Land and rent

1. Land and rent Science of Economics, chapt 3.

2. Rent • Land: natural resources. • Natural: apart from human action. • Land rent: payment for the use of land. • Economic rent: payment beyond what is needed to put a factor to its most productive use. All land rent is economic rent. • Economic rents include subsidies.

3. Rent • “Rent seeking” means obtaining privileges and subsidies from government. • Also called “transfer seeking.” • Rent can be implicit. • Economic land rent: regardless of the explicit financial payments.

4. Price of Land • The market price of land equals the present value of the expected future net rents, net meaning after taxes. • Rent = interest rate times price of land. • p = r / i • A tax on land is also paid from rent: • r = t*p + i*p = p ( i+t )

5. Effect of a tax on land value • p = r / (i+t) • If the interest rate or the tax rate rises, • the price of land falls. • The tax does not affect the rent. • After transition, landowner has no burden.

6. The non-producer surplus • Land rent is a surplus after paying for labor and capital goods. • Most of the “producer” surplus is rent.

7. Sprawl • Governments create urban sprawl by subsidizing the fringes and penalizing infilling at the urban center.