Land.. What are you paying for?
A man walks into a real estate agency. He’s new to the country and its policies. He tells the realtor he wants to buy a plot of land for his factory. He gives the agent an idea of his budget, and land size needed.
“Sure sir” replies the agent. “I have just what you are looking for.”
She takes him in her car to the outskirts of Melbourne. They drive up a muddy track, through some empty fields, to a block of land. Its dimensions are neatly marked out with wooden stumps.
“Here you are sir, exactly what you’re looking for, 1000sqm and the cost is $10,000.” smiles the realtor.
The man gets out the car and looks around.
“Is this the only road to access this plot?” He asks..
“Yes sir...” she replies pointing - “Your closest neighbour is a few kilometres that way, along with the local primary school and a few village shops.”
“Oh!” The man responds. “This will never do! How will my workers get here on time, and where will my customers come from?!”
Noting the man’s reaction the agent thinks for a moment. She ushers him back into the car. “I think I understand what you need sir.. “
Driving back into the outskirts of town, they come across another plot of land, exactly the same size and dimension as the first.
Exiting the car she exclaims excitedly “ This is perfect for you sir!”
“See the school over there? That school is SO good, that people pay $200,000 or more just to live in the ‘zone’!....Over there is the local hospital.. it has some the best surgeons in Melbourne. It’s very popular and the staff that work there, use this shopping strip all the time.....Down the road is train station where your employees can commute to work, and as you can see, the local bus stop is right outside....And crime..? Crime is very low. The police patrol this street every 15 minutes….”
“Oh!” Said the man excitedly. “This is exactly what I am looking for!” He reaches for his checkbook.. “How much is it?”
“$100,000” replies the agent.
“$100,000?!” explains the man aghast.. But it’s exactly the same size and proportion as the other block!”
“Sir you’re not thinking!” Replied the agent..”Look at what you’re getting! The location will attract plenty of business to your factory..”
Pondering for a moment, the man agrees - “you’re right - the price is worth it to me. I just have one question, who do I make the cheque payable to?”
The agent looks confused.
He explains further “The high school, the police station, the hospital, the public transport company..?”
“Oh no sir!” Laughs the agent. “You make it out to the vendor. He’s in Florida, he’s going to retire on the profit from this sale!”
“Then who pays for the facilities that give the land its value” says the man confused.”
“Well Sir, when you set up your factory, and employ your workers, and start producing goods into the economy.. you’ll pay income tax, GST, Payroll tax, Property tax on the building....”
“But that’s not fair!” exclaims the man. “I’m paying twice!.. Once in the land price to a private owner, and once through taxes on my goods and labour for all the services that give the land its value..…! ”
I hope you understand this story. It’s one I use when trying to explain economic rent and the Georgist economic perspective to people who have never considered how the economy works.
It's time we stopped paying twice...