The other component of a real property parcel is the
land value, which reflects a market price based on very
different criteria. Despite the apparent reality that
land is visible and tangible, land prices reflect the
value of location more than they do the material content
they contain. This is easy to understand when one
reflects that if some earth is removed from a site and
brought to another place, the prices of each site is
largely unaffected.21 Location value has duration, and
the value of this flow of rights for exclusive use of a
site requires a flow price rather than a stock price.
This flow is really what classical economists refer to as
ground rent or economic rent.22 Also known as “land
rent,” it is defined as “a payment to a
factor beyond what is needed to put that factor into use;
[it is a price for use] beyond what is needed to maintain
a market for land.”23 Land has a selling price
because we have come to regard land sites as objects, as
commodities to be traded,24 and they are understood to
have a static price, as a stock rather than as a flow.
That stock price really needs to be understood instead as
the “present value” of the flow of ground
rent minus taxes. “Present value” is an
economic term that refers to “the worth of a future
stream of returns or costs in terms of their value
now.”25 Consideration in this way brings to the
fore other concerns and factors.
The market price of a location depends not only on
ground rent and taxes, effectively its present value, but
also upon the “discount rate,” or interest
rate, that prevails in the market used to calculate its
returns and costs. When interest rates go up, the market
prices of sites fall, just as for any other economic
encumbrances placed on locational sites.
The market prices of sites also fall if taxes go up
and nothing else changes. However, an increase in taxes
is often accompanied by improvements in any obligations
linked to parcel locations. These too are sometimes
easily “commodified,”26 and may vary
according to time period, changed neighborhood
expectations, emergency conditions, government
regulations, and so on.27 These contingent links often
constitute services that raise the market prices of sites
more than the taxes depress them. Still another way of
understanding the value of locations is to see them as
capitalized transportation costs.28 Savings in
transportation are likely to be expressed in the market
price of sites. One way or another people are willing to
pay for access to exchange markets: either in the form of
site proximity or in the form of travel expenses. It is
the reason why urban cores have higher site rents than
peripheral areas and hinterlands. Hence the differential
value of locations, dependent, not on anything
titleholders do, but rather on the quality of community
amenities. These all have a price.
The prices for services that raise land rents, like
the services themselves, should be regarded as flows
rather than as stocks. But, ironically, our payments for
such services are not understood as flows affecting site
values at all, but are seen rather as related to stock
prices. The values of our property parcels are viewed
solely as stocks, and therefore our taxes are seen as
stock taxes. ... read the whole
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