Governments have the power to print money. And, to some extent, that’s exactly what they do. But, by and large, they don’t push their luck – the spectre of hyperinflation scares them off.
In the current era of ultra low interest rates and quantitative easing, there is some loosening of the old strictures. However, really radical ideas – such as helicopter money – have yet to break into the political mainstream. Governments don’t want to make their boundary-pushing too blatant – lest they they undermine public confidence in the currency.
There might, however, be another way for cash-strapped governments to replenish their treasuries. There’d be no monetary malarkey involved, and no need for extra borrowing or taxation. All that governments would need to do is make the most of a resource that is ultimately under their control: land.
We usually associate the wealth of a city with its buildings, but the most valuable and enduring resource is what those buildings are built on. Just how valuable, is the subject of an article by Richard Florida for CityLab:
“The total value of America’s urban land is astounding, adding up to more than $25 trillion as of 2010—that’s roughly more than double the nation’s total economic output or GDP in 2006, according to a recent study by economists at the University of Illinois and the University of Michigan…
“That breaks out to an average of $511,000 per acre, or $100,000 for the typical residential lot of roughly a fifth-acre (or $2,000 for a typical parking spot). Over the course of the study period, the total value of urban land peaked at more than $28 trillion—2.2 times more than the U.S. GDP in 2006, before the economic crash—but then fell to $18 trillion, or 1.3 times GDP, in 2009.”
The geographical distribution of this land wealth is highly uneven:
“New York… has the highest average price per acre, at more than $5 million. Next in line are three metros—San Francisco, Honolulu, and Jersey City across from Manhattan—where land is valued at $3.3 million per acre. Los Angeles is fifth, at $2.7 million per acre, with Orange County and San Jose following closely at $2.6 million and $2.3 million per acre, respectively. Average land values exceed $1 million per acre in a dozen additional metros, including Miami, Seattle, Oakland, Washington, D.C., and San Diego.”
Other big cities don’t do nearly so well. Boston comes in at $600,000 an acre and Houston less than half of that. Bottom of the the pile are “Rust Belt metros such as Buffalo ($162,000) and Pittsburgh ($156,000)”.
Unsurprisingly, the most valuable land is in the city centres – a cool $123 million per acre in New York and in the $20-30 million range for Chicago, Washington and San Francisco.
Richard Florida sees a story of inequality in these figures:
“Economic inequality is bad, but spatial inequality is even worse. An acre of central land in New York City is worth approximately 72 times more than an acre of central Atlanta or Pittsburgh, and almost 1,400 times more than the same in many small Rust Belt and Sunbelt metros.”
On the other hand, there is a huge money-making opportunity to be had here – and not just for the Donald Trumps of this world. In countries lucky enough to have a ‘superstar city’ like New York or London, governments need to get entrepreneurial. Unless it’s being used for an important environmental or cultural purpose, publicly owned land in these areas should be systematically exploited for the public good.
For instance, in London there are low density housing estates scattered across the city’s inner suburbs. This is some of the most valuable land in the world and yet its potential is being wasted. Redeveloped at a density appropriate to its location it could generate enough income to greatly improve the lives of the people already living there, with plenty left over for the public purse. Furthermore, the extra population would generate ongoing revenue through local and national taxes, not to mention the wider boost to economic growth.
And let’s not forget the brownfield and greenfield sites within commuting distance of high productivity cities. This land could be worth hundreds of thousands or even millions of dollars per acre. Obviously, planning permission is the all important issue – but that too is in the gift of government.
The state is in a position to buy land and massively multiply its value overnight simply by issuing a piece of paper. The demand for land isn’t inexhaustible of course. And there would come a point at which the state-as-developer freed up enough land to lower property prices.
But this would be a good thing, indeed a miraculous thing – a license to print money while suppressing inflation.