land value capture’s quiet concession: why progress and poverty’s genius leans on a hidden right

the pursuit of an equitable and efficient economic system often leads us down fascinating rabbit holes, especially when it comes to land. as a long-time advocate for utility-maximizing cardinal voting methods and a student of land value taxation (l.v.t.), i’m always on the lookout for fresh perspectives on how to capture the unearned increment of land value for public good.

that’s why i was particularly impressed with the progress and poverty institute’s recent piece, decoupling land and improvement values. it’s a truly thoughtful exploration of a market-based approach to land value capture, aiming to streamline the process of assessing and taxing land while leaving improvements untouched — a georgist dream, in essence. their proposed system of public land rentals, continuous bidding, and “hostile takeovers” is a genuinely innovative framework for dynamically allocating land and capturing its economic rent.

what i find especially elegant is their commitment to ensuring that “the market itself will be utilized to determine both values of the unimproved land and the improvements, and thus appraisals are made unnecessary.” this commitment to market-based valuation is crucial for efficiency and transparency, addressing a common criticism of traditional l.v.t. implementations.

however, as i read through their brilliant proposal, a familiar echo resonated with me. the p.p.i. piece, while eloquently laying out its unique mechanism, implicitly relies on a concept i explored in my own article, ”the convergence of harberger taxation and land value capture: how destructive rights transform property tax into pure land rent”.

the p.p.i. article states that upon a hostile takeover, the incumbent tenant “must be compensated for their improvements at their market value.” this is absolutely necessary and just. but the critical question, which the p.p.i. piece doesn’t explicitly detail, is: how is that “market value” enforced if the incumbent owner is effectively forced to sell their land lease?

in a scenario where a higher bidder takes the land lease, and the previous tenant has no choice but to vacate, their leverage in negotiating for their improvements seems nonexistent. without some form of power, the new tenant could simply lowball them, knowing they have no recourse.

this is where the underlying, unspoken mechanism comes into play: the threat of destruction.

my argument, building on insights from the harberger tax, is that for any system like this to truly ensure “market value” compensation for improvements, the incumbent owner must retain the credible option to destroy or remove their improvements. they don’t have to actually do it. the mere fact that they could — that they could turn their valuable building into rubble — is sufficient to force the incoming tenant to offer a fair price. why would a new land leaseholder pay for a building if they could get it for free, or for a pittance? they wouldn’t. the only reason they would pay market value is if the alternative (having to build anew on a cleared lot) is more costly.

the p.p.i.’s genius is in designing a seamless, market-driven system for land value capture. and while it doesn’t explicitly name it, its effectiveness in compensating for improvements at market value inherently relies on the underlying principle that i’ve called “destructive rights.” it’s a silent concession to a fundamental aspect of property rights that ensures fairness in a dynamic land market.

it’s a testament to the convergence of ideas in this space. whether through harberger tax or a public rental exchange, the core challenge remains: how to capture land’s unearned value without penalizing human effort and investment in improvements. the p.p.i. offers a brilliant solution, subtly affirming the power of that crucial, often overlooked, right.