Land in the Market: A fresh look at property, land and prices
Pricing would lead to more efficient investment and better use of existing capacity
The purpose of the Hobart Papers is to contribute a stream of authoritative, independent and readable commentary to the discussion of economic opinion and policy. Their general purpose is to analyse the economic system and its institutional environment most likely to ensure the use of resources that best satisfy consumer preferences ; their general form is therefore an analysis of the exchange between buyers and sellers of goods and services in markets and the legal framework within which they work.
The market for land has preoccupied public discussion for several years largely because of the movement of population and industry into areas favoured by the public for their amenities or by industrialists for their cost ox other advantages. The predictable results have been an increase in the price of land, especially for house building, exceptional profits by land-owners and by individuals who acquired land on which to build property in relatively high demand, and increased activity by politicians in proposing solutions.
In these circumstances the Institute invited Dr D. R. Denman of the University of Cambridge to analyse the market in land, to appraise the solutions, and to examine alternative suggestions for policy. He has responded with an essay that follows the high standard set by the distinguished contributors to the Hobart Papers: a combination of scholarly approach, animated writing and stimulating discussion of policy. He analyses the economics of the land market within the legal and institutional framework of common law and statutory rights of property; and he reconsiders the fundamental quasi-legal concepts of rights and justice on which the discussion rests. Throughout his Paper he emphasises: first, that buyers and sellers in the market for land are concerned not with exchanging physical areas of glass ox woodland but rights established by law and made valuable by the interplay between supply and demand; second, that in consequence, ’landowners’ are not a small number of wealthy country gentlemen but millions of people with varying rights to dispose of homes, shops, farms or other property occupying land; third, that disregarding the unambiguous rights of individuals may not (in normal times) be the best way to serve the more indeterminable rights of ’the community’.
In his examination of the reasons for movements of prices in land and the buildings elected on it, and of the numerous proposals for taxing the increases in prices and values, or for transferring them from individuals to the community, Dr Denman returns to the first principles of economics in his emphasis on price as the means of bringing supply into harmony with demand. He reviews the conditions in which the compulsory purchase of land by individuals, municipal corporations or the state can be justified, but argues that the buyer should pay a price which compensates the owner for current and expected satisfactions. He questions the proposals for transferring the increments in land values from the owners to the community by arguing that if they are passed on to individual house buyers they cannot be enjoyed by the community, and that if land prices are not allowed to rise the increment can be enjoyed neither by the community nor by individuals. He argues that if there are to be levies for betterment there should be compensations for detriment. In particular he is sceptical of the proposal for a Crown Lands Commission, which he argues might accelerate the increase in land prices and/or reduce the supply of land available for house building. His main conclusion, again following first principles, is that if it is desired to keep down price in land the only way is to increase supply by removing restrictions on densities in urban areas and on building in green belts and elsewhere.
Instead of the devices for preventing would-be sellers of land from coming together with would-be buyers, Dr Denman suggests that the market in property and land should be overhauled so that it serves buyers and sellers better, and that urban renewal might be facilitated by compulsory reallocation of land that would remain in private ownership rather than be transferred to public control.
Dr Denman has concentrated discussion of the many aspects of a very large subject into compact space. The Institute thinks it will be found educational and invigorating to teachers and students of the economics and the law of property in land, to people who own, buy and sell rights in land, to economists, journalists and others who contribute to the formation of opinion, and to people in public life who make policy.
In view of the increasing use of Hobart Papers in formal university, polytechnic and school teaching, we propose to extend the reading lists and add suggested questions for discussion by teachers and students. We hope they may also provide a valuable discipline for other readers.
The Institute does not necessarily endorse Dr Denman’s analysis of conclusions but offers his Hobart Paper as a searching appraisal of the land problem.
About the Author
Donald Denman was born in London in 1911 — four years before the first Rent Act. Later in life he graduated at London University, subsequently entered Government service and in 1946 accepted an invitation to a University Lectureship at the University of Cambridge.