Rents Are Skyrocketing. Let’s Buy Back The Land.

Landlords have made a fortune on climbing land values. What if land was held by the public instead?

Eric Petersen for Noema Magazine

Connor Finney is a housing advocate and community organizer.

Berlin residents recently voted for a bold change to the city’s housing landscape: the transfer of more than 200,000 units of housing to public ownership. Though the referendum is nonbinding, the move raises a question that’s resonating in a world of rising rents: To whom do the fruits of urban growth belong? This question becomes more salient when you consider how much of the wealth captured by private landlords in cities is actually created by the public.

Land’s value — and what can be charged for renting property on that land — has much more to do with its location and productivity than it does with any specific improvements landowners have made to it. Writing about agricultural land rents in the 18th century, Adam Smith noted that “the price paid for the use of the land is naturally a monopoly price. It is not at all proportioned to what the landlord may have laid out upon the improvement of the land, or to what he can afford to take; but to what the farmer can afford to give.”

And there is no real estate that is more productive or desirable in developed countries than urban land in growing cities, where job growth is increasingly concentrated. Housing shortages in these areas have caused rents to soar, and the propertied class has experienced a decades-long windfall.

Take Berlin as an example. The 200,000 housing units that voters want the government to purchase — making up about 11% of all rental units in the city — used to be publicly owned and were privatized in line with international trends toward liberalization over the last quarter of the 20th century. In the intervening decades, Berlin faced a housing shortage and rents climbed.

While privatization did little to spur the necessary development to meet demand and stabilize prices, it did enrich private landowners. According to a recent report from Berlin-based real estate firm Guthmann Estate, rents have surged by 13% in Berlin in the past 12 months alone. Activists pursued the expropriation measure after Germany’s high court found Berlin’s 2019 rent caps unconstitutional

“Landowners are seeing massive, unearned increases to their wealth while tenants are left to pay the ever-climbing tab.”

In American cities, too, a growing share of renters are competing for a largely stagnant pool of rental housing. For decades, urban counties have been the source of most U.S. population growth, while rural communities have aged and emptied out — and 2020 census data shows this trend is only continuing. Between 2010 to 2019, rents went up 36% nationwide, while incomes only increased by 27%. The pandemic briefly disrupted this trend, but rents alone in many places have all but recovered to pre-pandemic levels (not to mention the housing sale price mania that has characterized the past year).

Landowners are seeing massive, unearned increases to their wealth because of these trends — all while tenants are left to pay the ever-climbing tab. On top of this, infrastructure projects paid for by taxpayers — any light rail, bike lane or pedestrian improvements to neighborhoods, for example — all increase land values. At the same time, the social services that cities need, like public transit and affordable housing development, remain underfunded.

So what is to be done? To solve the housing crisis, protect tenants and secure funding for needed social programs, cities and states must acquire urban land — both by buying it on the private market and by using existing eminent domain powers in wealthy neighborhoods adjacent to transit corridors. Cities around the world, like Singapore, Vienna and Copenhagen, have already created their own urban real estate portfolios and could provide a template to guide housing policy in the U.S. Instead of letting private landlords and the speculative market alone dictate what is done with growing land values, these cities use their land wealth for public benefit: subsidizing rents for low-income tenants, building new mixed-income social housing developments and even funding public transportation operations with market rents. 

In Singapore, for example, 90% of the land is owned by the state, and over 80% of residents live in social housing, according to Anne Haila’s “Urban Land Rent: Singapore as a Property State.” Shortly after Singapore achieved independence in 1965, it created a state land bank with the express mission of large-scale land acquisition. Between 1966 and 2002, the government’s real estate holdings went from about 60% to 90% of all urban land.

“To solve the housing crisis, protect tenants and secure funding for needed social programs, cities and states must acquire urban land.”

Population growth in the tiny city state, Haila notes, has acted “as a constant pressure to densify.” To keep up with growing demand, the state acquires land through three quasi-independent agencies working in concert. The Urban Redevelopment Authority deals with city planning and conservation. An oversight board, the Singapore Land Authority, manages the city’s real estate portfolio and conducts public land lease auctions. And the state Housing Development Board (HDB) engages in the mass development of dense social housing. HDB flats are sold to individuals and families in 99-year leases, creating stable housing costs for leaseholders. 

All HDB flat leases are sold at market prices, but there are demand-side subsidies, vouchers and payment programs available to people with lower incomes or other qualifications. By charging market rents for these apartments or leasing land for private development, the Singaporean government uses its land bank and market rents as a source of government revenue — what Haila calls “fiscal rent” — which can then be spent on public transportation projects, welfare benefits and other important social programs. Singapore’s example, Haila writes, “demonstrates that one-off land reform is not enough in the context of cities — there is a need for repeated land acquisitions.”

The results speak for themselves: More than 80% of Singaporeans own a 99-year lease in a public housing development. Despite Singapore’s population growth, which has tripled since 1965, housing development has, for the most part, kept up with demand. Singapore has far less homelessness than its international peers — roughly 1 in 5,600 people are homeless in Singapore, compared to about 1 in 100 in Los Angeles.

Singapore is not alone in using strategic land buys to secure affordable housing and socialize land values for the public good. As a 2017 Brookings paper highlights, Copenhagen has also integrated a state land bank into its urban planning process. The Copenhagen (CPH) City Port & Development Corporation, which was created to use landed assets to finance the construction of public transportation infrastructure, helped turn the city around after decades of decline as a manufacturing hub. It borrowed against the value of the land it possessed to finance $2 billion in planned metro train expansions. After completion, the site in question was worth $450 million more than the original assessment, and this appreciation served as a revenue source for further infrastructure projects.

In this scenario, the state acted as both a real estate investment trust and a transportation planner. By using the inherent value of urban land to finance capital projects, which in turn increases the land’s value and grows ridership, the development authority can use revenues generated from these investments to pay off public debts. As in the private sector, there are many opportunities and strategies to leverage real estate assets. But unlike companies in the private sector, the state is not required to make a profit, allowing all revenues to be invested into social projects like a robust public transportation system.

“When cities give up control of the land, they cede their ability to leverage this wealth in creative ways.”

There are, of course, barriers to applying these lessons to U.S. cities. In many jurisdictions, land acquisitions require a unanimous council vote. Most transportation agencies are restricted in the size and scope of land acquisition they are allowed to make. In addition, what urban real estate portfolios cities and counties do possess are often misused, sitting fallow and sold off during recessions in a desperate effort to fill budget shortfalls.

In Germany, the U.K. and many other countries, as in the United States, selling off public lands wholesale is the go-to option to fill budget holes. But when cities give up control of the land, they cede their ability to leverage this wealth in creative ways. Instead of selling off publicly owned land, for example, Copenhagen used public institutions to manage its real estate assets and build out needed green infrastructure. Cities around the world could make better use of the fiscalization of land values for all kinds of budgetary priorities. 

The Bay Area Rapid Transit (BART) system is among the more innovative in leveraging land assets. Legislation passed in 2018 empowered BART to develop housing as well as control the zoning on land it possesses. Height limits, parking requirements, local approval processes and other land use restrictions leave most transit agencies able only to use their land portfolio for parking. BART can now work with private developers to build housing on its parking lots and receive a portion of the land rent to fund the transit agency’s operations, taking a page from international peers. It has also created financial incentives for housing projects to ensure all developments contain a certain percentage of affordable housing.

“This will only become more important as the climate crisis will force cities to simultaneously reduce emissions and grow to accommodate climate refugees.”

Some might protest and say there are better alternatives to capture and leverage land values. Some might suggest merely taxing land through property taxes, vacancy taxes or transfer taxes would be sufficient. But this method leaves a lot to be desired and has substantial political constraints. 

U.S. urban policy in the second half of the 20th century has been shaped by a series of property tax revolts. The most infamous of these was California Proposition 13, which freezes property tax rates at 1976 assessments or at their time of purchase and only allows them to be reassessed by as much as 2% a year, no matter how high land values get. A referendum to repeal Proposition 13 for commercial properties made it onto the ballot in 2020, which would have ensured that reassessments happened every three years for commercial real estate worth over $3 million. This unfortunately failed at the ballot box. Any plan to sufficiently capture land values has to contend with the existing political economy of our cities, and, as it stands, U.S. urban policy is dominated by propertied interests.

Homeowners, landlords and other real estate investors set the policy agenda in urban government. NIMBYs are consistent opponents to new apartments, subsidized affordable housing and homelessness services navigation centers, and they consistently empower local elected officials to kill proposed projects. Groups like homeowners’ associations and Livable California consistently oppose statewide land use interventions that could streamline housing growth. A majority of Californians voted against Ballot Proposition 21, which would have allowed cities to expand rent control, in spite of the fact that the vast majority of voters do not own rental properties.

There is a class consciousness among property owners that sees any significant change to land use, property taxation and tenant protections as a threat to their wealth and status. Urban land acquisition can act as a backdoor strategy to not only socialize land wealth but also grow the population of tenants and politically empower them.

But even beyond the political constraints, taxation also does not do anything to control the use of desirable urban land. As Singapore and Copenhagen show, land banks and public real estate entities can act as an important thread in larger urban planning and development processes. Cities and states can create a virtuous cycle by developing housing around public transportation, thus increasing public transit ridership and generating additional funding for affordable housing and transit in the process. 

This will only become more important as the climate crisis will force cities to simultaneously reduce emissions and grow to accommodate climate refugees. These issues are too important to be left in the hands of private real estate investors. We must act to ensure the value of land is equitably shared by all.