Speculators are Subsidized by our System
of Public Improvements for Private Profit

Perry Prentice

[Reprinted from a special 84-page booklet on land,
House & Home Magazine, August, 1960]

Suburban land would have little value if someone did not spend millions of dollars to build roads and highways and make it accessible, water and sewer lines to make it habitable, and schools and other community facilities to make it livable.

These essential improvements cost so much money that land speculation would be much less profitable and much less attractive if the speculators had to pay for them. The big profit in land speculation conies when the speculator can take the gains and get the bill paid by someone else -- other tax payers and/or future owners.

In 1937 the National Resources Committee urged a study of the increment tax on real estate, "to see whether such a tax would make possible the financing of public improvements more nearly through tax revenue derived from the increased values which these improvements create, and whether such a tax would aid in combating speculation in land. Or the same result could be achieved by a vigorous system of betterment assessments coupled with detriment payments to landowners whose property was depreciated by the improvement (such as farmers whose farm is cut in two halves by a freeway). The Erie Canal, which multiplied land values in upstate New York was financed by a special tax on the land that benefited.

Most obvious example of public improvements that rebound to the land speculators' private profit is the new network of thruways and federal highways. Land values near interchanges along their routes have soared, but their entire cost has been paid by tolls and/or increased gasoline taxes; the landowners who got the windfall pay not a penny. On the contrary, many of them were directly enriched by selling their land for the right of way for far more than it could otherwise have brought.

Less obvious but equally important is the way acreage sellers escape paying more than a small part of the cost of building the new schools without which their acreage would not be worth much for homes. Most of the money for these schools is raised by taxes on houses, for under our local tax system the taxes on houses add up to many times as much as the taxes on raw land. So the owners of existing homes, who get little or no benefit from new houses on the edge of town, pay most of the taxes to provide the schools and other community facilities needed to make the speculators' land salable at a big profit!

Most of the homebuilders' community facilities problems would be eased if raw land were taxed more heavily, so that more of the cost of improved facilities would be paid by the landowners whose land prices are multiplied by the improvements.