Gavin R. Putland,  BE PhD

Tuesday, March 14, 2006 (Comment)

Infrastructure on a bootstrap budget

Submitted to State and Territory legislators, March 14, 2006. Reposted August 18, 2012.

The benefit of a public infrastructure project is manifested as an increase in property values. If the project passes a cost-benefit test, the cost can be covered by recycling a fraction of the benefit through the tax system, leaving the rest of the benefit as a net windfall for property owners. The proposed implementation involves the abolition of property transfer taxes calculated on total property values, in favour of a transfer tax on windfall increases in property values. The partial “recycling” of such windfalls through the tax system ensures that desirable projects actually proceed, so that property owners actually get the windfalls. Any politician who can't sell that policy to property owners should find another career.

1.  Land values capture benefits

If you are to share in the benefit of a public infrastructure project, such as a new freeway or bus route or state school, you must reside or do business in the area served by the project. For this purpose you need access to the real estate in the area. The price of access to the infrastructure (over and above any fares, fees, or other “user pays” charges) is the price of access to the affected real estate. Hence the benefit of the project, as measured by the market, is the ensuing uplift in property values in the affected area.

If the infrastructure project is in the public interest, the benefit exceeds the cost. (Any “user pays” charges cancel out in this comparison, because both the “benefit” to the public and the “cost” to the government are net of such charges.) And if the benefit exceeds the cost, the cost can be covered by reclaiming only part of the benefit through the tax system, leaving the rest of the benefit is a net windfall for the owners of property in the affected area, but without burdening other taxpayers. If the reclaimed part of the benefit is greater than the cost of the project (but still less than the total benefit), the project is a net source of public revenue. This not only ensures that the project goes ahead — so that the property owners get the ensuing windfalls — but also allows cuts in other taxes for the benefit of all taxpayers whether they own property or not.

2.  Paying costs out of benefits

How should the uplift in property values be recycled through the tax system? The most obvious method is a capital gains tax (CGT) on property only — that is, a tax payable on disposal of a property and equal to a percentage of the increase in value since acquisition. To ensure that the CGT leaves the property owner with a net benefit from favourable infrastructure projects, the taxable capital gain must be real (i.e. must not be due to inflation) and must not be attributable to any effort of the taxpayer. To avoid taxing inflation, the value at the time of acquisition must be adjusted for inflation before it is subtracted from the value at the time of disposal [1]. To avoid penalizing the property owner's expenditure on maintenance, extensions, or renovations — and to avoid rewarding expenditure that does not add value — the taxable gain should not be the change in the total property value, but should be the change in the land value only — that is, the change in the site value (where a site means a piece of ground or airspace, including any attached rights to construct buildings on that ground or into that airspace, but excluding any actual buildings or other works). Indeed, to the extent that infrastructure increases “property values” in a certain area, it actually increases site values in that area, because the value of a site reflects the value of its location even if no buildings (yet) occupy the site.

So the required form of “CGT” is a tax payable on disposal of a property and equal to a percentage of the real increase in the site value since acquisition [2]. For brevity, let's call this arrangement a site windfall tax (SWT).

For property owners, the SWT is an investment rather than a cost, because it increases their property values by providing infrastructure that would not otherwise be provided; indeed, it's better than an investment because the capital isn't paid up until after the profit comes in! That some infrastructure projects would be funded even without the SWT is a red herring for three reasons. First, the SWT allows more projects to be funded. Second, a project that could have been funded by other taxes still represents a net gain to property owners if it is funded by the SWT. Third, when projects that would have been funded by other taxes are instead funded by the SWT, those “other taxes” can be reduced, and property owners in their capacity as general taxpayers can expect to share in the benefit of that reduction.

3.  A revenue-neutral transition

It is vital to note that our solution to the infrastructure funding problem does not depend on any pre-emptive increase in total tax receipts. It requires only that the tax system be modified so that future expenditures on infrastructure are automatically accompanied by expansions of the tax base (not to be confused with increases in tax rates). Consequently the SWT can be introduced in lieu of other taxes, in a revenue-neutral manner. When the SWT is in place, the mere announcement of a new infrastructure project causes the selling prices of properties in the serviced area to increase. Higher sale prices are duly reflected in higher site valuations, hence higher SWT receipts from trading in the property market. The additional SWT receipts cover the cost of any project whose benefit-cost ratio is sufficiently high. Projects with still higher benefit-cost ratios yield surplus SWT, which can be used for subsequent cuts in other taxes.

What existing taxes should be abolished to make room for the SWT?

As the SWT is payable on transfers of property titles, the obvious answer is that the SWT should replace all property transfer taxes hitherto imposed by the same government. These include any stamp duties on conveyancing, and any existing capital gains taxes in so far as they apply to property. The official name given to the SWT in each jurisdiction could well depend on the displaced taxes; for example, if the jurisdiction already had stamp duties on conveyancing, the SWT could be promoted as a reform of stamp duties.

The SWT could also replace taxes imposed in anticipation of property sales. The affected taxpayers would welcome this change because the tax would be delayed until the actual sale, which would provide the cash flow with which to pay the tax. For example, the SWT could replace any betterment levies payable on rezoning of land for more intensive use, and any lump-sum infrastructure levies or development levies payable by property developers in return for permission to develop (ostensibly to defray the cost of infrastructure made necessary by the proposed development). It is argued that such levies are fair because they merely reclaim part of the uplift in property values caused by rezonings and permissions. But by that logic, to ensure that the tax reclaims only part of the uplift and that there is no inconsistency or arbitrariness in the tax assessments, the tax should be defined as a fixed fraction of the uplift. The SWT is indeed defined that way; it is what betterment levies and development/infrastructure levies should have been.

4.  At what rate?

From the viewpoint of the government, the cost of a public project is an investment and the consequent increase in SWT assessments is the return on the investment. The higher the marginal SWT rate (or the fraction of sites subject to SWT), the greater the number of projects that will pay for themselves through uplifts in site values, hence the greater the number of projects that will actually proceed — and the faster the rate at which old taxes can be reduced or abolished, thanks to the surplus revenue caused by projects whose benefit/cost ratios are higher than the minimum for a self-funding project.

Very conveniently, property owners also have an interest in increasing the number of projects that proceed and the number of old taxes that can be reduced or abolished. Of course there are only so many projects that would pass a cost-benefit test, and only so many old taxes to abolish. So, as the SWT rate is increased, there comes a point beyond which property owners are losing more through higher SWT than they are gaining through infrastructure and tax cuts. This confirms that from the viewpoint of property owners, the taxation of uplifts in land values can be too high. But it can also be too low, as the current infrastructure crisis clearly shows. Somewhere in between, there is an “optimum” SWT rate that maximizes the net return to property owners. This “optimum” could be difficult to estimate because the world has little experience with this funding method or with such high levels of infrastructure provision. So perhaps the safest course is to decide which old taxes should be immediately abolished for maximum political advantage, and then set the SWT rate to replace the revenue from those taxes.

5.  The case of owner-occupied homes

When property values rise, home owners can sell their old homes for higher prices, but must then pay similarly higher prices for their new homes. And of course they always need somewhere to live. On this basis it is sometimes argued that ordinary home owners, who own no properties apart from their homes, do not really gain from a rise in property values, and that the only real winners from a rise in property values are those who can sell without buying again — in other words, investors.

This argument tacitly assumes that the price rise is not compensated by any improvement in utility, but is due solely to higher effective demand. The argument is not valid if the price rise is caused by improved infrastructure, because in that case the rise in prices of alternative homes is due to improved utility and does not imply a price rise for alternative homes of given utility.

We are left with the conclusion that ordinary home owners, like investors, stand to gain from improved infrastructure. But if owner-occupied homes were exempt from the SWT, the recycling of the benefits of infrastructure through the tax system would be drastically reduced, so fewer projects would be self-funding, so fewer projects would proceed, so the home owner-occupants would get fewer windfalls gains in the values of their homes. So ordinary home owners, for their own benefit, must be included in the SWT net.

What of those who still merely aspire to become home owners? If present owner-occupants can sell their old homes without paying any tax, they can spend the entire proceeds — including unearned capital gains — on new homes, and thereby outbid first-time buyers who have no capital gains to spend. But if all sellers were liable for SWT, the competitive position of first-time buyers would be strengthened. Meanwhile the sellers, including both owner-occupants and investors, would benefit from the infrastructure funded by the SWT. This benefit would not be at the expense of first-time buyers, because it would not raise the prices of homes of given utility.

In summary, if owner-occupants were exempt from SWT, investors and owner-occupants and those who are yet to become owner-occupants would all be losers; that is, all would share in the loss of total economic output caused by the loss of infrastructure.

What about sites owned and occupied by religious, charitable, or educational institutions that provide services free of charge or on a cost-recovery basis, and do not simply charge what the market will bear? Because such institutions have indefinite lifetimes, and because the SWT is payable only on transfers of titles, the institutions can avoid SWT by simply remaining where they are — as they probably always intended to do. For purposes of public relations, it is probably better for such institutions to be liable for SWT in the unlikely event that they sell their sites, so that they are not seen to be receiving special privileges [3].

6.  Avoiding “retrospectivity”

If properties do not become subject to SWT until the titles are next transferred (so that the SWT does not become payable until the transfer after the next), years will pass before most properties can incur taxable uplifts due to infrastructure. That is, years will pass before a substantial number of new infrastructure projects become self-financing. And of course years will pass before any surplus SWT revenue allows cuts in existing property transfer taxes, let alone other taxes. These delays would not help anyone, least of all property owners.

If every site is valued at the time of introduction of the SWT (“D-day”), and if the SWT payable on disposal of the site is calculated on the real increase in the site value since D-day, then infrastructure provided after D-day will start producing taxable uplifts immediately, and the usual turnover in the property market will ensure that these uplifts are immediately reflected in revenue. But the early SWT payments will (on average) be small because of the short times during which taxable uplifts will have accumulated, and will not yield sufficient revenue for the immediate replacement of existing property transfer taxes, let alone other taxes. Again, these delays would not help anyone, least of all property owners.

If every property sold after D-day pays SWT on the real increase in the site value since acquisition, even if acquisition occurred before D-day, then the usual turnover in the property market will cause a steady stream of SWT revenue to start immediately, allowing the immediate abolition of existing property transfer taxes (and perhaps other taxes, depending on the SWT rate). The same turnover in the property market will also ensure that uplifts due to infrastructure projects are immediately reflected as increases in revenue. But vendors who have received large uplifts before D-day will pay more tax on those uplifts than they would have paid under the old system, and will therefore complain, alleging that the SWT is retrospective. To avoid such complaints, a taxpayer disposing of a property acquired before D-day should have the option of paying tax as if the property had been sold and bought back (at market price) on the day before D-day. Under this option, any property vendor who pays more tax than would have been payable under a continuation of the old system does so solely because the site has increased in value after D-day. There is nothing “retrospective” about that. But the existence of this option still allows the SWT to replace existing property transfer taxes immediately, and still allows uplifts caused by infrastructure to be immediately reflected in higher SWT receipts.

The fact that the SWT is payable by the seller, whereas the old property transfer taxes may have been payable by the buyer, does not introduce any element of retrospectivity, because it does not change the final incidence of the tax. If a transfer tax is payable by the seller, the seller will try to add it to the price. If it is payable by the buyer, the buyer will try to subtract it from the price. In the end, the cost of the tax will be shared between the buyer and the seller in inverse proportion to their bargaining power, regardless of who actually “pays” the tax to the revenue office. The real reason for making the tax “payable” by the seller is that the seller already knows (or should know) the taxable site value at the time of acquisition, and is therefore able to work out the SWT bill in advance, without relying on anyone else's honesty.

Moreover, as the SWT will provide the affected taxpayers with net windfalls that they would not otherwise get, the affected taxpayers will tend to like it. And if they like it, they will not be motivated to denounce it as “retrospective”.

7.  Compensation for “injurious affection”

If the real value of a site falls between acquisition and disposal, the SWT will be negative. This will give partial compensation to that minority of property owners whose properties are devalued by government decisions but not actually acquired by the government; in law, such devaluations are called injurious affection. Because such devaluations are exceptional — especially if site values are being lifted by investment in infrastructure — it is even possible to provide complete compensation for injurious affection funded by some of the excess revenue from the SWT. The present lack of compensation for reductions in property values is due entirely to the lack of taxation on increases in property values. By whom can the losers in the property game be compensated, if not by the winners?

8.  Further benefits for property owners

Infrastructure raises site values, allowing property owners to make capital gains on disposal of their properties. The SWT would pay for the infrastructure while taking back only a fraction of the capital gains, ensuring that the property owners make net gains. But to say only this much is to understate the benefit to property owners, because infrastructure increases not only the sale prices, but also the rental values and use-values, of the affected properties: even before their properties are sold, landlords can charge higher rents, while business owner-occupants can trade more profitably and residential owner-occupants enjoy improved amenities.

9.  Benefits for tenants

The increase in rents due to infrastructure provision does not harm tenants as a class, because it reflects genuine improvements in the utility of the rented premises — not higher rents for premises of given utility. For business tenants, improved utility means higher business turnover, which compensates for (and indeed causes) the higher rents. Moreover, because the SWT takes a fraction of property investors' capital gains but does not take any of their rents, it shifts the investors' attention away from capital gains and towards recurrent income, so that they perceive the benefits of infrastructure primarily in terms of higher rents. Thus the investors become more inclined to seek tenants, more inclined to build, extend, and renovate in order to attract tenants, and less inclined to hold a property vacant so that it can be sold at the most opportune time (free of any encumbrance that might be caused by a tenancy contract). These influences would tend to increase the supply of rental accommodation, strengthening the bargaining position of renters and making rents more affordable for residential properties of given utility, and for commercial properties. Meanwhile, the landlords would gain from higher rents due to improved utility of properties at given locations.

To say that both landlords and tenants would gain is not a contradiction; it simply means that both landlords and tenants would share in the benefits of infrastructure financed through the SWT. Improving infrastructure is not a zero-sum game; it is analogous to making a bigger cake so that everyone can have a bigger slice.

10.  Benefits for builders and renovators

Consider the common practice of buying a site, building on it or renovating the existing building, and then (perhaps after some delay) selling the site with the building. Under the SWT, the builder/renovator will pay tax only on the increase in the site value between the purchase and the sale. The SWT will take only part of the increase, leaving the rest as a windfall gain. But under a conventional property transaction tax, the builder/renovator will pay a substantial tax either on the purchase or on the sale, and there is nothing to prevent that tax from wiping out, or even exceeding, any uplift in the site value between the purchase and the sale. Thus the replacement of property transaction taxes by the SWT would remove a substantial disincentive to building and renovating, for the benefit of the construction industry and the various supporting industries.

11.  Benefits for realtors

A transaction tax on property, such as a conveyancing “stamp duty” based on the sale price, discourages transactions. In so doing, it impedes the efficient allocation of assets (and restricts the flow of commissions for those who facilitate that allocation, namely realtors). A holding tax on property, e.g. a certain percentage per annum of the property value or site value, has no such effect.

The SWT has the form of a transaction tax in that the event triggering the tax payment is a transaction, namely disposal of the asset. But the SWT has the substance of a holding tax in that the total tax paid on an asset over the long term is not proportional to the frequency with which the asset changes hands. With a true transaction tax, such as a conveyancing stamp duty, a higher frequency of transactions over the same time frame means a larger total tax bill. But with the SWT, a higher frequency of transactions merely divides the taxable capital gain into a larger number of smaller steps; each transaction realizes an already accumulated tax liability, but does not create an additional liability. Thus the SWT does not discourage transactions (and therefore does not restrict realtors' commissions) to the same degree as the property transaction taxes that it would replace.

12.  Benefits for workers

All transaction taxes impede commerce. All taxes on assets (including holding taxes) either deter production of the assets or encourage taxpayers to destroy the assets or move them out of the taxing jurisdiction. These effects hinder production and therefore raise prices and feed inflation, increasing the so-called natural rate of unemployment, which is defined as the minimum unemployment rate that causes sufficient downward pressure on wages to yield stable inflation. Central banks fight the inflationary tendency by raising interest rates (or otherwise restricting credit) in order to discourage consumption and hiring, thus maintaining unemployment at the dismally-named natural rate.

(Needless to say, those who are unemployed are not engaged in projects that enhance property values. Neither are they likely to be bidding up prices at property auctions. Low wages have a similarly depressing effect on spending power, hence property values.)

The SWT, as we have seen, is not a true transaction tax. And while it is certainly a tax on assets, the assets in question — namely sites — cannot be produced or destroyed by the taxpayers or moved out of the taxing jurisdiction. So the SWT does not hinder production or raise prices like most other taxes. By raising as much revenue as possible from the SWT and, by implication, as little as possible from other taxes, governments can minimize inflationary tendencies, allowing central banks to minimize unemployment — that is, to maximize the bargaining power of workers.

13.  Benefits for employers

Unemployment weakens the bargaining position of employees, driving down their wages and conditions. Poor prospects in one occupation drive some employees into other occupations, where they increase the competitive pressure on employees in those other occupations, driving down their wages and conditions, and so on. Some employees or would-be employees try to escape these pressures by starting businesses in competition with employers, some of whom are then forced into alternative lines of business, where they increase the competitive pressure on employers in those other lines of business, and so on. To keep their employers afloat, salaried staff must work unpaid overtime, and those who cannot or will not do so are displaced by those who can and will. Besides, employers know that higher unemployment means a bigger flood of applications for every advertised vacancy (with a higher risk of being sued by at least one unsuccessful applicant), and that anyone who must be fired at a time of higher unemployment will be less likely to find other employment and therefore more likely to sue. Thus the unemployment rate sets a benchmark level of stress that propagates through the entire economy, afflicting workers and bosses alike.

The SWT, by reducing unemployment, would reduce that benchmark level of stress, bringing relief to workers and bosses alike.

14.  Benefits for exporters

We have seen that the SWT, unlike most taxes, does not feed into prices. In particular, it does not feed into prices of exports or of local products that compete with imports. Hence, by replacing various existing taxes by the SWT, a state can improve the competitiveness of its export industries and import-replacement industries.

15.  Benefits for developers

The most vociferous opponents of future development are the beneficiaries of past development — that is, the owners of established properties. These worthies are afraid that their vistas will be “built out”, that the traffic through their suburbs will increase, and that the new supply of accommodation will increase local vacancy rates — all of which means reduced property values or at least reduced growth in property values. But of course they cannot declare their true motives. So they argue that the proposed population growth would exceed the capacity of the local infrastructure — knowing full well that under present financial arrangements, the required improvements in infrastructure will not materialize [4].

By solving the infrastructure funding problem, the SWT would overcome one of the most persuasive objections to development. The resulting infrastructure would also enhance the objectors' property values in numerous ways; in particular, improved public transport would address the traffic problem. To the extent that property developers would contribute to the cost of infrastructure through the SWT, the payments in question would be simply calculated, non-arbitrary, and guaranteed to be less than the associated uplifts in the developers' site values. The same cannot be said of existing lump-sum “infrastructure levies” imposed on developers.

16.  Benefits for first home buyers

Removing barriers to development would of course increase the supply of accommodation and thereby improve the bargaining position of tenants and first-time buyers. We have also seen [in Section 5] that the SWT would improve the competitive position of first-time home buyers relative to “repeat” buyers (while the latter would still gain in absolute terms because of improved infrastructure).

17.  Avoiding recessions

As land is a limited natural resource, an increase in total demand for land cannot be offset by an increase in total supply. And indeed the effective demand for land tends to increase due to population growth (which increases the need for sites) and economic growth (which increases capacity to pay for them). So sites tend to appreciate in real terms [5]. This causes speculative demand for sites as individuals and firms buy sites in the hope of reselling them for higher prices.

In a rational market, the capitalized (or “lump-sum”) value of a site is the discounted present value of the future rent stream from the site. (That is, the capitalized value is the lump sum that would yield an interest stream equal to the rent for the same risk, or the sum of the future rental payments individually discounted for time and risk.) But speculation tends to make the market irrational. When people see prices rising, they want to buy into the market. In so doing, they accelerate the rise in prices, inducing more people to buy in, and so on, causing a speculative bubble — that is, a state in which prices are decoupled from rents and are supported solely by the circular argument that prices will continue to rise. At some point the illusion becomes unsustainable and prices stop rising, taking away the alleged justification for current prices, and so on: the bubble bursts. This is obviously disastrous for investors who buy at or near the top of the bubble. But eventually the natural appreciation of land leads to a new bubble. So the market for land is cyclic.

A bursting bubble in a particular asset market has two counteracting effects. On the one hand, it drives investors away from that asset class and, by default, towards some other asset class that may also be susceptible to bubbles. On the other hand, those who have invested heavily in the collapsed market must reduce their expenditure, and some (most likely those who have bought their assets with borrowed money) become insolvent. As one agent's expenditure is another's income, and as one agent's debt is another's asset, a chain reaction ensues, reducing the funds available for investment in other asset markets, possibly causing them to collapse, and so on. After an isolated bubble-burst, the former effect tends to dominate; thus the land burst of the mid 1920s led to a stock-market bubble [6], and the stock-market crash of 1987 led to a land bubble. But when that second bubble bursts, the cumulative belt-tightening and bad debt tend to cause a recession; thus the stock-market crash of 1929 led to the Great Depression, and the land burst of 1989 led to the recession of 1990–91. The exceptional size and unique importance of the land market mean that a bursting land bubble is the most reliable single predictor of a recession [7]; in particular, the global recessions of 1974–5, 1981–2, and 1990–91 were heralded by bursting “property” bubbles, i.e. land bubbles [8].

The SWT would impede the inflation of “property bubbles” (i.e. land bubbles) because investors could neither spend the entire proceeds of sales on new purchases nor borrow against the entire (appreciated) values of currently owned sites for new purchases. The SWT would also reduce the attractiveness of capital gains and, by default, focus attention on recurrent income; to that extent, it would encourage production rather than speculation and help to keep property prices commensurate with rents. Thus the SWT would make property investment safer in the short term by discouraging bubbles and bursts, but more lucrative in the long term by encouraging provision of infrastructure.

To the extent that the SWT would avoid property bubbles, it would avoid the ensuing bursts and recessions. By inducing public investment in infrastructure, it would also help to lift the economy out of recessions — including the one that we're about to have, courtesy of the biggest global property bubble in history.

18.  Conclusion

The infrastructure funding problem can be solved by means of a site windfall tax (SWT) — that is, a tax payable on the transfer of a property and equal to a fraction of the real increase in the site value since the last transfer.

To avoid retrospectivity, a taxpayer disposing of a property acquired before the time of introduction of the SWT (“D-day”) should have the option of paying tax as if the property had been sold and bought back (at market price) on the day before D-day.

The taxes to be abolished on introduction of the SWT should include (at least) all property transaction taxes, betterment levies, and development/infrastructure levies hitherto imposed by the same government. Other old taxes should be phased out as fiscal conditions permit.


[1] Australia's federal capital gains tax no longer meets this simple requirement.

[2] On the practicality of assessing site values, note that: (i) land is valued separately from buildings in all Australian States; (ii) even in jurisdictions where governments do not separate land values from building values for the purpose of taxation, insurance companies manage to do the same thing for the purposes of setting premiums and assessing losses; (iii) the valuation of land, unlike that of buildings, is facilitated by spatial continuity, i.e. the requirement that in the absence of significant boundaries, the land value per unit area is a smoothly varying function of position, as is the rate at which the value per unit area varies over time; and (iv) the mathematical uncertainties in valuing land are minor compared with the legal uncertainties in classifying transactions as taxable or non-taxable under almost any other form of taxation. In some cases an accurate site value can be calculated from a single transaction. For example, if a site is sold without improvements (buildings or other works), the site value is the sale price; and if a site is sold with improvements which are promptly demolished by the purchaser, the site value is the sale price plus the anticipated demolition cost. In such cases the legislature might think it convenient to calculate the “taxable” site value from the actual sale price. In the case of a developer who buys a broad-acre estate and sells it in smaller lots, the initial acquisition cost could be divided among the lots; the method of division would not greatly matter, because it would not affect the total SWT paid on the estate. In other cases, one would use official current site values as assessed by the responsible government department.

[3] Individuals can gain an advantage analogous to “indefinite lifetimes” if title transfers due to bequests are exempt from SWT. If there were no such exemption, people who expect to inherit property would denounce the SWT as a “death tax”. Apparently they'd rather tax life instead. The objection that SWT would force the sale of an inherited property is laughable on two counts. First, it's a lie; the SWT could be paid by borrowing against a fraction of the property value — a much smaller fraction than would be needed to buy the property had it not been inherited. Second, it's selective indignation; tax authorities have always been able to seize the assets of employers that fall behind in payments of consumption taxes and PAYE income taxes, notwithstanding that the workers lose their jobs and are consequently at risk of losing their homes, most of which were not inherited. Besides, an exemption for inheritors would shift the burden onto other taxpayers in the form of a higher SWT rate and/or delayed abolitions of other taxes and/or less infrastructure, and would therefore amount to a subsidy for landowners who inherited their property at the expense of landowners who acquired their property by hard work, and a subsidy for people with rich dead parents at the expense of people with poor dead parents. That such an outcome should be regarded as a political necessity is one of the great ironies of our time, and one of the great self-serving propaganda triumphs of all time. But, if it is indeed a political necessity, it can be arranged.

[4] For a case study, see G.R. Putland, “Little people vs. littler people: The battle of West End”.

[5] While one may claim that sites on the city fringe remain affordable for first-time buyers on typical incomes, this claim does not refer to a fixed group of sites. As the city fringe moves outward while any given site remains stationary, that site tends to become less affordable.

[6] Most corporate shares are partly backed by site values. Moreover, the slow pace at which shares are created and destroyed, relative to the speed with which they can be traded, makes their supply inelastic (like the supply of land) in the short term. So share prices are susceptible to bubbles and bursts.

[7] A land bubble tends to be accompanied by a construction boom (as buyers try to justify the exorbitant prices paid for sites) and a consumption binge (as owners borrow against inflated land values to buy goods and services). These multiplier effects work in reverse when the bubble bursts. Because of the long transaction times in the land market, a burst is initially manifested as slower sales rather than lower prices, allowing sellers and their agents to pretend that the market has “plateaued” when in fact it has crashed. This state of denial worsens the liquidity crisis that follows the crash.

[8] Concerning the theory that recessions are due to high oil prices, suffice it to say that: (i) there were recessions before there were oil shocks; (ii) the recession of 1990–91 started before the oil shock that allegedly caused it; and (iii) in the words of Alan Greenspan, “we create these elaborate models for policy responses and we put in oil prices [but] they don't create a recession in the models” [answer to a question from the International Monetary Conference (London, June 8, 2004), transcribed by Ashley Seager and quoted in Fred Harrison, Boom Bust (London: Shepheard-Walwyn, 2005), p.65].

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