There's something rather special about land. It's not a tangible object that you can produce, but you can own it nonetheless. Pieces of land are parceled out by invisible lines; there's usually no obvious indicator that you've suddenly violated someone else's property rights by trespassing. In fact, pieces of property are determined by society -ยก- they exist by the mutual consent of everyone in the United States and the willingness of the government to enforce that consent by force.
Economically speaking, land is a very special commodity. The amount of land being produced does not change based on the price - land is a perfectly inelastic good. No matter how much property values increase or decrease, the amount of land available will remain precisely the same.
Property values are an entirely different story. The value of a parcel of land - nominally measured by how much it brings on the market or how much people are willing to pay for it - is subject to improvement. The improvements can come from two directions: either the owner can improve it and thus make it more attractive to buyers, or the land surrounding it can improve, leading people to pay more for it.
There are some interesting implications for social justice here. The property value of a region is influenced by how much people want to live there. As a consequence, areas with low property value will be less likely to recover their property value since they are associated with crime and poverty. Poverty, meanwhile, persists in areas with low property values because poor people can't afford to buy high-value land. Long story short, low property values will tend to stay low, while high property values will increase.
Let's move away from this social justice tangent and think for a bit about taxes. Why do we tax property? At first blush, it seems the more valuable a piece of property is, the more the government should collect from its owner. But this is an issue: the owner of a piece of property may not be using it to generate revenue. He is not necessarily earning anything from it.
This issue is subtler than it seems. Let us explore the consequences of a property tax. The most obvious result is this: given a property tax, the owner's income will become the prime determinant of the value of a property. That is, poor people are essentially disallowed from the ownership of valuable property because either the property must quickly earn money for the owner, or the owner must support the property from his own income.
Property taxes, therefore, restrict social mobility by imposing high short-run costs on the acquisition of land as capital and retarding the growth of home ownership. On the bright side, they encourage the use of land to generate income - else the owner will not be able to afford to keep up the land - but it seems this benefit does not outweigh the social cost of property taxes.
Why does this matter to you, my fellow college student? Well, for one, you will probably someday own your own home. You will also almost certainly live in a community where property taxes are an issue. Remember: land is a special commodity, so it's worth special consideration as you think about politics and economics.
Write to Neal at necoleman@bsu.edu
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