This is quite similar to what they do in Singapore which works pretty well for them. Instead of the city selling land, most of the land is publicly owned and leased to corporations, individuals, etc for 99 years.
There are challenges to implementing a land value tax. Not only would it be difficult to overcome deeply entrenched interests, but it's also difficult to accurately assess and collect 100 percent of land rents.
But we shouldn't allow perfect to be the enemy of the good. The benefits of LVT are so great that, at the very least, we should try our best to implement the closest analogue, even if its an aggressive, split-rate property tax, like you mentioned in Battery Park.
Having the government own and rent out the land…what popped into my head is a mobile home park, where you own the “building” but rent the land. But does a “mobile” home - nominally a depreciating asset- gain some location value on account of it being difficult and expensive to move?
I’m no expert, but I don’t think that’s how it works. Mobile homes generally come in standardized types (like double-wide or single-wide), making them really easy to compare as improvements. The land or location value would just be the difference between plopping a brand new one of those in the middle of nowhere (where there would be no change between the improvement value and the total property value) and plopping an identical one somewhere else (where there would be some kind of observable difference between the improvement value and the total property value). In broad strokes, it is the value of the context where the mobile home is installed.
One caveat is that mobile home parks generally need to provide utility hookups, which are improvements, so that would not be included in the land or location value.
I worked part-time in property manager. My boss taught me to build in an inflation clause to protect the original value of the lease. That would be another way of making 99 year leases reasonable and capture economic rent.
Interesting Battery Park story I'd never heard before! I've been reading Lewis Mumford lately and his big critique is cities not taking more control over development, and I think a land lease is a perfect example of what that could look like. My question is, is it still economical when a city has to pay to acquire land it doesn't already own? I'd love to see cities acquire under utilized land, such as a parking lot, using eminent domain and then land lease it with certain conditions like affordable housing.
That’s part of what I’m noodling on next. And I think there’s two things here.
First, a lot of cities already own a lot of land, and it’s often waaayyy underutilized from a revenue generation perspective. I have a couple hypothesis about why that’s the case, but diff rabbit hole.
Second, to address your actual question, it could be. What I think would make sense in already expensive cities is for the city to strategically acquire land during downturns when prices dip private capital is in retreat. I’m given to understand the agency in Boston I mentioned operates this way. The sticking point here is a competent public developer/deve authority + the ability to accumulate dry powder for when there’s opportunity.
I think the fact that many cities are already sitting on underutilized land points to a larger problem in how local governments think, or don't think, about land.
Asheville was in the process of updating the ADU policy recently and I can't tell you how many times I heard critics say it was a "money grabbing scheme." Aside from the fact that public revenue provides social services, if cities were more serious about balancing their books they wouldn't have so much land zoned single family.
There are some orgs out there (Government Finance Officers Association, Urban3, etc.) helping officials see the relationship between land and finance differently, but its tough work.
Anecdotally, I think city officials just don't think of their job as creating value and then monetizing enough of that value to keep the whole machine going. To be fair, there are some constraints on how some cities are allowed to generate revenue, ex: California's tax regime, that bias local governments. There's a whole lit on the "fiscilization of land use" that documents some of this.
I'm from Singapore. I think land leases here (and in China) are highly flawed without the annual component, which the proposal in the article does include.
Chinese local governments are fucked because they offered land leases as their main way to get revenue.
I'm starting to read about the mainland Chinese system and it sounds pretty bad, but I was given to understand the Singaporean version was somewhat better. Is there no periodic reassessment mechanism in Singapore?
Periodic assessment is based on land *betterment*. Your land is more valuable if you improve the land and increase the floor area available, and your property tax goes up. It's not Georgism.
I honestly have been thinking about writing an article how about Singapore is highly flawed and not really Georgist for some time.
Jeff, great to have these examples of successful public leasing arrangements. Both Singapore and Hong Kong have used this model on a grand scale to finance public services, including infrastructure, transportation and affordable housing. After a tip off from an article by Fernando Gerstein and Fred Foldvary, (The Marginalists and the Special Status of Land as a Factor of Production, 2010) I tracked down a copy of the first English translation of Leon Walras's book: Studies in Social Economics (2010), Routledge. Walras is better known for his work on pure Economic theory, but as a contemporary of George, he sets out in this work a complete model for a nation to offer land on a leasehold basis, allowing the elimination of taxation on private (produced) wealth, and how to get there, with compulsory purchase and 100% compensation for existing owners. Well worth a read...
Wow...I have not thought about Leon Walras since undergrad. Excellent deep cut.
Re: Singapore and HK, I've been doing more reading on the differences between their respective approaches to land leasing and it seems like Singapore has the superior model. Mike Bird's The Land Trap devotes some time to it the end, but @Benedict Springbett has a thorough critique of the HK system's shortcomings: https://www.worksinprogress.news/p/the-dysfunctional-tiger
Jeff, thanks for the link to Benedict's substack, much of what he observes is true, but I am not convinced by the 'options' model. It is fair to say that Hong Kong's leasehold model is 'accidental' which emerged over time. I argue that Singapore's model is more deliberate, probably superior, but with some flaws. Currently reading Mike's book, and working on a new edition of my book on HK: No Debt, High Growth, Low Tax, which will include new chapters on Singapore.
Ah, I thought your name looked familiar! I love No Debt, High Growth, Low Tax (though it’s admittedly been a minute since I read it). Excited to hear there’s an updated edition forthcoming.
Great work, Jeff. Land leasing is an area of Georgism I'm just learning about, so this was especially interesting. I've heard Samuel Hughes (of Works in Progress) discuss British "Great Estates" leaseholds, but I think that was a very different use of the term, with almost the opposite effect.
I love the example of Falls Church. Obviously that's going to have a better shot at winning political support. I am definitely going to keep this in mind for local land battles!
“And as Greg Miller has pointed out in the past, even if you could press a button and make that change overnight, you’d cause an international financial collapse which would, in fact, be bad.”
Or you can wait until the status quo system causes an international financial collapse FOR you and THEN you press the button to make the change overnight IN LIEU OF bailing out both sides of the bad bets.
Well, larger point is that policy changes come with tradeoffs and bigger policy changes entail bigger tradeoffs. Though I appreciate the 'never let a crisis go to waste' sentiment.
Thanks! But I was basically trying to remind people that status quo already has this feature/bug of international financial collapse. We should be more fair to ourselves and our policy proposals.
How would you do this on privately owned land? If the government owns all land and sells 90-year land leases, is this worse than having a high LVT? I would have thought it was better, as private developers don't need to buy insurance for LVT increases.
Tax revenue would not immediately increase after a public project raises land values. However, the expectation of increasing rents should be priced in when developers are bidding for the 90-year leases?
For a private example, Macdonald’s is instructive. They do 20 year leases where the franchisee has to cover the construction cost and all taxes/fees to the municipality. I’m not currently sure if the lease fees are fixed over that period, but the corp is getting franchisee fees and def levering up on existing land fund expansions, so that may not matter as much for them.
And depends on how you define worse. If we just mean “collects the maximally amount of land rent possible”, probably? The Battery Park City leases include periodic reassessments, so they’re not leaving everything on the table (plus they’re charging PILOT fees, so it’s a mish mash).
The Falls Church case though, is a little more like getting to sell the same piece of land every generation (and getting the benefits of whatever improvements haven’t completely amortized at the end of the term). And some of the specifics in this example reflect both sides trying to project out expected land appreciation and split the value accordingly (ie one of the provisions is that if the developer sells condos beyond a certain threshold, the city gets extra rev share).
What do you think of the situation at Carnegie House on NYC? Summarizing, the co-op sold the land underneath, and now the building is struggling because the land prices in the area (Billionaire’s row) have gone up so much?
I'm totally unfamiliar with that one. Is this just a situation where something beloved is on a piece of land that's gotten way more valuable, so the economic logic is to use the parcel for something else?
It appears to be a normal-ish apartment building that made a somewhat foolish to sell the land underneath in-order to make the upfront pricing cheaper. Now the land underneath has become super valuable, and the land owner appears to want to capture its full value.
This is quite similar to what they do in Singapore which works pretty well for them. Instead of the city selling land, most of the land is publicly owned and leased to corporations, individuals, etc for 99 years.
My thoughts as well... why not mention Singapore! But I think there was a conscious decision to focus on American examples.
That's right! As I started going further down the rabbit hole, I thought something US focused would make for good proof by example.
I think it was a good idea, but a footnote or comment in relation to Singapore and Taiwan could be useful as well.
Definitely the better choice for an American audience. I think the idea of renting your home from the government would not go over well here.
https://progressandpoverty.substack.com/p/singapore-economic-prosperity-through
Excellent Post!!
Another way to capture rent is to tap into Henry George's greenback history:
https://monetary.org/articles/henry-georges-concept-of-money/
That's such a good article! It needs to be widely shared.
Great work Jeff.
There are challenges to implementing a land value tax. Not only would it be difficult to overcome deeply entrenched interests, but it's also difficult to accurately assess and collect 100 percent of land rents.
But we shouldn't allow perfect to be the enemy of the good. The benefits of LVT are so great that, at the very least, we should try our best to implement the closest analogue, even if its an aggressive, split-rate property tax, like you mentioned in Battery Park.
Having the government own and rent out the land…what popped into my head is a mobile home park, where you own the “building” but rent the land. But does a “mobile” home - nominally a depreciating asset- gain some location value on account of it being difficult and expensive to move?
I’m no expert, but I don’t think that’s how it works. Mobile homes generally come in standardized types (like double-wide or single-wide), making them really easy to compare as improvements. The land or location value would just be the difference between plopping a brand new one of those in the middle of nowhere (where there would be no change between the improvement value and the total property value) and plopping an identical one somewhere else (where there would be some kind of observable difference between the improvement value and the total property value). In broad strokes, it is the value of the context where the mobile home is installed.
One caveat is that mobile home parks generally need to provide utility hookups, which are improvements, so that would not be included in the land or location value.
I worked part-time in property manager. My boss taught me to build in an inflation clause to protect the original value of the lease. That would be another way of making 99 year leases reasonable and capture economic rent.
Thanks for these examples.
Interesting Battery Park story I'd never heard before! I've been reading Lewis Mumford lately and his big critique is cities not taking more control over development, and I think a land lease is a perfect example of what that could look like. My question is, is it still economical when a city has to pay to acquire land it doesn't already own? I'd love to see cities acquire under utilized land, such as a parking lot, using eminent domain and then land lease it with certain conditions like affordable housing.
That’s part of what I’m noodling on next. And I think there’s two things here.
First, a lot of cities already own a lot of land, and it’s often waaayyy underutilized from a revenue generation perspective. I have a couple hypothesis about why that’s the case, but diff rabbit hole.
Second, to address your actual question, it could be. What I think would make sense in already expensive cities is for the city to strategically acquire land during downturns when prices dip private capital is in retreat. I’m given to understand the agency in Boston I mentioned operates this way. The sticking point here is a competent public developer/deve authority + the ability to accumulate dry powder for when there’s opportunity.
I think the fact that many cities are already sitting on underutilized land points to a larger problem in how local governments think, or don't think, about land.
Asheville was in the process of updating the ADU policy recently and I can't tell you how many times I heard critics say it was a "money grabbing scheme." Aside from the fact that public revenue provides social services, if cities were more serious about balancing their books they wouldn't have so much land zoned single family.
There are some orgs out there (Government Finance Officers Association, Urban3, etc.) helping officials see the relationship between land and finance differently, but its tough work.
This ^
Anecdotally, I think city officials just don't think of their job as creating value and then monetizing enough of that value to keep the whole machine going. To be fair, there are some constraints on how some cities are allowed to generate revenue, ex: California's tax regime, that bias local governments. There's a whole lit on the "fiscilization of land use" that documents some of this.
I'm from Singapore. I think land leases here (and in China) are highly flawed without the annual component, which the proposal in the article does include.
Chinese local governments are fucked because they offered land leases as their main way to get revenue.
I'm starting to read about the mainland Chinese system and it sounds pretty bad, but I was given to understand the Singaporean version was somewhat better. Is there no periodic reassessment mechanism in Singapore?
Periodic assessment is based on land *betterment*. Your land is more valuable if you improve the land and increase the floor area available, and your property tax goes up. It's not Georgism.
I honestly have been thinking about writing an article how about Singapore is highly flawed and not really Georgist for some time.
You absolutely should, sounds like the conversation needs it!
Jeff, great to have these examples of successful public leasing arrangements. Both Singapore and Hong Kong have used this model on a grand scale to finance public services, including infrastructure, transportation and affordable housing. After a tip off from an article by Fernando Gerstein and Fred Foldvary, (The Marginalists and the Special Status of Land as a Factor of Production, 2010) I tracked down a copy of the first English translation of Leon Walras's book: Studies in Social Economics (2010), Routledge. Walras is better known for his work on pure Economic theory, but as a contemporary of George, he sets out in this work a complete model for a nation to offer land on a leasehold basis, allowing the elimination of taxation on private (produced) wealth, and how to get there, with compulsory purchase and 100% compensation for existing owners. Well worth a read...
Wow...I have not thought about Leon Walras since undergrad. Excellent deep cut.
Re: Singapore and HK, I've been doing more reading on the differences between their respective approaches to land leasing and it seems like Singapore has the superior model. Mike Bird's The Land Trap devotes some time to it the end, but @Benedict Springbett has a thorough critique of the HK system's shortcomings: https://www.worksinprogress.news/p/the-dysfunctional-tiger
Jeff, thanks for the link to Benedict's substack, much of what he observes is true, but I am not convinced by the 'options' model. It is fair to say that Hong Kong's leasehold model is 'accidental' which emerged over time. I argue that Singapore's model is more deliberate, probably superior, but with some flaws. Currently reading Mike's book, and working on a new edition of my book on HK: No Debt, High Growth, Low Tax, which will include new chapters on Singapore.
Ah, I thought your name looked familiar! I love No Debt, High Growth, Low Tax (though it’s admittedly been a minute since I read it). Excited to hear there’s an updated edition forthcoming.
Great work, Jeff. Land leasing is an area of Georgism I'm just learning about, so this was especially interesting. I've heard Samuel Hughes (of Works in Progress) discuss British "Great Estates" leaseholds, but I think that was a very different use of the term, with almost the opposite effect.
I love the example of Falls Church. Obviously that's going to have a better shot at winning political support. I am definitely going to keep this in mind for local land battles!
Who is the lieutenant governor in California interested in these types of policies? Excellent post by the way good sir.
Michael Tubbs, former Mayor of Stockton - he's super YIMBY, too
“And as Greg Miller has pointed out in the past, even if you could press a button and make that change overnight, you’d cause an international financial collapse which would, in fact, be bad.”
Or you can wait until the status quo system causes an international financial collapse FOR you and THEN you press the button to make the change overnight IN LIEU OF bailing out both sides of the bad bets.
Well, larger point is that policy changes come with tradeoffs and bigger policy changes entail bigger tradeoffs. Though I appreciate the 'never let a crisis go to waste' sentiment.
Thanks! But I was basically trying to remind people that status quo already has this feature/bug of international financial collapse. We should be more fair to ourselves and our policy proposals.
How would you do this on privately owned land? If the government owns all land and sells 90-year land leases, is this worse than having a high LVT? I would have thought it was better, as private developers don't need to buy insurance for LVT increases.
Tax revenue would not immediately increase after a public project raises land values. However, the expectation of increasing rents should be priced in when developers are bidding for the 90-year leases?
For a private example, Macdonald’s is instructive. They do 20 year leases where the franchisee has to cover the construction cost and all taxes/fees to the municipality. I’m not currently sure if the lease fees are fixed over that period, but the corp is getting franchisee fees and def levering up on existing land fund expansions, so that may not matter as much for them.
And depends on how you define worse. If we just mean “collects the maximally amount of land rent possible”, probably? The Battery Park City leases include periodic reassessments, so they’re not leaving everything on the table (plus they’re charging PILOT fees, so it’s a mish mash).
The Falls Church case though, is a little more like getting to sell the same piece of land every generation (and getting the benefits of whatever improvements haven’t completely amortized at the end of the term). And some of the specifics in this example reflect both sides trying to project out expected land appreciation and split the value accordingly (ie one of the provisions is that if the developer sells condos beyond a certain threshold, the city gets extra rev share).
Does that answer your question?
What do you think of the situation at Carnegie House on NYC? Summarizing, the co-op sold the land underneath, and now the building is struggling because the land prices in the area (Billionaire’s row) have gone up so much?
I'm totally unfamiliar with that one. Is this just a situation where something beloved is on a piece of land that's gotten way more valuable, so the economic logic is to use the parcel for something else?
Link: https://www.wsj.com/real-estate/luxury-homes/carnegie-house-billionaires-row-nyc-853d0e56?gaa_at=eafs&gaa_n=AWEtsqdLaY_QQ-T-zrQKdzokDSVDI2V3q7HhKZvuuKSpvA6Z3Io0rtTF1scI3nVCBu4%3D&gaa_ts=69614da2&gaa_sig=OiqZrqNNmC9cQSQnVtKghoXiBolgl797ze94gDJx7BvcXtdGMrE5BkMWICnMFKd0RdcclpsWfHjXUrO_RwQatA%3D%3D
It appears to be a normal-ish apartment building that made a somewhat foolish to sell the land underneath in-order to make the upfront pricing cheaper. Now the land underneath has become super valuable, and the land owner appears to want to capture its full value.