Bounty: Scholars Guess: How Many $ In This Market?
Since land is so crucial, some can’t resist estimating its worth.
April 11, 2018
Jeffery J. Smith

The three most important things in real estate are not in mainstream economics.

To hear experts tell it, humans can do economies—produce wealth—out of thin air and without a place to stand. Or so economists suggest. They have split land economics off from the rest of the discipline.

In a way, it stands to reason; central authorities do issue the symbol for wealth—money—out of thin air. However, they can only do so on their computer in the Federal Reserve, and that computer and that building must stand on land somewhere. Further, that location must be in the center of the nexus of power. In the US, that’s split between New York and Washington, the locations of the Fed’s HQ and its most powerful branch. If central bankers were not physically close to Wall Street and to Congress, they could not wield the power they do, which, as always, depends on relationships—being on a first-name basis with fellow movers-and-shakers.

At any rate, given their attitude toward land as an antiquated, peripheral factor, many specialists today do not realize that taking an educated guess about the worth of Earth in America has an intellectual lineage. In years gone by, mainstream academics did make an effort to calculate the total value of land and resources. Now, however, the institutional memory is lacking, hence this quest to measure all rents comes from more adventurous researchers (a few such economists do exist).

The Road to Academic Answers

As before, we searched with the same key words: “worth of Earth” and “land value in the US” and “resource value in the US” and “rental value of US land” etc. But this time we entered them in the specialized databases for academic searches. The authors of those articles, at least, are respected by their peers and lay readers of economics.

All statisticians and economists in the field know how indifferent—even critical—most of academia and government and business are toward measuring the torrential flow of rents. For specialists to feel hesitant about hopping on a bandy bandwagon is a normal human reaction. Yet a few stalwarts did and we salute them.

Even though those authors do address themselves to the rents paid for natural assets, they can not do so in any other way than their usual academic fashion. Since specialists don’t cater to us or offer any de-coder rings, we must meet the specialists on their turf, the language of the specialists. So be it—the price of admission.

Academics and their dry style make us laypeople work. They focused mostly on land beneath homes and devoted pages of formula to torture the raw data into totals that might reflect reality. They crunched their numbers in various ivory towers.

When a lay person seeks something as esoteric as the money society spends for the nature it uses, a specialist comes in mighty handy. While doing the research, it’s a relief to see a help link at a voluminous website, or see a help desk in a specialized library. It’s encouraging when bureaucrats point visitors to where the data re land values are kept in the buildings, in the stacks, and in the internet.

Questions about the worth of Earth in America are a lot to ask of busy specialists who tend to have already said all they can say on the topic. Usually they don’t have to deal with laypeople but only with other pinpointedly-focused specialists fluent in the jargon. So their help is greatly appreciated.

Academics have the stature that lets them confront their colleagues. They can:

  • ‍question the results of others,
  • ‍ask penetrating questions, and
  • ‍point future research in the right direction where the total for rents lies.

Some do come through.

As authors say, books are a team effort. The help from specialists that has been forthcoming lets us advance this frontier of knowledge. And discover what dictates from what special interests have been holding back the economics profession.

We learned the definitions of their jargon and interpreted their columns, charts, graphs, and tables. Eventually, all that became clear. I waded through it so you don’t have to. You only have to decipher mine.

Given that there are hundreds of thousands of articles out there in journal-world, the number that turned up on social surplus is not overwhelming. That says something about either the unattractiveness of land economics to economists or the kryptonite-effect from outside influences. Whichever …

What follows is the economists’ best work, collated and annotated (to use their very own jargon). Given that their math is more obtuse than their text, let’s spare ourselves the former and focus on the latter.

To find a recent total for the worth of Earth in America, I honed in on articles published this millennium. Further, 2000 to 2017 is almost the length of one period in the 18-year land-price cycle. However, I did make one exception for a forerunner who kept the torch of inquiry alive:

How Much Revenue Would a Full Land Value Tax Yield? In the United States in 1981, Census and Federal Reserve Data Indicate It Would Nearly Equal All Taxes” by Steven Cord in The American Journal of Economics and Sociology, 1985 July.

As an academic, Cord estimated that 28% of national income in 1981 was land rent.

JS: As an activist, Dr. Cord was the long-time leader of the Henry George Foundation. He single-handedly persuaded dozens of towns in Pennsylvania to recover some of the socially-generated value of locations. BTW, Pennsylvania is the only state where it’s legal to split the property tax and levy different rates on land and buildings; in all other states, speculators, by influencing legislatures, made this beneficial policy—it creates infill—illegal.

Now we’ll fast forward one score to this millennium. The land most people know—specialists and lay people—is their yard. Plus, land for housing totals much more than land put to any other use.

Top 10 Studies

1)” by Dr. Fred Foldvary, Santa Clara University, Civil Society Institute (his website), 2006 January.

Without giving the figures, Fred figures land rents could fulfill 60% of all public budgets. In 2006, the Census Bureau says that total was $4.4207 trillion—$2.6554 t federal and $1.7653 t state and local expenditures; 60% comes to $2.6524 t (almost identical to federal spending then). That amount would suffice if governments were to quit making income transfer payments. The beneficial results of treating land rent as the tax base—rather than taxing salaries, sales, and structures—include: “higher incomes, reducing the demand for government welfare programs. Decentralization, privatization, and the elimination of wasteful government programs would further reduce the amount needed to fund government.

JS: Well, of course, hats off to that, zeroing out waste. Yet if I may, instead of zeroing out food stamps, etc, one might prefer that politicians quit paying corporate welfare, fulfilling the wet dreams of weapons contractors, etc.

2)The Value of Land in the United States: 1975 to 2005” by Karl E. Case (half of the successful and widely cited Case-Shiller Report), 2007 March.

Ignoring agriculture, he estimates the value of land in 2000 to be $5.6 trillion.

JS: The end of the last millennium (year 2000) was six years before the zenith and Foldvary’s year of publication (#1 above) and 10 years before the nadir of the land-price cycle. Although his year is six years before Fred, Karl’s amount is $3 t greater. One or both must be way off.

3)The Price and Quantity of Residential Land in the United States” by Morris A. Davis (U Wisconsin-Madison Department of Real Estate and Urban Land Economics) and Jonathan Heathcote (Georgetown U, Federal Reserve Board, and CEPR), 2006 November.

By the second quarter of 2006, the peak year in the recently concluded land-price cycle, residential land was priced at $11.6 trillion, more than double Case’s year 2000 figure above ($5.6 t), accounting for 46% of the price of the housing stock and 88% of GDP.

JS: Why GDP? That stat is a salad of all flows while price is a one-time lump sum. Two better comparisons—apples to apples and oranges to oranges—would be land price to the price of all assets or land rent to national income, as Cord did above. Also, in 2006 home sites peaked, so while $11.6 t might look like a lot it might really be a little.

4)The Price and Quantity of Land by Legal Form of Organization in the United States” also by Morris A. Davis (above), 2008 December.

According to the Federal Reserve’s Flow of Funds Report, the price of owner-occupied housing for the entire US in 2006 (the peak year) was $22.8 trillion—more than the capitalized value of the NYSE, Amex, and Nasdaq exchanges combined. The price of just the underneath land owned by households and nonprofit organizations was $6.9 trillion. The value of land owned by all four sectors—household and nonprofit, non-corporate, non-financial corporate, and financial corporate—at year-end 2007 was $12.4 trillion. The method that Davis and the Fed use is: take the price of real estate ($23 t), subtract the replacement cost of structures ($16 t), to get the nigh $7 t. Their methodology shows that land in the corporate sector [supposedly] lost almost all of its value between 1989 and 1995.

JS: While comparing price to price is the better comparison, Davis recalculated the value of residential land for 2006 from $11.6 t (in #3 above) to $6.9 t. For a “correction”, that is enormous. They both can’t be right and perhaps neither is. Further, how can land—especially downtown land where corporations have skyscrapers and locations are the most pricey—lose nearly all its value? One must wonder about their methodology.

5) “Commercial and Residential Land Prices Across the United States” by Joseph B. Nichols, Stephen D. Oliner, and Michael R. Mulhall, also of the Federal Reserve Board, 2010 February.

According to the Federal Reserve Board’s Flow of Funds (FOF) accounts, the total price of land held by households, nonprofit organizations, and businesses other than farms and financial corporations at the end of 2009:Q3—close to the bottom of the recent land-price cycle—was roughly $4.5 trillion.

JS: Despite being close to the bottom, $4.5 t might still be too low, since their high might not have been high enough. That aside, the drop of over $7 t is huge. It shows that location values swirl while building values gradually depreciate.

6)Over-accumulation, Public Debt, and the Importance of Land” by Stefan Homburg in German Economic Review, 15 (4)

In 2006, the US land-output ratio skyrocketed to $19.6 trillion in absolute terms, and then plunged to $8.8 trillion within four years, extinguishing over $10 trillion of actual or potential bank collateral.

JS: His 2006 peak of $19.6 trillion exceeds Davis’s figure of $11.6 t (#3 above), yet Homburg includes land used for more purposes than just housing while Davis looks only at home sites. Homburg’s bottom of $8.4 t exceeds the FOF nadir of $4.5 t (#5 above) by nearly twice as much, yet the FOF figure includes more than home sites, so it’s hard to see why the discrepancy. Further, Homberg's plunge extinguished well over half his peak figure, while one half is usually the outlier amount of loss, claim many observers. So his figures bear watching.

7)The Boom and Bust of U.S. Housing Prices from Various Geographic Perspectives” by Jeffrey P. Cohen, Cletus C. Coughlin, and David A. Lopez in the Federal Reserve Bank of St. Louis Review, 2012 September/October.

For 2012:Q1, the aggregate price of all US land used only for housing was $4.151 trillion according to the S&P/Case-Shiller Index or $5.474 t according to the FHFA Index.

JS: Both figures are well below Homberg’s ($8.4 t) but in line wtih the FOF’s ($4.5 t). However, both figures are for 2012, two years after Homberg and three after the FOF. Given that far into recovery, it’s curious both the FHFA and Case-Shiller lag so much.

8)Aggregate U.S. Land Prices” by the Lincoln Institute of Land Policy.

Their estimate of total market price of land in residential use in the US for 2016 Q1, according to the public’s FHFA is $8.746 trillion and according to the private Case-Shiller is $9.940 trillion.

JS: Both estimates are less than the $11.6t for home sites in 2006, the peak (#3), yet by 2016 housing had recovered its previous peak price. Once again, conventional statisticians lag behind the market. They’re back to assigning location only a third of total housing+site price while in 2006 they gave sites half of total property price.

Almost all the above articles focused on the value of land below homes. Finally in 2015 an official statistician broadened his target to include the values of land for all uses and other natural resources besides the surface. Also he included land whether owned by private parties or public agencies.

9)New Estimates of Value of Land of the United States” by William Larson of the Bureau of Economic Analysis (in the US Commerce Dept), 2015 April 3.

The contiguous (lower 48) United States plus the District of Columbia (1.89 billion acres) in 2009 prices could cost at least $23 trillion.

JS: It seems our work has been done for us. However, while it’d be nice to think that this is the ultimate answer, it’s not. It’s for 2009—the bottom of the recent cycle—not for any year after, after land climbed out of the trough. $23 t is not enough.

It’s curious. That article—and others like it—ends with a plea to colleagues to do followup research. If there has been further research to reach an exact amount for rents, it has not been deemed newsworthy by any of the media I peruse. That creates this void.

None of the above top nine articles crossed the finish line and tallied the holy grail of the worth of Earth in America. Either they left out public land or left out land used for something other than houses or based their guesses on combinations of land plus buildings or used out-dated stats. If the rentier powers-that-be tried to discourage inquirers, they succeeded.

Yet whatever official estimates lacked in accuracy they made up in respectability. Almost everyone who finds cause to cite the value of land cites the official figure, warts and all, as gospel, without bothering to question the method used. So let us get our hands dirty and question that method by taking a look at rich cities.

A word about the method the mainstream uses to separate the value of land and building in a combined price for a property. The conventional studies above attribute more value to the building and less to the location. Conventional economists do so by claiming even an old building is worth what it would cost to replace it. That’s like saying the value of my driveway with a clunker sitting on it, is the combined value of driveway plus clunker, minus the value of a brand new Camry parked there. Seems too absurd to be so, but that’s their argument.

A couple of mainstream economists offered a correction. Nicolai V. Kuminoff and Jaren C. Pope write, “First, the replacement cost approach may overstate the value of land during a boom-bust cycle. Second, the bias may not be neutral. Our results suggest it would be largest in the highest-amenity neighborhoods.” (This is from "The Value of Residential Land and Structures during the Great Housing Boom and Bust”.)

Pope and Kuminoff also “suggest that moving from a property tax to a land tax may actually help to stabilize revenue streams for some municipalities.” Shades of Steve Cord (above)! Does even such faint praise unnerve rentiers so that they frown on research into the value of land?

In the wealthy ski resort Aspen CO a vacant lot fetches $10 million easy. Even specialists have a hard time accepting the fact that a million dollar house in San Francisco is actually a $800,000 site with a bungalow on it. Same goes for $10 million dollar apartments in New York; those are $8 million sites. Developers pay $1,000 per square foot and upwards in any world-class city like New York, London, or Tokyo. That square foot is for the floor, drawing attention to the building, but includes the site, the part overlooked. Remove the building and maybe it’s easier to see.

Fortunately for our quest to know a realistic total, a few economists did grapple with the twinned issues of doing the research while going against the grain—and did so by also looking at cities, both rich and poor, both big and small.

10)Metropolitan Land Values” by David Albouy, Gabriel Ehrlich, and Minchul Shin, 2017 June 11.

The Federal Reserve in its Flow of Funds (FOF) accounts uses a method to determine the value of land that yields negative values, which can’t be right. Instead of switch to a more accurate method, in 1995 the Fed stopped publishing its estimate of land value, yet continued to publish a total for land and buildings combined.

Rather than try to derive a value for land from that stat, the Albouy team turned to records of the sales of land alone. They tallied 68,756 land sales covering 76,581 square miles of urban land, or city regions, that public statisticians named “Metropolitan Statistical Areas”. In 2000, all MSAs accounted for 80% of the US population and probably at least as much of the US land value.

Mainstream statisticians in 2006 (the peak year) tabulated all real estate at $43.3 trillion, structures at a whopping $26.3T, and land at only $16.9 t. The Albouy team, using land sales, calculated its aggregate price was $30.4 t, nearly 80% higher.

Also, their estimates proved more stable than those of the FOF. At (or near) the bottom of the last cycle in 2009, the land price total fell, according to the FOF, down to only $5.8T yet, according to Albouy et al, down to only $14.4 t. The peak-to-trough decline in the FOF was 66%—well beyond the normal outlier of 50%—while in the Albouy study was 40%—well within the 50% normal outlier.

How do we reconcile the huge difference between official results and Albouy results? First, as cities get bigger, their sites grow in value, more so than do their buildings. Officials overlook this phenomenon and subtract an exaggerated value for buildings. Second, the FOF, while including land outside metro areas, left out public land. The Albouy team, while excluding land outside metro areas, included land for civic buildings, parks, and roads. Some figure that some roads by themselves are so desirable that just the land abutting roads goes for over $7 trillion. Assuming that the public owns urban land worth 40% of the total, then private parties own land priced at only $18.2 t of the total, which is much closer to the FOF $16.9 t.

JS: Finally, the 10th of the Top Ten provides a figure that’s ample and accurate. Albouy’s $30.4 trillion for only metro land vastly exceeds Larson’s $23 t for all kinds of land. And the larger number is derived directly from actual selling prices of land.

The other nine academics slanted land value downward. The authors bent over backward to minimize the object of their study (the value of land). The economics discipline, literally, constrained its mildly wayward members. It was as if the authors served not objective science but some interested party. The tone of the articles to my ears did not ring of scientific caution in the face of the unknown but of political caution in the face of known biases, those of the ruling rentiers.

What’s Real Value?

All ten of the authors (11, including Cord) based their estimates on official assessments which only track price, which frames land as just another commodity. We’re so used to buying and selling everything, including land, that we automatically, and mistakenly, assume that price is value. Yet it’s not.

Price is only what the buyer pays the seller. Actual value is the entire amount one is willing to pay to own or control a location. It includes the:

  • ‍mortgage interest paid to banks (the “F” in “FIRE),
  • insurance (the “I” in “FIRE),
  • ‍other charges the Real Estate industry manages to impose (yet may not be necessary); plus
  • ‍taxes on property.

Land value is not the total of any of these payments but only the portion for the land half of the property. An accurate tally of the worth of national Earth would include the land half of all these four payments—rent, interest, insurance, tax—in the grand total.

Ironically, price is not even basic; it is capitalized rent. Just as land taxes or land dues socialize rent, land prices capitalize rent. Price is a lump sum from a sale. Yet if all land in the US were put up for sale at the same time, that territory could not fetch anything near those official price totals. The greater supply of parcels on offer would drive down their price to a figure about the same size as the annual rent for all the land—true value.

In addition, price is not relatable to national income. The price of land is comparable to the price of other fixed assets. Rent is what’s comparable to income and spending. Furthermore, rent counters land as object of speculation. It reminds us of The Bible saying, “The land shall not be sold for ever, for the land is Mine; for ye are strangers and sojourners with Me.

While most specialists use “price” and “value” interchangeably, only one scholar used the terms "rents" and "values" interchangeably. He was also the one guy (who led his team) to use the price of land exclusively (not the price of land plus buildings). That was David Albouy of U Illinois and NBER in “What Are Cities Worth? Land Rents, Local Productivity, and the Total Value of Amenities”, 2015 April 16.

Since we want the grand total of the worth of Earth in America, that distinction between public and private does not matter to us, nor does the one between urban and rural. We want all types of land thrown into the hopper.

The best figure for us for 2006 is Albouy’s $30.4 trillion. Since real estate recovered all its lost value a couple years ago, by now in 2018 the total aggregate price for all land must be well over $30.4 t. Furthermore, there’s still the rural land to add in, which we’ll tackle in Chapter 15.

These ten studies are what individual academics had to say. Next chapter we’ll dig deeper and see what their sources—academic centers and government agencies—have to say. De-coder rings ready?


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Jeffery J. Smith
