Louis Post: Outlines of Louis F. Post's Lectures, with Illustrative Notes and Charts (1894) — Appendix: FAQ

Q50. Would not the single tax take away the home place, and so tend to crush out the home sentiment?
A. When the home place now becomes valuable, it is parted with.

Q51. Yes; but when the home place is parted with now, the home owner is compensated by the high price he gets.
A. Then your question does not turn upon the home sentiment but upon the dollar sentiment. As a matter of sentiment, the condition would be no worse in any case than now, and in many cases far better; as a matter of dollars, the question is one of justice and not of the home. Under the single tax any one who wanted a home could have it, and never be obliged to abandon one home for another, unless such changes took place in the neighborhood as to make the place inappropriate for a home. He could not then, as he does now, play dog in the manger, saying to the community, "I will not use this place for appropriate purposes, nor will I allow any one else to do so."... read the book

Charles B. Fillebrown: A Catechism of Natural Taxation, from Principles of Natural Taxation (1917)

Q50. How could the landowner escape the alleged burden of an increase in his land tax?
A. Simply by assuming the legitimate role of a model landlord, by putting his land to suitable use, in providing for tenants at lowest possible price the best accommodations and facilities appropriate to the situation that money can buy.

... read the whole article

Winston Churchill: Land Price as a Cause of Poverty (1909 speech in Parliament)

What is the explanation? Because the population is congested in the city the price of land is high upon the suburbs, and because the price of land is high upon the suburbs the population must remain congested within the city. That is the position which we are complacently assured is in accordance with the principles which have hitherto dominated civilised society.

Sometimes it is the widow. But that personality has been used to exhaustion. It would be sweating in the cruellest sense of the word, overtime of the grossest description, to bring the widow out again so soon. She must have a rest for a bit; so instead of the widow we have the market-gardener -- the market-gardener liable to be disturbed on the outskirts of great cities, if the population of those cities expands, if the area which they require for their health and daily life should become larger than it is at present.

The optimal timing of development is an important allocative function that can be either enhanced or degraded by the impact of land taxes on land speculation. This paper discusses four types of taxes on land:

• taxes on the rental value of land,
• taxes on the sale value of land,
• taxes on realized income from land, and
• taxes on realized gains from the sale of land.

All four taxes reduce incentives for speculation in land, which is generally beneficial. The third and fourth produce distortions with respect to incentives to develop land, while the first and second do not. All four taxes have some beneficial effect of mitigating imperfections in capital markets. All permit reduction or elimination of taxes with significant dead-weight losses, such as those on improvements.  ...

Abstract from the continuous divisibility of land and suppose that land comes in "sites." At each moment in time, each site is in one of three states:

1. Suitable for agriculture.

2. Suitable for housing.

3. Suitable for commercial activity.

While each site can be used for any activity, the net return will be greatest if it is used for the activity for which it is suited, provided that it remains in that activity long enough to fully amortize the associated capital that is state-specific, durable and immobile. What could keep a site from remaining in an activity long enough to amortize the associated capital is that from time to time a site makes a transition from state 1 to state 2 or from state 2 to state 3. These transitions are imperfectly predictable. When a transition from state 2 to state 3 occurs unexpectedly, the course of action that maximizes the net return to the site may entail scrapping prematurely the residential structure built there and building a commercial structure. In such an instance, one may be able to look backward and say that it would have been better not to have built the residential structure at all, but rather to have left the site in agricultural use until the transition to state 3 occurred. However, such reckoning can affect investment decisions only to the extent that transitions can be foreseen.

The transitions are assumed to be costly to foresee, and to be more costly to foresee when they will be occurring further in the future. Like signs of spring, symptoms of a possible transition are at first faint and unreliable, becoming more and more obvious and certain as the time of the transition approaches.

In addition to the land management motive for seeking to foresee transitions, there is a speculative motive, which differs in form and magnitude. While the land management motive is concerned with the possibility that capital will be wasted on a site that is soon to undergo a transition in state, the speculative motive arises from the gains to be made from owning title to land at the time that its better future prospects become generally known.

People differ in the costs they incur in ascertaining whether the signs present at a particular site herald a pending transition, and how soon it will occur. Therefore those who have a comparative advantage in foreseeing the transitions tend to do the speculating. A speculator will incur the cost of ascertaining the significance of the signs at a particular site if, based on that speculator's experience, the probability of a transition given the signs, multiplied by the increase in the current value of the property if there is a transition, is greater than the sum of the cost of making the determination, the transactions costs of acquiring the site and the net cost of holding the site until its future prospects become generally known. The activity of speculation yields a normal expected private return to the funds spent on speculation, with particularly skillful speculators also obtaining unusual returns to their unique talents.

The speculative return from foreseeing future transitions arises from holding title to land when pending transitions become generally known. This return is a purely private return, with no corresponding social return, since the land will increase in value whether or not any given speculator holds it. The land-management return from foreseeing future transitions, on the other hand, arises from knowing not to employ capital on sites where future transitions will cause the capital to depreciate prematurely. This is a social return, since it involves improving the allocation of scarce resources. There is no necessary connection between the private return and the social return. ...

An additional social cost of land speculation was elucidated by Harry Gunnison Brown (1927). He pointed out that when it is possible to profit from land speculation, land will tend to be acquired by those who have the most extreme beliefs about how much it will rise in value, and that such beliefs will generally be more optimistic than is warranted. Economists have given the name "winner's curse" (Milgrom & Weber, 1982) to the phenomenon that those who bid the most tend to bid too much. The winner's curse can cause the whole land market to become dominated by persons with extreme beliefs about future rises in value, creating an artificial scarcity of land for current use, as those who have land wait for illusory future opportunities. The winner's curse is thereby shifted to society.

Charles T. Root — Not a Single Tax! (1925)

But suppose that during the second five years something of a boom has set in, and a community is growing up. Land is in demand, and for the lessening area in the hands of the government two dollars per acre is freely offered as economic rent. Now our typical farmer must come up to the market price and pay two dollars an acre for his third five years, irrespective of whether he is making more or less out of his place.

In his third five years the boom continues, and the community grows so fast that before the close of that period one corner of our friend's farm finds itself near the middle of a flourishing town. Five acres of it are needed for a public park, and five acres adjoining are wanted to cut up into building lots. As building lots, this part of the land will command a voluntary offer of a hundred dollars per year per acre of economic rent; and this fact establishes the land-value of the adjoining five acres needed for park purposes. ...

A shrewd man, foreseeing the direction of growth of population in a city, for example, can buy a well-located block at a moderate figure from some less far-seeing owner, can let it grow up to weeds, fence it off against all comers and give it no further attention except to pay the very small tax usually imposed upon vacant land.

Meantime the increasing community builds up all around it with homes, banks, stores, churches, schools, paving and lighting the streets, giving police and fire protection, etc., and at last comes to need this block so urgently that the owner is fairly begged to sell it, at three or ten or fifty times what it cost him. Quite often the purchaser at this enormous advance is the very community which has through its presence and the expenditure of its taxes created practically the whole value of the land in question! ...

An illustration has already been given of the case of a piece of farm land. Let us take an example in a large city. Let us take a corner lot centrally located in New York City, the title to which lot is held by, say, Mr. John William Rhinelastor. This lot was a part of an old Dutch farm, and is an heirloom. It did not cost the present owner anything, nor his father nor his grandfather. There is a little old building on it, which has always been rented at a figure ten times as large as the taxes imposed, so that the owner has been handsomely subsidized each year for storing his title-deeds during a period of the city's growth in which the increase in population and the expenditure of public money in that neighborhood have raised the value of this corner location to, say, two hundred times its early value.

About now, Mr. Rhinelastor decides that he will go abroad to live, and can't be bothered with this piece of property. But knowing that the pressure of population is sure to increase and that the expenditure of public money to the benefit of this land must continue, he will not sell it. So he gives a twenty-one year lease to the corner for, say, $20,000 a year net, with a privilege to the lessee of renewals at advancing figures. The lessee agrees to pay all taxes.

Now what is this net $20,000 a year, which will be regularly remitted to Mr. Rhinelastor, in Europe or wherever he may be, given in payment for? Not for the old building — the first thing the lessee does is to pull it down. Not for the land itself — it is all rock, which has got to be blasted out as part of its improvement.

Clearly it is paid for a location or site value, which the community, and the community only, has built up and paid for. In other words, the present $20,000 rental, and the larger one which that location will command in later years, is strictly a community product, and as such belongs to the community and not to Mr. Rhinelastor. ... read the whole article

Bill Batt: The Nexus of Transportation, Economic Rent, and Land Use