Rent is something most of us give little thought to, and most of those who think about it are not thinking about the sort of rent to which I refer. The rent I'm talking about is not the payment which goes from tenant to landlord each month.
Rather, the rent to which I refer is the return to land, just as wages are the return to labor and interest is the return to capital. And, just to expand it a bit further, "land" in this usage refers not just to the sites under our feet, but equally to the remainder of the natural creation and to that which our common investment in infrastructure and services has added to the natural creation: the access created by bridges, highways, railroads, subways, airports, river locks, etc, the value created by schools, parks, public health, courts, systems set up to respond to individual and widescale emergencies, etc. Land includes natural resources, such as oil, water and air, the electromagnetic spectrum (those airwaves that belong to the American people); airport landing slots (where demand exceeds supply), etc.
Rent happens. It happens whenever more than one party wants to use a specific piece of land. Who should benefit from it? A small group of us? the first to arrive? Or all of us?
To clarify a bit: the rent which a tenant pays to a landlord has 3 components:
- A payment for the use of the land, the site. This is true whether the property is a farm with no buildings on it, or a single family home, or a condo or co-op in a 50-story highrise, or an office or retail space in a 90-story highrise.
- A payment for the use of the manmade improvements to the land. In the case of the farm, this is the clearing of the trees, the addition of fencing, irrigation, any buildings or other structures. In the case of the single-family home, it is the house itself, any outbuildings, the landscaping, etc. In the case of the condo, coop, office or retail space in a multi-family or multi-occupant building,it is the unit itself plus the use of the shared spaces: elevators, laundry rooms, halls, etc.
- A payment for any services the landlord provides: doorman, trash pickup, cleaning, utilities, heat, etc.
In the case of commercial leases, there might be some additional components: a "triple net" lease might require the tenants to pay for any increase in property taxes, or insurance, or utilities What a deal for the landlord!! All the risk shifts to the tenant, all the gain to the landlord! Not only are his meager carrying costs covered (as long as the tenant doesn't go bankrupt), he is protected against any increases. He can only command this because he has a scarce resource: land in that particular location!
Rent is the return which makes it so, well, convenient to be part of the "landed gentry." Cash flows your direction without you needing to lift a finger or even appearing to oppress anyone. So-called "capital" gains accumulate as the community's growth (through some combination of increased fertility, decreased mortality, migration, etc.), the community's investment in infrastructure, the community's investment in services, and advances in technology conspire in your favor -- and at the expense of your non-owning fellow human beings -- and even at the expense of those who own land but whose holdings are less favorably located. And you can choose how long you want to wait to "realize" this windfall, leave it to your children and grandchildren at a stepped-up basis upon your death, so that your community never does get back any of it! You get to reap what you haven't sown.
- You get to reap what individuals -- your tenants -- have sown, through taking a portion of their production for favoring them with a bit of your land to labor on, or to live on.
- You get to reap what the community has sown, through its investment in transportation systems -- paved roads, highways, bridges, railroads, airports; in water, sewage, stormwater control
- You get to reap what the community has sown through its spending on building and staffing schools, providing emergency services both for individual and more widespread emergencies, providing libraries, public health services, safe streets, respected courts,
- When you're ready to leave town you (or when you've shuffled off this mortal coil, your heirs) get to collect from some person -- likely younger than you -- payment for the value of something you haven't created: your land value. That younger person gets to pay you for the privilege of living or working on that site, likely in the form of a lump sum payment, which they must borrow from a mortgage lender with the promise to pay it back, with interest, over the next 30 years. Think of it! They will pay far more in interest to that lender than they will in real estate taxes to the community, and most of what they're buying from you is land value, particularly if you've owned the house for many years. The house has depreciated; what has increased is the value of the land on which it sits. (At some point, the house will be a teardown, and 100% of the selling price will be for the land.)
Your tenant, meanwhile, needing what you've got, plays by the rules, and turns over to you a significant portion of his paycheck each month; and when you sell, you can be reasonably sure that you and the mortgage lender will command a large share of his paycheck for decades to come.
How do we remedy this? How do we make it so that everyone reaps what they sow, and no one gets to reap what others have sown?
The answer is remarkably simple -- and in addition to its simplicity, it has many other qualities and effects to recommend it. The answer is that we need to collect from the landholder value he now pockets -- the annual value of the land he occupies -- and use that revenue to replace the wage, sales and building taxes we now impose on our communities. We need to collect from the owners of oil-rich land the value associated with that oil. If they don't like that, or aren't quite ready yet to have oil drilled in their yards or views, well, that's too bad.
When we collect that value, good things will start to happen, because we will have aligned our incentives with our avowed values. Further, we will be able to reduce or eliminate our reliance on taxes which burden the economy and burden the worker. We will be on our way to a better society and a healthier economy, for all of us and for our children and their children.
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