“Landlords love to reap where they never sowed.”
I have always appreciated that these are the words of Adam Smith. Hostility towards landlords was foundational to classical political economy. Ricardo treated rent as analytically distinct from productive income. The fact that rent accrues because land is scarce and ownership is exclusive made Ricardo consider it economically corrosive, and I am inclined to agree.
The entrepreneur who builds a factory adds productive capacity, and the worker who manufactures goods creates output. The landlord who benefits from rising land scarcity contributes nothing at all. I know people tend to think of landlords as providers of housing, but this is a category error. Builders and architects provide housing. The landlord merely provides permission to access a scarce location. They are rewarded for holding a deed to an asset whose value is generated externally. A flat in central London is not expensive because the landlord personally dug out the Tube, the value of that coordinate derives entirely from the society surrounding it.
In a normal market, high prices trigger new production. When the price of wheat or televisions rises, farms, and factories generate more of them. Land obviously cannot sustain this logic. Sadly, you cannot manufacture another acre of Central London. The resulting increases in land value are unearned. The local landowner pockets the premium generated by a thriving society while taking zero risk and making no investment.
Henry George wrote Progress and Poverty based on this tenet, explaining why the technological leaps of the day had failed to eliminate poverty. He found rents simply rose alongside development and trounced any gains. Investors amass fortunes by hoarding idle acreage and waiting for their neighbours to build a thriving society around them, at the direct expense of those who produce new wealth.
My best read of the British housing market is that it functions as a capital appreciation machine for pensioners. Huge tracts of urban land sit underused, deliberately withheld from development because the tax system rewards passive speculation over actual building.
British political culture loves to shield landownership from scrutiny. Governments spend billions to sustain asset inflation, locking younger generations out of ownership to protect the unearned equity of older voters.
Capital is produced, and land is not. Taxing land cannot reduce the quantity of land in existence. Unless the landlords have some kind of doomsday device (they very well may given their posturing), land cannot flee the country or be hidden in a Dubai holding company. A land value tax applies a heavy recurring cost to hoarding valuable acreage, forcing owners either to build something useful or sell the plot to someone who will.
One of the oddities of modern political discourse is that these kinds of orthodox liberal positions are now treated as quasi-radical by the Pensioner Industrial Complex.
The earlier quotation came back to me after the latest Labour Party leadership contest, where Andy Burnham stated that Britain ought to tax landowners more heavily (as mentioned yesterday in the Financial Times). During the 2010 Labour leadership election, he explicitly endorsed a Land Value Tax in an article for The Guardian.
A land-value tax pushes wealth toward productive enterprise and away from passive rent extraction. By replacing levies like council tax and stamp duty, an LVT taxes the least economically productive form of wealth while reducing the tax burden on labour and production. The Georgist slogan held that people should own what they produce, and that the value of land belongs to society.