How to Abolish Land Speculation

 

How to Abolish Land Speculation

by E. F. Schumacher

ORIGINALLY PUBLISHED IN
RESURGENCE VOL. 5 NO. 4 (SEPT-OCT 1974) : 16

 

No one can exist without some land base. With growing populations, growing mobility, growing production, growing trade, land values tend to move up and up on a one-way street (quite apart from inflation). Anyone who manages to 'corner' land only has to wait to grow rich. Karl Marx, Henry George, and countless others have pointed to the absurdity and injustice of land speculation; but the free enterprise system has never done anything effectives to stop it.

Calls for land nationalization have gone unanswered because few people could see it as a valid alternative to private ownership. To start with, how could the State ever find the money to buy out existing owners? And even if the money could be found, there is reason to fear that State ownership of land would automatically and inevitably mean some type of bureaucratic administration – a daunting prospect indeed.

In order to abolish land speculation, it is not necessary to abolish decentralized ownership. The direct relationship between a person and a piece of land is something so elementary and satisfying that one would hesitate a long time before abolishing it. To adopt State ownership of land just for the purpose of abolishing land speculation would be like jumping from the frying pan into the fire.

All that needs doing to stop land speculation is to establish the rule that no landowner may ever receive for any piece of land more than its 'registered value.'

Every piece of land in the United Kingdom has a certain value or price as of now – say, as of September 1st, 1974. If the owner sold it now, he or she would have some idea of what it would fetch, perhaps after taking professional advice. If he/she died, the value of the land would be assessed as part of his/her estate. Let us say the value of every piece of land in the United Kingdom were to be ascertained: this would no doubt be a big job but by no means an impossible one. Values would reflect the current zoning arrangements (as of September 1st, 1974) and many other price-determining factors. The ascertained value would be registered with the Local Authority and be called the 'registered value'. To take care of future inflation, the Government would publish an index showing what the pound sterling was worth compared with its worth on September 1st, 1974, and whenever a transaction were to take place, the 'registered value' would be adjusted according to the index. So the 'registered value', adjusted for inflation, would always remain the same in real terms. Anyone who wanted to sell land at any future date would know that he or she could never obtain more for it than this inflation-adjusted 'registered value'. This would be the basic principle – very simple and, I suggest, unquestionably just – if land speculation is to be abolished.

But what would happen if someone wished to sell land which, through re-zoning or some other change, had become much more valuable? Whenever land comes up for sale which has risen in value owing to the operation of social forces (such as re-zoning or 'planning permission') the Local Authority should have the right of first refusal, that is to say, to buy such land at a competitive price, the sort price a private purchases would be willing to pay for it. If it made use of its right to purchase, it would pay the seller the 'registered value' and pay any surplus into a special fund which might be called the Local Authority Land Fund. If it did not choose to make use of its right to purchase, a private purchaser would have the opportunity of buying the land in question, and he/she would do exactly the same – pay the seller the 'registered value' and remit the surplus to the Local Authority Land Fund.

And what would become of the 'registered value' then? If a higher price had in fact been paid in the manner described, whether by a Local Authority or by any other purchaser, this would then become the new 'registered value'. In other words, the 'registered value' would never be less than what (after the date of the initial assessment – September 1st, 1974) a new purchaser had actually paid for his land.

It may of course happen that a piece of land is for sale and no one is willing to pay for it as much as the 'registered value'. A transaction between willing seller and willing buyer may then take place at a lower price, which then becomes the 'registered value'.

In short, the current owner and any subsequent buyer is deprived of the chance of making any windfall profits through land ownership; all such profits go automatically into the public hand, the Local Authority Land Fund. In those exceptional cases where a particular piece of land declines in value, the seller may indeed fail to recover the 'registered value'; but that is the risk he takes in buying land or, if you like, the price he pays for the immense privilege of private land ownership.

Needless to say, any scheme, even one of the greatest simplicity, like the one here proposed, raises some complicated questions. What about buildings and other structures on the land? What if I have acquired a piece of land and have built a road or a house or some other building that has cost me a great deal of money? Can I recover my expenditures on 'improvements' when I want to sell my land? These 'improvements' will not be reflected by the 'registered value' of the land.

This is not an insuperable difficulty. Although there does not exist – and cannot be – a precise science of valuation, it is possible to come to reasonable solutions of the problem. Valuers can distinguish between 'site (or land) value' and value of buildings and other structures.

Another objection to these proposals is this: If people have land they do not need and cannot make vast profits on selling it, they will simply keep it, refusing to sell; and so, a great amount of land which society needs will be hoarded and withheld from proper use. This is not a valid objection. Powers of compulsory purchase exist, and although they should never be used except as a power of last resort, their existence is accepted by society and they suffice to deal with anti-social behaviour.

I commend this scheme for further thought. I claim that it would produce a genuine middle-way solution to the problem of land ownership and a total solution to the problem of land speculation. The new dispensation would become active only as and when the landowner wishes to get rid of his land – in other words, when he wishes to cease being a landowner. Most landowners in any case are farmers, and nothing could be further from their real interests and predilections than land speculation.

The elimination of land speculation would greatly increase the ability of local authorities to obtain land for public needs at fair prices, and this proposal would siphon into the public hand all windfall gains from the growing scarcity of land. I hardly think there is need to explain what the monies accumulating in the Local Authority Land Fund may be earmarked for. Private affluence and public squalor is one of the besetting sins of the modern world. Yet, if monies are channeled into public hands, the problem of how to achieve democratic control over their expenditure still remains. I am not claiming that a scheme to eliminate land speculation will solve this problem. But if we do set our minds on eliminating land speculation, critics of this proposal may fairly be asked: "Alright, if you don't like this scheme, will you kindly propose something better?".

 

Ernst Friedrich Schumacher was an internationally influential economic thinker, statistician and economist in Britain, serving as Chief Economic Advisor to the UK National Coal Board for two decades. His ideas became popularised in much of the English-speaking world during the 1970s. He is best known for his critique of Western economies and his proposals for human-scale, decentralised and appropriate technologies.

The Schumacher Center Library is home to the bulk of Dr. Ernst Friedrich Schumacher's personal library and archives, donated in 1994 by his widow, Vreni Schumacher. His collection, consisting of 2,500 books, has been computer indexed and its catalog can be searched online