Land Rights and Land Value Capture Online Course Development
Module 5 - Land Value Capture Implementation
Campaigns * Land Titles * Using Information Technology * Components of a Land
Value Capture System * Gradual Shift and Revenue Neutral Initially* Monitoring
and Evaluation* Land Value Assessment * Principles of Valuation * Factors Contributing
to Land Value * Procedures for Analysis of Data * Methods Used to Analyze and
Assess Land Value * Land Value Maps * Computer Estimated Land Values * Next
To those who, seeing the
vice and misery that spring from the unequal distribution of wealth and
feel the possibility of a higher social state and would strive for
- Henry George, author of Progress and Poverty
This last section of the Land Rights and Land Value Capture
course empowers you with the information you need in order to implement this
enlightened public finance policy. The impetus for implementation can begin
with just a small core of mobilized citizens in alliance with politicians who
are true representatives of the people. With the assistance of powerful tools of information technology,
coordinated educational campaigns can build a critical mass of support for
implementation from all sectors.
Mobilizing Citizen Campaigns, Asking the Right Questions
The constitutions of several countries and commonwealth
governments already claim the land and natural resources on behalf of the
people as a whole. Various methods of land value capture for public benefit
could be effected by insisting on securing these common ownership rights,
already in their existing constitutions. Thus citizens can mobilize to enforce
their constitutional rights via land value capture policy. In some places, substantial increases in the
amount of land value captured can be gained simply by complying with existing
land assessment laws.
Questions to ask when building a movement for land value capture:
Is there presently any local taxation at all?
If so, is it on land only or also on improvements?
Or is revenue at the state/local levels provided by the
Are there stable local governing institutions that
could administer local revenue if there was any to administer?
Are they registered centrally, at the local, state or
Is there a black market in land titles?
Can the courts be trusted to adjudicate disputes
Are there competing jurisdictions for public funds?
Is there a "real estate industry”? A mortgage
In areas where these markets exist, how do land
registries and jurisdictions compare to areas where they don't?
Types of Land titles:
In your area are there traditional, tribal land-tenure
Are there points of intersection between competing land
Is land tenure different in rural and urban areas?
Where is the margin between the two?
The margin between urban/rural and formal/informal areas is
important. That is where market-based land value is being created where none
Land Titles in
are land sales taking place?
and how, is the transition from informal/traditional to asset/collateral
is educating the sellers about emerging markets?
information are they collecting?
Answers to these questions will be useful in order to
determine how to proceed to establish a land value capture system.
While the answers are being compiled, citizen activists can
move forward with general information campaigns via a website established for
this purpose, media press releases and public presentations and discussions.
Brochures and other material can be downloaded from the GLTN website and
printed for distribution. Use can be made of the Land
Value Capture Endorsement Form to build initial and ongoing public support.
Using Information Technology
Cities and towns are putting property values, tax
information and answers to some of the above questions into computer databases
and onto the web where this information is transparently and easily accessible.
If your city has not yet done so, citizens should insist that it be done.
Geographic information systems (GIS) are computer maps containing detailed
data. The use of GIS for land value capture is greatly enhancing the ease of
Here is a map of New York state showing the progress being
made by the counties in their conversion to digital mapping of information
important for land value capture as of 2005:
The website Google Earth, with free software that can be
downloaded, could become an invaluable aid to land value capture implementation
projects. Google Earth contains satellite imagery, maps, terrain, and the
ability to import spreadsheets. To get an idea of the amazing capabilities of
Google Earth, go to: http://earth.google.com/
An information and database system for land value capture
should include who owns what land, the current assessed land valuation, land
use, zoning, current and alternative proposed uses, and what type and amount of
property and other taxes are already being collected.
Often government departments involved in land management and administration
compile such data. If this information is not yet accessible, it needs
to be compiled.
Components of a Land Value Capture System
"Every improvement in the circumstances of
society tends either directly or indirectly to
raise the real rent of land, to increase the wealth
of the landlord." - Adam
Smith,Wealth of Nations, Book I, p. 275
The components of a good land value capture system are:
A. Registration of land title so that ownership and/or use
rights to land are transparently clear. It would be unjust to implement land
value capture without land registration because the rights of the government over
the governed would be arbitrary. Land privatization is not necessary to
implement land value capture. Constituting tribal, clan or extended family land
as types of leaseholds can suffice. What is necessary is to determine who has
claims to particular areas of land. The process of land registration can also
reveal where land claims are disputed and where a land rights arbitration
process is needed to prevent outbreak of violent conflicts.
B. Spatial definition of legal land parcel units - knowing
exactly what land is claimed by whom.
C. Clearly defined legal restraints on land use - the rules
of land utilization such as zoning laws defining “highest and best use.”
D. Trained and certified assessors to conduct valuation of
land authorized by an agency independent of the tax setting and judicial review
E. Geographic information systems (GIS) for use by all
agencies involved with land value capture administration with a public access
(website) portal for all citizens. Information technology is greatly increasing
the efficiency and simplicity of administering a land value capture system of
F. A designated public authority responsible for determining
the precise method of land value capture to be utilized, collection of funds,
monitoring results and impact, and public education concerning the specifics of
land value capture policy. Decisions need to be made regarding issuance and
frequency of billing statements.
G. A land value assessment appeals process and compliance
system for ensuring that the land value fee is paid and up to date and/or debts
are registered against title. Compliance can be encouraged through a small
reduction if the fee is paid by a certain date, a penalty for late payment.
Compliance can further be encouraged via elimination of public services
including protective services to the site or land confiscation. Non-compliance
would be noted on the web so if there is a failure to pay that information
would be public. It could also be publicized in the
local newspaper under the statuatory listings section or posted in the main
city square. An appeals process should be clear and easily available.
H. A recommended compliment to a land value capture system
is a“Participatory Peoples Budget” process charged with educating the citizenry
about this method of public finance and with the power to make informed and enforceable
decisions regarding allocation of a portion (recommended at least two thirds)
of public funds received via land value capture. For example, citizens might
decide that rather than building an expensive sports stadium it would be best
that basic services such as clean water, sanitation, and needs for food and
shelter were first secured for all residents. This chart shows some of the
information citizens would need for a Participatory Peoples Budget process:
Gradual Shift and Revenue Neutral Initially
"Landlords grow rich in their sleep without working, risking or
economizing. The increase in the value of land, arising as it does from the
efforts of an entire community, should belong to the community and not the
individual who might hold title."
- John Stuart Mill, English philosopher, economist, and social reformer,
In areas not yet having a well-established system of
taxation, a decentralized approach to land value capture recommends starting at
the local level with land registration and land value assessment. In countries
such as Australia when local governments levy land value only revenue fees this
is called a “site rating” system. A 2% land value capture fee would be put in
place the first year followed by a 2% increase each year thereafter until
arriving at 10% land value capture by year five. There should be annual
reassessments during this period. Ideally, a small percentage of land rent can
be passed up to higher levels of governance for services better accomplished by
more centralized government.
In cities or countries with well-established existent
systems of taxation, land value capture is best administered gradually and at
least initially as a “revenue neutral” - revenue remaining constant - tax
shift, not an increase in taxes. The benefits of this approach is that economic
incentives will immediately start moving in the right direction and then proceed
at a strong steady pace.
In jurisdictions with an existing property tax falling on
both building and land value, to implement land value capture it is necessary
to separate these two values. Many places already legally require land and
improvements to be separately assessed. The Assessment Registry has records of
each property's land and building values, which many municipalities currently
tax at the same rate.
With the values of buildings and land recorded separately,
the next step is to adjust the tax rates. Because we want to begin shifting the
tax off of buildings and onto land, the tax rate on buildings must be decreased
and the tax rate on land must be increased. It is important to gradually phase
in the change so that taxpayers who will see an increase can make adjustments
as to how they manage their property.
So a common rule-of-thumb is to decrement the building tax
rate by 20% and increment the tax rate on land enough to ensure that the shift
remains revenue neutral at least in the beginning of the transition. This shift
– reducing the rate on buildings while increasing the rate on land value –
would occur annually until ideally there are no taxes remaining on buildings.
Thereafter the rate applied to land value can be increased until the desired
rate is reached, which ideally would be capture of full land rent.
A similar step-by-step phase-in process should then proceed
(or have already begun) in the reduction and elimination of other forms of
taxes. Reductions on income taxes would begin with those falling on the lowest
income workers. Sales tax reductions would begin with sales from basic,
necessary goods and services. Throughout the stages of implementation the land
value of parcels should be frequently reassessed, ideally at least on an annual
Since most taxation levied by central government falls on
wage income, value-added, or sales, land value capture should be coordinated
with movements to reduce these taxes and further decentralize and enhance
government capacity at the local level. State/regional and central government
public funding can be procured via capturing rent of other natural resources
exclusive of surface lands and/or a percentage of surface land rent can be
passed up to central government for its services which can include the
distribution of funds to other areas of the country to assure overall
country-wide balanced development.
Land rent is roughly estimated to be 10% of current land
value. Thus if you calculate 2% land value capture for year one, 4% for year
two, 6% for year three, 8% for year four, and 10% for year five, you will
arrive at substantial land rent capture with greatly reduced or ideally, no
taxes on wages and production. With each increase in the land value capture
percentage other taxes should be eliminated by the same amount. Thereafter,
with close monitoring of assessed land values, the land value capture fee can
be increased to the point of full land value capture.
An online calculator is available to give those interested
in implementing land value capture the percentage of land value necessary in
order to collect a specific amount of public revenue. This calculator is most
useful if land value records are kept by city administrators who have
accurately assessed and recorded the current value of all land parcels. As data
improves, results improve. The calculator along with further descriptive
information is at: http://gltn.lvtproject.org/
A best practices model for a land valuation and record
system developed by the Center for the Study of Economics can be
found online at: http://www.marylandlandtax.org/calculator
Monitoring and Evaluation
Regarding monitoring and evaluation, a number of studies
which evaluated the impact of land value capture have relied on analysis of the
number of building permits issued in a city both before and after the shift and
at intervals thereafter. This has served as a general indicator of overall
improvements underway. Decrease in crime and arson and increase in employment
have also been used as indicators of positive results. It is now recommended
that analysis of gini coefficients - a measure of wealth distribution – should
also be included in the monitoring of the impact of the shift to land value
capture. In cities with stable populations (for example, not having a rapid
influx of refugees) another useful indicator would be to chart the number of
homeless people at regular intervals.
Various quality of life indicators are now recommended in
lieu of GDP for monitoring and measuring progress of social and economic
well-being. For links to many of these go to Beyond GDP.
After the full shift to land value capture, public finance
administration is simplified with no fiscal expense for assessing houses and
other buildings or to track wage income or sales taxes. Tax administration’s
primary job would be to assess, monitor, and post land values for transparent,
free and easy public access (on the web) and to collect the land rent at
Regarding implementation of land value capture on leasehold
land, here is a model land lease agreement that determines lease fees based on
land values: Community Land Trust Lease Agreement Based on Land Rent
Hong Kong and Singapore were established and grew under a
land lease system. For more information go to: http://www.earthrights.net/wg/swot-hongkong.html
Information on estimating land values to be found in the
next section can also be useful in implementing land value capture on leasehold
Most well-maintained properties would pay less under land
value capture than under systems which tax both land and building values. Under
land value capture only, properties like the ones above would pay more and thus
the owners’ incentives would be to make improvements or to sell to someone
willing and able to do so.
Owners of underutilized and vacant lands like this pictured
above in urban areas with easily accessible nearby infrastructure would be
encouraged to put these lands to good
use, perhaps for housing or light industry, under a land value capture system.
Alternatively, this land could be developed as a public park, thus increasing
land value in the surround area that then can be captured for additional public
Student Assignment One: Explore Google Earth at http://earth.google.com/. Enter your own
street address and watch what happens. Send your comments on this experience to
your course instructor.
Student Assignment Two: Do a websearch to find out what information your locality has on
the internet that could answer some of the questions asked in the beginning of
this section. If no information is available online, make a phone call or
better yet visit your local public authorities to ask how you can obtain this
information. Send a short report describing the results of your search for
information to your course instructor.
Land Value Assessment
"It is important that rent of land be retained
as a source of government revenue. Some persons who could make excellent use of
land would be unable to raise money for the purchase price. Collecting rent
annually provides access to land for persons with limited access to
credit." - Franco Modigliani, Nobel Memorial Prize in Economics
Both experience and common sense confirm that the less city
properties are assessed, the less government revenue will be available from
true land values. Undervalued land assessment will weaken the ability to
collect higher amounts from vacant or poorly utilized properties. This in turn
will reduce the ability to shift taxation off of well-utilized properties (and
taxes on labor and enterprise) and limit the push for land to be utilized for
housing and other productive uses. In addition to increasing blight, when
valuable land in developed areas such as cities remains idle due to speculation
and negligence it also forces the outward expansion onto previously undeveloped
land, putting more farms and open space at risk for sprawl.
Without up-to-date and accurate land value assessments, the
amount of value that can be captured from land will not correctly present the
amount of public revenue that can be collected via land value capture. Land
values fluctuate, going up or down based on the real activity of the overall
economy and the ever-changing conditions of a particular city or community so
reassessments should be made regularly, ideally on an annual basis.
The task of property assessment is much simpler, easier, and
cheaper when public revenue is raised from land value only. The value of land
can be estimated with an acceptable accuracy, at a cost which is very small
compared to the revenue to be obtained. Information technology and new software
programs developed for purposes of land value assessment are making an enormous
contribution to enhancing the capacity of public authorities to implement this
fair and efficient approach to public finance.
The value of land can be estimated with an acceptable accuracy, at a cost which is very small compared to the revenue to be obtained. A proper system of assessment and taxation of land can provide for the proper economic use of the land.|
- Sanjeeb Mishra, a member of the Indian Administrative Service, District Magistrate and Collector, Ganjam (Orissa, India).
An appraisal is essentially an expert opinion of the value
of a land site; the assessor must present one that is supportable and comprehensible.
The assessor must develop and use specific terminology suitable and pertinent
to land appraisal.
The land value assessment or appraisal process is an organized procedural
analysis of data. The assessment process is essentially the valuation of rights
to use or possess surface land sites. Other kinds of resource rights include
subsurface mineral rights, riparian (water) rights, grazing rights, timber
rights, fishing rights, hunting rights, access rights and air rights.
The assessor bases his estimate of land value upon basic economic principles
which serve as the foundation of the valuation process. There are many economic
principles which people and assessors must understand and use when implementing
judgment to estimate land values. It is necessary to discuss a few of the more
"I think in principle it's a good
idea to tax unimproved land, and particularly capital gains (windfalls) on it.
Theory says we should try to tax items with zero or low elasticity, and those
- James Tobin,, Nobel Memorial
Prize in Economics, 1981
Here are the
classic principles of land valuation:
- The principle of substitution
maintains that the value of a property tends to be set by the price that a
person would have to pay to acquire an equally desirable substitute
property, assuming that no expensive delay is encountered in making the
substitution. A person would pay no more for a site than would have to be
paid for an equally desirable site.
- The principle of supply
and demand holds that the value of a site will increase if the demand
increases and the supply remains the same. The value of the site would
decrease if the demand decreased. Land is unique, since the supply is
fixed; its value varies directly with demand.
- The principle of anticipation
contends that land value can go up or down in anticipation of a future
event occurring, or a future benefit or detriment.
- The principle of conformity
contends that land will achieve its maximum value when it is used in a way
that conforms to the existing economic and social standards within a
Land value can be thought of as the relationship between a desired location
and a potential user. The ingredients that constitute land value are utility,
scarcity and desirability. These factors must all be present for
land to have value.
Land that lacks utility and scarcity also lacks value, since utility arouses
desire for use and has the power to give satisfaction. The air we breathe has
utility and is generally considered important, since it sustains and nourishes
life. However, in the economic sense, air is not valuable because it hasn’t
been appropriated and there is enough for everyone. Thus there is no scarcity –
at least at the moment. This may not be true in the future, however, as
knowledge of air pollution and its effect on human health make people aware
that clean and breathable air may become scarce and subsequently valuable.
By themselves, utility and scarcity confer no value on land. User desire
backed up by the ability to pay value must also exist in order to constitute
effective demand. The potential user must be able to participate in the market
to satisfy their desire.
While land is the gift of nature, certain legal, political and social
constraints have been imposed in most societies throughout the years. Every
nation imposes certain public limitations on land ownership and use for the
common good of all citizens. Four forms of governmental control include:
Taxation -- Power to tax the land to provide public revenue and to return
to the community the costs incurred to pay for the various public benefits,
services and environmental protection provided by the government;
2. Eminent Domain -- Right to use, hold or take land for common public
uses and benefits;
3. Police Power -- Right to regulate land use for the welfare of the
public, in the areas of safety, health, morals, general welfare, zoning,
building codes, traffic regulations and sanitary regulations;
4. Escheat -- Right to have land revert to the public's agent, the
government, when taxes are not paid or when there are no legal heirs.
Factors Contributing to Land Value
Many factors contribute to land value, including:
The physical attributes of land:
- Size of site
- Shape of site
- Ease of access to site
- Topography of site quality
of location, fertility and climate
- Convenience to shopping,
schools and parks
- Availability of water,
sewers, utilities and public transportation
- Absence of bad smells, smoke
and noise and
- Patterns of land use,
frontage, depth, topography, streets and lot sizes.
Legal or governmental forces:
- Type and amount of taxation
- Zoning and building law
- Planning and restrictions.
Social and demographic factors:
- Population growth or decline
- Changes in family sizes
- Typical ages
- Attitudes toward law and
- Prestige and education
- Value and income levels
- Sustainability of small
- Growth and new construction
- Vacancy and
- Availability of land.
The influence of these factors expressed independently and in relationship
to one another, helps the people and the assessor measure land value. Land
valuation involves determining the highest and best use of the site given a
combination of these elements, estimating the value by current appraisal
theory, and reconciling to a final estimate of value.
An assessment (or an appraisal) is essentially an opinion of value made by
an experienced knowledgeable person. Specialists are known as assessors who
base their estimate of land value upon basic economic principles which serve as
the foundation of the valuation process. Almost everyone can learn how to do
this and learn to do it better.
Analysis of Data
"Our ideal society finds it essential to put a
rent on land as a way of maximizing the total consumption available to the
society. ...Pure land rent is in the nature of a 'surplus' which can be taxed
heavily without distorting production incentives or efficiency. A land value
tax can be called 'the useful tax on measured land surplus'."
- Paul Samuelson, Nobel Memorial Prize in Economics
The assessment or appraisal process is an organized procedural analysis of
data. This procedure involves seven specific phases, each of which contains
1. Defining the Assignment
The goal is to estimate the supply/demand value of all land sites within a
given district. This will include manufacturing enterprises, apartments,
commercial enterprises, single family home sites, government land, farms and
all other land and natural resources of various descriptions.
The assessor should be able to support his estimate of land
value, both in discussion and in writing. The assessor must define and use
specific terminology suitable and pertinent to land appraisal. Economic Land
Rent is defined as the value paid or imputed for the exclusive right to use a
land site’s location or natural resources over and
above that paid for the most marginal (or unproductive) land in the region.
2. Determining the Data Required and Its Source
A land market assessment system is based upon data related to land
attributes. These data generally include maps; aerial photographs; descriptions
of physical characteristics like size, shape, view and topography; permitted
uses; economic usefulness; present uses; available utilities; proximity to town
centers or employment; and site improvements like streets, curbs, gutters,
sidewalks and street lights. Governments have much of this data available in
their different agencies.
How are values currently being determined and paid by land owners or
occupiers? Are records being maintained for the values or fees that are
currently being paid by land owners or occupiers? If land values have been
estimated in the past, attempts should be made to build upon the existing
systems while making constant improvements to data collection.
3. Collecting and Recording the Data
Most governments do not have all of this information available in a single
data base capable of analysis. Assessors must determine
1) what land data and valuation systems currently exist,
2) how effectively they operate,
3) how to build upon and improve these systems and
4) how to implement procedures for collecting additional data to improve the
estimates of land values.
If no effective land revenue systems are in place they can be created in a
manner similar to the following. Assessors should ascertain what land data
presently exists and how it could be assembled for use in a land valuation
system. They should collect and maintain the data needed from any existing
records even though it is not currently stored in a single source. They should
determine what additional data would be valuable and from what sources it can
be obtained. They should develop ongoing procedures for collecting any
additional data required to determine land values and the data should be
collected for the differences in characteristics for each site. Land and property sales is a key factor.
The assessor may train a small team to
find and record the additional desired data. The data should be displayed in a
useful manner such as on a land value map or a computer printout. In an area
with no systems or data in place, simple relationships could be drawn for
permitted use (zone), distance to amenities (location), physical
characteristics (size, topography, view, and so on) and other significant factors. Data could be collected and
analyzed on a neighborhood and type of potential use basis. This could be printed
out in large format and displayed in the town square.
von Thünen rent is an economic rent
created by spatial variation or location of a resource. It is 'that which can
be earned above that which can be earned at the margin of production'.
Conversations with residents and businessmen could help to define the
parameters which people in the local community use to determine favorable land
location. An interview might reveal that the distance to transportation, such
as a river, roadway or public transportation, weighs greatly in people's minds.
Or, other factors may predominate, such as homogeneity of a neighborhood or
distance to shopping and schools. Planners, government officials, real estate
agents, appraisers and others involved in real estate may also provide useful
Even if no land sales or market evidence exists, the specific factors which
influence land value are well understood by most people in any area of the
world. The assessor's job is one of skillfully determining the relative
priorities identified by local people.
Profit at the central market depends not only on the
market value of the product but also on
the transportation costs to get the product to the market.
A sample of typical and varied land sites within a city could be selected to
demonstrate a land valuation system. Based upon a study, land market values
could be assigned by a competent assessor. The assessor could train a few
people to collect and analyze existing data, then analyze the sample survey
data and set standards for the base market values in the area. The difference
in market value of the attributes that enhance or detract from a typical site
could be added or subtracted to the base land value for the other sites in the
study. These features should be recorded on the land value map, which would
show the primary sites with values declining as desirability decreases or
increasing as desirability increases.
Several examples of land assessment systems will be considered, from a
simple example with no significant land data, to a more complex example with
plentiful land data. The methods employed will depend upon the land market data
that currently exists and how that data can be assembled for use in a land
Above is a
simple graph showing changes in real estate prices for
Australian states during a twenty year period.
4. Verifying the Data
Since the appraisal process is an opinion of land value that is not based
upon the personal experience of the assessor, the data collected should be
verified with two different sources. Sales data should be verified with a
person directly involved in the transaction. For example, one party could be
the selling agent responsible for the sale. Another party could be the site
owner who agreed to the sale amount. Additional sources might be government
land agents or officials who have firsthand knowledge of the sale. Inaccuracies
can also be brought to light by concerned citizens if the data is made
available to the public.
5. Analyzing and Interpreting the Data
Further on in this section there is detailed information on
several methods of analyzing and interpreting land data that can be used to
secure the goal of estimating the value of all land sites.
6. Estimating the True Land Value
Once the analysis has been concluded, it will be possible for the assessor
to make a rational estimate of the land value of every land site. This estimate
will serve as the basis for the value that will be paid by a site owner or user
for the exclusive use of a location (site). The assessor would assign
preliminary land value estimates based upon the comparative estimated
usefulness and desirability of the sites. Initially, they could accomplish this
task in a general manner, with the understanding that refinements would be made
to reflect new information and public opinion.
7. Public Examination and Analysis of the Land Values
The preliminary land value assessment, estimated for each site, could then
be displayed on a land value map. Public examination and analysis of the land
values for land sites would help to clarify any errors in making assessments.
People who occupy land acquire skills in noticing slight differences in land
characteristics. They can explain to the assessor why and how differences
should be reflected in the conclusions about land values.
Once an adequate sample survey has been completed and had favorable public
review, the result can be used throughout the total area. These sample data
results could be used to estimate the comparative value of each land site.
Thereafter land value should be reassessed on an annual basis adjusting for
changes in value.
Methods Used to Analyze and Assess Land Value
landowner who withdraws land from productive use to a purely private use
should be required to pay higher, not lower, taxes." - James Buchanan Jr., Nobel Memorial Prize
in Economics, 1986
Valuation of the land involves first determining the highest and best use of
the site, estimating the value by current appraisal theory, and reconciling to
a final estimate of value.
The four criteria for determining highest and best use
are; what is: (1) physically possible;
(2) legally permissible; (3) financially feasible; and (4)
Current appraisal theory uses three standard approaches in
estimating land value:
(1) the cost approach; (2) the sales comparison approach;
and (3) the income capitalization approach.
The most reliable way to estimate land value is by sales
comparison. This appraisal technique is dependent upon utilizing truly
comparable market or sales data which have occurred near enough in time to
reflect market conditions relative to the time period of the appraisal. When
few sales are available or when the value indications produced through sales
comparison require substantiation, other procedures may be used to value land.
There are seven procedures that can be used to obtain land value indications:
comparison - Sales of similar, vacant parcels are analyzed, compared, and
adjusted to provide a value indication for the land being appraised.
Relationship - Relating a site to a known standard site. The difference can
be expressed as a percentage. This procedure can be used when there is little
value evidence in existence.
3. Land Residual Technique - It is
assumed that the land is improved to its highest and best use. All operating
expenses and the return attributable to other agents of production are
deducted, and the net income imputed to the land is capitalized to derive an
estimate of land value.
- Sales of improved properties are analyzed, and the prices paid are allocated
between the land and the improvement portions.
- Land value is estimated by subtracting the estimated value of the depreciated
improvements from the known sale price of the property.
Rent Capitalization - This procedure is used when land rental and
capitalization rates are readily available, as in well-developed areas. Net
ground rent, the net amount paid for the right to use and occupy the land, is
estimated and divided by a land capitalization rate.
Development – With this approach land value is estimated as if the land
were serviced with infrastructure and available for sale in smaller parcels.
All costs including infrastructure and carrying charges are subtracted from the
estimated proceeds of sale, and the net income projection is discounted over
the estimated period required for market absorption of the sites.
With the appraisal process and these several possible
approaches to value understood, it is appropriate to consider which methods and
procedures should be used to analyze and interpret the land data. The choice is
based upon what data is available, its reliability and usefulness in making a
Standard Units of Measure
Land markets can be estimated on the basis of a certain value per unit and
the unit is often one of the following:
1. Per Dwelling Unit Site
2. Per Square-Foot
3. Per Acre
4. Per Front-Foot
The selection of the most appropriate unit, or combination of units, is
important. It is a decision which can only be made after a careful analysis of
the market and the available data.
The standard residential site may respond well to a value Per Dwelling Unit
Site. A commercial use may be better estimated by using a value Per Square-Foot
or Per Front-Foot. A farm or rural site may be better estimated by using a
value Per Acre. Once the market value per unit of measure has been established
for the standard site representative of the area, the value will become a base
to which all other sites can be compared.
Per Dwelling Unit Site -- Sale evidence will frequently indicate that
minor variations in sites, whether frontage or size, have little effect on
markets. The assessor could select the standard Dwelling Unit Site, both as to
location and market. They would proceed to make judgment decisions in relating
the other sites to the site that was selected as the standard site--rating them
as standard, superior or inferior. An individual site could have some
characteristics that are superior and others that are inferior. The Per
Dwelling Unit Site method is useful in the valuation of apartments and homes.
It may also be combined with the use of another method such as the per
Per Square-Foot -- The value per square-foot unit of measure has
application in estimating value for commercial, industrial and residential
lands where the applied rate will be more constant over the entire site. The
size of the site limits or enhances the use and market value of a site.
Per Acre -- Beyond the limits of the urban area, there will be those
parcels that are so much larger that they will not respond well or at all to
dwelling unit site value, a square-foot or front-foot unit measure. Where these
larger parcels are the norm, the unit of measure can best be expressed as a
value per acre. The adjustment factors might relate to agricultural benefits,
such as soil fertility, distance to markets or water supply.
Per Front-Foot -- This method has been useful in the downtown portion
of intensely developed cities where people pay a premium for exposure to
customers. For those sites that are not identical to the standard site, it will
be necessary to make appropriate adjustments for variations in width, depth and
other attributes that differ from the standard site. The total departures from
standard front-foot market can be expressed as an adjusted frontage. It is
against this adjusted frontage that the adopted front-foot value will be
There is a principle of commerce that
commodities are cheaper by the dozen. By the same token it could be that
frontage feet are cheaper per unit when the total exceeds the average, or
standard width. A width table is a series of percentage adjustments greater or
less than 1.0 needed to adjust the actual Market per Front-Foot of any site and
equate it to the Front-Foot value of the adopted Standard Site.
A standardized method is the application of the comparative method to land
markets under review. Adjustments are made for divergences from the standard
site by the use of a specific set of rules. The most common examples are those
used for distance and size. The methods were born out of the necessity to
produce sound and impartial market estimates in a limited amount of time
recognizing the accepted principles of valuation.
It is essential to use discretion and judgment and only treat standardized
methods as guides. The use of formulas should be the result of local market
analysis and testing. Sales are sought that are similar except for the one
difference that is being analyzed. A value for this difference will result. The
main virtue of the method is its administrative adaptability, permitting land
values to be estimated on the basis of strict comparability. Mistakes become
more easily detectable, particularly in cases of errors of judgment and
Adjustments for Unique Features
After the base value has been estimated, the differences in individual sites
must be considered. Some sites have unique advantages or disadvantages compared
to other sites. Actual real estate values vary for each site and are dependent
upon numerous individual features, qualities, characteristics and restrictions.
Adjustments will have to be made for differences between the standard site
and every other site. The assessor will want to study the typical differences
and make individual refinements. There may be reasons for an increase in value
for characteristics which are better than the standard site. They would make a
positive adjustment for desirable characteristics, such as superior location,
view, topography, services or access.
There can also be reasons for loss of value for characteristics which are
inferior to the standard site. They would make a negative adjustment for
undesirable characteristics, such as poor location, longer distance to
transportation, longer distance to the civic center, wet ground in the winter,
over-abundance of rock or poor access.
Student assignment: Please go here: http://www.meritax.co.za/index.asp and click on Mr. Merry Tax for an animated
presentation covering several of the topics of this module, use rights courtesy
of professional valuer Peter Meakin and his team of property assessors and land
Land Value Maps
The land values which have been calculated should be displayed on a land
value map. This will allow the assessor to review his data and value
conclusions. A field review will allow him or her to make further necessary
adjustments for other variables observed in the review and finish the project.
The assessor will find that when the results of the land value analysis are
presented, and the major adjustment criteria utilized, the public can
understand the logic of the assessments.
Transparency is of considerable importance when implementing
land value capture. All information including how information is obtained
should be posted on a website and the information can be presented in a number
of ways, for example, graphs, charts, land value maps, topographical and aerial
maps. A “Google Earth” approach would enable citizens to easily view each land
parcel and then click to find out pertinent information such as zoning and
other regulations, ownership, and assessed land value.
Land Value Scape
Computer Estimated Land Values
There are many jurisdictions that have both prior market value estimates and
some site data available on a computer. They may be capable of using this data
as a basis for updating market estimates.
Many government agencies have already collected limited data about land on a
computer system. By analyzing market trends, new land market estimates could be
made with a single updating factor for each permitted land use within a
An entire country would be capable of annual reassessments, updated by
computer data entries. A simple model used for computer calculation of land
values for 1,000,000 land sites could be based upon a careful analysis of the
sales of a sample of 12,000 sites. A
local valuation committee of land experts could define the land use classes,
neighborhood areas and market values for each standard site in the area. A
Geographic Information System can be used to display land values,
characteristics and statistical data. All of this can be posted on websites.
The advantages to using a computer assisted market update include the
1. Facilitate frequent update of assessments ensuring
equitable treatment of all property owners.
2. Eliminate arithmetic errors in land value calculations.
3. Improve the assessor's productivity in land value assessment.
4. Employ standardized assessment techniques that have proven to be effective.
The information in this section on Land Value Assessment was
extracted from Estimating Land Values, by Ted Gwartney, MAI, Assessor,
Greenwich, Connecticut, USA. The complete document can be found at: http://www.earthrights.net/docs/estimatinglandvalues.html
he spirit of our age, with
the image of the earth as seen from space emblazoned in our mindscape, insists
that the circle now be drawn to include all, each and every one of us, as equal
claimants to the whole earth itself. This quantum leap worldview can and surely
will be the basis for profound changes in institutions of governance, economics
and law. The right to the earth itself as a right by birth is the most
fundamental human right of all. Land Value Capture is nothing less than a vital
key to effectively securing earth rights for each and every one. We hope you
have enjoyed the Land Rights and Land Value Capture course and that the
insight, knowledge and information you have acquired will be of assistance in
your efforts to make the world a better place for everyone.
For further learning:
Land Value Capture Endorsement Form
I/We support shifting taxes OFF of wages, business, homes and other
buildings and ONTO the accurately assessed value of land sites in order to
discourage land speculation and property deterioration and to encourage quality
affordable housing and the renewal and revitalization of the City of (City
Circle One: Yes / No
I/We recommend that the members of our organization study possible effects of a
shift to land value capture in (City Name).
Circle One: Yes / No / Undecided
I/We urge the Mayor and City Council to fully study land value capture’s
potential impact on the economy of (City Name). Circle One:
Yes / No / Undecided
Address _____________________________________________ Zip
Phone_____________________ Fax _________________ Email __________________
City Council District Number or City Council Member Name:
Organization / Affiliation (for identification only)
Authorizing Individual Name (print)
Authorizing Individual Signature ______________________________________
Authorizing Individual Title ________________________________________________
Phone __________________Fax ______________ E-mail ________________
City Council District Number or City Council Member Name:
Enclosed is $ ___________ to assist in educational activities associated
with this effort. Please make checks payable to _________ and send to
___________. For any questions call _____or _______ at
Thank you for your support!
Community Land Trust (CLT) Lease
Agreement Based on Land Rent
School of Living (SoL) has been leasing land as a Community
Land Trust for about 30 years. SoL has been leasing land primarily but not
exclusively to intentional communities.
The leases usually provided a discount to younger intentional
communities by a formula that increases the fee as more members join with the
goal of the CLT collecting 100% of the full lease fee when the community has
grown to its full complement of members.
The lessees own the improvements they make on the land and the rent to
the CLT does not increase when the lessees make improvements. Lease fees do change as land values in the
surrounding area change.
A SoL CLT lease includes requirements that the land be used
for some public educational purposes as well as ecological use
restrictions. The educational use
requirements are not inherent to CLT philosophy in general but is included
because SOL is an educational organization.
The ecological restrictions are in recognition that future generations
have a right to land that has not been damaged by present generation and is
common to most CLTs. Another
restriction commonly found in a SOL CLT lease is that the land may not be used
as collateral; philosophically we don’t want to relate to the land as a
commodity and practically it puts the land in jeopardy.
In determining a
proper lease fee we take into account the restrictions in the lease and
discount what would be a fair market value for a long term lease without these
restrictions. We determined that 5% of
market value is an appropriate annual lease fee for a standard SoL lease. We applied the principal that as land market
value changed the lease fee would also change.
Here is an example of such a lease fee formula:
The annual rent for this land shall be calculated according to the
following formula and paid quarterly . . . to the Lessor by the Lessee:
ANNUAL LAND RENT = T + (X)I or T + (V - Z)(5%) whichever is greater
hereinafter known as the Rent Formula.
T equals the taxes
assessed against The Land by any government or government agency.
X is the annual
Administrative Fee due to School of Living.
The beginning Administrative Fee is four hundred fifty dollars
($450.00). This amount shall be
adjusted at the end of each calendar year for inflation or deflation according
to the current Consumer Price Index for All Urban Areas "I" published
by the United States Department of Labor, using the calendar year 1999 as the base
"V" is the
value of the land and shall be adjusted annually to reflect changing land
values as stated below. The parties
agree that the initial value of the land is $55,200.00. "V" shall be composed of the
initial cost of the Land multiplied by the change (either + or -) in the Farm
Real Estate Values (FREV) for Amherst, Virginia. To calculate the average annual change in the land value, the
FREV increment shall be calculated by using the FREV from the most recent 5-Year
Census Reports that are ten years apart, as compiled by the United States
Department of Commerce, Bureau of Census, Census of Agriculture, Geographic
Area Series Reports. This annual change
in "V" is then used each year until a new 5-Year Census Report
is published. At no time will
"V" be less than zero.
Z is Land Principal
Payments. Lessee may make payments to
Lessor over and above the minimum lease payments which lessee may designate as
Land Principal Payments, [Z]. "Z"
shall be the accumulated total of all such payments. Should such payments be made, Lessee shall retain equity in the
land in the amount of Z and the right to transfer this lease for the value of Z
adjusted for inflation in the event this lease is terminated.
First note: The
inclusion of the “Z” factor was at the request of the lessee. There are variations in each of the SoL
leases because each lease is negotiated.
In this lease fee the lessee pays taxes plus 5% of the current value of
the land, no modifications for fewer residents or more residents.
In each of the leases there is an administrative fee
component so that SoL will always have funds generated from lease fees with
which to fulfill its minimum administrative requirements as lessor. The lease fee formula just cited has the
administrative fee increasing by the CPIU so the “x factor” will be in constant
dollars. The leases are intended to
continue in perpetuity and who knows what the purchasing power of $500 this
year will be worth in 100 or 200 years thus the inflation index. But in this formula we do not use the CPI
inflation index to determine the change in the land value component of the
lease fee: rather it is based just on
5% of whatever the current fair market value of the land is, regardless of changes
in the CPI. That’s why I suggest this
formula is better reflection of our principals.
Also this formula allows for the lessee to reduce the annual
lease fee by making voluntary “principal payments”. So if the land had a fair market value of $60,000.00 this year
and the lessee had paid SOL $60,000.00 in “principal payments” there would be
no annual lease fee due except the “x-factor” adjusted for inflation, until the
land value rose above $60,000.00 at which point the lessee pays 5% of that
additional value per year once that amount exceeds the x-factor. SOL then has $60,000 with which to buy
additional land and lease that out.
Here is our latest update on the basic lease fee formula
where SoL owns all the equity in the land. This lease fee formulas assigns each
individual member of the intentional community his or her own “y-factor” which
is based on a fixed percentage of the value of the land at the time that person
becomes a resident and that component of the lease fee will not change during
that persons residency. And like a
30-year fixed mortgage it gets eliminated from the lease fee after that person
has been a resident for 30 years.
Taking a long view look at this lease formula SOL still receives 100% of
the increased land value over a period of time since there will be successive
100% turnover of residents.
Here is an example of this new formula used at Heathcote
The annual rent shall be calculated
according to the following formula and shall be paid quarterly by the Lessee to
is hereinafter referred to and known as “the Rent Formula.” In the above formula:
X equals Six Hundred Seventy-Five Dollars ($675.00).
Yт equals the sum total of the Y factors.
of Y factor: Each person of majority age living on the Land during the
preceding year for a period of ninety (90) days or longer shall be assigned an
individual Y factor, the amount of which shall be fixed for that individual’s
term of residency and shall be one six-hundredths (1/600) of the Value of the
Land for the year in which he or she first became a resident.
The Value of the Land … shall be the tax
assessment value determined by the State Department of Assessments and Taxation
of Maryland for the year in which the individual first became a resident of the
is agreed that the Y amount for each of the 12 residents of the Land at the
signing of this Lease shall be Two Hundred Seventy-Five Dollars ($275.00). It is further agreed that, if any individual
resides on the Land for 30 years, then that individual’s Y factor shall be
reduced to zero dollars ($0.00). … The 30 years of residency need not be
continuous, but only years of actual residency shall be counted, not years of
absence. If an individual returns after
being absent from the Land for 5 years or more, that individual’s Y amount
shall be recalculated for the value of a Y as if the individual were new to the
Land, for the remaining portion of the 30 years.
The parties agree that the sole purpose of
assigning individuals a specific Y factor is for the purpose of determining the
total amount of annual rent that the Lessee, Heathcote Center, Inc., shall pay
to the Lessor, School of Living, and does not in any way create a contract
between that individual and either School of Living or Heathcote Center, Inc.
equals the use factor applied to the Land for alternative uses of the
Land. It is agreed that the use factor
for this Land with the uses as enumerated in paragraph 6 below, shall be one
(1). If the Lessee ever desires to use
the Land for purposes other than those enumerated in paragraph 6 below, a new
use factor shall be negotiated between the Lessee and the Lessor.
equals the inflationary or deflationary factor and shall be the change (either
+ or -) in the Consumer Price Index for All Urban Areas (CPI-U), non-seasonally
adjusted, 12 month percent change December to December published by the United
States Department of Labor. The
percentage is used to increase or decrease the previous year’s K factor by
multiplying the previous year’s K factor by 1 + the percentage change. The K factor until April 1, 2005 shall be
In the above model, the y-factor of 1/600ths was determined
by the anticipated number of adult residents being 20. Essentially, SoL would be
collecting 3 1/3% of the value of the land each year plus the administrative
fee. Also, in the above lease fee
formula we use the County tax assessment to determine land value. Maryland bases its tax assessments on 100%
of FMV and has periodic re-assessments every 3 years. We looked very closely at their re-assessment process and believe
its adequate for our lease fee purposes.
BTW, Heathcote benefits from a preferential tax assessment for land
enrolled in an agricultural use program, and that lower value is passed through
In these lease models what usually happens is that the
intentional community (or individual or family) already owns land and wants to
put it in the SoL CLT and get a lease back for the land. Since there are individuals living on the
land that have already paid for the land once (or in some circumstances paying
a mortgage that pre-existed the title transfer to the CLT) the SoL philosophy
is that those individuals should not have to pay a second time by also paying a
lease fee to SOL, but as new people come onto the land then a lease fee would
be due SoL. In a full equity lease the
lessee retains the value of the land when it was put into the CLT and if that
lessee wishes to transfer their leasehold interest to another person they would
be entitled to get only their equity adjusted for inflation and SoL would get
any increase in land value. As in all
leases the improvements are owned by the lessee and is entitled to whatever
price they negotiate with the new lessee.
SoL has had equity leases both with individual families and intentional
communities. With intentional
communities the same principals apply even though a lease is not transferred by
a pro-rata lease fee being due SoL when a new member joins the group.
Here’s an example:
rent for this land for the period beginning with the signing of this lease
shall be calculated according to the following formula, and paid to the Lessor
by the Lessee:
RENT = T + X(K) + M
known as the rent formula. In the above
equals the taxes assessed against The Land by any government or government
agency. Such taxes may be paid directly
to the assessing agency by the Lessee and receipt therefor promptly forwarded
to the Lessor.
the Lessee does not make any tax payment when due, the Lessor may do so and add
that amount to future rent, including any penalties not the fault of the