The western housing crisis can’t be resolved without understanding the indispensable public service land-owners and speculators provide.
Here’s the essential service to humanity that the dreaded property speculator provides: making sure that the piece of land is developed no sooner or later than when the market demands it.
For example, a landowner would make more profit by developing a piece of land in five years rather than right away. That’s a signal that there is a more urgent need for investment in some other area in the economy. In the greater mission of efficient resource allocation, this is equally valid as investing in a pension, or opening up a boutique shoe store.
It’s impossible to separate land value from improvements. It’s the improvements that give the land value in the first place. A piece of land that is not homesteaded isn’t a commodity. The very act of homesteading creates value, even if the owner decides not to build a house on it right away.
A parable: imagine a society arguing about how best to use an unowned piece of land by a river in the old country. Everyone in the town has their own idea about what to do with it. There’s huge popular support for a row of houses along the river.
However, Mr Speculator jumps in and says, “Halt! Let’s wait, because they’re building a train line 20 miles down the river. I think they’ll probably want to build an extension to our town. If we had a station here, we’d potentially get thousands more visitors per year! If that’s the case, we’re going to need more shops to sell our unique local goods. Having the shops by the river here would definitely exploit the passing trade and make us all richer!”
The town council responds, “Sounds great, but we have a rising population and need houses now, plus our citizens love the river view. Even if what you’re saying is true, that might be years from now. Why should we bother listening to you?”
Mr Speculator somewhat sheepishly responds, “Well, I can’t argue that we’re going to see the benefits next week. The railway is still being built after all. But when it happens, the benefit to our whole community will be felt tenfold more than we’d make in the intervening time, and will support not just us but our children and grandchildren.”
The public council is passionate, but a reasonable bunch. “This is an exciting vision, but a big risk. We can’t afford to put all we have into a vision of one man.”
Mr Speculator stands up, “Then I will do it. Let me take the risk. I’ll put my life savings to buying this land. In five years, I will develop the land into shops. If I’m wrong and the railway doesn’t bring us visitors, I will take the loss and ask nothing of anyone. I’ll sell the land. If I am right, all I ask for helping our citizens’ prosperity is rent paid on time by my tenants.”
This is at its core what happens when a property owner invests in a piece of land. All investments in a market economy are about risk. Whether it’s stocks and bonds, the price of copper, or land, making an investment is taking on the risk of an uncertain future. Investors have some idea about what might play out, and they risk their own money in expectation of that occurring.
Investors are able to do this in the first place because they’re responding to price signals. They wouldn’t bother taking on that risk if it wasn’t so. Prices give the investor the information they need to make their risks more educated.
On the face of it, the price of anything seems arbitrary — it’s just a number an owner has put on their product to make a profit. Yet looking at it teleologically (its effects rather than the intention), they’re anything but.
Prices have the second-order effect of being signposts to everyone else in the market. High prices, of course, hint to other actors that they might make some good moolah if they also participate, but in essence, they’re signaling high demand. In other words, they’re yelling, “Hey look, over here! People really need Product X. Get your butts over here and start giving it to them!”
Land-tax proponents, Georgists, and other anti-land-ownership types say that ownership of land violates the Lockean principle of homesteading (you make it, it’s yours)*, because no labour is required to own a piece of land. The land was there before we were born, and will be after. It is “God-given” so-to-speak.
Yet whether or not owners “produce” land is irrelevant. Because the property they’re homesteading, and value they’re providing, isn’t the land itself, but the right and title to commodify it. By doing it, they’re bringing information to the market, i.e., price signals. By homesteading it, prior to any development, they have already provided a service to the market.
*As it turns out, this “labour theory of property” causes as many problems as it solves. Far easier to reconcile is the “first user” principle (finders keepers). See Hans-Herman Hoppe on that.