A series of 3 excerpts on commonifying the fictitious commodities identified by Karl Polany, i.e. land, money and labor, from an essay by Gary Flomenhoft:
Land as a false commodity
“When looking at real estate prices it is important to remember that rising house prices reflect rising land values, not buildings. Buildings depreciate as they wear out. Their replacement price may increase due to the normal inflation rate, and their value may be maintained by investments in repair and maintenance, but buildings do not increase in value on their own. By contrast, land values are what are subject to rising real prices.
There are three important problems with land as a market commodity. First, periodic booms and busts of land prices due to speculation are extremely disruptive of the economy and cause recessions and massive unemployment. The crash of 1929 was due to an asset bubble including real estate, and it is widely understood that the “sub-prime mortgage crisis”, i.e.; a land bubble, was behind the global financial crisis in 2008, as real estate prices rose to unheard of levels historically, and then crashed.
Second, land prices rise faster than incomes driving average wages to subsistence due to mortgages and rents crowding out other expenditures by average wage earners. Housing costs rise to unaffordable levels, and households respond by putting both partners to work, increasing working hours, or working multiple jobs so they become trapped by debt peonage. Third, rising land values, or the economic rent of land, are generated by society and not by the individual land owner. Therefore society has the right to recapture it. Allowing some members of society to benefit from social progress and leaving others behind is inequitable. So there is a moral component as well, since landowners accumulate capital gains from land while doing nothing to earn them. “Did you ever consider the full meaning of the significant fact that as progress goes on, as population increases and civilisation develops, the one thing that ever increases in value is land?” (George, 1887)
Furthermore, it is a zero-sum game. For every person who makes unearned gains from land someone else must pay. Rising prices and rent benefit land owners, while renters must pay ever increasing rents. These factors sum up the essential problems with the privatization of land rent, and commodification of land.
Solutions to commodity land
Treating land as a market commodity destroys consumer welfare, and creates boom-bust economic cycles. For a sustainable economy, land must be removed as a commodity leading to asset bubbles. There are several ways this could be done. Municipalisation, taxation on economic rent of land, and community land trusts. In Singapore, Hong Kong, and formerly in Canberra, Australia all land is owned by the city and leased out on long term contracts such as 99 year leases. Covenants restricting profit on resale would be necessary to avoid turning land into a commodity.
Arnott and Stieglitz sum up another solution to the land problem as follows: “…since a confiscatory tax on land rents is not only efficient, it is also the ‘single tax’ necessary to finance the pure public good” (Arnott and Stieglitz, 1979, p. 471-471). If holding costs are less than the annual capital gains, then financiers will continue to speculate on land and housing. If land tax or capital gains taxes removed the unearned income from real estate, then land would no longer be subject to speculation or bubbles.
Another viable method of removing land from the market is to place land in community land trusts, where land is owned by a non-profit organization, and is leased to homeowners who own the buildings. Limited or shared-return contracts on homes prevent homeowners from capitalizing land prices into their house prices when sold. They are most often used for affordable housing, but can also be used for commercial, industrial, or agricultural uses. These three methods essentially remove land from speculative markets, and remove the distortionary impact of land from markets of all goods and services containing a land component.”