It lies beneath our feet and yet profoundly shapes what lies ahead, from inequality to productivity. Neglecting any longer this platform on which all prosperity is built only lays the groundwork for collapse. Now is high time for a rethink.

Putting down roots

Whoever has played Monopoly knows that, in this board game, the first rolls of dice are determinant. If you are lucky enough, you will be the first to acquire numerous expensive properties. The faster you rip rents off your fellow players, the more properties you can keep purchasing (and the more rents you will extract in the future). Evidently, the first rolls of dice picked the winner; this stroke of luck allowed you to initiate a self-reinforcing cycle of wealth concentration.

Monopoly is no mundane game. It (or, more accurately, its predecessor The Landlord’s Game) was inspired by Henry George’s 1879 masterpiece Progress and Poverty to show how property markets, when unregulated, tend towards monopolies where one player comfortably extracts all the rents. George’s theory was famously corroborated in 1909 by then-Liberal Winston Churchill, when he referred to land as “the mother of all monopolies.” How so? It comes down to land’s unique properties, distinct from other factors of production (labour, capital…). Namely, land is immovable and finite – just as in Monopoly, where the fixed number of properties makes the first grabs all the more game-changing. Land, thus, is not just another asset; it is the basis upon which all other forms of wealth are built (think of the board game’s houses and hotels, buildable only by the owner of the property) — hence Churchill’s claim that land ownership ‘breeds’ monopolistic dominance.

Enrichment without service, at everyone’s disservice

The British Bulldog also vociferated that, while “roads are made, streets are made, railway services are improved” by the community, the “landlord sits still” while their plot’s value naturally appreciates as the surrounding community develops. In doing so, the landowner swallows up the collectively produced wealth.

Why should we care? One might think ‘If landowners effortlessly get richer, good for them; it is not as if they are harming the community around their plot.’ Except they are. To understand this, it is crucial to recognize that the property market is a zero-sum game — a landowner’s wealth increase invariably comes at someone else’s expense. This is evident in the way surging land costs mechanically raise the prices of the houses on that land (for instance, in 2016, land alone made up 70%^[1] of house price in the UK). Put bluntly, when a baby-boomer sells their house after its value has, aptly put, gone through the roof, it signifies that the millennial buying it must allocate a larger portion of their income for the purchase (if they can afford it at all). Many nations of the OECD, a club of mostly rich countries, such as Finland and the Netherlands, face a median mortgage and rent burden representing 30%^[2] of disposable income. As a result, homeowners and tenants must cut back on their other spending — which is problematic, since such consumption enhances the economy.

It is thus not surprising that classical economists worried about landowners monopolising the proceeds of economic growth. They feared this would diminish productive investments unless the rents were fully invested into capital projects that prop up the economy. Failure to do so could lead to stagnant productivity, increased inequality and unemployment.

Brits’ brink

In that regard, the UK serves as a stark warning of the dangers of poor land management, particularly when land is treated as just another financial asset. Margaret Thatcher, a principal architect of this turmoil, implemented reforms that deregulated mortgage markets, effectively turbocharging the commodification of real estate. This change created a frenzy of speculation, causing house prices to soar. As a result, not only has the broader economy been impacted, but home affordability has also been severely undermined.

The graph below supports the observation that in the UK, since 1995, both the total value of capital stock (non-financial assets, excluding land and housing) and the total value of houses (excluding land), when measured as a percentage of gross domestic product (GDP), have remained fairly stable. In sharp contrast, the price of land has increased more than twofold as a share of GDP.

The increase in wealth in the UK is likely not due to innovation, but, predominantly, to economic rents (which refers here not to the payments tenants make to landlords but to unearned income derived from the exclusive property of an asset, here, land). Consequently, home ownership has become prohibitively expensive for most young workers. Between 1997 and 2021, the housing affordability ratio (the number of years of household income needed to purchase a house) in England and Wales more than doubled, from around 3.5 to 9.1^[3].

Perhaps consistent with classical economists’ concern about stagnating productivity, between 2010 and 2021, the UK’s productivity growth was also one of the slowest in the G7, the club of the world’s richest democracies, increasing by only 7%^[4] over the decade.

These plights are symptomatic of the systemic neglect of land and the failure to consider its unique properties in planning decisions. Until land is reinstated as a central topic of discussion, these issues will persist. As the cost of living crisis takes centre stage in the British General Election debates, it is evident that a government responsible for keeping many voters out of affordable housing could just as easily find itself out of office. In the midst of a social and economic crisis, effective land management is increasingly becoming a matter of political survival.

Plotting progress

To tackle these issues, a concept widely favoured by economists and liberal needs to gain more traction: the land value tax (LVT), as championed by Henry George. This tax aims to redress the imbalance created by a landowner’s unearned income, potentially by confiscating rents entirely. It would also be highly efficient. Unlike most taxes, which typically reduce the supply of the taxed item and increase its price, LVT is expected to minimise such distortive effects on the property market. The reason — this is becoming a familiar refrain — lies in the unique characteristics of land: its fixed supply and immobility. Given that landlords are competing for tenants who have similar financial capabilities, the tax should not, in theory, result in higher rents. These unique attributes even led Milton Friedman, a staunch free market advocate, to acknowledge LVT as potentially “the least bad tax.”

So why has the idea of a land value tax never caught on? Firstly, it has predictably faced fierce opposition from landlords. When Lloyd George and Churchill, in 1909, came extremely close to implementing a broad-based land value tax in the UK, they were defeated by the landowning aristocrats who populated the House of Lords. Secondly, its ability to restore fairness is legitimately questioned, land being a smaller share of total capital than in Henry George and Winston Churchill’s days. Also, America’s richest 0.1% has four fifths of its wealth in the form of bonds and equities; this pattern, reflected throughout the OECD, emphasises that LVT alone would not slash inequalities as Henry George hoped. Needless to say that it remains a valuable tool nonetheless. Thirdly, the effectiveness of the tax is debated. If politicians fear voter backlash, will the rates be high enough to make a difference? How would asset-rich but income-poor households (namely pensioners) pay the tax? This could be addressed by allowing the deferral of tax payments until the property is sold or the resident passes away. Another risk is declining property values as a result of curtailed speculation. While this might benefit prospective homeowners, it could leave those who secured their mortgages during the peak of the housing boom with negative equity. Addressing this significant challenge is difficult, but a phased implementation of the tax could help mitigate the impact.

Perhaps most importantly, to ensure enduring stability and fairness, LVT should most likely be coupled with other approaches. This might include leasing land publicly rather than auctioning it to the highest bidder, alongside implementing financial regulations for mortgage lending and reforming property ownership rules.

Make or break

None of these measures will be easy to implement. Yet, in many OECD nations, not least the UK and US, the situation has reached a critical juncture where mere incremental changes have become inadequate. There is, however, room for optimism. In many regions of the OECD, homeownership is no longer a majority reality, signalling a shift in public perspective. Voters are increasingly seeking solutions to the barriers preventing access to the real estate market. This, in turn, lends substantial support to the bold policies required to prevent the land economy’s further descent and safeguard the broader economy and the society that relies upon it.

BIBLIOGRAPHY

George Monbiot et al., Land for the Many (2019)

Kate Raworth, Doughnut Economics (2017)

Josh Ryan-Collins et al., Rethinking the Economics of Land and Housing (2017)

“The time may be right for land-value taxes,” The Economist (2018)

“Why Henry George had a point,” The Economist (2015)

^[1] “Aggregate land values 1995-2016,” Office for National Statistics (ONS) (2018)

^[2] “HC1.2. Housing costs over income,” Organisation for Economic Co-operation and Development (OECD) (2023)

^[3] “Housing affordability in England and Wales,” Office for National Statistics (ONS) (2021)

^[4] “UK Productivity Tracker,” PricewaterhouseCoopers (PWC) (2023)