The Portion of Land Value Not Produced By The Owner

Anything for which the demand at zero price exceeds the supply has monetary value. For some of these scarce, yet desirable, items (such as a piece of jewellery) the source of value was the labour of a craftsman, in which case the value rightfully belongs to its creator. Yet in other cases, at least a portion of the value is naturally occurring (a lakeside view, for example). Usually, human labour must mix with natural value to produce the final item. However, some natural resources require less effort to extract value from than others. Consider two coal resources: one far below the surface branching into narrow seams, another deposited on the surface, extractable with open cast mining. The value of coal from both mines is equal, yet one requires far more labour to extract than the other. This will make the mineral rights of the easily mineable deposit more expensive than the rights for the deposit that requires more capital and labour to extract coal from. But when one mining company out bids the others and pays the higher sum for the right to mine these easily accessible deposits, to whom should the money be paid? Who was responsible for that coal deposit being closer to the surface? Who deserves to be paid for this service? No one! It is simply a fluke of nature. And if no one deserves the cash proceeds from selling the rights to this resource, then everyone is equally entitled to these proceeds.

Beyond that, there is value that arises from proximity to other people. It is valuable to live close to shops, restaurants, discos and workplaces from which to earn a living. Yet the land owner creates only a tiny portion of this value. If most people on a street paints their house, the location value of the street will rise even for those who don’t. If a shop or railway station opens up, nearby house prices will go up even if their inhabitants did not build the railway or work in the shop.

We can thus see that, while much of a location’s value does arise from human activity, the rental proceeds from location value are not paid to the creators of that value. Since it is impossible to identify who is responsible for each pound of increased location value, it is better to tax the rental value of location and distribute a per head payment to everyone.

How do we assess what portion of land value arises from its unimproved location value and what portion arises from improvements which the owner has made? The value of the improvements is the cost of producing the improvements. If a house in London costs £150,000 to build and sells for £750,000, then it’s unimproved land value is £600,000. The cash value of the yearly benefit that proceeds from the exclusive use of a location is the location rent (the site rent). The appropriate level to set land value tax (a sum payable to the government for the exclusive use of a location) in a neighbourhood, is therefore whatever level reduces the prices of houses traded in an area to the cost of producing all the improvements present at that location. Mark Wadsworth estimates that a tax on the full site rent of residential property in the U.K. would bring in around £200 billion. Existing business rates offer a conservative ballpark estimate for what a tax on the unimproved value of commercial land could raise — around £30 billion.

Natural resources and farm land would not significantly change these figures.

So an equal right to the rental proceeds arising from the unimproved value of land in the U.K. would split £230 billion per year among 50 million adults and yield a yearly basic income of £4,600 per person.