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Must-Reads of 2017: Getting Serious About Land

Could a new approach to land ownership alleviate the modern housing crisis?

Must-Reads of 2017: Getting Serious About Land
Homes stand in this aerial photograph taken with a tilt-shift lens above New Jersey, U.S. (Photographer: Craig Warga/Bloomberg)

(Bloomberg View) -- Sometimes focusing on just one thing makes a lot of other things clearer. So let's look at land:

Land plays a central role in the economy but one that is often overlooked and poorly understood. This lack of understanding is a major weakness in much orthodox economic thinking, and helps to explain many of the policy failures and problems that bedevil modern societies. These include the crisis in the affordability of housing (the main use for land in modern economies), rising inequality, financial instability, excessive household debt and falling investment and productivity levels, despite increasing paper wealth.

That's from "Rethinking the Economics of Land and Housing," a 2017 book by Josh Ryan-Collins, Toby Lloyd and Laurie Macfarlane. I mentioned it in a column in November, but I hadn't actually finished it yet. Since then I have, and it's very much worth a read. Most of it is a calm, clear, seemingly fair review of the role of land in economic theory and economic reality, and how skyrocketing land values have in recent decades come to shape and perhaps misshape the global economy. At the end, when the authors get to recommendations, you may be taken aback by some of the things they have in mind. But that's all the more reason to read the book. It's not the best thing I've read all year (that would be Thomas Hardy's "The Mayor of Casterbridge"), but it is the book that did the most to alter my perception of the world.

Ryan-Collins, Lloyd and Macfarlane are British, and their focus is on the U.K. and in particular the south of England, where the consequences of expensive land have become starkly apparent. But even in the U.S., where in most of the country land remains pretty cheap relative to overall economic activity, high land prices in coastal cities seem to be changing the national economy in unwelcome ways -- for example, by discouraging people in poorer parts of the country from moving to where the wealth is.

Here in the U.S., most discussion of these issues has focused on counteracting the zoning regulations and not-in-my-backyard attitudes that keep more housing from being built in in-demand cities and suburbs. Ryan-Collins, Lloyd and Macfarlane acknowledge these arguments but, in part because the U.K. has a very different system of land-use planning, don't pay them much heed. They give more attention to the time-honored case for land-value taxes (a favorite of economists from Adam Smith to Milton Friedman) but acknowledge that these and other real estate taxes tend to be quite unpopular.

Their big targets are (1) the global financial system and the central role that property-related lending plays in it and (2) the institution of private ownership of land. On the first, they observe that "a key development in the last thirty years of capitalist economies has been the banking system's shift towards lending against existing property assets over and above business lending, their textbook role," and argue that this has brought higher land prices, financial fragility and slower economic growth. On the second, well, you should read the book if you're really interested, but the basic idea is that alternative approaches to land ownership and tenure offer possibilities for solving current economic quandaries that a strict adherence to private ownership does not.

Ryan-Collins, Lloyd and Macfarlane cite Singapore, where 90 percent of the land is owned by the government, and Hong Kong, where the government-owned MTR (for Mass Transit Railway) Corp. Ltd.  pays for public transportation expansions and improvements with the profits from developing the land around its stations, as examples of free-market systems where public land ownership plays a key role. They cite Germany and Switzerland as examples of affluent nations where homeownership is far less prevalent than in the U.K. and U.S. And they offer this subversive thought:

The concept of private property in land took centuries to take root: new interventions in the land economy may also require considerable time and scale to gain real traction. Feudal serfdom proved to be a highly successful and enduring system, but few would argue for its reintroduction today.

Nope, I'm not going to argue for the reintroduction of feudalism. I'm also not entirely sold on the amalgam of land-policy changes that Ryan-Collins, Lloyd and Macfarlane favor. But I am thinking about land's economic role a little differently. Maybe we all should.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”

  1. The government currently owns just under percent of the shares, with the rest traded on the Hong Kong Stock Exchange.

To contact the author of this story: Justin Fox at justinfox@bloomberg.net.

To contact the editor responsible for this story: Brooke Sample at bsample1@bloomberg.net.

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