The Allocation of Land

“Buy land, they're not making it any more”

This Mark Twain quote is not strictly accurate as to the production of land but the sentiment is sound none the less. Reclaiming land from the sea is expensive and also finite. Land on other worlds will be of no use for many generations at least. Populations continue to grow, needing places to live and things to eat increasing the burdens on the land. Technology is also improving making labour more efficient thus increasing the surplus wealth in society. Even in a static population the increase in surplus wealth in society puts a greater demand on land for more production and more luxurious living. The value of land will continue to increase steadily for the foreseeable future.

Land is needed in order to have a place to live which is one of the most basic human needs. Food, cloths and warmth are all very cheap in comparison to shelter. Capitalist mechanisms for the allocation of land have many advantages but unfortunately also have a few concerns, the primary ones being socio-economic. High land and housing prices make the outright purchase of either impossible for most people in society despite it being requisite to those not being supported by parents, state or partners. This means most must either rent or loan, both of which increase the wealth gap in society and cause money to aggregate. With land being such a fundamental requirement for human existence it is the foremost issue to suitably resolve regarding the wealth gap, the economy and capitalism.

I believe people do have the right to privacy and should be afforded the ability within society to have place they can call home, far from Thomas Moore's utopian ideals. I believe it is economically and socially detrimental for a nation to use a system that requires rent or loans to obtain privacy or shelter. I also have some fundamental philosophical objections to the notion that an area of land can be owned in the same way objects can be, it has a similar feel to the idea of trying to claim ownership of a moment in time. I will propose a system which retains the benefits of capitalist land allocation that does not contribute to widening the wealth gap. This system will offer all the benefits of private property yet reflect my moral position on the ownership of land. To describe this system I feel I must first make an attempt to clarify and justify my position on land ownership.

Societies control areas of land we call countries, the further back in history you go the more the sizes of these areas diminishes. Territorial pack animals control much larger areas than individual territorial animals. It is the size and strength of the social organization that dictates the area of land it is able to have control over. Nations have grown in size with improvements to transport, communication, warfare and social systems. It is the entity we call society that could more reasonably claim ownership of the land contained within its borders than any individual member of that society. Certainly that society is well within its rights to allocate the land between its members as it sees fit, if the society elects a capitalist distribution method that is a perfectly reasonable distribution method. It is not the method of distribution but the concept of ownership I have an issue within this context. The capitalist system of land allocation assumes ownership by the individual rather than the society. The control of the land that the individual assumes belongs to them cannot rely on that individual and must always be dictated by the abilities of the society. Should the society collapse or become conquered by another nation any ownership of land by an individual is meaningless.

When society allocates land to individuals or businesses, by any mechanism one can conceive, it is a better reflection of reality to say that society has afforded priority of control and responsibility for that area of land to the individual rather than ownership. This view changes little in capitalist society and is almost an argument about semantics. The main use of this view of land ownership is to use it as a guide to develop alternate methods of land allocation. Systems tend to be most robust when they represent or mimic the naturally present forces and trends. The main aim of a land allocation system within a society should be to make the use of land as attainable to the masses as cloths, food and warmth are. The second aim of such a system is to stop it contributing to the wealth gap and the aggregation of wealth. The final and least pressing of aims is to have the system more clearly demonstrate a retention of state control of land used for private businesses and residences.

The system I shall propose cannot be implemented immediately in any capitalist society. This is not however a major concern as the route to making this a possibility is a pragmatic thing for any state to be doing. Communist states are in a better position to make the changes quicker but would still be wise to take some time in order to not hamper business and industry, particularly those under overseas control. The route a capitalist society would need to follow in order that they might adopt my system of land allocation is to purchase all the land within their borders. This would be expensive and so a small portion of the nations budget should be set aside for this purpose and done gradually. The land that the state purchases would then be rented by state to those who wish to make use of it. Bidding systems could be used in order to retain the capitalist mechanisms on the acquisition of land, however the rent paid would not widen the wealth gap but instead effectively reduce it. Rather than rent going to capitalists it would go to state and act most like a tax. Government spending is generally to the advantage of the poorest in society and thus any non-disproportional tax reduces the wealth gap. The state purchase and rental of land can occur alongside traditional capitalist land allocation methods and can happily progress over time to a situation where all of the land is owned by the state. I shall give an example to describe the details of state land rental where state has achieved total ownership of the land according to present capitalist systems with all residential and business plots sublet by state.

When an individual wishes to purchase a place to live in our example they chose from the currently available homes in the area they wish to live, much like the present system. They then place an offer on a home that is not a nominal figure but one per unit time, say a month. The previous owners select the bid they wish to take the home and the control of that piece of land moves from the previous owners to the chosen bidder (generally the highest). Let us say the new owner made a bid of £100 per month they are then entitled to priority control over the plot at exactly £100 per month, until they sell or die. Let us assume that the new owner lives there for a few years and makes good improvements to the property increasing its value before they come to sell and move on. When the property is put back on the market the difference on the buy and sell prices carries over with the individual. Let us say that the property sells the second time for £110 per month this means that state pays £10 per month on whatever property the seller next controls. This is an important mechanism to include with the bidding system as without it there is no incentive in society to maintain properties and could cause a gradual decline in infrastructure. This means it would have to work both ways, so if the new owner only managed to sell the property on for £90 instead of £110 they would then have to pay an additional £10 to state on the next property they occupied. Couples purchasing together would be able to combine their totals, should they split up they would split the modifier between them. Each person in this society must therefore have a personal running total representing their effect on property during their life. A high discount on rent implies a person has done much improvement in the places that they have lived in.

When a person dies their accrued discount or otherwise should die with them so as to avoid a new inheritance based mechanism increasing the wealth gap. This is not to say that a family home cannot remain in the family however. Upon the death of a property controller the plot is put up for auction, the persons named in the will or the next of kin are then allowed to match the highest new bid and retain the property. The old owners running subsidy would be gone but the new owners subsidy would apply to the newly determined rent.

Although all persons would be renting where they live and work from state they would be offered all the same privileges of ownership. The property is entirely under the control of the most recent bid winner and they can do all the same things one can now with their homes. Paying ongoing rent rather than a lump sum while retaining effective ownership enables people with no capital to get on the property ladder and gain benefit from improvements made. This is the main social benefit of the system however the profits of the land flowing to state rather than capitalists is also of huge economic and social value.

While this solution is simple and elegant for private residences it does not translate quite so well in to the business model. The main difference between the two is that people live reasonably similar lengths of time, always finite, while businesses are able to exists as long as the society does. The value of money changes over time, as does the value of land irrespective of improvements made to the specific property. The longer a place is occupied by the same residence with the same fixed rent the greater chance there is that the rent paid does not reflect the actual value of the property. When costs are not reflective of value the economic system becomes distorted. Averages, self interest, common sense, scale and finite life expectancy mean that the changes of value over time are not a social or economic problem for private residences. Businesses and industry however can, and do, often exist for longer than people, and if occupying the same plot have greater chances of distorted value compared to rent. The scale of businesses and industry is also generally much greater than individuals and thus have a much greater impact on the economy. It is for these two reasons that the allocation of land must be subtly different for private residence and business.

The most obvious solution is to set a time period for the rent a business pays to control a plot. This would mimic the finite life span of people and also be more predictable. They could be much shorter on average (compared to life expectancy) thus allowing the economy to be smoother due to more small adjustments. The issue with forcing businesses to re-auction their premises every number of years is the foul play it enables for competitors. It is always costly to relocate and as such if a competitor makes an appropriate bid that is lower than the cost of relocation but greater than what is presently paid they will, at no cost to themselves, cause harm to the other. While underhand it is the sensible play in businesses terms and will therefore occur. It would either make rents for business plots to artificially inflate or it would cause a lot of needless relocation. Both of these costs incurred by industry ultimately falls on the people in society.

My solution to remove the incentives for industry to act in a socially detrimental manner is unfortunately quite vague as it resides in the politics of the society. I would suggest a political, ideally democratic safe guard over industry. Essentially companies still rent premises for a predetermined period at a set price. Rather than be forced to re-auction after the period is up, even with priority on retention with a matched bid, the business would only be required to do so should a political body require it. Clearly this could allow corruption with payments made to politicians to allow a property to be kept at a below real value rent. This however is a problem of the political system rather than the allocation of land and need not be an issue with appropriate changes made there.

Assuming therefore that an unbiased political choice could be made with the aim of benefiting society by those who are effected by the industry, either the radius of their workforce or catchment area for the services they offer etc, companies are provided a safeguard against aggression from their competitors. Companies that are seen to enhance the local communities will not often be required to re-evaluate the terms of their rent. Those companies that are getting a good deal on their property will work harder to retain it and thus act as a rebalance on the economy.

With companies we do not need worry about those who stand to lose on their properties as that is what capitalism is all about. Those companies that make poorer choices and suffer financially for them are less likely to survive leaving better companies in society that offer better, cheaper services. For individuals this is worse, a person who lives in an area where the prices of property fall will be burdened with extra costs on all their future homes should they choose to move. This is similar to negative equity in present capitalist land ownership systems. The inflation of money eases the burdens on people in these situations which is fine for now. I believe the economic system that serves society best runs at a very low rate of deflation for the majority of time. This claim requires epic justification for which now is not the time. It does however pose more of a problem for those people living in areas that lose value than an economy under inflation which is relevant to this essay. As I believe in both deflation and this method of land allocation I need to make some provision for those who are unfairly penalized as a result of the combination of my two beliefs.

I have been having great difficulty in fully grasping the economic outcome in a society where state owns all the land if it were to reduce the rents on land across the board by a percentage. I would be most interested to hear any additional or alternate views regarding this thought experiment. This is my current prediction: Obviously government then has less income if it reduces rent on land and must be able to support that for it to be practicable. The effects on government are like any present government tax cuts and need no further discussion, I'm quite sure suitable literature on the subject exists should one wish to read more on the matter. More interestingly the velocity of money would increase as both people and companies have more disposable capital from the reduced rents. An increase to the velocity of money is a factor that causes inflation with more immediate demand for goods and services that may be unavailable. Paradoxically however the value of land falling in relation to all other things implies that the same quantity of money is able to purchase more than before. When money increases in value it is deflating in nominal terms assuming other factors remain constant. I am inclined towards an overall inflation occurring should the price of land be reduced as the deflationary mechanisms seem spurious. No real value has been added to the society at any point, no new technologies have been created to improve the efficiency of labour or the use of materials which are the only real ways of increasing value within a system. The state has less money and the public has more if rents on land are reduced, which is a movement of value but not a change in it. As such I feel as if the overall outcome of a reduction of the rent on land by state initially causes inflation (although it will depend somewhat on how state affords the reduction) as the economy speeds up, company profitability increases and demand is greater than supply. This however is just a period of readjustment for the societies economy and will neither last all that long or be a permanent alteration. As some of this new wealth in the private sector is reinvested to meet the new demands the various prices will fall again as the supply is greater and the production methods are improved. After the initial surge will follow a culling of the companies that failed to make use of the injection of capital to improve leaving things in a fairly similar way to how they were before the rent reductions.

This period of readjustment will last for longer than it takes for the value of land to return to a similar value relative to other commodities in society as it were prior to the reduction. After a reduction in rent, the value of land being lower relative to other commodities will encourage businesses to expand to larger premises and people to move. This demand on land will increase the value of it thus quickly returning it to the original relation of values. The difference is that state will be paying a much greater subsidy to all those paying rent than before as almost all new rents would be greater than old rents for moves made during the transition. This being the case the rents will continue to rise to point above the original as people can afford to pay higher costs with their larger subsidies. The final equilibrium point is not when land value return to their original value in nominal terms but when state is gaining the same revenue in relative terms from the point at which the rent reduction was made. The subsidies offered by state last only as long as the person or the business and therefore have a tendency towards zero. This means when state land rental subsidies are high land will slowly deflate in value as the subsides fall. During this period state will be gaining the same income from the rent of land but both rent and state subsidy will fall and it will last roughly as long as average life expectancy.

The whole transition from start to finish will take somewhere in the region of fifty to a hundred years, most of which will be the end phase where government income from rent is constant yet nominal rents deflate (assuming other factors are interfering) alongside most other commodities. The first portion of the transition will be the state reduction in rents causing inflation in society and a much greater inflation specifically on the value of land which continues over a few years to the point at which state income from rent is equal to what it was prior to the reduction. As a way to stimulate an economy sparing use of rent reductions seem a very sensible approach as they self regulate and have a very long gradual recovery period. The government cannot however artificially control the value of land as the market will always readjust to what the correct value is according to other commodities. The more a government tried to resist this readjustment the greater the economic consequences.

The main uses for altering the rents on land is to stimulate an economy (or perhaps rein an out of control one in) and to ease the burden on those people unfortunate enough to be trapped in their present residence while losing value. By changing the rent on land the economy is moved out of equilibrium meaning that it will be less stable, the more drastic the changes the greater the instability, which is detrimental to society. I think therefore in a society where state owns the land and rents the use of it to people and companies it is wise to reduce rents by a small percentage either to offset a large ( greater than a percent) deflation or when people are feeling trapped in their homes. It is somewhat playing with fire and needs appropriate caution, a much better all round solution to negative equity is a general improvement of social conditions. Lower crime, higher minimum wages and employment serve to help preserve and increase the value of the cheapest areas.

While I spent rather longer than intended examining the consequences of reducing rents on all land within a society it is an interesting economic tool that may have many applications. A state that owns all the land and rents it to the population will gain huge revenue from that and may need no other taxes. It might transpire that a system as such is entirely self regulating and allows the nation to tax themselves accordingly simply by where they elect to live. Interesting options open up for state budget management and tax rebate mechanisms if revenue is drawn from rents as well as income taxes and other traditional sources. All very interesting these fanciful economic systems may be they are of no practical relevance now, regardless of how well they may theoretically work. The relevant potion of this essay regarding present economics is the advice for government to invest in land wherever it has spare capital to invest, this is sensible in the long term and ultimately allows for the capacity to adopt my land allocation system should these ideas be sufficiently convincing.