When people must spend a large share of their net worth to pay off the previous landholder for something the individual landholder didn't create, they have little left for other spending, whether it be furnishing that house or condo or outfitting a retail, manufacturing or other commercial property.

Investing in land doesn't create anything new. A better word for "investing" in land is speculation.

The difference is between ownership and possession. If what we need is the use of the land, then let's arrange that.

Investing in equipment, however, is a very different matter. That leads to jobs and the creation of something. Let's arrange things to facilitate that sort of investment.

Michael Hudson and Kris Feder: Real Estate and the Capital Gains Debate

Fred E. Foldvary — The Ultimate Tax Reform: Public Revenue from Land Rent

Some may wonder why anyone would own land if most of the rent is taxed away. One would own land for the same reason people rent land: in order to use it. Ownership also gives the title holder rights of possession, the ability to control the use of the site indefinitely.

Today there is also a speculative motive for owning land, to profit from the increase in its price. With most of the geo-rent tapped for public revenue, the speculative motive would be dampened. That would benefit the economy, since with a lower price of land, funds that now go to buy land would instead go to build more capital goods, hire more labor, or provide better training.

The tax on the geo-rent would be borne by the owner, not the tenant. If a landlord, who was already charging what the market could bear, tried to pass on the tax, he would face vacancies. Some say that since the tax would be invisible to renters, the link between using public services and paying for them would be broken. But productive public services increase the geo-rent, so that link is there. If government revenue is wasted, then indeed this does not generate rent, and a land value tax without corresponding benefits would reduce land value. Pressure for a productive use of public revenue would come from the landowners more than from the tenants. But that is no different than the situation today; poor folks pay little or no income tax and no property tax, and typically they get government assistance. This is an argument not against the use of rent, but in favor of privatizing government programs. In the private sector, the link between ownership and control is stronger. ... read the whole document

Mason Gaffney: The Partiality of Indexing Capital Gains

Land is not formed, like capital, by saving and investment; land is not reproducible. For that very reason land tends to appreciate, and therefore has to be a major source of what are misleadingly called "capital" gains. Again for that very reason, there is no supply-side kick in untaxing gains. Most of them are land gains, and should be called that. To use land as a store of value is macro-economically unproductive at best, and on balance counterproductive and destabilizing (considering its effect on financial institutions like the S&Ls).

To handle this matter we need two semantic distinctions which often are lost in the word-fencing of debate. Walter Heller, whose policies still enjoy bi-partisan support, thought and spoke in a Keynesian framework where "investment" means "investing," an affirmative, job-making action. It is a process, not a store of value; an economic flow, not a fund. It is not the asset held: this "investment" is a noun, macro-economically static and sterile. [Land may appreciate, and one may call this "investment," but the appreciation employs no one and creates no new wealth (although it may reflect the externalities of wealth created by others).]

To signalize these differences I use the present participle "investing," rather than the ambiguous noun "investment."  [Webster's 9th New Collegiate defines investment both ways: it is an action, (the Keynesian usage); it is also an asset being held, a store of value. Such a two-faced word is a natural medium for double-talk, and has been so exploited, to the detriment of general understanding.]

Every Keynesian also knew in 1961 that investment means net, positive-sum investing. It does not include buying and selling existing assets like land: these are zero-sum transactions, macro-economically non-functional and barren. [Keynes, although careless of consistency, generally took care to distinguish old and new assets. " ... the competition of a high interest-rate on mortgages may well have had the same effect in retarding the growth of wealth from current investment in newly produced capital-assets as high interest rates on long-term debts ... " [General Theory, 1936, p. 241.] The old macro-economists generally refer to investing in newly produced assets as "income- creating expenditure," which is clear and correct, but too much of a mouthful.]

I use "investing" only in the sense of net, income-creating, job-making spending. [Note the difference between real turnover and mere ownership turnover. Ownership turnover generates no income (except for brokers and M&A personnel) and creates no capital. Real turnover also creates no capital, but does forward supplies of goods to consume, and flows of investing to produce replacement goods. Most of gross investing is reinvesting funds received or anticipated from sales of old capital (including inventories, which turn fast, and "fixed" capital which turns slowly as it depreciates and the funds are reinvested).]

As to borrowing on land, that can be worse than barren when the financial system rises and falls on a land bubble, as it has and is.  ... read the whole article

Nic Tideman: Market-Based Systems for Assigning Rental Value to Land

Consequences of Foreseeable Increases in Rental Value

If the value of a site is expected to rise in the future, bidders for the current use of the site will take that into account in their current offers. A potential user who wishes to make long-lasting improvements to the site, of a sort that cannot take full advantage of the future higher value of the site, will offer less for the site this year than if the site did not have future prospects that will raise future offers from competing uses. On the other hand, a potential user who wishes to use a site as something like a parking lot, requiring very little in durable improvements, will be virtually unconcerned with the prospect of higher future rents. Thus, to the extent that bidders can foresee future bids, sites where optimal use requires a change in use in the near future to achieve greatest efficiency will tend to be acquired by users who can relinquish use without suffering loss.

Of course, the future cannot be seen perfectly. People will sometimes experience losses as a result of unanticipated rises in the rent of the land under their durable improvements. To compensate for this risk, people who wish to use land for durable improvements will reduce, to some extent, their bids for land. They may also seek to purchase insurance against rent increases, just as they now purchase fire insurance.2 The practice of setting each year's rent at the amount that someone is willing to pay in that year for the use of a similar site ensures that some profit-oriented person (either the investor or the seller of insurance) has an incentive to estimate carefully the opportunity cost of a site in future years before the site is committed for a long span of time to a particular durable improvement. ... read the whole article