To solve the housing crisis, we need to fix our broken land economy

Image: Images money, CC BY 2.0

The UK, along with many other advanced economies, is facing a major housing affordability crisis. Average house prices are now on average nearly eight times that of incomes across England and Wales, and up to 39 times in parts of central London.

A whole generation finds itself priced out of the market, struggling to make ends meet in the face of eye-watering rents. Over the past 15 years’ levels of home ownership have been falling sharply, particularly among young people. Homelessness is rising fast.

How did we get here? A popular explanation is ‘we’re not building enough homes’. While this is part of the answer, it is far from the whole story. At the root of the problem lies something that has for a long time been overlooked: the role of land in the economy.

But the issue of land goes far beyond the housing shortage. It lies right at the heart of many of the key challenges facing modern economies, from mounting inequality and financial instability, to intergenerational conflict and poor prospects for sustainable development.

To understand land properly, we must take a cross-disciplinary approach – we need a bit of history, a bit of economics and a bit about power and the law.

Theft and freedom: the paradox of property

Land is essential for all activity to take place, and indeed for life itself. Nobody ‘created’ land, it just exists. And we can’t create any more land, even if we wanted to. Land is not simply soil, and its economic uses are not simply agricultural. In economic terms, land is better understood as a set of legal rights over physical space.

Land first began to be treated as tradable, private property in the 16th century, triggering the birth of modern capitalism. But this transformation gave rise to a tension. On the one hand, landed property empowered people by providing physical and economic security, including collateral to leverage credit, which helped drive economic growth and technological advancement. But at the same time, private property in land was inherently exclusionary: by its very nature, granting some people exclusive rights over what was previously a common resource involves taking away the rights of others. Millions of people were driven off the land, often violently. Those who were allowed to stay found themselves having to pay rent to landlords to access what had previously been available for free. Landowners became the gatekeepers to an essential resource, a role which meant they were able to absorb much of the value that was being created in the economy in the form of higher rents.

The introduction of private property therefore brought economic power to some and dispossession to others – a paradox that was perhaps best summed up by the anarchist Pierre-Joseph Proudhon, who said that property was both “theft” and “freedom”.

Fast forward to the 21st century and this paradox is alive and well, it just manifests itself in different way: this time through the housing market.

Land in the Twenty-First Century

Today the value of the UK housing stock stands at £5.5 trillion – around 60% of the entire net wealth of the UK. This has increased from just over £1 trillion only twenty years ago.

As the Office for National Statistics acknowledges, this rapid increase is largely the result of soaring house prices:

“The increase in the value of dwellings was largely due to increases in house prices rather than a change in the volume of dwellings.”

But the price of a property is made up of two distinct components: the price of the building itself, and the price of the land that the structure is built upon. We don’t know the exact breakdown between these two components (bizarrely, there is currently no reliable public dataset on the land market in the UK) but the available data implies that land under homes is currently worth around £3.7 trillion – nearly 70% of the total value of the housing stock. This makes residential land the UK’s most valuable asset, even in today’s high-tech economy.

So why is land so valuable? And why have land values, and thus house prices, increased so much relative to incomes in recent decades?

Land values increase naturally over time as economic growth and a rising population increases demand for a resource that is inherently fixed in supply. Public and private investment in infrastructure and amenities also increases the value of land, making some locations much more valuable than others. For example, new transport links or being in the catchment area of a good school can dramatically increase the market value of nearby land. As a young Winston Churchill said in a famous speech to Parliament in 1909:

“Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains – and all the while the landlord sits still. Every one of those improvements is effected by the labour and cost of other people and the taxpayers. To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is enhanced.”

There is also good evidence that as economies mature, the demand for land relative to other consumer goods increases. Land is a ‘positional good’, the desire for which is related to one’s social status. In economics jargon, land has a ‘high income-elasticity of demand’ – people will stretch their incomes to consume it. This goes some way to explaining why the rise of information technology and globalisation has not meant ‘the end of distance’ as some predicted, but has driven the economic pre-eminence of a few cities that are best connected to the global economy and offer the best amenities.

But this is only part of the story. The land economy is most decisively shaped by the laws and regulations that govern the ownership, trade and use of land. In other words, the rules of the game matter. But these rules have very little to do with economics, and much more to do with politics and power. They have varied immensely over time reflecting the evolution of power and class relations in society.

From a place to call home, to a financialised asset

After the end of the Second World War, council housing provision, tight mortgage regulation and taxes on property kept supply up and house prices (land prices) under control. The Labour government’s 1947 Town and Country Planning Act 1947 kept land in private hands, but nationalised the right to develop it – meaning that landowners and developers had to apply to their local authority for planning permission to build new property. Strong compulsory purchase powers enabled land to be acquired at low cost for housing development. This system was perhaps most successfully embodied in the New Towns programme which began in 1946.

For each New Town, a public development corporation was established which purchased land compulsorily at agricultural prices, drew up a comprehensive masterplan for the town, and then built the necessary infrastructure using money borrowed from the Treasury. They granted planning permission on the sites they owned and sold them to private house builders, using the uplift in the value of the land to repay the loans. This combination of low-cost land acquisition, strong plan-making and the power to determine planning applications proved to be a powerful means of delivering affordable housing.

But beginning in the 1960s this began to change. Taxes on property were removed, beginning in 1963 when the ‘Schedule A’ income tax, a tax on imputed rental income, was abolished. When capital gains tax was introduced in 1965 an exemption was made for primary residencies. Subsidies for buyers were also introduced: in 1969, the government introduced mortgage interest relief at source (MIRAS) which provided tax relief for interest payments on mortgages. Court judgments on compensation (particularly the Myers case of 1969) reinstated the principle that landowners should be able to claim ‘hope value’ on any land compulsorily purchased. This increased the price of land and ended the ability of public authorities to capture land value uplifts to fund new development – the model which had so successfully been used to build the New Towns.

With the arrival of Margaret Thatcher, the government withdrew from large scale house building, and councils were forced to sell their housing stock through ‘Right to Buy’, and prevented from building more. There was a shift away from supply side subsidies of ‘bricks and mortar’ towards demand-side subsidies of paying housing benefit to boost households’ incomes to enable them to access accommodation. Whereas in 1975 more than 80% of housing subsidies were supply-side subsidies intended to promote the construction of social homes, by 2000 more than 85% of housing subsidies were on the demand side aimed at helping individual tenants pay the required rent. Today the UK government spends an eye watering £25 billion on housing benefit.

Perhaps the most significant changes came with the liberalisation of the mortgage lending market. Before the 1970s, mortgage lending was mostly carried out by building societies. But beginning with the Competition and Credit Control Act of 1971, restrictions on lending were removed, and banks were incentivised to become active players in the mortgage lending market. This unleashed a flood of new mortgage lending into the economy, which increased from 20% of GDP in the early 1980s to over 70% before the financial crisis. An ever increasing supply of credit interacted with a fixed supply of land, fuelling a house price boom. In turn, households were forced to take out ever larger mortgage loans to get on the housing ladder. Thus, a feedback loop emerged between mortgage lending, house prices and ever increasing levels of household debt. The changes in credit supply conditions have been described as the ‘elephant in the room’ when it comes to understanding the behaviour of house prices, land prices and consumption in advanced economies.

The normalisation of double digit house price growth, combined with the expectation that house prices will continually increase, fuelled demand for houses as financial assets. Whereas fifty years ago houses were mostly regarded as simply somewhere to live, today homeownership is viewed as a means of accumulating wealth and long-term security in the face of stagnating wages and dwindling pensions. Although attempts to widen access to the benefits of homeownership succeeded for a while, eventually a tipping point was reached: prices are now so high that a whole generation finds completely itself priced out of the market, and levels of homeownership have been falling for 15 years.

The Great Divide

In recent years there has been a growing public debate about the causes and consequences of the widening gap between rich and poor, and the impact it has on our societies. In his bestseller ‘Capital in the Twenty-First Century’, Thomas Piketty argues that the rising inequality observed in recent decades is explained by a tendency for the rate of return to wealth to exceed the economic growth rate, causing a growing accumulation of wealth among those who already have it (a relationship he describes as r > g in notational form). When the return on wealth significantly exceeds the growth rate of the economy, Piketty states that inherited wealth grows faster than output and income.

Seen in the context of the UK, this explanation would appear to carry some weight. In recent decades growing economic inequality has been accompanied by a rapid increase in the amount of wealth relative to national income (the so-called ‘wealth-to-income’ ratio). Following a significant decline in the first part of the twentieth century, the ratio began to rise the 1950s and saw a marked increase after 1970. The return on wealth has significantly exceeded the growth rate of the economy for many decades now.

However, on closer inspection Piketty’s dataset indicates that much of the increase in the wealth-to-income ratio observed since 1970 is the result of capital gains from housing – or more accurately, from rising land values. Once the effects of housing are removed, the underlying wealth-to-income ratio has actually fallen significantly in the UK since 1970.

The implications of this are vital for understanding the dynamics of growing inequality in recent decades. It means that the increase in the wealth-to-income ratio observed in Piketty’s data, which has underpinned the rise in inequality, has been driven not by skills or technological advancement, but rather by increasing residential land values which have manifested themselves through rising house prices.

Some economists defend rising inequality on the basis that some people getting richer is not a bad thing, so long as nobody else is being made poorer. But in Britain this is not what has been happening, because housing wealth is fundamentally different to other forms of wealth.

When the value of land under a house goes up, the total productive capacity of the economy is unchanged or diminished because nothing new has been produced: it merely constitutes an increase in the price of the asset. For those who own property, rising land prices generate an unearned windfall gain which increases net wealth. This provides immense benefits to homeowners – housing equity can be converted into income via home equity withdrawal, increasing spending power for a new car or holiday, or it can be used to leverage up further, perhaps buying a second-home, or entering the Buy to Let market.

But rising land prices also has a corresponding cost: those will don’t own property see their rents increase, or have to save more for a deposit. This cost is not captured in wealth data such as that compiled by Piketty, because under current national accounting frameworks only the capital gain feeds through to measures of wealth; the present discounted value of the decreased flow of resources to those who don’t own property is not captured.

The reality is that the housing ladder is rather like a zero sum game. Much of the wealth that has been accumulated in recent decades has come at the expense of current and future generations who do not own property, who will see more of their incomes eaten up by higher rents and mortgage payments. The key dividing line running through society today is not wealth accumulation from entrepreneurialism or hard work, but ownership of property and the ability to capture unearned windfalls from rising land values. The paradox of property is back with a vengeance, and it is driving society apart.

As spiralling house prices render homeownership increasingly unaffordable for much of the population, this divide is set to grow larger. In some lucky cases, people will be rescued by Mum and Dad as housing wealth is passed onto some of the next generation via inheritance. Already the ‘Bank of Mum and Dad’ has become the ninth biggest mortgage lender in the UK. But many others will miss out.

Not only is this not particularly fair, it’s also not particularly efficient. Rising land values suck purchasing power and demand out of the economy, reducing spending and investment. The availability of comparatively higher returns from relatively tax free real estate investment crowds out productive investment, both by the banking system itself and non-bank investors. This may help us explain – at least in part – the great ‘productivity puzzle’.

The forgotten factor

The early pioneers of political economy – Adam Smith, David Ricardo and John Stuart Mill –acknowledged that land had unique qualities, distinct from capital and labour. They recognised that land was a free gift of nature, and considered returns earned from the ownership of land to be unearned – referring to these windfalls as ‘economic rent’. They believed that the ability to extract economic rent was so powerful that landowners could effectively absorb much of the value created in an economy. It was feared that this could undermine the political legitimacy of the private property system itself, and so they sought to limit the extent to which landowners could make unearned windfall gains at the expense of the rest of society.

Since then, the concept of economic rent has been expanded to cover any excess returns derived purely from the possession of a scarce or exclusive resource, unrelated to the costs of bringing it into production. Today a good deal of economic regulation exists to limit economic rents that arise from monopoly power, for example in the water, energy and rail sectors, because it is recognised that these rents are both inefficient and unjust. Strangely, however, the original and largest source of economic rent – that arising from land – gets a free ride.

Over the past hundred years land has been increasingly marginalised from economic discourse in the developed-world. Today’s economics textbooks mostly neglect land as a distinct factor of production, instead conflating it with capital in the still dominant ‘two factors of production’ models. Meanwhile, theories of distribution still follow the tenets of ‘marginal productivity theory’ which states that ‘income’ is understood narrowly as a reward for one’s contribution to production, whilst wealth is understood as ‘savings’ from deferred consumption.

Although presented as an objective theory of distribution, marginal productivity theory has a strong normative element. It paints a picture of a world where, so long as there is sufficient competition and ‘free’ markets, all will receive their just reward in relation to their true contribution to society. But marginal productivity says nothing about the rules around the ownership of factors of production – not least land – which are essentially political variables. For economists who see their discipline as a ‘value free’ science which is separate from politics, this is uncomfortable territory. The result is that unearned windfalls resulting from land ownership – the largest source of economic rent – are overlooked.

But these windfalls play an enormous role in a country like Britain, where much of the wealth accumulated in recent decades has come from housing. The classical economists would have viewed this as the accumulation of unearned economic rent; a transfer of wealth from the rest of society towards land and property owners. But in Britain, these windfalls are celebrated — house price inflation is hailed by economists and the media alike as a sign of economic strength. The cost this imposes on the rest of society is ignored. As John Stuart Mill wrote back in 1848:

“If some of us grow rich in our sleep, where do we think this wealth is coming from?  It doesn’t materialize out of thin air. It doesn’t come without costing someone, another human being. It comes from the fruits of others’ labours, which they don’t receive.”

Putting land back into economics and policy

How then to deal with these challenges? Firstly, the teaching of economics and related disciplines needs to be reformed to reaffirm the role of land. Practitioners across the field should seek to highlight land’s role as a distinct factor of production separate from capital, and a set of legal rights over the use of economic space. The role of economic rent should be placed squarely into theories of distribution and taxation, and the interaction between the value of land and the macroeconomy must be taken more seriously.

When it comes to policy, there is no quick fix. Because legal frameworks are essential for land to become property at all, any analysis of the land problem that starts from the premise of minimising state involvement cannot succeed. There can never be an entirely free market in landed property. Instead, policymakers need to start getting their hands dirty.

Compulsory purchase laws should be changed to enable public authorities to purchase land at agricultural prices, enabling the planning and development uplift to be captured for public benefit once again. A new National Land Bank should be established and made responsible for developing and leasing land, acquiring idle and vacant land for resale, and developing more New Towns. Planning authorities should be given more resources and stronger powers of plan making or zoning so that planning can be a ‘market maker’ rather than a market stifler.

Housing policy should seek to level the playing field between tenures, in terms of taxation and subsidies, so that people are not incentivised to invest in property over more productive assets. The stock of non-market housing, like social housing and community-led schemes, should be expanded in order to lessen dependence on the volatile market in land and homes. Taxation should be used to capture the unearned windfalls landowners currently pocket at the expense of society at large. This could be achieved by replacing council tax with a tax on the unimproved value of land.

Bold steps should be taken to break the positive feedback cycle between the financial system, land values and the wider economy. This should involve wide ranging changes to the regulation, ownership and structure of the banking sector to direct lending away from property and towards the productive real economy.

The long term-aim must be to return to a society where houses are viewed as somewhere to live, not as vehicles for accumulating wealth. This can’t happen overnight, and it won’t be easy. The task involves taking on the unholy alliance of private developers, banks and – most difficult of all – ordinary homeowners, many of whom now view ever rising house prices as normal and just.

This may seem ambitious. But the alternative is growing polarisation in society, ever increasing levels of household debt and bleak economic prospects. If we are to create a fairer and more sustainable economy, then we must start taking land a lot more seriously.

‘Rethinking the Economics of Land and Housing’ (Zed Books) by Josh Ryan-Collins, Toby Lloyd and Laurie Macfarlane is available at Zed Books and Amazon.

  • ANGRY_MODERATE

    The removal of property speculation and extortion of moneys from renters would make the UK a much fairer and better place. You can be sure that Theresa May and her far right money-grubbing supporters will oppose such a policy to the death.

    • BryanKavanagh

      Great piece, Laurie! And you’re correct, Angry Moderate, but as long as people fail to see that inflating land prices isn’t creating real wealth, who’s going to call Theresa May to account? There’s such vast ignorance on the damage real estate speculation inflicts upon people and the economy that one wonders what’s happening in our education system that this void in knowledge remains unfilled. These days, 99.99% of economists seem to know nothing about how the excessive taxing of wages and industry, and the under-taxing of land values, generates land price bubbles, even though 138 years ago the American Henry George showed that wages and profits rose and fell inversely to privatised land rent and, of course, privatised land rent is capitalised into these ever-increasing land prices that come at the expense of productivity and prosperity. The taxing of land values and un-taxing of wages would bring us out of this death spiral but, unlike Laurie, few have the wit to see this. 🙁

      • ANGRY_MODERATE

        One of my many long-standing complaints about economics (I used to lecture this subject in UK unis) is that the generic models given to first year students do talk about the importance of costs of the “factors of production” — of which land is primary — yet all more sophisticated economic models ignore this. Even comparative economics (a seriously neglected subject) tends to gloss over land/property prices.

        I believe that this problem in economics derives from three sources. The first is simply ideological: the dominance since the late 1970s of neoliberal thinking, and the determination not to subject this ideology to real-world scrutiny. The second is the massive influence in the profession of literature and theories from the USA — a country where land is plentiful and its economy has totally different charactistics from the rest of the world. Yet it is taken as a paradigm… The third is the ideological determination of the profession to over-value quantitative theoretical work and undervalue (actually outlaw) other theoretical approaches and genuine empirical testing of theory. All three of these problems are collated and magnified by the corrupt US system of refereed journals, which simply replicate US ideological beliefs and maintain the absurd pretence that economics is a science like physics.

        IN this context, Brexit represents a massive error where the UK aligns itself with US ideological nonsense and eschews any European independent thinking. May and her band of merry morons are very happy with it: the UK should be very scared indeed, for the future.

        • Alasdair Macdonald

          The Green MSP, Andy Wightman, has written several books on this, the best known being “The Poor had no Lawyers”, and has devoted a lot of time to uncovering the tactics used over the years by landowners to obfuscate who actually owns land and to promote land reform. He has been so successful in this that a landowners organisation has issued an action against him. Mr Wightman has confidence that the case against him is ridiculous and will be rejected. Even if this is the case his personal costs in defending himself would be such that he would be bankrupted and thus disqualified to continue as an MSP. An appeal for crowdfunding has met his initial target. However, further funding might be needed.

          This is indicative of the sheer nastiness of the forces ranged against land reform. Mrs Samantha Cameron’s family is one of the main actors in the opposition to land reform in Scotland.

          Although the history and the law in England are different, the essential principles are very similar.

          My wife and I bought the flat in which we still reside in 1975. We were buying a place to live, not an asset to be used in the Ponzi scheme of ‘climbing the housing ladder’. It cost around £5 000, which was a little over twice our joint annual income at the time. At that time more than 60% of Glasgow’s citizens lived in Council housing, and Council houses were still being built. However, we were not likely to become eligible for council housing – there was a pretty sophisticated ‘points system’ to allocate housing on an equitable basis, based mainly on ‘need’. We had no wish to rent from private property owners, so decided to purchase.

          As I said, we live in the same flat, we raised our family there and had adequate space, and are now back to the situation where it is only both of us. Going by current market prices in our area, the flat would sell for £250 000, which is a little over three times our joint income.

          However, this increase in value is illusory. If we were to sell, we would have to obtain somewhere else to live. There is no Council housing. Housing Associations, rightly, still operate a ‘fair’ allocation system. The unfurnished rental section has all but disappeared because furnished rented properties are more profitable for owners, despite the Scottish Government attempting to make the balance between tenants and owners more equal. So, if we sold, we would probably have to buy and, it is unlikely that we would have a wad of profit to invest.

          So the idea of property has to be demythologised and exposed for the Ponzi scheme it is. More than anything else it was property speculation and property debt which triggered the crash of 2008 and which will trigger another some time soon.

          New Labour under the egregious Brown and Darling were as culpable as the preceding Thatcherites and many of their acolytes occupy Labour seats in Westminster and plot continuously to overthrown the Corbynites.

          Unexpectedly, Labour in Scotland, a pretty venal brain-dead organisation, supports land reform, but prefers attacking the SNP and joining with the Tories and LibDems in that.

          In England there is some genuinely radical thinking emerging from Labour and community groups, who are tackling the issue of housing. So, there is some hope. They really ought to ignore Labour in Scotland.

        • George Carty

          The United States is effectively two countries as far as its housing market is concerned, corresponding closely with the 2016 electoral map.

          In the states where Donald Trump won (except Florida), land values are low because urban build densities are low: in the Rust Belt and the plains states because cities have lost population due to economic decline, and in the South because almost all the urban growth took place after the coming of mass car ownership (because these regions were unattractive prior to the introduction of affordable air conditioning).

          In Florida and the states where Hillary Clinton won, urban build densities (and therefore land values) are higher and the housing market behaves much more like it does in the UK.

  • Ben Jamin’

    Housing affordabilty issues/excessive inequalities are only caused when land values are capitaised into private rental incomes and selling prices. Thus when that capitalisation is ended by a 100% tax on the rental value of land those issues are ended instantly and permanently.

    This would also allow the market to rationalise our existing housing stock and allow future additions to be efficiently allocated.

    Blaming these issues on a lack of supply of housing is like blaming the cause of a headache on a lack of supply of aspirin.

  • Hologrammar

    “Because legal frameworks are essential for land to become property at all, any analysis of the land problem that starts from the premise of minimising state involvement cannot succeed. There can never be an entirely free market in landed property.”

    That is a painfully cringeworthy, self-refuting, false statement. Translation: “The law created this mess; therefore, we need lots more laws to fix it.”

    The first part is correct: The State created this mess. The State enforces the myth of private, freehold property in land. That’s exactly why the second part is false: A free market in land titles is perfectly capable of existing. That can happen in one of two ways: Minimize the State by getting it out of the business of evicting people from land with guns; or, come up with a legal framework that approximates the economic result that would occur if you did remove the State from the equation.

    Here’s a tutorial on how a free market in land titles would work:

    https://twitter.com/urbanlandrights/status/893776164426100736

    • ANGRY_MODERATE

      Neoliberal propaganda and nonsense. Please go away.

      • BryanKavanagh

        I’d say that offers solutions, and is anything but ‘neoliberalism’, Angry!

        • Alasdair Macdonald

          BryanKavanagh, I think you are right that it offers solutions.

          The issue of landownership and the various matters which surround it has become increasingly removed from most of us, and the rentiers, with their control of much of the state have caused the instruments by which we could get knowledge of these things to become outdated and deliberately uninformative. Additionally, so much of the language of ‘property rights’ has become ‘hegemonic’, that we fail to grasp that it is a human creation and not a law of nature. It can be changed if we want it to change.

          Like many, I struggle with some of the ideas simply because they are so different to what I have grown accustomed to over many years. Often it has felt as if I am listening to an obscure foreign language or that it is a language in which I can understand most words, but cannot comprehend what they connote altogether!

          It is not helped by the tone and debating style people like Hologrammar use. It comes across as bombastic and arrogant and that is why Angry Moderate is replying as he did. I know that to bring about change you often have to be challenging and contrarian, but that is only a start. Having got some people thinking, the proponent of the change has to begin to explain, elaborate and to show patience and respect to those who are trying to learn. So, a bit of humility, please, Hologrammar!

          • BryanKavanagh

            Yes, if we really want to change, Alasdair, and not concede that “it’s too hard!” http://thedepression.org.au/changing-the-world/

          • Alasdair Macdonald

            Thanks for the link, Mr Kavanagh. When the paradigm is shifted, the perspective shifts, too.

          • ANGRY_MODERATE

            I most certainly agree that unearned income [rents] should be taxed as a priority before earned income, and even company profits. Of course, the reason for this anomaly is the political dimension of home ownership in the UK, onto which has been tagged in recent decades the phenomenon of multiple home ownership used almost as a business. Of course, there has always been commercial property speculation, and onto this now has been tagged rented housing — resulting in massive rents plus property price inflation. The latter is taxed — although probably not highly enough — with capital gains tax.

            The thing with all of this [non-existing] debate is that it centres on the concept of the State. what are its functions, and how it should be financed. This debate has been controlled by the New Right neoliberal ideology since the 1970s, and is still dominated by this free market obsession. We are actually short of alternative models, primarily because nobody in a position of influence wants to challenge the neoliberal paradigm. Even the Labour Party under Corbyn is short of ideas…

          • BryanKavanagh

            Yes, as world economies falter and political leaders flounder, the Australian situation characterises the basic issue. We’ve become the rent-seeker’s paradise down here – you don’t have to work – because we’re all going to become property millionaires! And economists wonder why wages are falling. Hey, guys: it’s simply a matter of land prices escalating, therefore wages and (non-bank & real estate) profits must decline. Any politician, anywhere, up for the challenge? No? OK. 🙁

          • Alasdair Macdonald

            Angry Moderate, you are right to raise the issue of the State and the attack on it as a concept by the Right and this explains your understandable reaction to Hologrammar’s broad brush statement. Your reaction was my initial visceral one.

            It is right that we debate what the State should do, and the principal one for me is about mediating relations between the ‘powerful’ and the rest of us. When Hologrammar proposes the changes he claims will eventually reduce the predominance of land through a ‘free’ market. How is this to be enacted and mediated other than by the action of a State with strong consensual support from the majority.

            What the ‘free marketeers’ seem to have convinced themselves of is that the free market is like the water cycle, the nitrogen cycle or any other of those natural processes which have produced and sustain life on Earth. It is a creation of humans and can be changed by humans. It is a concept that has become hegemonic for many, but the paradigm can be changed.

          • ANGRY_MODERATE

            To be honest, I didn’t even bother clicking on the link. Having done so now (as you two are positive about the content) my reaction is that this would possibly result in some improvements. But I have serious doubts about (a) the consistency of this small change with existing legal structures and axioms (in other words, would the courts overturn the principles?); and (b) the overall effectiveness of the change proposed. To my mind, it is nowhere near radical enough — but perhaps I am missing something here. Anyone: please clarify how this is going to undo the mess we are already in.

          • Alasdair Macdonald

            Angry Moderate, I am not wholly convinced of the practicality of bringing about the change, but, I think that the argument presented, and that in Mr Kavanagh’s link, begin to show that a different paradigm is possible.

            Changing attitudes is necessary to bringing about change. And, one of the things about change is that it’s outcomes are often unpredictable. Despite my Calvinist upbringing, I do not think that unpredicted outcomes are necessarily bad. The ‘perfectionist fallacy’ is one of the ways by which we make ourselves feart of change: the only thing we have to fear us fear itself, as Franklin Roosevelt, or his speechwriter said.

          • No, you’re not missing anything, Angry Moderate; it is indeed nowhere near radical enough, as you say. Like Land Value Taxation (which it seems to be first cousin to), it treats our relationship with land as essentially economic, and it doesn’t address the fundamental problem that the law doesn’t recognise us as having any natural right to occupy sufficient land to sustain life. If anything, it compounds it.

            To my mind, the proposal that the holder of any piece of land would have to match the winning bid in an annual auction is ludicrous. It would destroy one of the principal benefits of the current system – the ability to secure personal tenancy of a plot of land, regardless of (uncertain) future income streams – and would lock us all into the monetary economy, whether we like it or not.

            As a means of tackling inequality, it has the same flaw that LVT has: if you introduce measures to make land cheaper, but continue to treat it as a commodity, the rich will be able to consume more of it – effectively preventing the cost from dropping significantly. It might shift control of land to a ‘better’ (i.e. more entrepreneurial) class of owner, but it’s a poor substitute for giving people a proper right to land.

            It also has the problem, as LVT does, that it relies on a process of regularly distinguishing the value of improvements from the underlying value of the land (annually, apparently, in the case of this proposal!). Sure, it can be done – but can we rely on it being done with integrity when it is at the heart of the economy? It seems to me it would create huge scope for corruption. This proposal might be better than LVT in that it doesn’t propose a tax for the politicians to argue over (‘what should the tax rate be this year?’) but they’ll have plenty of scope for arguing that the grace period should be longer and auctions should be less freequent. (Why do reformers so often complain about incompetent/corrupt political environments but then propose reforms which rely on political integrity?)

            As far as I’m concerned, proper land reform would start by re-asserting the principle that freehold ownership involves a significant element of trusteeship (its roots, after all, lie in administrative rights that landlords had as local rulers). In that case, any transfer of ownership, either by bequest or sale, would be the exercise of a trustee’s responsibility and would be open to challenge if it didn’t respect the interests of society at large. It would be a big step politically, but a reform like that would be very simple legislatively and would transform the dynamics of landownership without changing anything directly.

            A subsequent (more complex) step would be to de-couple the market in land from the broader market in man-made goods and services by establishing a fixed-quantity land-credit system, which would eventually allow everyone to inherit a fair share of land-market-value.

            But, of course, effective land reform is unlikely to happen at all as long as we cling to inadequate political systems. That’s why I now tend to focus more on political reform, but I’m beginning to think that’s only going to happen through divine intervention.

          • Alasdair Macdonald

            MalcolmRamsay, thank you for the comment and for the link relating to land reform. There is much with which I agree.

            I hope that the pessimism of your final sentence does not indicate defeatism. I am sure it does not.

            We do need a change in how politics is done, which is one of the reasons I would like Scotland to be an independent country and, within that to devolve, further, powers to increasingly more local levels.

            Things DO change. Politicians – and lawyers and journalists – are people like ourselves. As individuals they can, and do, change and the actual personnel can change, too.

            The political, the social, the economic fields interlock and overlap. Introducing change in one usually, over time, brings change in others. So, while it is good to propose various alternatives and to be critical of other alternatives, we must be wary of our caution drifting into inaction and, in some cases, because of ego involvement, acting spitefully towards others seeking change.

            It is always good to have some idea of where we would like to go. The old saw about, ‘if you want to go there, I would not start from here’, while witty is a counsel of despair. We are where we are and we have to move forward from here. So, if, for example, LVT can be implemented in some degree and delivers a shock to the system then it is worth pursuing rather than waiting for something better.

            Or are we to stand by while Theresa May or her ilk, intone, condescendingly, “Now is not the time”.

          • Thanks, Alasdair. you’re right that my last sentence doesn’t indicate defeatism, though I can see why you might think it did. My perspective (which stems, in part, from a reluctance to believe that our ancestors were the fools that many people in the modern world regard them as) is that ‘the gods’ withdrew from us a long time ago to give us space to develop and, despite appearances to the contrary, we have now, as a race, reached a level of maturity where we could cope with meeting them again. So my comment on ‘divine intervention’ is far from pessimism – though I’m quite prepared for it to manifest as nothing more than an unexpected shift in the collective unconscious!

            As you say, things do change. But they only change when people are prepared to make change happen. I am – and I’ve spent several years trying – but I’ve concluded that there aren’t enough others for it to happen through conventional means, unless there’s a major shift on some other level. However, the time I’ve spent trying and the frustration of not getting anywhere have led me to develop a fairly clear idea of how a healthy system of government would operate, so I don’t regard any of it as wasted.

            “Introducing change in one [field] usually, over time, brings change in others.”

            That’s true up to a point but, precisely because the different fields overlap and interlock, incoherent piecemeal reform can actually be a barrier to real progress. Unless people have envisaged how a healthy system might work as a whole, it’s easy to waste energy pushing reforms designed to mitigate the dysfunctional effects of other parts of the system – which in fact helps entrench the underlying problems.

            “if, for example, LVT can be implemented in some degree and delivers a shock to the system then it is worth pursuing rather than waiting for something better.”

            Is it worth pursuing if it diverts energy away from something better which is also, in fact, more achievable?

            People have been advocating LVT for well over a century and the places where it has been implemented ‘in some degree’ don’t seem to have been roaring successes. So the argument that it’s a worthwhile partial reform seems a bit thin to me, as does the suggestion that it would deliver a shock to the system.

            With most proposals for reform, there’s usually a fairly large body of not-totally-committed supporters, who are open to hearing about its flaws, along with a core of zealots who push it blindly as the solution to all our problems. LVT seems to be a good example of that, but I’m afraid I regard it as a half-baked idea which would make more fundamental reform harder.

          • Alasdair Macdonald

            Malcolm, thanks for the extended response and the reassurance that you are still optimistic!

            It is difficult to make change and many decent people are too busy trying to deal with day-to-day matters to spend too much time on the nuances of constitutional change. Nevertheless, things can change as we saw with the EU referendum. It was not the outcome I voted for and I felt that the arguments deployed were cynically mendacious. (The arguments deployed by REMAIN were pretty mediocre, too). However, it demonstrates that significant change can be brought about. Clearly Westminster and Whitehall are hugely ill-prepared for what the change might connote. Partly the vote was a vote of no confidence in Westminster/Whitehall.

            The inadequate Mrs May, with her vacuous ‘Brexit means Brexit’ and he hubris in calling a general election has further destabilised things and we are in a period of real uncertainty. Personally, I think things will collapse because of things in Ireland, but there are other strains which are opening cracks. The Scottish referendum in 2014 most certainly did NOT settle things for a generation. The arrogant and authoritarian approach to the devolved administrations has certainly aroused Labour in Wales to begin to question the union arrangements. Whatever, one thinks about Mr Corbyn, he has certainly encouraged young people to become involved in politics. Having spent my entire working life working in education our young people are better educated than I was when I was their age. The media and others continually roll out ‘horror stories’ and quote data like PISA, but it is essentially a ruse to restrict the curriculum for the majority of the population and to return to the wasteful selective system prior to 1970.

            Areas of England like ‘The North’ – although that can be further divided into greater Manchester, the North East and, the sleeping giant of ‘Yorkshire’, The south east and London (outwith ‘the City’ and the ‘socially cleansed’ more affluent boroughs). London has the greatest inequality in the entire United Kingdom and, like all great cities, has always been a dynamic creative place, and not ‘the dynamic creativity of the financial sector that we hear about on the BBC.

            So, things are in flux – the old order is dying but the new one is struggling to be born.

            I am glad that people like you are continuing to develop the arguments about land reform. While ‘THE BIG PICTURE” is important, we must also be open to opportunities such as, for example, have been shown by the community ‘buy-outs’ in South Uist and on Eigg, in Scotland’s Western Isles. If we can get community ‘buy-outs’ in parts of Glasgow, Edinburgh or Dundee then we can begin to make change that will affect far more people.

          • Thanks, Alasdair. It’s refreshing to have a good-natured exchange that doesn’t fizzle out as soon as there’s broad agreement.

            “many decent people are too busy trying to deal with day-to-day matters to spend too much time on the nuances of constitutional change”

            I’m less sympathetic to this than I used to be. Saying “We don’t have time to worry about the foundations because the carpets will be ruined if we don’t concentrate on fixing all these drips from the roof” is fine up to a point. But if what happens, once the roof is patched, is that the residents simply go back to wringing their hands about the servants having to bed-share in the damp basement, then the foundations never ever get looked at, the subsidence continues and, pretty soon, the roof needs repairing again.

            Ultimately, in a democracy, it’s the electorate who are responsible for the integrity of the system and, currently, most voters are wilfully neglecting that responsibility. The constitution isn’t an add-on that we can deal with once we’ve got everything else sorted out, it’s at the heart of all our problems. The glaring flaws in our political processes are the reason we elect inadequate politicians, and the reason none of us feel we are properly in control of our own lives. The system that has evolved over the last few centuries has many merits (and it wouldn’t in fact take huge changes to transform it into something fit for a genuine democracy) but until ordinary people recognise that it’s up to them to put right its faults, we will be stuck with a society that works against the interests of the majority.

            At the beginning of this year, I drafted a manifesto for a constitutional reform party but there was so little interest in it that I’ve pretty much given up on the idea. As you might have seen on the page I linked to, land reform isn’t even part of that manifesto. It’s something which would probably happen automatically as a result of one of my manifesto proposals (a requirement that laws must be consistent, where possible, with uncontroversial principles such as equality of opportunity) but it’s the kind of thing that a properly functioning system would do automatically, without requiring the general public to agitate about it.

            Being open to opportunities like community buy-outs is certainly a good thing but, as I see it, those kinds of reform are part of what keeps the current system going – two or three steps forward is followed by two or three steps back. Sometimes the overall picture is progress, sometimes (like now) it’s regression. A constant surface trickle of reform allows the beneficiaries of the current skewed system to reassure everybody that things are getting better but, overall, those improvements do little more than balance the steady underground flows in the opposite direction. How long are we going to fool ourselves that this is how things must be?

          • Alasdair Macdonald

            Malcolm, undoubtedly, in a democracy, each one of us has to take responsibility to deal with the issues which affect the community – local or wider. It is easier said than done because, although, as you say, things have improved, participative democracy has not taken root to any great extent in the United Kingdom. Partly, this because every scrap of power we have got has had to be wrung from the ‘aristocracy’, who have usually brought about difficulties to frighten people from exercising powers. Secondly, because it is such a tortuous process, not many of us have been able to build up the expertise in how to use the powers and how to arrive at decisions. Trade unions did give people such opportunities as well as providing ‘solidarity’ in withstanding the ‘aristocracy’. But, they have been weakened and, like any organisation, including churches, friendly societies, etc. there is always a tendency to corruption. I recall an occasion at the opening of some pretty good quality Council housing (when Councils were allowed to build such things) the Lord Provost of Glasgow saying, ‘you don’t need to bother too much about this democracy, because we know what you need’. Thirdly, councils have been progressively disempowered, while at the same time being reduced in number. These things have severely diluted any powers which they retain.

            Since the re-establishment of the Scottish Parliament, despite the continual cavilling by the media, I feel that we have more access to government, despite the shackles around its powers. It is, albeit slowly, dealing with land reform. It is still too centralist and really has to much more active in devolving powers including revenue raising to Councils and requiring councils to devolve further to local communities.

            One of the exciting aspects of the campaign in 2013/14 was the many local, pro independence groups which came into being. There was creativity, there was excitement and there was a sense that things could be better or at least different. We did far better in the referendum than I expected, although I was deeply disappointed in the result.

            Since then, the proUnion side has waged an incessant campaign against increased powers, with Labour being at least as venal as the Conservatives and LibDems. I am not, historically, an SNP supporter and not a party member and I recognise errors it has made, not least in the last GE. However, it and the Greens and various ‘grass roots’ groups represent the vehicles currently able to bring about change.

            I sense that in parts of England, not least in London, an awareness that things can be different is awakening. Of course, from the days of the Peasants Revolt, there have been many such awakenings, which have been met with naked cruelty in suppression. But, there have also been times when lasting change has taken place.

            This is where people like you who have thought through revolutionary ideas have an important role. Carpe firm!

          • As you say, Alasdair, taking responsibility isn’t at all easy, especially when it’s a collective responsibility that we can only embrace individually. But, to my mind, that makes it all the more important that we don’t avoid it or make it more difficult.

            Everything you say about the establishment’s resistance to change may be true but it doesn’t alter the fact that the public has the power to re-make the whole system – and isn’t using it. You point out that every scrap of power we have got has had to be wrung from the ‘aristocracy’ – but what is stopping us from wringing the rest from them? Partly what stops us, as I see it, is that, when we focus on blaming others for our situation, we unconsciously cede power to them; ‘they broke it, so it’s up to them to fix it’. But that doesn’t work; if we wait for the powers-that-be to put the system right, we’ll wait forever.

            (And, actually, I’d say it’s unreasonable to expect the people who we elect in order to govern within the system to understand how to re-make it. Transformation is very different to administration and they generally call for different mindsets. For that reason, the reform party I envisaged setting up was going to be required, by its own constitution, to dissolve itself once a set of specific reforms had been achieved.)

            Another problem is that sometimes we allocate blame unfairly. You’re obviously very engaged with the issue of over-centralised power (as am I – my provisional name for a new party is ‘Local Sovereignty’) but I wonder if you appreciate how it came about? My understanding is that the doctrine of parliamentary sovereignty – which is what gives Westminster unfettered authority over other elected bodies – developed at a time when members of the House of Lords were local rulers. They were the ‘local authorities’ of their time, and that was a cornerstone of the doctrine: Parliament was the place where the different vectors of power converged, and that was what made it the most appropriate place to determine which matters were essentially local and which needed to be decided centrally.

            The transfer of power from individual local rulers to elected local authorities effectively destroyed that integration between different levels of government – and, simultaneously, undermined the legitimacy of Parliament by removing the reason that the members of the upper house were there. But that didn’t happen because of venal national politicians deliberately grabbing power; it happened as a side-effect of legitimate and necessary reforms, aimed at making local government accountable. Our national politicians are guilty, at most, of being loth to let power go.

            Most reformers treat Lords reform and devolution as two different issues. But, as I see it, they’re actually two sides of a single problem: some mechanism is needed to determine (and regularly review) what lies in the domain of which level of government. From that perspective, the UK’s relationship with Europe, the relationships between the four nations, and the relationship between Westminster and local authorities throughout the country can all be seen as part of a single issue.

            But, unless people recognise that a coherent constitution is central to good governance, it’s all too easy to treat them as entirely separate issues. And that makes different reformers into competitors rather than allies. As long as we’re all fighting to be heard, all the public hears is clamour. We need to recognise that a whole lot of necessary reforms will only happen when we stop pushing for them in isolation and push for all of them, all at once.

          • Alasdair Macdonald

            Malcolm,

            Thanks for the extended and informative response.

            The ‘blaming’ culture is pretty widespread and is present in organisations and relationships from families to international governance. I agree that the ‘blamer’ is actually ceding power to the person being blamed.

            I recall a ‘vox pop’ during one of the elections in the 1980s in which an elderly woman was unrelievedly scathing about the damage wrought on the country by Mrs Thatcher and her governments. When asked how she intended to vote, she replied, “Conservative, of course …. they broke things so they had better put them right!”

            When I was working I was deployed on several occasions to bring about change in some organisations. As a result of my experiences I agree with your view that the people who have been administering the system find it very difficult to bring about the changes need. I have a fair bit of agreement with the “theory of exogenous shock” as a way of bringing about change. The “exogenous shocks” are often what Harold MacMillan called ‘events, dear boy, events’.

            Thank you for the thumbnail on ‘local sovereignty’ and the evolution of ‘parliamentary sovereignty’. The latter is pretty much a Westminster paradigm. Governance in Scotland rests on a concept of the people as being sovereign. It dates back to the Declaration of Arbroath c1300. Although for most of the subsequent period, the definition of ‘the people’ was fairly restricted, it nevertheless is still a live concept. In the Supreme Court case raised by Ms Gina Miller and others demanding that Parliament (i e Westminster decide on Brexit), the Scottish Government also submitted an argument based on the pre 1707 Scottish Parliament’s legitimacy resting on the sovereignty of the people and not on the English concept of ‘the Crown in Parliament’, through which Mrs My was seeking to have King Henry VIII powers. Of course Henry VIII was never King of Scots, although he made several ‘rough wooing’ attempts, so, to invoke such powers is invoking powers which never applied to Scotland.

            Unfortunately, the Supreme Court did not rule on this, basing its judgment on another principal which it deemed had greater precedence.

            This raises the question, “what are we (i e those of us who live in Scotland) going to do about it? I think that is what we are doing now, in this uncertain and chaotic ‘Brexit period’, especially as the EU vote in Scotland was 62/38 for Remain.

            In Northern Ireland the Remain vote was 55/45 and immediately the issue of the border and possible reunification has arisen. And, of course, we look back at the bloody and brutal history of Ireland and its relationship with England …..

            There are other tensions beginning to tear at the (unwritten) ‘constitution’ of the UK. I agree with you that it really ought to be dealt with as a whole rather than as has so often happened in a piecemeal way – devolution to Scotland and Wales, a Good Friday agreement in Ireland, restricting the voting rights of hereditary peers in the Lords, elected mayors in English cities, etc. And, can we shine a light on shadowy bodies like ‘The Privy Council’ and ‘The City of London Corporation’?

            I think land reform will have a place in all that!!!

          • Thanks for the information about the Declaration of Arbroath, Alasdair. I was vaguely aware of it, and of the fact that the Scottish Government had brought it up in the Miller case, but I’d never given it much thought (Scotland seems a long way from Lincolnshire). I’ve recognised that the tensions between the devolved administrations and Westminster might be a catalyst for deeper reform but, for the most part, I’ve never seen how my own arguments might help bring that about. (I did try engaging on Andy Wightman’s blog a couple of years ago, in the hope that he would be interested in fundamental land reform, but he seemed to be firmly committed to LVT.)

            The Miller case always seemed a bit irrelevant to me; it was obvious that Parliament would give Theresa May the authorisation she wanted and I felt (as I believe the dissenting members of the Supreme Court did too) that it wasn’t really a matter for the courts: within the current constitution, Parliament was perfectly capable of asserting its own rights if it wanted to and, if it chose not to, that was its own business.

            I think the more interesting question is whether Theresa May’s March notification to the EU really is consistent with our own constitution, as Article 50 requires. Most people take it for granted that it is, but I think there are good reasons for doubting it. I did write to the European Commission, in late May, pointing out that a future British administration might be able to successfully repudiate it, and suggesting that, if they wanted to pre-empt that possibility, they could ask the European Court of Justice for confirmation that it was valid – which would most likely have triggered a proper constitutional debate within the UK.

            They preferred not to do that – they replied that our constitutional requirements are purely a matter for us to decide (which will make it hard for them to object if we do repudiate it) – but you’ve now got me wondering if the Scottish Government might want to challenge it, if someone alerts them to the possibility. If you’re interested in the reasoning, I’ve put my letter to the EU online. If you can think of anyone who might want to pursue that challenge, feel free to pass the link on.

            My reasoning rests on the argument that Members of Parliament have a duty of care that they have violated and MSPs might be reluctant to set a precedent that constrains their own ability to make arbitrary laws (my letter also mentions other reforms,such as recall motions, which
            would show a genuine commitment to respecting the ‘will of the people’). But it’s always better to presume that people will act with integrity, so it might be worth trying to interest one of them in the possibility.

            Failing that … well, I’ve thought for a long time that a dispute over land might be a trigger for a Lawful Rebellion which would wake the wider public to the need for fundamental reform.

          • Alasdair Macdonald

            Malcolm,

            I think the Miller case was important in that it brought a pause to the triumphalism of the LEAVERS immediately after the result. They had in effect brought off a coup of sorts and were interpreting the narrow majority as a mandate to do whatever they wanted. And by ‘they’ I mean the pretty affluent clique which Farage was fronting. The inflammatory rhetoric at the time – ‘Traitors’ etc – was indicative of the attitude. Thye would do what they wanted – ‘Brexit means Brexit’ means we will do whatever we want to maximise the gains of our clique. What Mrs Miller did was say, ‘hold on, take time to think’.

            Mrs May is by nature and inclination pretty authoritarian and not particularly democratic – she is right because she is right. The Henry VII clauses are indicative of this mindset. Indeed, at the time various polling organisations like YouGov were actually asking questions like ‘Do we need Parliament?’, ‘Shouldn’t we just let the government do what is needed?’ etc.

            Of course, it was likely that the thinking of the justices was as you suggest and that it was clear that much of Labour was going to support the Tories (minus Ken Clark).

            Fortunately the GE dealt for Mrs May’s hubris. However, the bulk of us are not out of the woods yet.

            Undoubtedly, the Scottish Parliament and the Welsh Assembly can vote to block Brexit, but the Supreme Court made a ruling on the Sewel Convention, which, in effect said Westminster can override decisions by Scotland and Wales. If Northern Ireland had a sitting Assembly just now, it, too, would probably vote against Brexit, but the DUP would probably use one of the conventions to stop this as it has done with say same-sex marriages.

            Nevertheless, The Scottish Government has appointed several pretty well-informed people to develop ideas. Some of them have been presented to Westminster and have simply been ignored. But, ideas are evolving and I am sure some of the things you have indicated about the legality of the Article 50 process, as it was enacted.

            Whether things get as far as your ‘lawful rebellion’ remains to be seen. Scotland voted 62/38 to remain, there is a majority of pro-independence MPs amongst the Scottish contingent at Westminster (and Mrs Thatcher said that this would be enough for independence), there is a majority of MSPs in the Scottish Parliament, which has also passed a motion demanding another referendum, The SNP and Greens have between them almost a majority of Councillors in Scotland. Apart from the Conservatives in the Scottish Parliament, the other four parties are all in favour of the single market and customs union. Prior to the EU referendum the Scottish Tories with literally 2/3 outriders supported REMAIN.

            In Northern Ireland the unionist bloc is no longer the monolith it was and despite their loyalist rhetoric, they have advised their supporters to exercise their right to Irish passports. Ireland is no stranger to rebellion, but I hope that democracy will prevail.

            To return to the main point of the thread – housing and land reform – apart from the Tories in the Scottish Parliament the other parties are in varying degrees in favour of land reform. There are variations in the strength of attachment, and, quite frankly, I think there is genuine ignorance about the complexities of land issues, because they have been pushed out of sight for decades. I do not mean ‘ignorance’ in a pejorative sense, and frankly admit to big gaps in my own knowledge. I am trying to learn and so are most of the MSPs.

            Housing is such a vital issue that its shortages and the baleful effects property speculation is having o the global economy will provoke the crisis which, I feel will inevitably bring the issues of land ownership to the forefront.

    • roylangston

      There are a number of reasons why you are factually incorrect, Hologrammar. First, the fact that the premise of minimizing state involvement cannot succeed does not mean we need more laws, it means that land administration is inherently a state function, and the public services and infrastructure that create land’s rental value are mostly examples of market failure that have never been, and cannot be, provided efficiently by the private sector. Second, your proposed solution solves neither the problem of funding desirable public services and infrastructure out of the land rent they create (meaning that taxes will have to be levied by force to pay for them instead — not a free market solution) nor the removal, by exclusive private land tenure, of people’s rights to liberty and their conversion into the private property of landowners. A market in which people’s rights to liberty are traded by others as their private property is not a free market. It is a slave market.

      • Hologrammar

        Taxes are not necessary to collect the rent; landowners will bid the rent to hold their exclusive titles. (And if they won’t, they don’t get to hold the title.) The “market failure” is the fact that we treat land titles as freehold property — rent stolen by landowners — instead of leasehold property, with the rent passed through landowners into the public purse. So it’s not really a “market failure”; it’s the complete absence of a market in favor of a monopoly.

        Regarding the problem of funding goods and services, of course a leasehold market solves that: Use the publicly collected rent to fund those things. What’s left over after funding those things can then go to the Dividend.

        I’m not sure what you mean by the second point, either, since a system of leasehold land titles rented from the public by definition ends the system of exclusive private land tenure you abhor (as do I). The only way to more throughly end it is to abolish exclusive land titles altogether …

        • roylangston

          There seems to be some confusion about terms, here. The current problem with the market in freehold land titles is not market failure, but the fact that it is a market in privilege, like a slave market, not a free market. Privilege markets can function well enough, if we ignore the initial crime that removes people’s rights (which is the actual gravamen of the Coase Theorem).

          The market failure occurs in provision of desirable services and infrastructure (usually by government), whose value ends up as land rent. There is no way to structure such markets to be efficient with private investors funding the expenditures, so the best solution is to pay for these things by recovering the land rent they create through the public land tenure administration system — in effect, a leasehold market much as you propose. The long-term security of tenure needed to support private investment in long-lived fixed improvements could be provided through a system of premiums, a sort of rent-increase insurance.

          However, the leasehold system does not end exclusive private tenure, it just removes the landholder’s privilege of pocketing the rent. The leaseholder still gets exclusive tenure, he just has to pay the community for it. That solves one half of the problem, but not the other half: people’s liberty rights have still been removed without just compensation. They would still have to pay for exercising their rights to access economic opportunity to sustain themselves; they’d just be paying the community instead of a private landowner. The best way to solve this problem is through a universal individual exemption (UIE) from location subsidy repayment (LSR, i.e., the lease payment) sufficient to provide everyone with free, secure tenure on enough of the available advantageous land of their choice to have access to economic opportunity.

  • Macrocompassion

    An Alternative Policy to Land Value Taxation (LVT), or How We Could Get on Good Terms with the Landlords by Introducing Progressive Land Nationalization( PLN)

    It is obvious that our favorite subject of so-called land value taxation LVT, (about which we have chosen to rant on and on all the time), is very unpopular with the landlords. This is not surprising, because they are the main targets of the resulting worsening and subjective changes. Indeed, even by our use of the word “tax”, there is a big enough effect to neglect this idea, since every politician would prefer not to have to include this (dirty) word in his/her policies, and to suggest the need to introduce new taxes is completely taboo!

    In the following proposal, these two negative aspects of LVT have been deliberately avoided with a degree of compromise, and the writer believes that consequently by taking this modified approach, there is a far better chance that our aims of a more ethical society would finally gather greater political acceptance.

    Consider the present-day situation of the land.Much of the central city land is being properly used, but there are also sites being left bare or being only partly used, in what we regard as a wasteful manner. These sites are owned by land value speculators, The proper use of and these sites makes them our main targets. In the surrounding (development) regions of the city, improvements are continuously taking place and there the speculators in land values are also active, firstly by determining where the next development is to take place (sometimes by bribery ahead of the official announcement). Their attempts to buy up these sites immediately cause the price for all of them to rise. This is associated with the completion for catching this opportunity to make a killing, whilst at the same time the subsequent development changes slow-down the rate of this progress, due to the smaller amount of land that the developers can initially afford. These two adverse aspects of land tenure under our present regime (non-use and speculation) can be eliminated by Progressive Land Nationalization or PLN.

    PLN is applicable whenever a site is freely offered for sale. Instead of another landlord snapping up the opportunity, the government steps-in and buys the land with an offer associated with the competitive price, but with slightly easier
    terms of payment, registration, taxation (like stamp-duty), etc. This means that in most cases the site will become nationalized and immediately be available for use. The economic or ground-rent is subsequently paid regularly to the government, by a user/entrepreneur acting as a tenant, on lease-held terms for a relatively long period of time. (Any buildings on the land still belong to the previous property owner unless it is sold at this time. The negotiations for exchange
    or hire of these buildings would be the same as for any other item of durable capital goods, preferably with the cooperation of the new tenant and not the government.)

    This land leasing agreement with the new tenant should include the possibility for changes to the regular sum being paid, according to the general macro-economic climate, to the development of the surroundings, to changes in the associated land value, and to the average rate of interest on other forms of investment that imply the need for money borrowing.

    Gradually over many years more and more land is taken-up by the government in this way and more and more income from it goes into the public purse. The government needs a source of money for purchasing in this way and it can come from only three different places in the macro-economy. It can come from taxation, if and when there is a budgetary surplus, or from deliberate printing of currency (which if done with caution will not be a serious loss to the effective purchasing-power of savers—a common situation already), or from borrowing from banks and savers through the banks. In common with regular national bonds (which are related to the national deficit), the government should issue specifically named land-bonds, which are payable at a similar but slightly adjustable rate compared to the normal kinds of bonds, the rates being varied according to whether much land is being transacted in this way and on how much more is being planned.

    The rate of interest being returned from both kinds of bonds and on average from other investments in the stock-market etc., will certainly not exceed the rate coming from the ground-rent, based on the land’s value. Consequently the government will make a regular gain of its income, due to this growing revenue regime and it may even be able to reduce other kinds of taxation in degrees. In particular it can encourage the nationalization of the land in this way, by making small tax concessions to its tenants and possibly small subsidies to those landlords, who agree to sell their land according to a schedule prescribed by the government. Due to the need for not making big disturbances to the progress of the national economy, this process of PLN should begin in a small-scale way, and then be allowed to gather momentum, as the increased national debt is slowly repaid from the difference in incoming ground-rent and outgoing interest on land-bonds. It is envisaged that to nationalize nearly all of the land by this technique, would probably take 40 years or more, when the greatest benefits to the community would be felt towards the end of the process, after most of the land value speculation
    and the poverty from its associated wasted opportunities have been eliminated.

    Such a policy will not be adverse to the landlords, who are ready to sell their land, even if it is at a somewhat less speculative price. It will provide growing opportunities for proper use of the newly available sites (with previous unused
    sites now providing more opportunities for employment and some greater national income to boot) and will replace the rent previously paid by tenants with equal amounts of the land revenue from the leasing of all the nationalized sites. No taxation policy change is involved, unless it is by a small reduction in stamp-duty, probably at the start.

    We need to research proper simulation of the dynamics of these kinds of changes, using a model of the whole macro-economy, such as I have recently prescribed in my new book: “Consequential Macroeconomics—Rationalizing About How Our Social System Works”.

  • John St.

    Good article. I think the most important thing is getting the word out that the housing bubble (or crisis or whatever you want to label it) is deliberate government and central bank policy, and it doesn’t have to be this way. The Tory (and the Blair) government like you to believe there is not much that can be done because it is just the free market behaving as a free market. This is nonsense of course because every aspect of housing is controlled by the government including planning, borrowing and taxation. The young (and now not so young) people of today should not put up with it. They need to realise this system is designed to benefit the older property-owning generations that are running the country at their expense.

    • Alasdair Macdonald

      John St, interestingly, there is an article in the Scottish daily the ‘National’ today, in which the writer describes a conversation he had at a dinner with Lord MacPherson, who was the former head of the Treasury and, being retired, he could be ‘waggish’, as the writer describes him, he made the point about property prices and also commented on the ‘financial’ heroin that QE has become.

  • George C.A. Talbot

    Having repeatedly criticised the reforms introduced by Margaret Thatcher from 1979 and Edward Heath in 1971, From a place to call home, to a financialised asset well explains how council housing was similarly reformed. But why are savings ignored? Copious global savings deposited in banks created credit that funded mortgages that inflated house prices The historic prohibition of usury and periodic forgiveness of debts blame saving. Islam still judges usury evil and Christianity did so up to the encyclical of Pope Benedict XIV in 1745. And Moses required a release after seven years but prohibited usury only for Jews.

    Postwar reforms were intended to avoid repetition of the conditions that led to Soviet communism and fascism by ensuring wages tracked productivity, current accounts balanced, bank credit was limited and governments could manage their economies. Paradoxically, Keynes hoped the Soviet Union would join his Clearing Union.

    • Prior to Heath’s reforms, banks had to hold a third of deposits as limited base money but afterwards required only a tenth of good quality assets. This enabled them to create almost limitless credit. By the way, in Between Debt and the Devil, Adair Turner describes how in 1948, Milton Friedman concluded fractional reserve banks were so inherently dangerous they should be abolished: See p. 10.

    • Capital controls had enabled governments to set exchange rates to balance their current accounts so avoiding the build up of dangerous international debts.

    • A moral prices and incomes policy ideally ensured that workers received a fair share of the increase in aggregate national productivity so avoiding the excess profits achieved by some companies that create intractable debts. And

    • William Beveridge’s reforms not only funded occasional unemployment but also pensions for relatively short retirements.

    These policies were never ideal. Our high wage businesses were never going to ensure all trade remained in balance when low wage nations exported good quality goods at much lower prices. But it is neoliberal deregulation that has made housing unaffordable albeit with the land problems described by Laurie Macfarlane.

    However, the state of the planet and the development of ever cleverer artificial intelligence suggest more fundamental reforms are needed to enable us all to live in harmony with ourselves, each other and the planet.

    • Alasdair Macdonald

      George, thank you for that long perspective. Prices and Incomes Policy/Sir Frank Figgures, etc.
      Then came the tornado of propaganda about ‘free markets’ and ‘the bonfire of controls’ etc. which is now consuming its own child and possibly the rest of us and the planet, too.
      Not being a pessimist by nature, I appreciate your upbeat final paragraph!

openDemocracyUK presents a debate about how to build a just, sustainable, and resilient economy. Find out more about the project & submit your ideas.


  • All
  • Civil Society
  • Constitution
  • Education
  • Elections
  • Infrastructure
  • Local Government
  • Measurement
  • Money
  • Ownership
  • Procurement
  • Regulation
  • Research and Development
  • Spending
  • Tax
  • Trade policy