Lars Doucet On Taxing The True Value Of Land

Uri: I’m delighted today to welcome back Lars Doucet, this time to talk about the economic philosophy called Georgism, which is all about taxing the true value of land.

Lars, like many people I studied economics in college but am now just completely unable to think about it, I know it’s very important but when I see things like a full and rigorous explanation of Georgism I just really struggle to focus.

So, I thought today we could have a conversation about Georgism that just aims to give people like me a basic intuition for the land value tax. And we’ll assume the reader is coming in un-cantakerously, such that you don’t need to prove the claims of Georgism so much as outline what they are and why they’re plausible. (You’ve written extensively about this, so anyone who wants more details can follow up on that elsewhere).

Who should benefit from the land near a subway station?

To start things off: a friend of mine bought an apartment near a future station on the not-yet-built extension of the New York subway, thinking the value of the apartment would rise once the station opened. Obviously she didn’t build the subway, and didn’t pay for it any more than any other New York taxpayer. Can you talk about that example from a Georgist perspective? Under Georgism, what would happen to taxes in a neighbourhood when something like a new train station gets built?

Lars: So when you buy land in a major city, or next to planned areas of development, hoping that the value will go up, what you’re really hoping for is to profit off of the hard work and investment of your neighbors and government spending. Imagine two locations for a hot dog stand: the middle of the desert, and an empty lot next to the Empire State Building. Obviously I’ll sell more hot dogs in the second location, but clearly it’s the people and city of New York that have made that second location more valuable.

The example you bring up is particularly salient because we have this trap where we expect the government to provide us with services, but then those services cost money, so we tax people’s income (labor) and investments (capital) to fund them, or just put the government in debt to do it (which ultimately manifests as indirect taxes on labor and capital in the form of interest payments and inflation). And then, land values for properties closest to those services rise. Who captures that added value? Whoever was smart enough to buy up land real cheap before We The People started doing some public spending. So essentially our current scheme creates this bizarre cycle where we tax both the labor and the savings of Americans in order to provide public works, which have the side effect of subsidizing people who speculate on land, who not only aren’t doing anything for the economy, but are actively making the housing crisis worse by bidding up the price of land.

And I’m not saying that anyone who buys property hoping to get rich is a bad person, not at all. It’s the rational thing to do under the current system, especially in uncertain times where you’re afraid of losing your savings! But it’s this weird system of incentives that ultimately hurts us all.

Not yet a subscriber? Join 75,000+ curious readers who grow with us every day

No spam. No nonsense. Unsubscribe anytime.

Great! Check your inbox and click the link to confirm your subscription
Please enter a valid email address!

Land: They’re Not Making Any More Of It

Uri: Alright, so if I understand correctly, one of the very core foundations of Georgism is like that old quip: “invest in land, it’s the only thing they’re not making more of.” I always attribute that to Mark Twain, but I guess it might be one of those ones that isn’t actually Mark Twain.

Do I have that right? And can you explain a little more about the benefits of taxing a resource whose supply is absolutely fixed?

Lars: So I might not be qualified to answer this perfectly but I’ll take a whack. A traditional supply and demand curve looks like this:

Blue is supply, red is demand. Where they cross is the price. Here we can see that different amounts of the thing will be supplied at different prices.

And here’s that vertical supply curve for land:

It’s pointing straight up, because no matter what the price is, the amount of land isn’t going to change, because they’re not making any more land. Some people might point out that the Netherlands exists, but I’m talking here about “locations” and even if the locations were originally under water, they’re still fixed in supply. Landfill is pre-existing land that has been improved and is now more useful -- improvements being capital, not land.

The insight is that there’s no land fairy working at the land factory cranking out more land every year. If the price of land is low or the price of land is high, the same amount will exist no matter what. On the other hand if you put a tax on cigarettes or oil, there’s some marginal tobacco field or oil well that just had its profits wiped out, so they shut those down and the supply drops.

There are other things that exist in fixed supply and thus have vertical supply curves. A good example (at least theoretically) is antiques. Fakes aside, there’s no way at any given moment in time to make more antiques, and so putting a tax on antiques is not going to cause there to be any more or less of them to come into existence from the time travelling antique factory.

Price elasticity is about the slope of the curve -- you have some things that people are going to buy about the same amount of no matter what the price is; but the point is if producers can change the amount in response to price signals, that’s where the give in the elasticity of the supply curve comes from.

Taxing people for having a high IQ

Uri: Ok, so, the way I understand it this leads into another core part of tax theory. This is going to sound very strange but… I remember reading some economist once saying we should tax people on their IQs and heights and other “endowments” that can’t be changed later -- I think the claim specifically was that ideally we’d put a lump-sum tax on people at birth, based only on their endowments, and then never tax them again, but I’m not entirely sure about that.

Is this in any way analogous to the claims about land made by Georgists?

Lars: Ha, economists have all sorts of crazy ideas :) So I guess I can understand where they’re coming from, the problem I have personally with this kind of system is that it’s really disconnected from actual production, and also that it’s super unfair and you are going to make everybody super mad at you.

Sure some people have really high IQs, and IQ is highly correlated with producing wealth, as is height, conventional attractiveness, being part of the right in-group (skin color, religion, linguistic accent). But we all know that one tall, handsome, brilliant person who had everything going for them and never amounted to much and now they’re totally flat broke and massively in debt.

Maybe it’s because they were lazy and bad, or maybe it’s because of some other factor the model didn’t account for that totally screwed them over, like they have some horrible chronic disease that won’t be discovered until 2300. Or they won the genetic lottery but lost the environmental lottery when they got hit by a bus and got permanently disabled, or grew up next to a factory that polluted the air they breathed every day. Both genetic luck and environmental luck were “endowments” of fate and not personal choice, but why are we taxing the former and not the latter?

In any case you’re still taxing them on what other people like them might produce rather than what they themselves actually produce, and that’s unfair. It’s unfair that some people are born tall and beautiful and sharp and others aren’t, but it’s also unfair to treat people solely as members of an arbitrarily delineated group and not as individuals.

In any case, even if you could make this system work, like if we grant you’re able to refine your model so that you perfectly calibrate all your natural ability scores in some Godlike superhuman way that’s always accurate (which is a lot to grant), it’s still only going to be “neutral” at best.

Land value tax is already better than neutral. The point isn’t just that it “doesn’t distort” the economy, it un-disorts the economy, because the “private tax” levied by the gatekeepers of land, location, natural resources, and other monopolies is already imposing a productivity drain on our economy.

Just to drive the point home, we’re not wanting to tax land just because it’s more “efficient,” or whatever. We’re doing it because land is scarce and rival. To own land means to exclude others from it. Given there’s only so much of it, and we can’t all use the same land, and we all absolutely fundamentally need land, it’s a simple matter of justice to say that if you want to exclude the rest of society from a piece of land, you should compensate society, since you did nothing to make that land exist in the first place. Some critics say this means we want to make the government the owner of all land. No, we’re not saying we want to confiscate land and give it to the government – that would imply that the government also gets to decide what to do with the land. We want two things: society should hold the income generated by land alone in common, but individuals should hold title to land and get to decide what they want to actually do with it. This is why we’re also big on repealing restrictive zoning.

The short but proper introduction to Georgism

Uri: Ok, I’ve been avoiding this bit because honestly I find economic theory hard to parse but... perhaps now is a good time to ask for your Brief Economic Introduction to Georgism

Lars: The chief insight of Georgism is to shift the paradigm from a two-input model of the economy (labor and capital) to a three-input model (land, labor, and capital).

You know how once we discovered that most infectious diseases are caused by germs, it totally upended our knowledge of medicine? And how once we discovered that things are made of atoms, it moved us from alchemy to chemistry? I feel like Georgism can do the same thing for economics.

There are three things that come together when humans produce things -- land, labor, and capital. We call these inputs the “factors of production.” We can increase labor, and we can increase capital, but there’s not a dang thing we can do to increase land -- “it’s the one thing they’re not making any more of.”

“Land” here is understood as everything outside of humans themselves -- nature itself really. That includes conventional plots of land (properly thought of as “locations”), but also orbital real estate for satellites, electromagnetic spectrum, water and mineral rights, etc -- these can all be thought of as “land.” Call it “Economic Land” if you want to be more precise. (We Georgists might need to workshop some clearer terminology for the 21st century).

Marxist and Neoclassical economics severely downplays land -- to the degree that land is often just considered a kind of capital. But it’s not the same at all because we can provide more labor, or make more capital, but we can’t make any more Economic Land.

This matters because the share of production (stuff humans make) is divided up between the owners of the three factors -- landowners, workers, and investors. Human labor makes stuff, and then some of that stuff is saved up (capital) and reinvested so we can make new stuff faster and better. But none of that can be done without access to land; if you think about it you can’t work, eat, sleep, or even poop without access to a specific location to do those things. (Try sleeping on a park bench and see if the cops don’t hassle you!)

But what does it mean when the owner of the land “provides” land? It’s not like they created it, and it’s not like if we don’t pay them for access to it the factor will somehow go away, which is what happens when you stop paying labor and capital. Gatekeeping access to land isn’t productive, but in our society it entitles you to a share of the produce that labor and capital produced. And as I’m prepared to show, it entitles you to a really huge outsized share at that, essentially a private tax on the entire economy.

Urban land values can easily be 70% or more of the total value of urban real estate -- just go on Zillow or Redfin and find an empty lot and a comparable building with a similar sized footprint right next to it and look at the prices they last sold for. I found an empty lot in San Francisco for $2M at 2,300 sqft, and right next to it was a $2.3M building on 2,020 sqft right. Do the math and it suggests 76% of that second property’s value is land.

And check out this graph from The Great Mortgaging about where most bank loans go:

And of course, most real estate value (of which an enormous chunk is land value) is concentrated in the hands of the wealthy. Many have heard that Bill Gates is the #1 owner of private farmland in the USA, but that’s just farmland -- in terms of total land value, he ranks a measly #49. Jeff Bezos is #25, and Ted Turner is #4.

Georgism proposes, among other things, that we can fix most of the problems if we have the proper policies towards land; but rather than forcibly expropriate it at gunpoint or whatever, we can just let people keep title to land and simply levy a sufficient tax, called a land value tax (LVT). Some Georgists even propose that such a tax is sufficient to entirely eliminate income and capital taxes (a popular but not necessarily universal opinion in the movement).

Land Value Taxes In Practice

Uri: So this all sounds good in theory, but has Georgism ever been tried, even on a small scale?

Lars: It has been tried, in various places, to various degrees. So I wrote a bit about J. J. Pastoriza, Houston’s first Hispanic mayor, and a devoted Georgist Single-Taxer. He set up a partial land value tax as part of the “Houston Plan” when he was Commissioner back in the 1910’s.

Pastoriza basically instituted a reform where he taxed land at full value, but slashed improvement assessments to 25%, and un-taxed all personal property (like cash, stocks, bonds, furniture, etc). From the official Houston City Book’s account, it seems like it was a smashing success.

Most of the historical evidence we have about the project comes from Pastoriza himself, so we should take it with a grain of salt, but from what we can tell it probably worked, especially given how popular the man was. If his policies had been a massive and obvious failure I doubt he could have been elected mayor after his stint as Commissioner, especially considering he had powerful enemies. Unfortunately the Texas Supreme Court struck down his land value tax because there’s a clause in the state constitution that forbids split-rate property taxes. Getting that clause repealed is one of my long-term local political goals. Bring back the Houston Plan!

I haven’t finished studying all of the other case studies, but there are many places in the world that have had Georgist influences. Sun Yat Sen was deeply inspired by the philosophy, and countries like Denmark, New Zealand, and Australia have a long history of (partial) land value taxation – though there’s reason to believe that New Zealand and Australia’s implementations had some major flaws, I’m still researching those. Norway’s unique policies regarding oil exploration are arguably a very Georgist approach to managing natural resources.

If you’re asking, has there ever been a place that’s implemented a full on 100% LVT and then abolished all income and capital taxes, then I’ve yet to come across it. There are however plenty of cases where people have done partial implementations, and the empirical studies I’ve found do seem to indicate that the predicted effects hold -- such as land value tax’s effect on land prices, and its interplay with public spending.

Uri: I guess the question that interests me most, actually, is could someone run small-scale experiments that would give us meaningful data on this, or just give people an example to point at that actually works?

There have been small scale experiments with things like Universal Basic Income in single towns (or Citizens’ Dividends, as Henry George would have had it), and while you could argue that the effects would be different if the policy were done at a national scale, at least there’s something to point to there. What does that experiment look like for Land Value Taxes? Could a billionaire or wealthy organization run a meaningful experiment on this that would show if it works or not?

Lars: You sometimes see things like the Telosa project where a Billionaire pledges to build a giant super-city in the middle of the desert and pledges to run it on a Georgist model. Clearly his primary motivation is to build a super city, and as long as he’s already doing that Georgism seems like maybe it will help him accomplish it. But if your primary interest is empirically testing the claims of Georgism you can do it in a much more efficient and cost effective manner.

For one, just funding literature reviews and meta-analysis of all the work that’s already been done would be a good first step. I’ve written a series of articles for Astral Codex Ten (part 2, part 3) that is a layman’s attempt to basically do such a roundup of all the existing evidence. And I’ve found some fascinating stuff!

So on the topic of experiments, it depends on what you’re interested in. There’s “has Georgism ever been tried”, but there’s also “does this general prediction Georgism makes of any economy bear out whether or not there’s a Georgist regime in place,” such as narrow questions about how certain tax policies work out in real life. Many of these kinds of studies have already been done and I can cite some sources for you about what the results were, and me and some friends are organizing some new experiments of our own that we’re trying to put together in Pennsylvania.

Uri: Ok wait hold up tell me about the Pennsylvania project?

Lars: So one of the big objections to Georgism is that “even if I believe everything about it, the problem is that real estate is land + buildings, and they’re sold together, so you can’t do accurate assessments in practice where you separate land value cleanly from building value, so there’s no point, the whole idea is doomed.”

This is a fair objection! And I can tell you from experience that yes, the status quo of actual practice of land assessment is not always super great everywhere. For instance, in my own area I’ve seen the assessment methodology use a “neighborhood” factor as a multiplier to up-assess a swiftly appreciating neighborhood, but they apply it to the buildings and not the land, which feels like a mistake. Buildings depreciate and fall apart, I can tell you that from experience as a homeowner. It’s the land that’s going up in value.

The good news is that there are good, objective, reliable ways to correctly assess land value, they’re just not in practice everywhere. Mainly because there’s no incentive to -- if land isn’t taxed at a separate rate and you just have regular property taxes, who cares what the breakdown is as long as you get the total figure right?

And so one of the things I’ve been doing is compiling all of the different methods that the best assessors in the world have been using to do “mass appraisal” -- using the power of GIS and math and science to accurately figure out the value of land and buildings. There’s a whole organization that studies and disseminates this knowledge, called the IAAO -- International Association of Assessment Officers, and there’s all these studies that have come out in the last 15 years with new cutting-edge techniques. But what hasn’t been done yet to my knowledge is to take all of the current state of the art best methods, line them all up against one another, and empirically test them on a high-quality open database of known real estate transactions, all for the same area, and publish the results. That way we can be more sure that the benefits of one method over another aren’t because one study was done in Germany and the other in the Philippines, or whatever.

Scott over at Astral Codex Ten recently launched a grant project, and a friend of mine and I went in together on a proposal to run this comparison study on land assessment mass appraisal methodologies. From what we can tell, Pennsylvania has some of the best and most open real estate market transaction data in the USA. So we want to take all the stuff in published studies and the IAAO’s textbooks and seminars, get some top assessors with local knowledge and machine learning nerds together, run it all against the Pennsylvania dataset, and see if we can put this question to rest once and for all.

This actually has really big stakes, because we have good reason to believe that land values are chronically under-assessed in official figures, which in turn is used to perpetuate the notion that land isn’t a big deal in the modern economy. Most official figures use the “cost approach” where you estimate the cost to replace a building, and then subtract that from the total value of real estate to get the land value. The problem is that the market doesn’t care what it originally cost to build the thing, it cares how useful it is. As a city grows, an old building, even if it’s in good shape, is likely to become obsolete and have a significantly lower market value because people simply don’t want or need it as much anymore. If you’re running a struggling theme park, and all the interested buyers want to tear it down and build apartments on the land, your roller coasters aren’t worth the depreciated cost to build them, they’re worth zero (or merely the scrap value), even if they’re in excellent condition.

Here’s a teaser from my article on the subject which has all the nerdy math -- I compare four different estimates of the annual amount of “land rent” (the income land is capable of generating each year, which is what an LVT would tax) of all of America’s land. The red estimates come from using Federal Reserve’s figures using a method originally devised by Matthew Yglesias, and the blue estimates come from Jeffrey Johnson Smith’s Counting Bounty: The Quest to Know the Worth of the Earth. Then I apply either a 5% or an 8% capitalization rate to each to convert between land value to land rents, to give a low-high range. (Smith prefers 10% but I like to be conservative).

Bottom line: the lowest estimate at the lowest capitalization rate is enough to pay for any one of National Defense, Social Security, or Medicare+Medicaid, all by itself. Land is a really big deal!

And as you can see, the spread is pretty huge. Accurately estimating land values has huge implications for what policies are economically viable and we should figure out how to get better at it as soon as possible.

The Path To Implementation

Uri: So we’ve discussed Georgism in theory and some empirical evidence in practice, but I’d like to talk a little as well about the politics. I guess more generally when people have policy ideas that sound good to me, I’m always interested in… like, what’s the path to implementing this?

I’m not saying anything super original here but most policies have some losers as well as winners, and the losers are more aware of what they stand to lose, and more likely to get organised against the new policy, even if the new policy would be better for most people (and possibly even if it would be better for everyone, overall -- I think Dani Rodrik or someone has a theory on that).

Lars: Right, so the problem is if you try to knock down the housing ladder all by itself, you’re going to make a bunch of people really mad because they only did what was rational under the old system, broken as it was. That feels like a rug pull and it’s certainly a political headwind you have to take seriously, and it’s also a matter of fairness.

Gordon Tullock calls this the “transitional gains trap,” using the example of taxi medallions. The first generation that buys into the system gets in cheap and enjoys outsized gains, but the next generation has to pay “full price” for it. Sure houses appreciate over time because of the land values, but the person who just bought one had to really shell out for that privilege and hasn’t had much time to reap the rewards. So even if transitioning to a non broken system makes everybody better in the long run, the pain to change over is too much for some people.

But we can fix this too!

There are four different ways to do it. The first is just to phase in land value tax gradually over time, like say, over 20-40 years. The challenge with this is that’s going to be quite a political feat to get it to stick over many generations of politicians.

The second is to levy land value tax as a sort of lien, something that you don’t have to pay until you sell the property, or pass it on to your heirs. So grandma and Farmer Brown aren’t going to be kicked out of their homes because of the land value tax. And just for the record, Farmer Brown's land value isn’t going to be super high anyways -- farmland is pretty cheap, it’s urban land that’s expensive. Farmer Brown will likely just get a tax break compared to what he’s currently paying in property taxes.

The third way is to leverage UBI or a Citizen’s Dividend. I’ve done some estimates for my follow-up article to the Astral Codex Ten book review using 12 different methods published in the literature, and all of America’s Land Rents are sufficient to pay for a ridiculous amount of stuff, even at the low end.

If we take the lowest estimate, we could pay every adult citizen about $5,700 a year (5% of $24 trillion yields $1.2 trillion in annual revenue, then divide that by 209 million adult citizens). If we take the higher estimates, we could pay that same amount as a dividend and also cover some major federal line items, ie, offset a big chunk of income taxes, which would be another source of savings.

If you do the math, a single person who owns a house that’s worth less than ~$230,000 (assuming 50% of the value is land, and a 5% capitalization rate to calculate the tax), would actually break even and even make a profit. For a two-family home with two adults receiving the dividend but sharing the same house, that margin goes way up.

I did the math for my own house, and if the land share of my property was 40% (far higher than is currently assessed), then if we untaxed buildings and levied a 100% LVT, I would actually save about 500 bucks compared to what I currently pay in property taxes, and that’s without any Citizen’s Dividend. The majority of the burden would fall on those who are sitting on extremely valuable urban land.

It’s also important to realize that the term “100% LVT” is rightly confusing to some people. It means 100% of the land rents. So that’s not like “charge the entire value of the land, every year,” it’s more like, “charge the rental value of the land, every year.” So if the capitalization rate for land in a particular area is 5%, an annual 5% tax on some piece of land is a “100% LVT.”

The fourth way is to change no existing laws but just to fix chronic under-assessments of land by improving the methodologies. Under every state with an existing property tax regime this will be equivalent to imposing a partial land value tax because the share of property tax that falls on land will be greater if you up-assess the land value closer to its true value. And Georgism predicts this partial measure will have partial benefits. This is something that can be done even in states like Texas with policies hostile to land value tax, and it’s something you can do just by educating and training the assessors who are already there, or by paying attention to local commissioner and tax assessor elections. Candidates for these offices often run unopposed, or are decided in dominant party primaries by relatively low vote margins.

Most of America’s land values are in urban land, and that has an exponential falloff as you move from the city center. Georgism isn’t going to ruin the middle class, but it is going to get the gatekeepers of land to pay their fair share for sitting on scarce natural resources and locations.

And to be clear, I don’t ever see someone flipping the switch overnight and imposing maximum Georgism instantly. Like, what would make me absolutely ecstatic is to shift local property taxes off of buildings and entirely onto land, but collect the same amount, and also get rid of a bunch of restrictive zoning propositions (which Land Value Tax makes easier as it aligns the local government’s incentives to want to do it). That in itself would be a huge win and probably a necessary first step to going any further.

Where to read more about Land Value Taxes

Uri: Lars, it’s been an absolute pleasure as always. Can you just tell us -- for any readers who are feeling inspired by this, who want to do something that would make the world better and think land value taxes might be that thing -- how can people Get Involved With Georgism? Are there community Georgist groups? Where do Georgists hang out on the internet?

Lars: The place to go for organization purposes is Common Ground. If you want to hang out on the internet, check out the /r/georgism subreddit and the Geopraxis discord.

The movement has really gained steam in the past 5 years and we’re building up new organizational muscles as we speak. is a site a friend just put up and I can recommend reaching out to them via their contact form and just say you’re interested and they’ll direct you (they run the Geopraxis discord for instance). The urbanists over at Strong Towns have always been staunch allies. More old school organizations include the Schalkenbach Foundation, the Council of Georgist Organizations, the Henry George School of Social Science, and last but not least, the delightfully web 1.0 repository of info, Cooperative Individualism.

If you’re interested in getting involved you can always just email me at or follow me on twitter @larsiusprime, and I can put you in touch with people.

Uri: Thanks so much Lars! This was ridiculously informative and I really appreciate your time.

Join 150,000+ curious readers who grow with us every day

No spam. No nonsense. Unsubscribe anytime.

Great! Check your inbox and click the link to confirm your subscription
Please enter a valid email address!
You've successfully subscribed to The Browser
Welcome back! You've successfully signed in
Could not sign in! Login link expired. Click here to retry
Cookies must be enabled in your browser to sign in