300 Million Population

In mid-October, 2006, the population of the US passed 300 million. Some people regard this as a bad thing. Others regard it favorably. The milestone gives us a chance to reflect on the dynamics of population growth, and to explore for whom population growth is a good thing, and for whom it is a bad thing, and why, and how we might go about making it into a win-win situation.

Some are concerned about population growth because they fear that our planet cannot support more people than it has now without having serious negative effects. One might observe that their fears relate to the product of two factors -- the number of people on the earth and the average amount of resources consumed by each one. Those of us at the upper end of the global consumption range -- which includes most Americans, particularly those in the upper half of the income spectrum -- are certainly consuming a lot more of our fair share of the clean air and non-renewable natural resources, and so there is legitimate reason to be concerned that adding more people at our own levels of resource consumption may not be a good thing.

But we must differentiate the two factors -- population and load on the environment -- if we are going to think precisely.

One might also be tempted to ask whether the increase in population leads to more competition for other scarce or finite resources, and thereby drives up prices for all of us. Now we are getting close to the heart of the matter.

We've watched as housing affordability has gone from a point where most of us are spending about 25% of our income on housing, to one where the average is closer to 30%, and the percentage of families who spend more than 40% of their income on housing is high.

What is it that is in fixed supply? What is it that is scarce? Those who answer the question by saying "housing" may be correct in the short term, but more precisely, what is scarce is not the houses or apartments themselves or the materials or labor with which to build them. These things are all in reasonable supply, and supply will rise to meet demand. No, what is in short supply is well-located land on which to build housing. Well-located residential land is land within a reasonable commuting distance of good jobs, located in districts with good schools and other amenities and existing infrastructure.

There is plenty of land available, but what is available as virgin land (that is, not previously built on) is on the fringes, far from jobs, without public transportation, highways, emergency services, schools, and all the other amenities that make a neighborhood a desirable place to settle. Some of us genuinely want to live far from our neighbor's chimney, at least during parts of our lives, but many more of us need or want to live in places where the benefits of community are present abundantly.

If we want to live in one of those choicer places, we find that we must buy an older home, and accept that it may not have all the modern amenities, interior space or technological features that we might be able to afford if we lived on less expensive land. The transportation tradeoff is of both time and money, not just for commuting to job(s) but also to schools, shopping and some forms of recreation. Or we could choose an older house not for its own amenities but because it occupies a well-located site, then replace it with a new structure.

As population increases, land that had little value when America's population was 200 million, or 250 million, begins to acquire value, and sometimes significant value. Some land is naturally valuable -- that is, valuable due to natural amenities like ports, falling water, navigable rivers, magnificent views, waterfront, fertile soil, favorable growing conditions, water supply -- and grows in value as population increases. Some of that increase in value is due solely to the increase in population. Some of it is due to public investment in infrastructure (think of the Verrazanno Narrows and Tappan Zee Bridges' effects on Staten Island and Rockland County's land value, or the Jubilee subway line's effect on land values in parts of London, or the railroad and highway systems that connect to ports) and services. And some of it is due to technological advances (consider how air conditioning has increased the value of residential and commercial land in the southern half of the US, or how elevators make urban land more valuable, or how low-maintenance fiberglass pleasure boats have made waterfront sites more desirable, ).

This article began with the suggestion that the effects of population increase due to natural growth, longer lifespans and immigration could be turned into a win-win situation. How might that be? We alluded to housing becoming increasingly unaffordable, something that has been noticed for at least 25 years but which is spiraling outward at an alarming and painful rate today. No one seems to be relating this to the increasing concentration of wealth which has also been occurring.

As population increases, well-located land increases in value. Our current approach is to treat that increase in value as private treasure. We tax it little (a 15% long term capital gain only on the increase of more than $500,000 per couple over 2 years or more, a step-up in basis upon death, and, for fewer than 1% of us, an estate tax). And yet the landholder doesn't lift a finger to reap that gain! Why on earth should it be his private treasure, while others struggle to pay large downpayments to sellers and 30 years of mortgage payments to lenders?

That community-created treasure should be treated as our common treasure. To do this does not mean that we will affect title to property at all. It simply means that instead of taxing land at 1% or 2% per year (and taxing buildings similarly), we ought to be collecting more of the economic value of land (and leaving buildings untaxed). Were we to make this shift, we would be in a position to reduce or eliminate sales taxes on other essentials, which plague our lowest-income brethren and serve to decrease demand for those products, thereby reducing employment and wages, and reduce or eliminate wage and income taxes, starting at the bottom of the income spectrum, thereby leaving to the worker and the saver more of the fruits of his labor and his deferred gratification!

Were we to do this, all of us would share in the land value increase produced by population growth, by technological progress and from public investment in infrastructure, instead of unevenly enriching some of us while impoverishing many more of us.

It isn't all that complicated to do, and the societal and justice benefits would be awesome in their effects.