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Land Value Capture and Justice

Susan S. Fainstein

May 2012, English

In this paper, Susan S. Fainstein examines the arguments for using land value capture for distributive purposes. Her assertion is founded on Henry George’s idea that land value increments created by regulatory changes, population growth, and economic development should belong to all the inhabitants of a city. She also cites Henri Lefebvre’s argument that the wealth of a city is created through collective action and therefore should not be privately owned. After justifying community ownership of publicly created land value, Fainstein examines in detail two value capture mechanisms: public leasehold systems, and monetary and in-kind exactions.

In principle, Fainstein argues, public land ownership, with periodic increases in land rents, could be the most effective method of ensuring the equitable distribution of land value increments. In practice, however, some countries may not have the supporting institutions to enable the government to modify rents to reflect changes in land values. In addition, public land leasing without proper public oversight could open the door for government rent-seeking behavior or malfeasance. Property rights institutions are also path dependent. Once freehold rights have been assigned to citizens, it is very hard to convert those rights to public leaseholds unless the government is willing to endure the fiscal and political costs of acquiring existing freehold rights and then leasing them back to users, a process that Fainstein believes is infeasible in the United States.

Fainstein argues that the public sector could still take part of the gains in land value through the exercise of its land use regulatory powers. Cities could ollect linkage fees from private developers for permits for new development. For instance, the Boston Redevelopment Authority imposes on new commercial development over 50,000 square feet a linkage fee of $7.18 per square foot for affordable-housing development and $1.44 per square foot for jobs development. Some cities also engage in public-private partnerships, providing public land as equity in projects with private developers in return for a share of the land development profits.

Communities can also negotiate with private developers to bring jobs and housing to their neighborhoods. In return, communities promise to support the proposed projects. Essentially, Fainstein alludes to the varied possibilities of public land value capture through the use of zoning and community organizing in situations where land is owned freehold.

This paper was presented at the Lincoln Institute’s annual Land Policy Conference in 2011 and is Chapter 2 of the book Value Capture and Land Policies.