the world. Where are we now?

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:

1. The city would have a significant source of revenue without having to tax wage income or productive activities, so slum dwellers who find employment would bare no tax burden on their productive activities, thus increasing their purchasing capacity. Market forces would be harnessed for real wealth production, not for land speculation and real estate investment and profiteering.
2. Slum dwellers who begin small business enterprise would likewise have no pressure to pay taxes from their earnings. There would be no complaints that they were operating in “the gray economy.” Their efforts would more readily be considered as legitimate and socially acceptable.
3. Economic incentives harnessed by land value capture would put “infill development” pressure on underutilized or vacant land sites, thus enhancing economic development and the potential for jobs and housing for slum dwellers.
4. The necessity for clear and transparent land tenure records in order to implement land value capture would reveal who is making what claims to the land that slum dwellers inhabit. Thus it will be a matter of public record who is currently collecting land rent from slum dwellers and how much they are taking as private appropriation of these funds which should in fact be captured for public benefit of slum communities.
5. As a slum is a highly concentrated population per any given land area, and as slums are usually located in less desirable and therefore on lower cost land than land elsewhere in the city, an accurate assessment of the value of the land of slums and the apportionment of the land value capture fee to be paid will be significantly less per individual or family than in other areas of the city.
6. The recorded payment of the land value capture fee by those using any particular land area of the slum will confer rights to continue to use that land area, thus helping to settle land disputes and security tenure for land users.
7. Absentee landlords who claim title to slum lands will have to pay their fair share of land rent into the public fund. If they do not then their security of land title will be at risk
8. Those who own buildings and useful structures in slum areas will not need to pay taxes on any of the improvements they make to their current buildings or to any new ones. Slum dwellers, their land tenure now secure by their payment of the land value capture fee to the local authorities, would be encouraged to make improvements to their dwellings. Absentees, now unable to profit from the private capture of land rent, will also now have an incentive to make building improvements and hire slum dwellers to do so. Employed slum dwellers will be better able to afford improved housing. Or absentees might decide to simply abandon their land claims, or put their land up for sale to slum dwellers.
9. Other areas of the city will be improving as well due to the elimination of land speculation and land price inflation combined with the elimination of taxes on wealth creation. As land prices stabilize or even decrease, residents will have more savings to invest in further improvements, again with the possibility of more jobs for slum dwellers and more affordable housing being built which can give slum dwellers the opportunity to move out of the slums.
10. Also, as land price decrease or stabilize, slum dwellers who might choose to pool their savings, as some are already doing in Nairobi and elsewhere, can more readily afford to buy land on which to form new communities and build new dwellings.
11. As increasingly affordable land becomes available due to the pressure against land hoarding exerted by the land value capture policy, some former slum dwellers, gaining access to land in outlying areas, would start growing food to bring to market, thus further building a local based economy.
12. Now, in addition to these private incentives for improvements to be made by slum dwellers and other residents of the city, the land value capture system will have created a substantial amount of public funds which can be utilized for public benefit. All accounting of funds received via land value capture would be by law a matter of public record readily accessible to all.
13. With knowledge of their fair share of the public funds, slum dwellers and their allies would be politically empowered to insist that the money generated from land value capture be used to meet their basic human needs for clean water and sanitation, public transportation, health services and education.
14. These public services, combined with the steady decongestion of the slum areas as former slum dwellers found opportunities for employment and livelihoods elsewhere, would improve the quality of life and health for slum dwellers.
15. As living conditions and public services improve throughout the city, land values might again begin to increase. Public authorities would need to capture the full land rent and utilize these funds for public benefit.
16. It is conceivable that a city after a few years of land value capture in place could reach the stage of harmonious and balanced growth and development. Public authorities in consultation with the citizenry might then decide to distribute a portion of land rent back as direct “citizen dividend” payments, yet another beneficial result of a public finance policy based on the human right to land rent, the “social surplus.”

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 Tool

9.1 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.

Avoiding urban sprawl also reduces public outlays so and reduces the need for a tax base. The only way a city can have a tax base is to generate a taxable surplus. The only way it can generate a surplus is to be efficient. The way to make it most efficient is to develop the ripe, rentable, surplus generating central land and spare the heavy cost of extending infrastructure into the lean, premature, sprawled, submarginal urban fringe. – Mason Gaffney, Adequacy of Land as a Tax Base

9.5

Madison, Wisconsin was named the most walkable city in the US in a recent ranking of the walkability of the largest 100 US cities,

Too often urban planning relies on regulation and grant-funded projects that are not very cost-effective and often more complicated than need be. Conventional property taxes which tax buildings more than land, wage and occupational taxes and special sales taxes all are disincentives for highest-and-best use of land in urban areas. If we want to encourage “green” cities with productive businesses and well-kept apartments buildings with affordable living units it is important to understand how planning and land economics can compliment each other. Land value capture is thus an essential component of good urban planning.

9.6 Other significant changes detected in similar studies of tax reform through land value capture:

• Taxes on the majority of owner-occupied and rental homes are reduced.
• Construction and rehabilitation of residential and commercial buildings are stimulated.
• The serious escalation of housing prices and rent experienced by most United States cities was averted in these Pennsylvania cities because housing stock expanded.
• Central business districts were revitalized because they attracted greater private investment.

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.

A record of land value changes over time would also provide a useful planning tool. When a new mass transit is being planned it would be possible to use the existing record of land value changes to estimate which of a choice of routes would provide the largest land value increase. There may be perfectly valid reasons for choosing an alternative route but at least this decision would be taken in the light of a clear indication of the total value the community puts on each alignment. - Dave Wetzel, Vice-Chair of Transport for London

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.

• “I Want to Live Here” campaign. Investigate how young activists in Melbourne, Australia have surveyed areas from the seat of a bike, recording vacancies and then cross referencing them via google earth. The findings show there is over two years worth of auctionable property in the region, disproving the fallacy that ‘land supply’ is the cause of affordability pressures. What trends can you see from the photos?
• Outrageous housing costs! Sky-high taxes! Deteriorating public services! Poverty... homelessness... urban decay... So why does New York City have 22.2 square miles of vacant land? Learn what land rights and land value capture activists are discovering about a great city with great problems by exploring their website.

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 Infrastructure

10.1 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.

Riley calculated the total land value increase that arose within a radius of only 1,000 yards of each of the new JLE stations. He found out that land values increased by a staggering £13billion. The construction cost of the line itself was only £3.5billion.

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.

10.6

Optional Reading: Special Benefit Assessment Districts and Traffic Congestion Pricing United States To finance public works, this country's states and smaller jurisdictions have at times used benefit assessment districts, with land value capture as the mechanism to pay for new or better public works projects. When a community petitioned for infrastructure benefits, such as paved streets, sidewalks, utilities extensions, or other amenities, a governing jurisdiction then designated a district embracing all benefitting properties. Costs were divided among properties according to each owners's "front footage." The length of lot lines facing a street provided a rough equivalent to the relative land values of the affected properties served by or adjacent to the facility. A small number of such benefits districts remains, but most depart from the original design. Their taxes fall on total property value rather than on front, or land, value, and fully developed properties pay more. Such districts, therefore, now give a free ride to holders of vacant land or blighted properties. The original land value capture benefit assessments districts had the following advantages: The approach worked and citizens found it fair. Those receiving benefits bore the costs; others, who did not benefit, were not expected to pay. Orderly urban growth was fostered. Local government had more control over where infrastructure was to be extended. Benefit districts tended to be democratic and efficient. Projects went forward only if affected owners approved. Waste was minimized because those who had to pay took pains to confirm that facilities would be worth their cost. Examples include: California: Local irrigation districts established in the early 20th century in the great Central Valley provide a lesson in the benefits of infrastructure funding by land value capture. State law enabled formation of local irrigation districts, with the capacity to issue bonds to finance irrigation works. These were paid from increased land values captured as a result of the improved water systems. Large ranch lands, now taxed at much higher values, were sold off in smaller tracts. Small farmers found land more affordable, and were able to farm more intensively because of expanded irrigation. This land value capture system brought prosperity and healthy, thriving communities. Town sites, too, whose values were enhanced by higher productivity of the surrounding farms, yielded higher taxes. Districts became multi-purpose, providing electric power, reclamation, and recreation, as well as water. Some five million acres turned green under this tax reform, which one analyst called “an extraordinarily potent engine for the creation of wealth.” Ohio: After catastrophic floods in 1913, this state inaugurated a flood control system paid for by land value capture. Assessing the flood damage to each property approximated the land value beneath that would accrue to the owner, as a result of preventing future floods. Approximately 77,000 parcels along 110 miles of river valley were individually assessed within two years. Total calculated benefits to properties exceeded $100 million, more than three times the cost of the flood protection project. Such a cost/benefit ratio lends weight to the proposition that infrastructure can be self-supporting under a land value capture system, because it generates sufficient revenue. Pennsylvania: The Pittsburgh (second largest city) Improvement District, comprising 100 blocks of prime downtown land, is a successful example of a full land-only value capture special benefit district. This capture scheme pays for greater customer safety, better maintenance, and enhanced marketing to attract new businesses, [including many national corporate headquarters??], which both pay for and benefit by the additional assessment. Traffic Congestion Pricing Taxation of motor vehicle ownership and usage also involves land values, although this is often unrecognized. To the extent that road usage rights represent rights to use of a land-related resource, taxing that right is completely in line with land value capture policy. Singapore: Motor vehicle taxation here is a form of regulatory capture related to land use. Road space is a valuable resource in this land-scarce city-State, and is priced accordingly for private motor vehicle owners and users. Road usage pricing has been implemented since 1975; as a result, traffic congestion is infrequent. Because of successful land value capture, revenue from land leasing and motor vehicle related charges are important sources of funding, and the Singapore budget has enjoyed healthy surpluses since 1968. At the same time, tax rates on income and productive enterprise have been steadily reduced. United Kingdom: To avoid overcrowding and wasting fuel as vehicles idle in traffic jams, London has recently introduced a type of land value capture through traffic congestion pricing, also based on heavy or light use time of day. The City of London receives substantial revenue from vehicles fined for non-compliance, the number of vehicles in central London has been dramatically reduced and traffic flows far better than previously.

10.7 Student Activity: (Wetzel powerpoint here?)

11 Land Value Capture and Gender

Land value capture is strategically important for the political, economic and social empowerment of women.

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.

11.2

"We have reached the deplorable circumstance where in large measure a very powerful few are in possession of the earth's resources, the land and all its riches, and all the franchises and other privileges that yield a return. These monopolistic positions are kept by a handful of men who are maintained virtually with- out taxation . . . we are yielding up sovereignty." - Agnes de Mille (1905-1993)

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.

Patricia Mische, Co-Founder, Global Education Associations: “The more we grow in awareness of our own sacred source, the more we discover that our own sacred source is the sacred source of each person and all that is in the universe.”

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.

11.16

This common right of each human being to benefit from the Earth's natural capital should be protected and respected by legitimate governments at the appropriate level. - Emer Ó Siochrú, Land and Housing Group, FEASTA, Ireland

11.17 Women should become knowledgeable about land value capture in order to secure full economic and human rights to land via:

1. Free access to the specifics of legal documents enabling the implementation of the land value capture system of public finance.
2. Free access to land maps (cadastres) and land value assessments available in government offices and posted on public websites.
3. Functional and effective land dispute arbitration in order to determine fair rights of use to specific land parcels as well as equitable land value assessments.
4. Transparency, accuracy, and efficiency of public authorities entrusted with the implementation of land value capture.
5. Participatory decision making in the distribution and allocation of public funds.

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 Agriculture

12.1 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:

• The large landholders, upon now being legally required to make payments to the irrigation districts for their now more valuable land, put much of their land up for sale.
• Those of modest means who wanted land for farming were able to buy land because it was now available at prices they could afford. Land value capture had thus instigated an orderly land reform.
• These farmers used the irrigated and now fertile land in an efficient and productive manner yielding substantial quantities of food for market and secure livelihoods for farm families.
• The local economy diversified as other forms of enterprise emerged to supply a variety of goods and services.
• As the economy in these areas continued to improve and diversify over ensuing years, communities and towns developed which scored high on quality of life indicators as carefully compiled by sociologists and other researchers.

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:

1. Undertaxing land favors large farming operations that are not necessarily the most efficient while full land value capture rewards farmers that are more capable and productive.
2. Land value capture curbs land speculation and hoarding, thus maintaining land affordability for entry-level farmers.
3. Untaxing the productive labor and activities of farmers increases their savings capacity better enabling them to purchase their own farm equipment and materials for farm buildings.
4. By promoting an orderly approach to land reform, land value capture encourages owner-occupation rather than absentee ownership of land.
5. Rural economies are strengthened as the land value capture public fund is utilized for provisioning public goods such as education, clean water and sanitation and other needed public infrastructure.
6. By harnessing incentives for wealth production in an equitable and efficient way, land value capture encourages the development of a healthy and diversified rural economy.
7. When people living in rural areas experience significant improvements in their lives and livelihoods many have less interest and incentive to move to cities in the hope of finding jobs.
8. When fewer people are competing for limited jobs and places to live in the urban areas, wages there can be better maintained at a higher level.
9. Conversely, when people in urban areas are not able to secure sufficiently high wages, they now have a viable option to find livelihoods in the more rural areas.
10. Thus a fully implemented land value capture system promotes equitable, efficient, and appropriate development in both urban and rural areas.

(From Land Value Taxation: The Equitable and Efficient Source of Public Finance, an anthology edited by Kenneth C. Wenzer, published by M.E. Sharpe, Inc., New York, 1999)

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 Shift

13.1 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:

• Wages and earned income
• Productive and sustainable capital
• Sales, especially for basic necessities
• Homes and other buildings.

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:

• Emissions into air, water, or soil
• Oil and minerals
• Ocean and fresh water resources
• Land sites according to land value.

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.

13.6

True Cost Economics via Green Tax Shift policy is a rapidly emerging new perspective on tax reform which emphasizes the incentive capacity inherent in public finance policy.

Tax waste, not work. Tax bads, not goods. Pay for what you take, not what you make. Polluter pays.

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:

13.8


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

The state of the earth now requires that the costs of industrial production and human commercial activity no longer be externalized onto the local to global commons.

Wangari Maathi, Nobel Laureate, plants a tree.

14.1 Here are some ways that land value capture can help address global warming and climate change:

• Tax pollution - Governments should directly levy carbon and other pollution charges and use these funds to develop renewable energy systems and to launch campaigns to “buy and invest in clean and green” technologies and products.
• Decrease wage taxes - Because energy taxes can be regressive, combine them with tax decreases on wage incomes or ideally, eliminate wage taxes altogether.
• Reduce or ideally eliminate taxes on buildings - This along with full land value capture will encourage infill development and more compact cities that make energy efficient use of public transportation and infrastructure while discouraging wasteful sprawl development patterns.
• Curb profiteering and speculation in land and natural resources – When investment of funds in these non-productive activities is discouraged via land value capture more funds are available for investing in new "green energy" technologies and environmentally sensitive design and production.
• Encourage more labor intensive, organic agriculture, rather than oil intensive giant agribusiness. - Land value capture will help keep land affordable for small farm agriculture and better reward farmers for their labor when their tax burden is decreased or eliminated. This form of agriculture also encourages healthy communities and decentralized, local based economies, decreasing the necessity for people to drive long distances to work or for food to be transported long distances to markets.

Ecological economics research and date indicate that true cost pricing of natural resource use and capturing that cost via ecotaxes and resource rental charges would be sufficient to eliminate taxes on labour and productive, sustainable capital.

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:

1. List ten key points that you have learned about Land Value Capture.
2. Write three or more questions about land value capture and send them to your course facilitator.
3. Quickly scroll through this list of Economists’ Quotes. Then read carefully the ones you find of most interest.

Continue next to Module Four on Land Value Capture and the Economics of War and Peace.

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http://www.earthrights.net/wg/mod3.html