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House & Home
August, 1960

Land: A Special Issue

WealthandWant brings you a 45+ year old look at the problems of sprawl and housing affordability — with a lot to tell us in the 21st century! How can smart taxation move us in the direction we want to go?

Table of Contents

98 Land, say the homebuilders, is our most critical problem. Despite the millions of miles of open countryside in the US, inflated land costs threaten to price good housing out of the market (100). Since 1950, land prices have soared anywhere from 100% to 3760% (101). In Orange County, Calif. land priced at $2,000 an acre in 1952 now costs $32,000 (102). Prices like these are danger signals.

106 Most land shortage talk is nonsense — as any airplane flight can show you (108). But suburban sprawl is proliferating land waste, dollar waste, time waste (114) — through land speculation, land hoarding, overzoning, fragmentation, poor market information, archaic land use requirements (117). A thorough land survery, as Indianapolis has shown, can spot plenty of land ripe for housing.

122 Unless promptly checked this wild inflation can be serious. How can we form sound national policies without a sound policty for land? (124) Said Winston Churchill 40 years ago: "Land monopoly is a perpetual monopoly and the mother of all other forms of monopoly." (126)

130 Other countries have found answers to these abuses. Until recently, land paid all the costs of government in England (and it's a hot issue again today, (129). Though the Communists redistribute land by executing landowners, humane methods are working in Scandinavia, France, Italy, Iran, Egypt, the Caribbean (130). And Australia and New Zealand are untaxing land improvements to tax land values only (132).

134 Unimproved land differs from any other kind of private property. So said Moses, Spinoza, Locke, Blackstone, Adam Smith, Tom Paine, Jefferson, J. A. Froude, John Stuart Mill, Lincoln, Herbert Spencer, Tolstoi, Henry George, Sun Yat-Sen, Irving Fisher.

136 Today's taxes make misuse of land more profitable than good use. They harness the profit motive backwards (137), give land speculation a better tax break than any other business (136) and by abetting speculation, abet suburban sprawl (138). Slums are subsidized by undertaxation, developments penalized by overtaxation (141). Speculators are subsidized by public improvements for private profit (142). Thus the only way to prevent land-price inflation is to tax land more heavily (143).

But there are many things you can do right now to make better use of the land. For example:

144 Look at how a 7,000-acre tract of range land — only 48 miles from downtown Los Angeles — is being transformed into a self-contained new town for 30,000 people.

151 Look how you can now build profitably on land others wouldn't buy.

160 Look how you can cut development costs if you know how to make the best use of today's earthmoving machinery.

164f And now look how far our land planning has come — look how today's housing industry is using master planners to create communities in the best tradition of Radburn, Chatham Village, and Baldwin Hills.

page 98

This is our land — millions of miles of it

"Within view of the Pacific Ocean there is enough room to house the entire population of the United States with a density of only 12 to the acre! The area actually occupied by all the cities and villages in the United States covers only 1/2 of 1% of the surface of the country." United Nations Urban Land Problems and Policies Bulletin No. 7

Cheap land is America's greatest resource." Benjamin Franklin

page 99

... but the homebuilders vote 4 to 1 that LAND is the most critical problem

The land price, land economics, and land tax sections of this issue were researched and written in collaboration with America's No. 1 housing economist, Miles L. Colean, and two of America's foremost land economists — Professor Ernest M. Fisher of Columbia University and Professor M. Mason Gaffney of the University of Missouri. Much of the field research was done by Grady Clay.

Says MARTIN BARTLING, president of NAHB: "The average cost of raw land has at least quadrupled, the cost of development tripled. Here is a problem that will require all our ingenuity."

Says HHFAdministrator NORMAN MASON: "The land problem is becoming critical. Premium prices for desirable homebuilding sites are driving up the cost of housing and forcing development into areas that often compound the problems of growth."

Says JULIAN ZIMMERMAN, FHA Commissioner: "FHA is deeply concerned over the way land prices are shooting up. The average land component in our valuations has climbed from $761 in 1946 to $2,362 in 1959."

Says PHIL WILL, president of AIA: "We are making frightening mistakes in land use and we are guilty of a criminal waste of the land that God gave us."

Says MAX WEHRLY, executive director of the Urban Land Institute: "Inappropriate, unimaginative, and outmoded site development requirements of public regulation bodies have produced disastrous consequences — excessive costs, inefficient land use, stereotyped plans, and the destruction of natural amenities."

Says W. O. DUVALL, president of the US Savings & Loan League: "Land has been the main villain in housing for a long time. Its high cost has become the No. 1 reason homes cost so much. Now we must work with the builders to educate landholders that the boom in land prices is over, and we must help the builders finance land acquisition and subdivision in a more orderly and therefore less expensive fashion."

Says B. B. BASS, president of the Mortgage Bankers' Assn: "Big speculators have been gobbling up land ahead, stifling competition, and putting the squeeze on builders."

Says NAT ROGG, NAHB economist: "Today's land situation is a killer for the builder. Land costs have climbed more than all other homebuilding costs combined."

Says United Nations Housing Adviser CHARLES ABRAMS: "The misuse of land is a worldwide problem and the failure to cope with it is a worldwide default. The US is lagging behind most countries in Europe in adopting a positive policy to correct it."

Said the economists and housing industry leaders at the HOUSE & HOME Round Table on inflation: "Steepest inflation of all has been the price inflation in land, but nobody is doing anything to stop it and we have no land policy designed to bring land onto the market when it is needed. The result has been a largely fictitious shortage of land for housing that has pushed prices far above today's values and is almost sure to end in a bust."


So this issue of HOUSE & HOME is researched, written and edited to help the housing industry solve its most critical problem:

How to get better land for less ..... page 100

How to use land better ..... page 144

page 100

Inflated land costs threaten to price good housing clear out of the market

In the suburbs sky-high land prices in good locations are driving homebuilding further and further out to find land cheap enough to build on profitably.

This further-out land costs twice as much to buy as land close in cost just a few years ago. It costs twice as much to connect to existing streets, sewers and utilities. It takes a much bigger slice of the homebuilding dollar -- 19% today for far-out land vs 12% for close-in land in 1950. The high cost of getting home to this further-out land is a big new factor in housing expense -- a bigger factor than mortgage interest for some new houses -- and this in turn is driving many families who would like new houses to move to apartments or stay where they are.

So sky-high land prices are the No. 1 reason houses are harder to sell this year, the No. 1 reason merchant builders are finding it harder to offer good enough values in good enough locations to tempt second-time buyers out of their present homes.

Homebuyers balk at paying $15,000 today for a house little better than the houses they could have bought five years ago for $12,000 -- with most of the price difference wasted to buy twice as many dollars for big discounts for less desirable (i.e., higher-interest) money, and twice as many dollars for less desirable (i.e., further-out) land.

In big cities high land prices are also the No. 1 reason private enterprise cannot build good new housing for middle-income families, so high land prices are the No. 1 excuse for subsidized public housing (in which the supposedly poorest families are housed largely at the tax payers' expense in apartments costing up to $17,500 per unit), and high land prices are the No. 1 justification for asking federal tax payers to subsidize slum clearance by buying out the slumlords at up to three times the re-use value of their land.

Any apartment builder who pays too much for his land has to pay too much for his building, too, for 1) he has to build high-rise to spread his land costs over enough units and, 2) building high-rise costs much more per square foot than building low-rise. Says Jim Scheuer, America's second biggest redeveloper: "Walk-ups are the only apartments anyone can hope to build cheaply enough to serve the middle-income market, and you can't build low-rent family-size walk-ups on land that costs much more than $35,000 an acre (which would work out to about $1,000 per unit at FHA maximum density for family-size, two-bedroom apartments in three-story buildings)."e

Since 1950, building material prices have climbed 24%; building trades wages have risen 60%; but ...

page 101

Since 1950 land prices for homebuilding have soared anywhere from 100% to 3,760%

In SAN FRANCISCO, Big Builder Henry Doelger paid $580,000 for a tract that was offered for $15,000 in 1948; Peterson & Moretti are paying up to $10,000 a quarter-acre lot for developed land on the old Mills estate that sold for $2,000 an acre in 1952!

On LONG ISLAND, NAHB Vice President Leonard Frank says builders are paying $16,000 and more for raw acreage they could have bought for $3,500 in 1950!

In MIAMI, Builder Gene Fisher is paying $7,500 an acre for land he could have bought for $500 ten years ago!

In SOUTH JERSEY, NAHB Past President Carl Mitnick say the farmer who bought 60 acres and a house right next to Colwyck for $20,000 in 1948 has just turned down $360,000 for the land without the house. Mitnick himself has just sold another builder for $40,000 ten lots in Colwyck that cost hom $3,000 fully developed in 1949, and at Cape May he is getting $1,600 to $2,200 for lots he bought at a tax sale fully developed for $25!

In the TWIN CITIES, MBA Past President Walter Nelson closed out a land syndicate at 200% profit on the prices it paid in 1954 -- "and we could have bought the land a whole lot cheaper in 1950"!

In TAMPA, Developer Ed Wright says: "Ten million dollars would not be shocking price today" for 2,100 acres he bought in 1945 for $20,000!

In the sagebrush east of EL PASO, lots are selling for $795 that Arthur Rubloff bought in 1956 for $9 an acre!

In HAWAII, apartment site 50'x100' near Waikiki Beach sell for $200,000, and land 15 miles from Honolulu that sold for $1,200 an acre before statehood is now selling for $20,000. The Bishop Estate value has soared from $6 million to $120,000,000!

In CHICAGO's suburbs, the Herzogs paid $3,500 an acre for farm land outside Des Plaines where Olcott's Blue Book of Land Values shows acreage inside the town was selling for $350 in 1946.

Outside SEATTLE, Bellevue acreage that could be bought in 1950 for $250 is selling for $3,000 now.

South of SACRAMENTO, land pegged at $200 to $300 an acre ten years ago is going to $7,500 an acre for subdivisions.

Near ALBUQUERQUE, the University of New Mexico rejected Dale Bellamah's bid of $6,600 an acre for a 360-acre tract it bought in the '20s for $3 an acre. And 18 miles north of Albuquerque, Builder Ed Snow paid almost $1,000 an acre for land that sold ten years ago for $100 an acre.

Outside PHOENIX, Builder Forrest Cox turned down $4,500 an acre for land that sold in 1947 for $100 an acre.

Forty miles from downtown LOS ANGELES the federal government got $19,000 an acre at auction for the Santa Ana Air Force Base it bought in 1942 for $350 to $500 an acre.

page 102: Here, on one picture, is the whole inflation story -- $2,000 an acre in 1952, $16,000 an acre today

This is a slice of Orange County around Garden Grove outside Los Angeles. Ten years ago it was all orange trees. Today it is mostly houses huddled on 60'x120' lots.

The first orange trees were cut down in 1952, when Homebuilder Henry Cox bought a parcel shown at the right center for $2,000 an acre. Two years later the price had doubled. By 1958 it had quadrupled to $8,000 an acre. Now what little land is left is being held for prices ranging from $11,500 to $16,000 an acre for housing, and up to $23,000 an acre where the owner hopes to get commercial zoning.

On each parcel in the picture you can see the year and price of its sales -- or today's price if the land is not yet sold.

page 104

Land prices like these are your danger signal; take a look at this graph before you buy today

Graph: The Urban Real Estate Cycle in the United States, 1815-1960, courtesy: Urban Land Institute
peaks: 1815, 1836, 1854, 1872, 1890, 1907, 1925, 1960
troughs: 1819, 1845, 1858, 1875, 1894, 1908, 1933

Ten years ago land was a bargain and builders were smart to buy land ahead. Hundreds of builders got rich, not because they built for less but because they bought land for less and cashed in on their land speculation.

Good timing is the key to speculative profits. There is a time to buy and a time not to buy. It's smart to buy ahead at the bottom of the market, before prices start up. But it is not smart to buy ahead at the top of the market, just before prices start tumbling down again. Suburban land is over-priced today. Just because land was a bargain in 1948 for $500 an acre does not make it a bargain today at $5,000.

Don't count on the "population explosion" to guarantee perpetual motion upwards in the price of land. From 1940-50 US population increased by 14%; from 1950-1960 by some 20%. But don't forget that:

  • From 1810-1820 population increased 33%. This did not sustain the land boom that busted in 1819;
  • From 1830-1840 population increased 33%. This did not sustain the land boom that busted in 1837;
  • From 1850-1860 population increased 36%. This did not sustain the land boom that busted in 1857;
  • From 1870-1880 population increased 30%. This did not sustain the land boom that busted in 1873;
  • From 1890-1900 population increased 21%. This did not sustain the land boom that busted in 1893;
  • From 1920-1930 population increased 16%. This did not sustain the farm land boom that busted in 1920, nor the suburban land boom that busted before 1929.

Population increased, yes. But land development increased faster, anticipating more demand than ever materialized, bringing more land into the market than the market was ready to take at the prices asked.

The 100-year graph shows that land prices don't always go up; land prices also fall down. "Land prices go up and go down in bigger and wilder swings than any other prices in our economy," says Nat Rogg, economist for NAHB. Surburban prices have been going up for 27 years now -- longer and higher than they have ever gone up in all our history. They are now overdue for a fall. Famed Realty Economist Roy Wenzlick has been warning his high-paying clients for years that the boom could not last much longer. Just because he cried "Wolf! Wolf!" too soon does not mean the wolf will never come.

And the longer the price break is delayed, the more serious it will be.

Good land may indeed be worth twice what it averaged in 1952; i.e., the true value of suburban land may have risen ten times as fast as th e 10% rise in the consumer price index. Good land may even be worth three times what it averaged in 1952; i.e., its true value may have risen nearly twice as much as stocks in Wall Street rose from their 1952 peak of $107.25 to their present level around $205.

But take a good long look ahead before you let today's artificial and temporary land scarcity (see below) scare you into paying land prices you may soon have reason to regret.

Already farm prices outside the suburbs have leveled off and started to fall (see clipping, right). And don't forget that land prices in most central cities are lower today than they were in 1929!

Says Housing Economist Miles Colean: "Present land prices cannot be sustained unless we get a big new shot of inflation, because 1) cheap money did more than anything else to start land prices soaring and 2) today's 6% interest rate makes it much harder for homebuyers to absorb inflated costs (like today's land prices).

If you want to get bettter land for less, wait for the market to turn. Suburban land will sell for much less before it sells for much more.

Today's sky-high suburban land prices are predicated on an artificial and temporary scarcity -- a scarcity created in the midst of plenty by holding off the market vastly overestimated miles and miles of land in anticipation that vastly overestimated future demands will drive prices still higher.

Today's fancy land prices can be kept high only as long as the illusion of scarcity can be preserved, as long as each buyer thinks the land he pays too much for today would cost more -- and sell for more -- tomorrow. But what will happen when the inevitable day comes when land prices can go no higher and speculatorss try to cash in on their paper profits? What will happen and who will get hurt when this land-price boom collapses -- as every other land-price boom has collapsed?

Says Professor Fisher in his classic study of premature subdivision: "It takes nearly 30 years to produce a new generation that has to learn by pain and disappointment that while many fortunes have been made in real estate, many paupers likewise have arrived at their destination by the same route. That is one reason the price cycles in real estate are so long."

Says Roy Wenzlick unequivocally: "Land is not in short supply."

page 106

Most of the land shortage talk you hear is nonsense: here are 7 big reasons why

The easiest-to-build-on big raw acreage of flat land just the right distance out in the right direction may be gone, but:

1. There are millions of acres of by-passed land closer to town than most of today's new tracts -- more millions of acres of by-passed land than the housing industry will need for many, many years. Around booming San Jose, for example, where builders have scattered their tracts one-or-more-to-the-mile over 200 square miles of the finest fruit land in California, they have actually used only 12 square miles, leaving 188 still to go. (Turn to the front cover of this issue if you want to see for yourself some of the land that is beging by-passed there.)

2. New earthmoving equipment makes it practical to use millions of acres of hillside land that could not be developed economically in the last big boom. These new machines are so efficient that grading, filling, and compacting are the only homebuilding costs that are lower today than in 1929. Says super-Realtor Bill Zeckendorf: "The bulldozer is the best invention we got out of the war." Hillside sites offer pleasanter living than they flat fields where most recent homes have been built. For more about using hillside land, see page 151. For more about the new earthmoving machines see page 160.

3. Millions of premium homesites can be reclaimed from under water with today's new and more durable dredges -- more land than even the Dutch have empoldered with all their dikes. Hundreds of dredges are at work making new land right now; they are filling in the shallows of San Francisco Bay, where the water resources board says 158,000 acres of tidelands can be reclaimed; they are draining the mango swamps along the Indian River, where Miami Beach (see photo, left) itself was an uninhabitable snake-island not long ago; they are filling in the Louisiana bayous, where Murchison and Wynne have bough 32,000 swamp acres to add 175,000 new homesites to New Orleans; they are working in the Jersey meadows, in Jamaica Bay out beyond Brooklyn, along the shores of Oahu, in Tampa Bay, along Lake Erie and a hundred other lakes.

4. There are millions of vacant lots in existing neighborhoods and developments (nearly 13 million vacant lots of record in 1955, according to the US Census of Governments). That is almost as many vacant lots as all the houses built from 1950 to 1960. When the last land boom collapsed Professor Fisher found that "in most urban communities the number of lots is nearly twice as great as the number in use."

5. Cities can and do grow upward whenever their growth outward is checked by high land prices. Scarcity breeds substitution, and the easiest substitute for cheap land on the outskirts is to add more floors over close-in land. One big apartment building (like the 1,570 units planned for the Dodgers' abandoned ballpark in Brooklyn) can house as many families as two square miles of suburban sprawl. Right now, half the new homes being built around New York and Los Angeles (see photo, right) are apartments; and more and more single-family houses are being built split-level or two-story in order to get more living space on less land.

6. Cities can also grow back inwards. Decentralization has deflated downtown land prices and made the most expensive land a bargain compared with outlying sites whose asking prices have multiplied. Downtown is starting to rebuild -- and when downtown rebuilds it still has the primary advantage of location that made it downtown in the first place. Most of downtown is underused today. For example, Victor Gruen reports that in Fort Worth (see photo left) "the underused or derelict land reservoir was big enough to provide space for a belt highway, parking garages for 60,000 cars, green belts, a 300% increase in office space, 80% more hotel space, and new civic, cultural, and convention centers ... Fort Worth is not a special case."

7. New highways from downtown are making millions of acres easier and quicker to reach than land much closer in was right after the war. With today's bridges and expressways it takes only a little longer to drive from San Francisco across the Golden Gate to the wide-open spaces beyond San Anselmo than it took to drive through rush-hour traffic to the Cow Palace near the city line in 1946. It takes only a little longer to drive out the expressway from Manhattan 30 miles to Oyster Bay than it took to drive through traffic 13 miles to Queens Village inside the city limits in 1930. When new roads increase the easy-to-reach radius of a city from eight miles to nine miles, that one-mile extension adds more easy-to-reach square miles than all the land within four miles of downtown! It adds 17 time as many square miles as all the land within one mile of the center.

More specifically, that one-mile extension adds enough easy-to-reach land to house nearly 200,000 more people at a density of two families per acre, or 400,000 more people at the usual tract density of four families per acre, or 2,000,000 more people at row-house density!

1 mile radius:     3.1416 square miles
4 mile radius:   50.26 square miles
8 mile radius: 201 square miles
9 mile radius: 254.4 square miles

There is more than enough land in and around all our cities to meet all our homebuilding needs for years to come -- more than enough land to let and urban population of more than 200 million get more use and enjoyment of the land than most urbanites and suburbanites get today.

If you don't believe  there is still plenty of land left, just go up in an airplane and see for yourself -- or take a good look at the next six pages of aerial pictures.

Page 108:

There is plenty of land left around Chicago. This sis some of the open country commuters see between Chicago and its biggest new suburb, Park Forest. Says Morton Bodish, of Chicago's First Federal S&L: "An almost unlimited supply of easily accessible land is one of Chicagoland's greatest assets. The 6 1/2 million people who live here today use only one-sixth of the land within the present metropolitan area boundaries. The rest is open or partially used farm land readily available for tomorrow's development."

There is plenty of land left around Washington. This picture looks over the Capitol and the Monument towards Montgomery County. If the camera pointed south towards Virginia it would have shown even more open land.

There is plenty of land left in Texas. This picture is looking towards Houston from the 1960 Parade of Homes.

There is plenty of land left around New York This picture shows where the builders' tracts have stopped on Long Island. In 1955 the Regional Planning Assn reported only 21% of the "suitable land" in the metropolitan area (or 16% of the gross) was developed for urban use. (They counted estates of two acres or more as undeveloped.) It listed as "undeveloped" 54% of Bergen County, N.J., 63% of Westchester County, N.Y., 81% of Fairfield County, Conn.

There is plenty of land left in Florida. This is Mackle's big Westwood Lake project just southwest of Miami.

There is plenty of land left between tracts around St Louis

There is plenty of land left around Baltimore Says the Planning Commission: Southwest you can drive out to open country from downtown in 15 minutes. Northwest, where this picture was taken, it takes 30 minutes at rush hour.

There is plenty of land left around Sacramento (though not as much as when this picture was taken in 1955).

There is plenty of land left around Boston All the white area in this map is described as "suitable vacant land" by the Urban Land Institute. The black area is described as "land in use," the gray as "unsuitable vacant land." It is located in Wellesley, Natick, Weston, Needham, Sudbury, and other nearby suburbs 10 to 20 miles west of Boston Common.

There is plenty of land left around Los Angeles In 1955 the California Water Resources Board said that only 35% of the "suitable land" in the Los Angeles hydrographic unit (i.e., the city of Los Angeles, Orange County, and the enclaves like Beverly Hills) had been developed. This same report said that only 15% of the suitable urban land in the ten-county San Francisco Bay area had been developed for urban use, and in 1953 the Bay Area Rapid Transit Council found that there was suitable acreage there for 31 million people, allowing ample areas for recreation and industry.

From coast to coast the picture around every city is almost the same. There is plenty of vacant land for many times as many people, if only the land could be bought. Now let's take a big look from the air at a fairly typical city -- fast growing Louisville, population 741,000.

page 112

There's plenty of land left around Louisville This picture shows that nearly three quarters of the fringe acreage is being bypassed and/or left underused, even in the direction of the city's fastest growth. Right in the center, within 3 1/2 miles of downtown Louisville, is a 1,270 acre pocket with a population density of less than one person per acre.

Local planners say the 186 sq mi "urban area limits" (119,040 acres) on the Kentucky side of the Ohio could house 1,350,000 people without any crowding -- roughly twice the current population. And right across the river in Indiana (upper right) there are miles and miles of open country with a population density of less than 50 per square mile.

page 114

There is nothing wrong with the air views which you saw on the last six pages -- but there is plenty wrong with what they show

What they show is that none of our cities is expanding in an orderly, economical way. On the contrary, they are disintegrating and spreading the pieces over miles and miles of countryside.

What they show is not a shortage of suburban land, for there is no shortage. What they show is not shortage -- but waste -- the tragic land waste, dollar waste, and time waste of the checkerboard pattern of


Suburban Sprawl is what happens when land developers cannot assemble at a profitable price the tracts they would like to buy first, so they have to leapfrog out to find land cheap enough to build on here, there, and everywhere -- often five or ten miles further out.

Suburban Sprawl is what happens when owners whose land is wanted next for suburban expansion -- the nearest land, the land that would cost least to connect up to existing streets and sewers and utilities -- hold out for tomorrow's price today and fail to find a buyer willing to pay it now.

Suburban Sprawl is what happens when estate owners hold out for capital gains of 1000% to 10,000% above what their acres cost to buy in horse-and-carriage days. (The Whitney estate pre-empted for a single family one-eighth as much land as all of Levittown five miles further out -- population 65,000.) Millionaires pay almost no taxes to hold onto their estates; they can deduct up to 91.72% of the local levies from their state and federal taxes.

Suburban Sprawl negates and frustrates the purpose of cities, which is to let more people live and work close together and so utilize and enjoy the maximum efficiency of community facilities and community enterprises, with easy access and cheap distribution. Cities exist to bring people together. Suburban sprawl, with its vacant and undeveloped land, keeps them apart. Even if suburban land had no alternative use for farming and market gardening, it would pay many a city to draw itself together.

Suburban Sprawl is the direct opposite of planning satellite centers or self-contained new towns, each surrounded by its own green belt. Suburban sprawl is just the city spreading out over miles and miles that are neither fish, flesh, nor fowl -- neither city nor county.

Suburban Sprawl penalizes farmers who want to farm instead of speculate. It excites speculative hopes that inflate land prices far about the level farming can support.* It discourages farm improvement, for who knows how soon the orchards may be pulled, the barns leveled, the machinery auctioned? (Right now, thousands of acres of California's finest prune and apricot land in the Santa Clara Valley are being blighted because so many farmers, expecting soon to sell, have stopped replacing their aging trees.)

*The best farm land in Iowa brings only $600 an acre; the national average last March was only $111.46 including buildings; the California average was only $326.70.

Suburban Sprawl is what makes homebuyers drive past miles of unused or underused countryside to get home to their tiny 60' x 120' lots. (Open fields, cow pastures, private golf links, and millionaire estates are fine, but it is much better to drive out five miles beyond your home to enjoy seeing them when you want to see them than to have to drive five miles past their "No Trespassing" signs when all you want is to get home.**

** HOUSE & HOME thinks "development easements" are the worst idea yet. They just aggravate and perpetuate the sprawl by using tax money to keep golf links, orchards, and cow pastures where houses should be built and push homebuilding out beyond to where the golf links, etc., should be. Green belts should be planned for maximum, not minimum, public use and enjoyment of the land. The 1,200-acre Field estate will make a fine state park, but as fenced-in private property it was little or no good to anyone except the owners.

Suburban Sprawl is why Los Angeles homebuyers must drive 25 miles to Azuza while land much closer to downtown is being held off the market and farmed by land speculators, who think they can sell it for ten times the 1950 price in 1970 instead of taking five times the 1950 price today.

Suburban Sprawl defies good local planning and mocks good local land planners.*** The need of bigger and better planning is obvious everywhere. But what chance do far-sighted planners have against the profit motive working full blast in reverse and offering quick profits on bad land use? Without vastly increased authority how can planners force speculators to release their land as it is needed if the speculators think they could double their profits by sitting tight? How can they check premature subdivision when speculators are gambling for big money? How can they keep farmers ten miles out from selling off their frontage to exurbanites and so messing up the neighborhood potential for orderly development later on? How can they keep developers from bulldozing the trees? How can they persuade each separate community to stop zoning out any land use that will not add more to the tax revenue than it adds to the budget?

*** Before one of the big Westchester tracts was built up, the Los Angeles planning board could not even persuade the Los Angeles school board to buy school sites at the developer's raw-land cost around $1,000 an acre or the park commission to accept land for playurgrounds free, so scores of new houses had to be bought and moved later to clear the sites at $40,000 an acre! And few local planners anywhere, alas!, have been strong enough to get the state and federal governments to coordinate the new highways and their interchanges with the local areas' needs!

Suburban Sprawl cries out for area zoning to assure a coordinated land-use pattern conceived in the public interest and to stop the premature urbanization of distant farm land. But area zoning would be just plain disastrous unless it is counterbalanced by a big enough tax increae on the land zoned for housing development to discourage hold-outs. To see how badly area zoning would work without this counterbalancing tax pressure, take a look at what happened in Louisville when the local water company applied its own area zoning to water service and the county health board forbad septic tanks in another big area where sewers were not available. This gave the owners of land already served with water and sewers a field day. Theirs was the only land builders could buy, so its price soared overnight. (In Australia, unimproved land is taxed up 12.4% a year on a valuation based on its "highest and best" use -- see page 000).

Suburban Sprawl is worse than ever today, thanks to the automobile. In our grandfathers' time the suburbs could sprawl no further than a man could walk to the train or the trolley and his wife could walk to the store, so yesterday's suburbs were tight little towns where only the carriage trade could live on the outskirts. Today, every suburbanite has one car; many have two; five miles mean not much more than five blocks; and the suburbs can sprawl from here to breakfast (provided, of course, nobody minds wasting gas, tires, and depreciation at 8¢ a mile).

Suburban Sprawl is why almost every city is surrounded by a blight belt of by-passed land whose owners held out for too high a price and did not sell. Suburban sprawl is one big reason why downtown is stagnating and downtown stores are losing trade. Suburban sprawl is why almost every city spreads out over three to five times as much land as it uses. Suburban sprawl is why so many houses have to waste big money on septic tanks and disposal fields that will be junked when the sewer lines reach them. Suburban sprawl is one of the two big reasons why land development costs twice as much as it should -- double the cost of more compact expansion with shorter street extensions, shorter sewer extensions, and shorter utility extensions. Suburban sprawl is one big reason why money is tight; i.e., the money we need to build houses is being misspent to extend urban services far out into rural areas years before they should be needed.

Suburban sprawl, in brief: 1) costs billions of dollars a year, 2) blights millions of acres of countryside, and 3) makes homeowners waste millions of hours and millions of gallons of gas to get home to homes whose land cost they can afford.

Page 117

There are five main reasons (all short-term) for today's seeming shortage-in-the-midst-of-plenty

Reason No. 1: Speculation

Countless acres are being held in "cold storage" by land speculators hoping for still higher prices tomorrow than their land would fetch today. (Some of these speculators are syndicates formed for the express purpose of land speculation; others are estate owners sitting tight for still bigger capital gains on their property, or farmers more interested in land prices than crop yields.) This speculation is the No. 1 reason for expecting that great quantities of land will come on the market when the speculators decide prices can go no higher, so it is the No. 1 reason you can be sure supply will eventually overtake demand and bring prices down. (Outside Montreal, for example, the Star found that speculators were holding 610,000 acres -- eight times as much land as the city's booming growth can use before 1970.)

Reason No. 2: Time

Countless acres now being developed will not be ready for homebuilding for another year or more. For example, the first 209 lots in the great Marin Bay project north of San Francisco did not go on sale until this month -- four years after the land was bought by the developers.

Land development takes so long that the supply of land ready for homebuilding responds slowly to the stimulus of high prices, but it responds massively.* In Florida, for example, FORTUNE found that more land is being developed right now than today's fastest-in-the-nation rate of population growth can absorb before 1980. When all this land hits the market, something is bound to happen to the sky-high land prices that invited overdevelopment.

*"The dynamic process of overexpansion seems to work something like this," Professor Gaffney wrote in Land.

"High prices over the long period required for the response ultimately stimulate more new supply than the demand can absorb.

"Supply expands slowly because the process of converting land to urban use involves many steps by several slowly moving, poorly coordinated, frequently reluctant, and sometimes downright obstructive public and private agents and because it usually takes land holdouts a long time to release and then develop most of the sites for actual service.

"Say a new state-financed freeway begins the process of bringing farmland into an urban market. Besides transportation, the land needs water, sewers, telephones, gas, electricity, schools, fire and police protection, etc.

"Many time-consuming steps must be taken to extend these several services from trunklines out through forks and branches to the ultimate distributive tracery that finally brings service to each parcel of land. Governments and utilities must decide to extend their lines and networks to individual parcels. Landholders must decide it is time to receive them -- that usually means subdividing, dedicating lands for streets and easements for utilities, often paying for part of the utility extensions and street improvements, and perhaps being annexed and saddled with municipal taxes. The landholder today must decie also that his income-tax position is favorable for a sale.

"It would be nice for each party involved if all the others would commit themselves to development before he did -- or at least when he does. Then he needs only pluck the ripe fruit from the tree, instead of undergoing years of risk, interest, depreciation, and obsolescence while he waits for complementary investments to help his own pay out. The situation lends itself to a long impasse of after-you-my-dear-Alphonse. At every stage, there is inertia, nostalgia, fear, bargaining and jockeying."

Reason No. 3: Overzoning

Countless acres are being withheld from economic use today by communities deliberately using wasteful zoning requirements, wasteful street improvement requirements (page 171), and wasteful building code requirements to keep out tract builders and small homebuyers whose children would cost the town more to educate than their parents would pay in taxes.

These towns hope these 'snob' requirements will one day attract upper-class residents who will pay high taxes, support local merchants handsomely, and send their few children away to school. This is a sort of municipal land speculation on a grand scale. How much longer it can continue is an open question, for two reasons:

  1. The courts may not always agree that the health and safety of the people necessitate two-acre lots, 16" truss spacing, worse-than-useless house traps, rigid-conduit wiring, and local streets wider than the transcontinental Lincoln Highway 25 years ago, and
  2. The towns themselves may vote out the restrictions when enough local landholders are tempted by the higher land prices they could otherwise get. One New Canaanite has already carried his protest to the Supreme Court, arguing he could get $250,000 more for his acreage if his four-acre zoning were voided.

Reason No. 4: Fragmentation

Countless underused acres are bypassed because they are broken up into holdings too small for economical development (unless, of course, all the small owners agree to sell at once). Says Dave Bohannon's righthandman Ron Campbell, "Trying to get a big enough piece to develop is a nightmare." Often the land needed to integrate a tract is tied up in an estate and the heirs are scattered or divided. So Nate Manilow and Phil Klutznick had to go out 30 miles from the Chicago Loop to start Park Forest; Bill Levitt had to go 16 miles from Philadelphia and 15 miles from Trenton to start Levittown, N.J.; Frank Sharpe had to go ten miles from Houston to start Sharpestown.

Reason No. 5: Misinformation

Billions of dollars worth of land is bought and sold without either party having anywhere near enough market facts to support his price judgment. Both buyer and seller must grope to decisions by hunch and by guess, for America's biggest industry must get along with more inept and inadequate statistics than any other industry. The federal government spends more money for market research on peanuts than for market research on land and housing. Few communities compile even such simple statistics as the number of lots subdivided each year. Nobody keeps a running inventory of unsold lots; nobody publishes the price at which sales are actually made. So scarcity is exaggerated and prices are inflated by professional optimists spreading inside dope that cannot be checked.

Page 118: Two maps and an aerial photo of Indianapolis

Caption: Here is what the by-passed downtown area looks like from the air and on the planning commission vacant-lot map. The area was by-passed, partly because it was platted for 40' lots in the 20s, but not much homebuilding was done here until after World War 2, by which time homebuyers wanted wider lots, partly because several big land owners held out for higher prices than builders could afford, partly because the development converged on the district from both north and south, but neve quite reached the area from either direction. Not all vacant lots are shaded on the map -- only those available in acre chunks.


Page 119:

In Indianapolis, thanks to these maps, land ripe for housing is easy to spot

The Indianapolis Metropolitan Planning Commission and its smart young Executive Director Calvin Hamilton are pioneering a brand new idea to keep the suburbs from sprawling.

In a special study for HOUSE & HOME, they have mapped all the open land inside the city and all the open land right around the city that is now ripe and ready for housing development.

"This is the best thing I've seen yet," said Realtor Robert E. Walker, past president of the Indianapolis Realtors: "None of us had any idea so much vacant land is available close-in until this map let us see it all at a glance."

Inside the city (black on the big map) the planners found 4,381 acres (nearly seven square miles) of unused level land zoned for homes, about two-thirds of it in 13,503 fully improved vacant lots. About 1,200 of these vacant lots are concentrated in a by-passed neighborhood (see smaller map) where raw land is still available in plots are big as 23 acres and where a 32-block area (mostly vacant lots) is now being cleared and replatted in wider lots for redevelopment with single-family houses and a few apartments.

Right around the edge of the city the big map revealed 79,000 acres available for housing development inside the urban development boundary line that the Planning Commission is promoting. (The degree of availability varies, of course. Some owners don't want to sell; others who want to sell are asking exhorbitant prices.) These 79,000 acres, shown in light grey on the big map, add up to more land than Indianapolis can absorb in 35 years at the present rate of growth.

Hamilton hopes these maps will bring more of this close-in land on at prices builders and developers can afford to pay.

"The maps will show everybody that there is plenty of land, so there is no reason why developers should pay crazy prices," he says. But Hamilton knows that tax pressure would make it harder for speculators to hold land underused, so he sent a copy of the map to the county assessors with a covering letter suggesting that "land taxation policies might be reconsidered to encourage the developmentof this vacant land readily accessible to our community facilities."

In another letter sent with the smaller map to individuals interested in urban development, he said,

"These leftover areas should be fully developed in order to maximize our capital investment in community services to the maximum extent. Urban growth should be discouraged from going to the hinterland until present community facilities are fully utilized . . . . It is earnestly hoped that this [map] will encourage the early development of these vacant area."

The map has already stimulated the Indianapolis Board of Sanitary Commissioners to step up their program for extending sewers throughout the proposed development areas. In recent years Marion County has been building the equivalent of a new town of 2,500 population every two years on septic tanks, and many homebuyers who had spent $600 to $600 for septic tanks have balked at paying an additional $1000 to $1,200 assessment later to connect their houses to intercepting sewers.

The map also shows how much land has been zoned for industry (dark grey) all around the city, partly to give each suburban township an adequate industrial tax base, partly to provide local jobs in each area and so minimize travel time to work.

Outside the development line, Hamilton would favor ten-acre zoning and low taxes to reserve the land for farming.

Our great-grandfathers showed better sense than we do when they planned their village streets. In all the show towns of our past -- in Williamsburg, in Charleston, in Nantucket, in Salem (see photo above) -- even the stateliest homes stand only a few feet back from the tree-lined sidewalks. This left most of the lot for pleasant walks and gardens in the rear.

Wisely used, an 8,000 sq ft lot with privacy planting and fencing is quite big enough to let middle-income families get almost as much enjoyment of outdoors as the rich can get from acres of land, for nobody can actually use more than a few square feet. And a 10,000 sq ft lot is more land than most men what to keep up when they have to cut their own grass and tend their own flowers.

Page 121

Land in good locations is too precious to waste on useless, archaic setbacks

The worst way to waste a small lot is to center the house on the site and cut the already small ground area into four smaller pieces, each too small to be much good to anybody. But that kind of land waste is just what the archaic setback rules require in most suburban towns.

This kind of site planning may be fine for big estates where you drive half a mile from the gatekeeper's lodge to the mansion. It may have been all right for suburban living 50 years ago, when the family used the front porch and the front yard, leaving the back yard for clothelines, garbage pails and stables. But it makes no sense at all for the way suburbanites want to live in this age of patios, rear living, garbage disposers, clothes dryers, and two-car garages. Says Max Wehrly of the Urban Land Institute, "The front yard is an anachronism." Nobody uses the front yard, and it is high time every community changed its setback rules to recognize that obvious fact.

But today many a tracy house on a tiny lot must be set 44' back from the sidewalk because:

  1. Not content with requiring local streets wide enough for moving traffic between cars parked on both sides, most towns require off-street parking in front of the garage, so the garage must be set 22' back from the walk.
  2. On a 60' or 70' lot with a 5' sideline setback there is no room for a two-car garage alonside the house, so the house must be set back another 22' (unless it is a split level) to put the garage in front.

If the house itself is 32' deep (today's most economical and desirable depth), the rear windows will be 76' from the street, leaving only 44' of usable depth for gardening and rear living on a 120' depth! This is not much more usable outdoor space than the Swedes get for row houses on 40'x60' lots with the fronts flush with the sidewalks. It is only a fraction of the usable space the Danes get for detached houses on 60'x100' lots with the building set close to the street right up to the lot line on one side.

There is no good reason why one-fifth of a 60'x120' lot should be wasted to provide guest-parking in front of the garage.

There is no good reason why the garage should not be permitted right close to the sidewalks. Los Angeles allows this on hillside lots, and the effect is much pleasanter, for the garages give some degree of privacy to the frontyards at the same time they make the frontyards smaller.

There is no good reason why each house should not be built flush with its lot line on one side and its garage flush with the lot line on the other side. The garage makes a better buffer between houses than the 10' of wasted land most suburbs now require. That i what was done at Radburn 35 years ago, and Radburn is still recognized all over the world as one of the half-dozen finest examples of good land use.

page 122

Sky-high land prices were no problem in America until quite recent times

The Dutch bought Manhattan Island from the Indians for $24-worth of baubles. Most colonies just took their lands free for nothing. We bought Louisiana, Arkansas, Missouri, Iowa, Minnesota, Oklahoma, Kansas, Nebraska, the Dakotas, Montana, and most of Colorado and Wyoming from Napoleon in 1803 for $15 million. We bought all Florida from Spain for less than you would have to pay for Key Biscayne today. We gave Mexico $15 million for California and most of seven other states. Seward paid Russia $7 million for Alaska, and many Senators thought he paid too much.

What the government got for so little it gave away almost free (unless some earlier government had already given it away in princely grants often exceeding 100,000 acres). We gave the railroads millions of acres free to make it worth capital's while to open up the West. We homesteaded 160 acres of good land free to anyone who would take it up and live on it.

Within the memory of men now living, land outside our cities had almost no price beyond the cost of clearing it; and even on Manhattan Island corner lots sold in our grandfather's time for less than the price of a front foot today.

So it is small wonder that America has given so little thought to developing a constructive land policy to moderate price inflation.

Page 123

Unless land inflation is corrected suenoon, the consequences could be very serious

Many of America's biggest panics and depressions were touched off by over-speculation in land and a bust in land prices that carried hundreds of banks and other lending institutions down with it.

The panic of 1836 came with the collapse of the land boom along the new canals. The panic of 1857 came with the collapse of the land boom along the new railroads; so did the panic of 1873. And the 80% drop in land prices that started late in the Twenties played a bigger part in the bank failures of 1932 and 1933 than did the 89% fall in the price of stocks from the 1929 peak.

A land bust in the Sixties could be even more serious if nothing is done quickly to check the inflation, because this land boom is blowing up to such monstrous size. Paper prices for land now total close to half a trillion dollars -- nearly twice the national debt, more than six times the federal tax revenue, nearly twice today's price of all listed stocks, more than twice the resources of all our commercial banks.

If this bubble can be deflated quickly and now, little harm will be done. The speculators will lose their unearned paper profits, but that is about all.


If we postpone the correction until much more of the land has been sold and covered with buildings mortgaged at prices that cannot be sustained, the credit structure of the country will be deeply involved, as it was before 1932.

So it is high time everyone recognized the need of thinking out coherent land policies that will put a firm land price foundation under our prosperity. No economy can be sound and stable as long as its biggest asset is careening up and down on a $500-billion roller coaster.

For 350 years our only land policy has been to give the public domain away free or almost free to anyone who would take it and then let him make as much money out of it as he could. This may have been all very well for a frontier nation with nearly two billion acres of wilderness to tame. But a highly industrialized and urbanized nation like America today needs a more positive policy to bring some order into the confusion our past lack of land policy is creating.

Today the misuse and overpricing of land add up to a national problem and a national danger of the utmost seriousness, but nobody is talking about it, nobody is thinking about it, nobody is worrying about it, and nobody is looking for even a short-term answer, let alone a long-term solution.

In fact, to quote the report of the HOUSE & HOME Round Table on money and inflation (H&H, Jan), nobody even seems to know the problem exists except the homebuilders it is helping to price out of the market.

Letting this land-price inflation price America's biggest industry out of the market is bad enough by itself, for a cutback in homebuilding throws more men out of work than a like cutback in autos, or steel or oil. But . . .

Page 124

How can we form any sound national policies without giving thought to a policy for land?

How can we have a sound, sense-making anti-inflation policy without paying careful heed to the most runaway inflation of all?

How can we have sense-making tax policies -- local, state and national -- without collecting enough taxes on our principal form of wealth -- the only form of wealth whose use would be stimulated by higher taxes instead of curtailed? There would be little need or pressure for federal grants-in-aid for education, medical care, slum clearance, public housing, etc, if local governments were making better use of their exclusive power to tax land.

How can we have a sense-making farm policy without first giving careful thought to the top-heavy capital cost of farm land and adopting a sound land policy for farms? At today's land prices it takes a $20,000 investment to create one job on a good farm. If the farm problem is how to reduce farm acreage and how to get marginal farmers moved off their poor farms into industry, perhaps the best farm program would be to offer these marginal farmers up to $60 per acre to buy back and retire permanently up to 60,000,000 acres of not-too-productive land that was actually farmed this year.

How can we have a sense-making urban renewal program without first thinking through the problem of slum price inflation and adopting a sound land policy to rationalize urban land prices? Today most cities are subsidizing slums by undertaxation and discouraging improvements by overtaxation; and the federal government is making things worse by 1) letting slumlords take big depreciation write-offs on buildings that cannot possibly depreciate any further and 2) putting up land-purchase subsidies for redevelopment that push slum land prices still higher. The hundreds of millions these write-downs cost were supposed to be subsidies to give slum dwellers better homes, but they have been used as subsidies to make slum owners richer (see page 140).

How can we hope to have a scandal-free highway program without giving thought to what land for the highway should cost and what the highway program would do to land prices along the routes? Some highways are enriching owners along the way with a windfall bigger than the whole cost of the road. The canny Dutch froze the price of land along the route first. We, on the contrary, are buying the right of way for many times what the land could have sold for without the highway program to inflate its price.

How, for that matter, can we have a successful foreign policy until we recognize that on every continent except Australia the land problem is a critical issue ready-made for Communist exploitation -- including, specifically, in Cuba, in Egypt, in Iran, in Iraq, in India, in black Africa, in much of South America?

Contrariwise, how can we have a realistic policy for the satellite states until we recognize that Communism is being entrenched in the rural districts of East Germany, Hungary, Poland, and Rumania by the confiscation of the great estates and the redistribution of the land among the peasants. It would be still more strongly entrenched if the Reds were not foolishly trying to force the new peasant owners to pool their new land holdings in big cooperatives.

Page 125

The misuse and underuse of land and the evils of uncontrolled land speculation are urgent problems all over the world.

In this country the most direct and immediate dollar loser from these abuses is the housing industry, so the housing industry has the biggest stake in their correction, the biggest reason to study the problem in depth, the most to gain by promoting the adoption of sound planning and taxation policies to encourage better land use.

So the next 18 pages will give you a quick rundown on the land problem at home and abroad, reviewing the development of land policy over the years and reporting some of the solutions that are being suggested and tried today.

For so great a problem there is no one, there is no quick, there is no easy solution.

Part of the answer is better planning; part of the answer is better zoning; part of the answer (in special cases) is government axquisition; part of the answer is broader ownership; part of the answer is a complete overhaul of the tax system, local, state, and national.

No one answer will avail alone. But HOUSE & HOME agrees with the rising chorus of expert opinion that the first point of attack should be to ease the too-heavy tax burden on houses and other improvements, multiply the too-easy tax load on unimproved land, and make the unearned increment in land prices provide much more of the tax money needed to provide the highways, streets, water, sewers, and schools without which unimproved land would be neither livable nor saleable.

Page 126

Two years ago HOUSE & HOME said land speculation is Public Enemy No. 1 of the homebuilding industry and the homebuying public

Winston Churchill said it much better and stronger forty years ago. Said he:

"Land monopoly is not the only monopoly, but it is by far the greatest of monopolies -- it is a perpetual monopoly, and it is the mother of other forms of monopoly.

"Unearned increments in land are not the only form of unearned or undeserved profit, but they are the principal form of unearned increment, and they are derived from processes which are not merely not beneficial, but which are positively detrimental to the general public.

"Land, which is a necessity of human existence, which is the original source of all wealth, which is strictly limited in extent, which is fixed in geographical position -- land, I say, differs from all other forms of property, and the immemorial customs of nearly every modern state have placed the tenure, transfer, and obligations of land in a wholly different category from other classes of property. [Did you ever stop to wonder why property in land is called "real" and why land cannot be "personal" property? See page 128.]

"Nothing is more amusing than to watch the efforts of [the land] monopolists to prove that other forms of property and increment are similar in all respects to land and he unearned increment in land.

"They talk of the increased profits of a doctor or a lawyer from the growth of population in the town in which they live. They talk of the profits of a railway, from the growing wealth and activity in the districts through which it runs. They talk of the profits from a rise in stocks, and even of the profits sometimes derived from the sale of works of art.

"But see how misleading and false all these analogies are. The windfalls from the sale of a picture -- from a Vandyke or a Holbein -- may here and there be very considerable. But pictures do not get in anybody's way. They do not lay a toll on anybody's labor; they do not touch enterprise and production; they do not affect the creative processes on which the material well-being of millions depends.

"If a rise in stocks and shares confers profits on the fortunate holders far beyond what they expected or indeed deserved, nevertheless that profit was not reaped by withholding from the community the land which it needs; on the contrary, it was reaped by supplying industry with the capital without which it could not be carried on.

"If the railway makes greater profits, it is usually because it carries more goods and more passengers.

"If a doctor or a lawyer enjoys a better practice, it is because the doctor attends more patients and more exacting patients, and because the lawyer pleads more suits in the courts and more important suits. At every stage the doctor or the lawyer is giving service in return for his fees.

"Fancy comparing these healthy processes with the enrichment which comes to the landlord who happens to own a plot of land on the outskirts of a great city, who watches the busy population around him making the city larger, richer, more convenient, more famous every day, and all the while sits still and does nothing.

"Roads are made, streets are made, 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 labor and at the cost of other people and of the ratepayers. 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. He renders no service to the community, he contributes nothing to the general welfare; he contributes nothing even to the process from which his own enrichment is derived.

"While the land is what is called 'ripening' for the unearned increment of its owner, the merchant going to his office and the artisan going to his work must detour or pay a tram fare to avoid it. The people lose their chance of using the land, the city and staate lose the taxes which would have accrued if the natural development had taken place, and all the while the land monopolist has only to sit still and watch complacently his property multiplying in value, sometimes many fold, without either effort or contribution on his part!

But let us follow the process a little further. The population of the city grows and grows, the congestion in the poorer quarters becomes acute, rents rise, and thousands of families are crowded into tenements. At last the land becomes ripe for sale -- that means that the price is too tempting to be resisted any longer. And then, and not till then, it is sold by the yard or by the inch at ten times, or 20 times, or even 50 times its agricultural value.

The greater the population around the land, the greater the injury the public has sustained by its protracted denial, the more inconvenience caused to everybody, the more serious the loss in economic strength and activity, the larger will be the profit of the landlord when the sale is finally accomplished. In fact, you may say that the unearned increment on the land is reaped by the land monopolist in exact proportion, not to the service, but to the disservice done. It is monopoly which is the keynote, and where monopoly prevails, the greater the injury to society the greater the reward to the monopolist.

This evil process strikes at every form of industrial activity. The municipality, wishing for broader streets, better houses, more healthy, decent, scientifically planned towns, is made to pay more to get them in proportion as it has exerted itself to make past improvements. The more it has improved the town, the more it will have to pay for any land it may now wish to acquire for future improvements.

The manufacturer proposing to start a new industry, proposing to erect a great factory offering employment to thousands of hands, is made to pay such a price for his land that the purchase price hangs round the neck of his whole business, hampering his competitive power in every market, clogging him far more than any foreign tariff in his export competition, and the land price strikes down through the profits of the manufacturer on to the wages of the workman.

No matter where you look or what examples you select, you will see that every form of enterprise, every step in material progress, is only undertaken after the land monopolist has skimmed the cream off for himself, and everywhere today the man or the public body that wishes to put land to its highest use is forced to pay a preliminary fine in land values to the man who is putting it to an inferior use, and in some cases to no use at all. All comes back to the land value, and its owner is able to levy his toll upon all other forms of wealth and upon every form of industry.

A portion, in some cases the whole, of every benefit which is laboriously acquired by the community increases the land value and finds its way automatically into the landlord's pocket. If there is a rise in wages, rents are able to move forward, because the workers can afford to pay a little more. If the opening of a new railway or a new tramway, or the institution of an improved service or a lowering of fares, or a new invention, or any other public convenience affords a benefit to the workers in any particular district, it becomes easier for them to live, and therefore the landlord and the ground landlord, one on top of the other, are able to charge them more for the privilege of living there.

"Some years ago in London there was a toll bar on a bridge across the Thames, and all the working people who lived on the south side of the river had to pay a daily toll of one penny for going and returning from their work. The spectacle of these poor people thus mulcted of so large a proportion of their earnings appealed to the public conscience, and agitation was set on foot, municipal authorities were roused, and at the cost of the rate payers the bridge was freed and the toll removed. All those people who used the bridge were saved sixpence a week, but within a very short time the rents on the south side of the river were found to have risen by about sixpence a week, or the amount of the toll which had been remitted!

"And a friend of mine was telling me the other day that, in the parish of Southwark, about £350 a year was given away in doles of bread by charitable people in connection with one of the churches. As a consequence of this charity, the competition for small houses and single-room tenements is so great that rents are considerably higher in the parish!

"All goes back to the land, and the landowner is enabled to absorb to himself a share of almost every public and every private benefit, however important or however pitiful those benefits may be.

I hope you will understand that, when I speak of the land monopolist, I am dealing more with the process than with the individual landowner, who, in most cases, is a worthy person utter unconscious of the character of the methods by which he is enriched. I have no wish to hold any class up to public disapprobation. I do not think that the man who makes money by unearned increment in land is morally worse than anyone else who gathers his profit where he finds it in this hard world under the law and according to common usage. It is not the individual I attack, it is the system. It is not the man who is bad; it is the law which is bad. It is not the man who is blameworthy for doing what the law allows and what other men do; it is the State which would be blameworthy were it not to endeavour to reform the law and correct the practice.

We do not want to punish the landlord. We want to alter the law.

(Next to a photo of Sir Winston, this text: "We have an unreformed and vicious land system. Our system of local taxation today is vicious and wasteful -- a harsh burden on the poor and an impediment to enterprise and progress."

page 128:

Land paid all the costs of government in England until fairly recent times

There was no private ownership of land in England in the days of bad King John and Magna Charta. Every acre of England belonged to the king, which was the medieval way of saying all land belonged to the public domain. It was public or "royal" property.

  • That's why we call it "real estate" -- the old spelling of regal or royal; and that's why land can never be your "personal" property. (Did you think it was called real because all other property is unreal or imaginary?)
  • That's why in English law there is no such word as "landowner;" the word is "landholder," which means a man who holds the land but does not own it. (That's where our word "freeholder" comes from.)
  • That's why we use the same word "title" to mean a title to land and a title of nobility. The king granted both titles, and usually a title to land went with a title of nobility: for example, the title Earl of Sussex carried with it title to all the land in Sussex, which the earl then parceled out on similar terms to lesser lords.
  • That's why the constitution of New York state still spells out clearly (Section I, Paragraph 10) that "The people of the state still possess the original and ultimate property in and to all lands within the jurisdiction of the state."

In medieval times the king granted title to portions of his royal domain, but he did not grant it for nothing, nor did he grant it for keeps. He granted title in return for a big yearly rent called feudal dues -- a rent so big that the revenue from land alone met all but a small part of the budget. This yearly rent was much too high to be paid in money in an economy where coin was scarce and paper currency unknown, so the rent was paid in kind. For example, the Earl of Sussex paid his rent 1) by taking on all the local costs of government, like preserving law and order in his country and maintaining the highways and 2) by assuming his full share of the national defense budget and sending so many thousand fully equipped archers, men-at-arms, and knights to fight for the king when needed, paying all their expenses in the field for up to 40 days a year. In addition, each lord paid a small amount of cash money each year to retain his lands, and made extra cash payments upon occasion. When the lord died, his oldest son had the right to succeed to the title when he came of age, but only upon making a substantial payment to renew the lease, so to speak. Until the heir was 21, the king took over the land and most of its income. If the lord died leaving only a daughter, the king took back the lands and granted them someone else (usually for a sizeable consideration), but the new owner had to marry the dead lord's daughter as part of the deal. About a quarter of the land was held by the church which was expected to use its income from the land to support whatever scanty social services were then available, like almshouses, pesthouses, and a few schools. Population was sparse -- less than 3,000,000 where 40,000,000 live today -- so most of the land was vacant and any villager could use it for grazing. This vacant land was known as the commons, because it was for the common use of all the people. The king paid his own expenses and the expenses of his court with the income from the lands he kept for himself.

In brief, practically all the costs of government were met by the medieval equivalent of a very heavy tax on land. This was true as late as 1600, when all the money for local government and 81.5% of the traceable money for the national budget came from land (including all the money Queen Elizabeth I got by taking back the lands of such big holders as the Duke of Norfolk and the Earl of Arundel and granting their lands -- for a price -- to someone else).

But all this was changed after the civil war that cost King Charles I his head and thereafter made parliament supreme. Says Dr Gilbert Slater in the report of the 1913 Land Enquiry Committee: "After 1660 power was monopolized by the big landlords." Parliament could best be described as a landholders' convention. Only great landholders sat in the House of Lords; only landholders could be elected to the House of Commons, and only landholders could vote for Members of Parliament.

So guess what!

For the next 150 years this convention of landholders voted bigger and better tax relief for land and bigger and better property rights for landholders, relieving them of all feudal dues and passing some 4,000 "enclosure acts" to let big landlords fence in as private property, almost free for nothing, the common lands that had always belong to everybody. The Duke of Sutherland grabbed off 1,358,546 acres, the Duke of Buccleuch 459,108, the Earl of Breadalbane 438,358, the Duke of Devonshire 196,665, the Marquess of Lansdowne 142,916, etc. (This fencing-in of the commons is one reason so many Englishmen came to America seeking new lands in the 17th and 18th centuries.)

In 1600 almost all of the cost of government -- local and national -- was paid by taxes (or ground rent, if you prefer) on land. By 1800 rural land, as land, was completely tax exempt in England. It is still tax exempt today. Only the income or rent is taxable; if there is no income or rent, there is no tax; idle land and unused property pays nothing at all.

Land speculation and land taxation are hot political issues in England again today

"The good Lord has belatedly remembered the Labor Party and given them a prize rallying cry, " TIME's London Bureau cabled.

The president of the Royal Institute of British Architects, Sir Basil Spence, helped the good Lord give Labor the issue. He opened the Institute's convention with a blistering attack on land speculators for "making our precious land a gambling casino, cornering the limited supply of building land, and holding the community up to ransom." Said he: "The money that should be going into better architecture and higher standards is being taken by people who have contributed nothing to the building process. This speculation has grown to the dimensions of a public scandal and threatens to make good planning prohibitively expensive."

Labor Leader Hugh Gaitskell snapped up the issue the very next day, alleging "a colossal scandal" and "a shocking and outrageous rise in the cost of land for building, all for the benefit of land speculators . . . a very ugly and unwholessome situation."

"People are beginning to realize what is happening and are getting angry about it," Gaitskell continued in a later speech. "There is a powerful case for the local authorities acquiring the freeholds in the land which is to be developed. There is also much to be said for other fiscal measures, such as a tax on site values, a tax on capital gains, or the imposition of a development charge."

Next the London Times reported that the Tory government is at work on "plans to discourage land speculation," and Liberal MP Donald Wade made it a three-party uproad by demanding "a modified form of site-value taxation. Speculators are deliberately holding back land for development, and land is changing hands at increasing prices without any building taking place."

Land taxes were the hottest political issue in England 50 years ago, when Winston Churchill made his famous Edinburgh speech reprinted on page 126. The Liberal Party won the bitter election of 1910 on a land-tax platform, but the big landholders in the House of Lords defined the popular mandate and stalled the reform -- even though the king threatened to create enough new landless peers to give land reform a majority.

Then came World War 1 and land reform was forgotten. The Liberals lost their part identity in a coalition government with the Conservatives, who were anti-land tax. After the war the Labor Party took the Liberals' place as the second big party, and Labor wanted Socialism with government ownership instead of land-tax reform with private ownership.

Page 130

Other countries are trying five ways to stop the abuse of private ownership of land.

1. The Communist countries did it by executing the landowners.

The Bolsheviks killed off or chased out most of the big landowners in Russia 40 years ago and starved most of their middle-sized landowners to death 30 years ago. They eliminated the satellite and East German landowners in 1945. The Chinese Reds are still busy killing off their landlords, either by starvation or by shooting them in the back of the head.

This kind of land reform has not been a success on the Russian farms, although in the Russian cities it seems to have worked fairly well for everyone except the dead landowners. In the cities it has permitted more orderly land planning than any US city can hope to get as long as thousands of landowners can profiteer on every public improvement and hold up every effort to assemble big enough land parcels for large-scale rebuilding. It has permitted more orderly land planning than you can find anywhere in Western Europe except Rotterdam and Le Havre, in both of which cities all the downtown area was taken over by the government after it was leveled by wartime bombing.

On the farms the Communists seem to have thrown out the baby with the bath water; i.e., they have thrown out what was good in private ownership along with what was bad. They threw out a lot of landowners who were living high on their rents without doing enough to earn them, but they have failed to set up a substitute system that would stimulate the good management and the hard work you see on American farms. The Russians are ashamed of their farm failure and try to keep visitors from seeing it; but a cultural exchange of American farmers in 1958 reported that it takes 200 peasants on a mechanized cooperative farm to do the work twn men would do here. And the lag in farm production is one of Krushchev's big headaches.

2. Other countries are redistributing land more humanely.

They are expropriating the big landowners peacefully (with or without equal compensation) and redistributing the land to small owners who are expected to farm it themselves. For example:

CUBA is trying to force idle land into use by breaking up the big estates and dividing them up among the peons. That is one big reason Castro is still popular despite all the mistakes he has made, and James Reston reports in the New York Times that: "In other Latin American republics there is a great deal of popular support for Castro's land reform."

EGYPT is likewise breaking up the big holdings and parceling them out in small pieces to the fellahin. That is one big reason Nasser is still in power there.

IRAN's handsome Shah is giving big pieces of his own vast estats to the peasants who work them, hoping his example will inspire some of the other big landowners to do likewise. Today 300 families own all the land in Iran, which is twice the size of Texas. The 300 families count their wealth, not in acres, but in villages. The other 15 million people in Iran are landless and most of them have very little property to worry about in case of a Communist take-over.

MEXICO has broken up many great haciendas since the revolution.

ITALY is buying up some thousands of acres to resell on easy terms to small holders. And perhaps the most successful land distribution program of all has been pushed through by Chiang Kai-Shek in Free China (TAIWAN).

Breaking up big estates into small holdings is an ancient but doubtful cure for the land problem. Small farms are becoming more and more uneconomic and before long slip back into big estates aain. The canny Dutch are working on just the opposite tack. HOLLAND's government is pressuring farmers to combine their too-small properties and compensating the farmers so displaced with land newly empoldered on what used to be the Zuyder Zee. The DANES have build the world's most successful farm economy on middle-sized farms.

3. Some countries are freezing land prices arbitrarily.

Commonest method of land-price control is rent control, as applied in FRANCE for nearly 50 years. This is also the worst method, for it also discourages maintenance and inhibits improvements. Housing in France has been decaying for years.

The Dutch have rent control in the cities, but they apply direct price control in the country. When the Dutch extended their national freeway system they took the right of way at the fixed agricultural valuation of the land.

4. Some countries guide land use by purchase.

In SWEDEN, for example, the municipal government of Stockholm bought ahead of the city's growth more land inside and outside the city limits than all the land inside the city. Most of this land was bought before World War 1; i.e., it was bought far below today's prices. That explains why Stockholm can afford such wide open spaces between its suburban apartment houses. The city rents peripheral land to farmers until it is needed for housing.

In HOLLAND, almost every city over 20,000 population has a land reserve policy; Amsterdam alone owns some 8,300 acres ahead, partly "that the increase in land values may inure to the community." BRITISH cities are empowered to buy land, and some like Liverpool have long owned corporate estates. Land reserves are also owned in cities in GERMANY, AUSTRIA, FINLAND, and DENMARK. Municipal acquisition of raw or blighted land on the outskirts is authorized by the US Housing Act of 1949, but this power has never been used.

5. Some countries use tax pressure. For example:

DENMARK imposes a perpetual 3% a year tax on increased land values. This is such a heavy tax that on a once-only basis it would be roughly 100%. Denmark taxes land at steeper rates than it taxes improvements. And Denmark is making the big landowners pay for the breaking-up of their own estates by imposing a special added inheritance tax on large land holdings.

PAKISTAN has imposed a special 3% tax on unused land, in order to force it into productive use. This was suggested to the Pakistan government by Charles Abrams of New York and Otto Koenigsberger of London, United Nations advisers on housing.

JAMAICA, where most of the land is owned by a few families and most of the people are shockingly poor, is taking advantage of its new dominion status to shift the whole tax load off improvements onto land, in the belief that this will 1) bring much more land into production to earn its carrying charges, and 2) stimulate faster development (waterfront property with a hotel on it will pay no more taxes than the same land paid without the hotel). Four parishes have already been reassessed and put on the new tax basis and two more will be added every year until all 14 are covered. If the Jamaica experiment succeeds its example could have a profound effect in Latin America, where land ownership is similarly concentrated and the landless are similarly poor.

The best examples of how tax pressure works can be found in AUSTRALIA, NEW ZEALAND, SOUTH AFRICA and Western CANADA.

page 132

Australia and New Zealand are untaxing improvements to tax land values only

"Undeniably impressive" is HHFAdministrator Norman Mason's comment on the great tax-reform experiment in Australia, New Zealand, South Africa, and western Canada as reported by the International Research Committee on Real Estate Taxation. This 50-page printed-and-illustrated report by Research Director H. Bronson Cowan (Harpers, $3) says, among other things:

"Site-value taxation (i.e., exempting improvements from taxation and taxing only the unimproved value of the land) reduces taxes on the majority of homes.

"Site-value taxation reduces taxes where improvement values are high and so benefits all well improved properties.

"Site-value taxation aids the improvement of central business areas.

"Slums and blighted areas are among the first to improve when a municipality adopts site-value taxation. The removal of taxes from improvements encourages the renovation of old buildings and the erection of new ones. The increased taxes on land values reduce speculation in slum properties. Thus new and powerful forces commence to operate with results that effect a noticeable improvement in such areas . . . So many new buildings have sprung up among the old ones that former slum and blighted areas would scarcely be considered slums today by American and British standards. Population densities (in slum areas) are declining."

The report quotes the town clerk of Sydney, Australia as saying: "The removal of rates (taxes) on buildings encouraged their improvement as well as the erection of many fine new structures. Something in the nature of a transformation took place . . . The major benefits since this tax came into force include a great expansion in residential, apartment, and industrial building. . . "

The report also quotes the opinion of the Chamber of Commerce of Johannesburg (South Africa), where land is taxed four times as heavily as improvements, that: "this system has had a great deal to do with the development of Johannesburg into the premier city of the South African subcontinent . . . It discourages sites being held vacant or undeveloped and encourages the owner to construct a better building."

The conclusions of the International Research Committee are summed up as follows by Lord Douglas of Barloch, chairman of the British section:

"One of the outstanding lessons of this study is that where local taxes are based on site values a constant pressure is exerted on owners of land to develop its productive capacity and, on the other hand, the development of land is not discouraged by attracting taxation on the improvements. This is so far admitted that it is sometimes said that taxation on site values will lead to overdevelopment. This is, however, a fallacy; the demand for building is not unlimited; buildings will simply be placed in those situations in which there is the greatest demand for them. In any case systems of town planning and control of land use are in operation everywhere, and the danger is not that building will not be controlled but that it will be stifled by controls."

Page 133

Here is how site-value taxation spread

The state of Queensland exempted houses and other improvements from local taxation by state law in 1890; only the unimproved value of the land is taxed. In Brisbane a £500 lot pays a local tax of £47 a year, or 9.4%. In addition, there is a graduated state tax on land holdings, scaling up to an additional 3%.

The state of New South Wales followed Queensland's lead in 1906, but on a local option basis. Since then every local government but four has voted to exempt all improvements and tax only unimproved land values. As in Queensland, there is a graduated state tax on larger land holdings.

The state of Victoria followed with enabling legislation in 1920. Half the municipalities in greater Melbourne have now voted to tax only land; so have 13 scattered towns. (The pace of homebuilding in those Melbourne suburbs that tax only land is much faster than in the suburbs where homes are taxed too.)

Western Australia began letting local governments shift their whole tax burden to land in 1902, and this system is now widely used. In addition, there is a graduated state tax on land, with a 50% surcharge for absentee owners. Result: it now costs about 9% a year to hold undeveloped land.

The capital district of Canberra (corresponding to our District of Columbia) and the territory of Northern Australia both retain ownership of all land, but rent it out on 99-year leases.

South Australia gave municipalities power to adopt site-value taxation in 1893, but under severe restrictions that have hindered its general adoption.

New Zealand began exempting houses and other improvements from taxation on a local option basis in 1896. This plan has now been adopted by 75 of the 125 counties, 118 of the 146 boroughs, and 12 of the 20 independent town districts.

All cities in Natal and the Transvaal in South Africa either exempt improvements from any local taxation or at least tax land much more heavilty. In Johannesburg, for example, the tax rate on land is four times the tax rate on improvements.

photo captions:

  • If only the land were taxed in Kew, Victoria, this nice home would be taxed 55% less
  • Because only land is taxed in Camberwell, Victoria, the owner of this good house was taxed 61% less.
  • Because only land is taxed in Wellington, N.Z., the owner of this run-down house was taxed 112% more
  • Because only land is taxed in Camberwell, this vacant lot is taxed 289% more
  • Because only land is taxed in Wellington, N.Z., this old building on a good corner was taxed 132% more.

Page 134

Many great lawgivers and economists have said landed property is different

MOSES (1400 BC): The land shall not be sold forever; for the land is Mine; for ye are strangers and sojourners with Me. Leviticus XXV.

BARUCH SPINOZA (1632-1677): The whole soil should be public property.

JOHN LOCKE (1632-1704): God gave the world in common to all mankind. Whenever, in any country, the proprietor ceases to be the improver, political economy has nothing to say in defense of landed property. When the "sacredness" of property is talked of, it should be remembered that any such sacredness does not belong in the same degree to landed property.

WILLIAM BLACKSTONE (1723-1780): The earth, therefore, and all things therein, are the general property of all mankind, from the immediate gift of the Creator.

ADAM SMITH (1723-1790): Ground rents are a species of revenue which the owner, in many cases, enjoys without any care or attention of his own. Ground rents are, therefore, perhaps a species of revenue which can best bear to have a peculiar tax imposed upon them.

TOM PAINE (1737-1809): Men did not make the earth . . . It is the value of the improvement only, and not the earth itself, that is individual property . . . Every proprietor owes to the community a ground rent for the land which he holds.

THOMAS JEFFERSON (1743-1826): The earth is given as a common stock for men to labor and live on.

JOHN STUART MILL (1806-1873): Landlords grow richer in their sleep without working, risking, or economizing. The increase in the value of land, arising as it does from the efforts of an entire community, should belong to the community and not to the individual who might hold title.

ABRAHAM LINCOLN (1809-1865): The land, the earth God gave to man for his home, sustenance and support, should never be the possession of any man, corporation or unfriendly government, any more than the air or water, if as much. An individual, or company, or enterprise requiring land should hold no more than is required for their home and sustenance, and never more than they have in actual use in the prudent management of their legitimate business, and this much should not be permitted when it creates an exclusive monopoly. All that is not so used should be held for the free use of every family to make homesteads, and to hold them as long as they are so occupied.

HERBERT SPENCER (1820-1903): Equity does not permit property in land . . . The world is God's bequest to mankind. All men are joint heirs to it.

LEO TOLSTOI (1828-1910): Solving the land question means the solving of all social questions. . . Possession of land by people who do not use it is immoral -- just like the possession of slaves.

HENRY GEORGE (1839-1897): Our primary social adjustment is a denial of justice. In allowing one man to own the land on which and from which other men must live, we have made them his bondsmen in a degree which increases as material progress goes on. It is this that turns the blessings of material progress into a curse.

DR SUN YAT-SEN (1866-1925): The (land tax) as the only means of supporting the government is an infinitely just, reasonable, and equitably distributed tax, and on it we will found our new system. The centuries of heavy and irregular taxation for the benefit of the Manchus have shown China the injustice of any other system of taxation.

Page 135

Unimproved land differs in three ways from any other kind of private property

1. Unimproved land is the only kind of private property that the owner did nothing to create. He just found it ready-made (or bought it from someone who found it ready-made).

2. Unimproved land is the only kind of private property whose value grows, not because of anything the owner does, but because of what thousands of other people do. Said the great Victorian economist John Stuart Mill: "Landlords grow rich in their sleep." Suburban land would command only a small fraction of today's price if the city had grown up somewhere else.

3. Unimproved land is the only kind of private property anyone can own for years without doing anything or assuming any responsibility to maintain and protect his investment (other than paying a tax which is usually small and is always deductible).

If you invest your money in a building, your investment will crumble and decay within 20 years without constant upkeep.

If you invest your money in machinery, it will be obsolete within 20 years.

If you invest your money in stocks they will soon be worthless unless the company is well managed year in and year out.

If you write a bestseller book, your copyright and its renewals cannot run longer than 56 years. If you perfect a great invention, your patent (which is not renewable) can run only 17 years. After that you have no more legal claim to your own brainchild than anyone else.

But unimproved land, which was there for a million years before the Pilgrims landed, will still be there a million years after you are dead, regardless of what you do or do not do about it.

The moral foundation for private property rests on our belief that in a free society every man owns himself and therefore is entitled to own whatever he himself creates. This foundation is very shaky indeed under the private ownership of unimproved land (unless, of course, the owner performs at least some of the essential functions of the land developer, who is surely worthy of his hire). That is why moralists and law givers from Moses to Jefferson and Lincoln have questioned any man's right to hold more land than he can use.

By definition, unimproved land is land whose owner has done nothing to earn a profit. So it is a strange paradox that our laws not only give private ownership of land all the protection they give the private ownership of other property; they go further than that to give the ownership of unimproved land the most favorable possible tax treatment and greater permanence-without-effort than any other form of private property.

Page 136

Land speculation gets a better tax break than any other kind of business activity

Ours is a tax-activated, tax-accelerated, tax-directed, tax-dominated economy. Every business decision must be checked and rechecked against its tax consequences. Tax exemption is the No. 1 reason 5 3/4% FHA mortgages cannot compete with 4% municipal bonds; 52% tax-deductibility is why corporations can afford 8% interest easier than homebuyers can afford 4%. Tax allowances for depreciation make apartments a tempting investment even if they lose money. And many builders, alas!, find it much more important to get a good tax adviser than to get a good architect!

Almost everything is overtaxed. Incomes are overtaxed beyond the point of diminishing return. Corporation profits are so overtaxed that small business is in big trouble and many a big business must depend on accelerated depreciation. Good homes are overtaxed. Homebuilding is overtaxed; nearly 600 hidden taxes inflate construction costs, and some tax experts say all these taxes add up to one-third the cost of building!

But land as land is hardly taxed at all. (See page 138)

Under our tax system, said FORTUNE ten years ago, it is no longer possible for anyone to get rich by hard work. The income tax has killed that great American dream that brought millions of eager workers to our shores and inspired the conquest of a continent. The harder a man works today the more of his earnings the Government takes. From the hardest and smartest workers the Government takes up to 91% of what they earn.

But our tax system -- local, state, and national -- gives land speculation so many special breaks that land speculation has been by far the easiest way to get rich.* So since World War 2 land speculation has made more millionaires than any other form of business or investment.

* The extraordinary tax treatment allowed the oil wildcatter may be justified by the chance he takes of drilling nine dry holes before he strikes a gusher. But land speculation in the suburbs involves no such risk. If the speculator picks his time and picks his land wisely, the double prospect of continuing urban expansion and continuing inflation almost guarantees him a good capital gain.

Said the first Marshall Field, who made most of his $100 million fortune in land speculation: "Land is not just a good way to make money; it is not just the best way to make money; it is the only way to make money." If that was true before today's big taxes on ordinary income, it is twice as true today.

page 137

Today's taxes harness the profit motive backwards; they abet speculation, but penalize development

Today's taxes often make it more profitable to misuse and underuse land than to develop it and use it properly.

They penalize land development, land improvement, and homebuilding by 1) multiplying the local taxes the owner must pay as soon as new houses are built on his land or existing buildings are improved, and by 2) taxing away most of the profit from land development and homebuilding at ordinary income tax rates.

But they subsidize land speculation by 1) undertaxing the land as long as it is left idle or underused, and 2) taxing the profits of land speculation less than half as heavily as the profits of land development and homebuilding are taxed.

"The only cure for land speculation is to eliminate the extraordinarily favorable tax treatment now accorded the land speculator," says Professor John Henry Denton, in charge of real estate studies at the University of Arizona. "No justification for this can be found in economic theory. Unlike speculation in commodity futures or common stocks, land speculation does not support a market or provide a stimulus to production. In fact, it has just the opposite effect. It destroys the marketability of large areas of land by pricing them out of the reach of immediate users. It deprives our communities of many facilities needed for good living (such as parks and playgrounds) by driving the price of land beyond what communities can afford. It limits competition by holding a large part of the land supply off the current market. It channels capital funds away from productive investment into sterile adventures and may be responsible for the present day dearth of private risk capital.

"But our tax system grants this nonproductive and destructive activity the most favorable treatment of all."There is no way to outlaw land speculation in a free economy, but . . . the principle of public intervention to raise the yields on desirable uses of capital and lower them on undesirable uses is well established by our countless subsidies and tax preferences. The capital gains tax is in itself one of those preferences, but its application to the profits and recouped expenses of buying and selling vacant land is clearly in support of a most undesirable economic activity. Preferential taxation should be reserved for activities that aid the growth and development of a free enterprise system and not for those that are destructive of it."

Says Professor Fisher: "The plain fact is that our present system of real estate taxation, like the whole system of local government finance of which it is the chief part, is obsolete, inadequate, and unsuited to present-day political, social, and economic conditions.

"The need to re-examine and overhaul this whole complex is urgent and imperative, not only for the sake of real estate and housing, but also and a fortiori to save our local governments from bankruptcy -- if possible."

page 138:

Here is how our tax system aids and abets land speculation and urban sprawl

Aid No. 1: Underassessment makes it cheap and easy for speculators to hold underused land for years.

Farms and acreage were assessed at only 20.2% of market value in 1957, the census of governments showed. They were assessed further below the market than any other real estate. (Vacant lots were assessed at 22.7%; non-farm homes at 31.5%; business properties at 40.8%.)

Underassessment must be even worse today than in 1957, for assessments have lagged far behind soaring suburban land prices. In New York's booming Westchester County, for example, assessments rose only 10% while land prices doubled and tripled.

Here are some not-too-untypical examples of underassessment:

  • Outside Salt Lake, NAHB Past President Alan Brockbank bid $7,000 an acre for a farm assessed at $300 an acre.
  • Westhampton, Long Island (and many other New York State villages), tries to assess land at 10% of market value as long as it is idle. (If a house is built on the land, the land assessment is tripled, in addition to the house assessment.)
  • In Contra Costa County, Calif., a farmer sold three one-acre lots for $10,000 each while he was litigating an assessment increase to $350 an acre!
  • In San Francisco, a lot on Telegraph Hill assessed at $3,800 sold last November for $60,000.
  • In Truro (and other Massachusetts towns) a big percentage of the land is not even registered. Nobody knows who owns it, so it cannot be assessed or taxed at all.

Aid No. 2: Land speculation profits are taxed not more than half as heavily as ordinary income, with a maximum rate of 25%; i.e., they are taxed as capital gains instead of as ordinary income.

Said Professor Gaffney in the 1958 Year Book of the US Department of Agriculture: "To qualify for capital gains treatment, the speculator must establish that he is not 'in the real-estate business,' but is a passive 'investor,' neither improving land for sale nor soliciting buyers. Or he may establish that he is 'using the land in his trade or business' (other than real estate).

"Should he lose on one sale he can offset the loss against other capital gains. Better yet, if he establishes that he is using the land in his trade or business, he can offset losses against ordinary income, even though any gains would not be taxed as such.

"Still better, if it is his residence that he sells, and he puts the proceeds into a new residence within the year, the entire gain is tax free -- and with a little effort a commuter may learn to 'reside' over a considerable investment.

"Best of all, one who buys land years ahead of his own needs never pays a tax on the rise of value so long as he does not sell -- something many large corporations, with huge reserves 'for expansion,' have little expectation of doing. Wilbur Steger, writing in the National Tax Journal for September 1957, estimates that 90% of all capital gains were thus left tax free from 1901 to 1949.

"The result of all this is a virtual scorched-earth policy for many lands around cities. Why risk any improvement or overt sales effort that might land you 'in the real-estate business' and thus disqualify your increments from 'capital gains' treatment?"

Aid No. 3: Most states forbid local governments to tax land more heavily than they tax improvements.

Exception is Pennsylvania, whose graded property-tax law lets second- and third-class cities levy all their realty taxes on land if they prefer, provided they do not try to get more money from land taxes alone than the tax limit set for land and improvements combined. No third-class city has yet availed itself of this chance, but Pittsburgh and Scranton, the two second-class cities, have taxed land twice as heavily as improvements for more than forty years and seem pleased with the results. Said Pittsburgh's Mayor David Lawrence (now Governor Lawrence): "There is no doubt in my mind that the graded tax law has been a good thing for Pittsburgh. It has discouraged the holding of vacant land for speculation and provides an incentive for building improvements."

Aid No. 4: Land carries a much smaller share of the realty tax load and a very much smaller share of the total tax load than ever before.

Fifty years ago land carried two-thirds of the realty tax load; homes and other improvements carried only one-third. Today the proportions are almost exactly reversed. Improvements carry two-thirds of the realty tax load; land carries only one-third.

Fifty years ago land carried nearly half the total tax load -- state, national, and local. That was before the income tax, the inheritance tax, the corporation tax, the gasoline tax, the taxi-ride tax, and most of the other nuisance taxes were piled on. Today land -- which is one-third of our total national wealth -- carries less than 5% of the total tax load.

Aid No. 5: Even the small tax carried by land is fully deductible from state and federal income taxes (and from state and federal corporation taxes). So a land speculator can offset his land taxes against his ordinary income. This is another way of saying a rich land speculator in the 75% bracket can deduct 75% of his land tax from his income tax, thereby making the federal government reimburse him for 75% of his tax. Says Professor Denton: "One of the simplest tax law changes that should be made immediately would require that interest and taxes on vacant real estate should be capitalized and should not be deductible from the taxpayer's ordinary income. This would recognize the obvious economic fact that the expense of carrying a nonproductive investment over a period of years are, in fact, part of the investment itself."

Page 140

Cities Subsidize Slums by Undertaxation, Penalize Improvements by Overtaxation

Most cities are generating new slums faster than they can salvage and rebuild their old slums. Urban decay and blight are spreading into new areas faster than all the billions we are spending for urban redevelopment and public housing can salvage existing slums.

This is bound to happen as long as our urban tax system subsidizes slums by undertaxation and discourages improvements by overtaxation. Overuse of land is easy to stop by zoning, but in a free enterprise economy like ours the only way to stop underuse is to put the profit motive to work and make it more profitable to improve a property than to let it decay.

Says Housing Administrator Norman Mason: "There is a close relationship between our prevailing real estate tax system and our problems of slums, blight, and urban renewal. This question of taxes -- tax advantages and tax disadvantages -- is inextricably intertwined with the problem of community development." And Mason goes on to quote Professor Frederick G. Reuss of Goucher College that: "By overtaxing good housing we first take away much of the incentive to keep values up; but once an area is blighted we reassess it at a low value and thus pay a premium for poor upkeep."

More than 50 years ago Lloyd George warned the British Parliament that low-rent (public) housing bills "will never be effective until you tackle the taxation of land values." And about the same time Theodore Roosevelt said: "The burden of municipal taxation should be so shifted as to put the weight of taxation upon the unearned rise in the land value, rather than upon the improvements."

Heavy taxation on good new city apartments is one of the two biggest reasons for not building them today (the other reason is too-high land prices). Says the ACTION report on rental housing: "Among the costs which determine rent, real estate taxes are among the most important." In FHA apartments around New York City local taxes take four times as big a bite out of each rent dollar as the landlord's profit.

But low taxation on run-down old buildings and slums is one of the biggest reasons why blight is spreading. Said the HOUSE & HOME Round Table on money and inflation:

"Heavier land taxes would make slumlords improve their property to get enough added income to pay their added taxes"

Echoed the HOUSE & HOME-ACTION -- Pittsburgh Round Table:

"One big reason slums are so profitable and slum land prices are so high is that slumlords pay such small taxes per unit. They pay such small taxes because their buildings are so nearly worthless that they carry a very low appraisal; the worse the building the lower the appraisal and the smaller the tax. The average slum unit in Pittsburgh is taxed only $50 a year -- less than one-sixth of what the city has to spend for police, fire, schools, health, and other services in the slum areas (where the cost of municipal services always runs higher per capita than in better neighborhoods).

"Don't buy slum property for redevelopment without deflating its bootleg value -- even though the federal government stands ready to subsidize a big write-down.

"There is no more excuse for asking federal taxpayers to buy up slums at prices based on the outrageous profits of overcrowding, undermaintenance, filth, and misery than for asking them to buy up a red-light district at a price reflecting the profits of prostitution. "If you increase the tax load on land and lighten the tax load on improvements, you could, at one stroke,

"1. Help deflate the bootleg value of slum property by making the slumlords pay more taxes and so make less profits;

"2. Help harness the profit motive to slum improvement, for you would, in effect, be giving partial tax exemption to any money spent modernizing or rebuilding the slums."

New York City subsidizes its worst slums by assessing the valuable land under fit-only-for-demolition buildings at almost exactly the same land-to-buildings ratio as the Manhattan average (37% land in twelve redevelopment areas, vs 40.6% average).

Says the Tax Policy Committee of the Citizens' Housing and Planning Council of New York Inc: "Any long range program for increasing and improving housing should have as one of its primary objectives the reduction of land costs. . . .The idea of exempting all improvements from taxation has much to commend it." And the Panuch report on Building a Better New York sums it all up in three sentences:

"The seemingly unstoppable spread of slums has confronted the great cities of nation with chronic financial crisis. . . .The $2 billion public housing program has not made any appreciable dent in the number of slum dwellings. . . . No amount of code enforcement . . . will be able to keep pace with slum formation until and unless the profit is taken out of slums by taxation."

Page 142

Speculators are subsidized by our system of public improvements for private profit

Suburban land would have little value if someone did not spend millions of dollars to build roads and highways and make it accessible, water and sewer lines to make it habitable, and schools and other community facilities to make it livable.

These essential improvements cost so much money that land speculation would be much less profitable and much less attractive if the speculators had to pay for them. The big profit in land speculation comes when the speculator can take the gains and get the bill paid by someone else -- other tax payers and/or future owners.

In 1937 the National Resources Committee urged a study of the increment tax on real estate, "to see whether such a tax would make possible the financing of public improvements more nearly through tax revenue derived from the increased values which these improvements create, and whether such a tax would aid in combating speculation in land. Or the same result could be achieved by a vigorous system of betterment assessments coupled with detriment payments to landowners whose property was depreciated by the improvement (such as farmers whose farm is cut in two halves by a freeway). The Erie Canal, which multiplied land values in upstate New York was financed by a special tax on the land that benefited.

Most obvious example of public improvements that rebound to the land speculators' private profit is the new network of thruways and federal highways. Land values near interchanges along their routes have soared, but their entire cost has been paid by tolls and/or increased gasoline taxes; the landowners who got the windfall pay not a penny. On the contrary, many of them were directly enriched by selling their land for the right of way for far more than it could otherwise have brought.

Less obvious but equally important is the way acreage sellers escape paying more than a small part of the cost of building the new schools without which their acreage would not be worth much for homes. Most of the money for these schools is raised by taxes on houses, for under our local tax system the taxes on houses add up to many times as much as the taxes on raw land. So the owners of existing homes, who get little or no benefit from new houses on the edge of town, pay most of the taxes to provide the schools and other community facilities needed to make the speculators' land salable at a big profit!

Most of the homebuilders' community facilities problems would be eased if raw land were taxed more heavily, so that more of the cost of improved facilities would be paid by the landowners whose land prices are multiplied by the improvements.

page 143

"The only way land price inflation can be prevented is to tax land more heavily"

So said the consensus of the topflight economists, mortgage lenders, realtors, homebuilders, and manufacturers at the HOUSE & HOME Round Table on tight money and inflation (H&H, Jan). And they went on to say:

"A substantial part of the local tax burden now carried by improvements (like houses) should be shifted to the land itself.

"Taxes are the only important costs a land speculator must pay, so taxes are the only brake on the price of land, which reflects the capitalized margin between the rent the land can be expected to earn and the tax burden it can expect to carry. The bigger the land tax the smaller this margin will be and the less chance of big profits in land speculation. [In much of Australia and New Zealand improvements are not taxed at all; almost the whole cost of the local government is paid by taxes on land alone.]

"Taxing land more heavily would make the unearned increment in suburban land values pay the cost of schools and other community improvements needed to convert raw land into housing.

"Taxing land more heavily would let homebuilders offer better homes for less money.

"Taxing land more heavily would reduce the taxes on good homes by increasing the taxes on vacant and underused land.

"And incidentally taxing land more heavily would cut the cost of highway extension by cutting the land costs for the right of way.

"The steepest price inflation of all has been the price inflation in land, but . . . We have no land policy designed to bring the land needed for our population growth on the market when it is needed. On the contrary, we make it easy [by undertaxation] for land speculators to hold their land off the market in anticipation of still higher prices later."

Twenty-three years ago the report of the National Resources Committee pointed out that taxes on improvements discourage building by reducing the profits the building can earn, whereas taxes on land stimulate building by decreasing the price the builder has to pay for the land he builds on. Its report continued:

"State and local authorities should consider reducing the tax rate on buildings and increasing the rates on land, in order to lower the tax burden on homeowners and stimulate the rehabilitation of blighted areas and slums."

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