LAND AS A PLATFORM
Almost every major city in the world today has a housing affordability crisis.
When we think about using digital innovation to tackle this problem, we can immediately begin to imagine ways that technology could transform the outdated way we design and construct homes: making them better and dramatically cheaper to construct.
But that alone won’t solve the problem. Because most of what makes a home unaffordable is not the house itself - it is the land underneath it. The right to live at that location.
As many economists, from Adam Smith to Henry George have pointed out, land value isn’t created by the owner, it is created by all of us, and by governments, when they install roads, infrastructure, schools, and - ultimately, provide military protection. Fundamentally, land is licensed to us by our governments in the form of a piece of paper – a deed of ownership. Because it is just that, a piece of paper - its price is determined not by how much it costs to produce, but by how much someone is willing – or able – to pay for it, based on their wealth, their wages and their ability to borrow.
Under the standard model of land ownership, when the value of land rises – it is the owner who captures that increase; ‘reaping where he never sowed’ . This creates a market for speculators: middlemen such as developers and landlords. Their business model consists of using their capital to buy land, then selling or renting homes on it for as much as people can bear to pay. In this model, even if technology were to reduce the cost of building houses by half, the rent would still stay the same; land values would just go up.
Applying 21st century technology onto this 11th century land model is no more effective than fitting alloy wheels onto a horse and cart. The new, digital city may look different, but fundamentally, nothing will change. It will still be unaffordable and unequal. The cost of land will continue to have an increasingly suffocating effect on the economy and society, soaking up as much as 50% of families’ or businesses’ monthly income, in rent or mortgage payments. Put simply, the more we have to spend on the cost of land, the less we have left to spend on the buildings and activities that happen on top of it, such as entrepreneurialism, employment, care or sustainable construction.
So how might we begin to redesign land ownership for the 21st century?
One way of doing it might be ‘Affordable Land’ . Instead of selling plots of land to the highest bidder, the city leases them for a low up-front cost. However, the deal cuts both ways. The land can only be sold for the same amount that it was purchased for, and any rent above, say, 20% of the median income, will be payable to the city. In other words you can still own and sell the land – but only as a place to live and use, not as a speculative asset. If you want to do that, buy a place down the road.
In effect, Affordable Land could create a new class of home ownership – one that can exist alongside the existing land market. It allows city governments to make land available as a low-cost platform for society and the economy, liberating citizens and businesses from the burden of economic rent, and unlocking huge levels of prosperity and innovation.
All without spending a dollar.