9. Living
9.5 Land Ownership
Now that we have dealt with the topics of infrastructure and city architecture, all the prerequisites are in place to think sensibly about land ownership. I once again look at Germany as a comparison point, but that has no relevance for the proposed ideas themselves.
Land ownership has to be centrally regulated. After all, land is not something that can be increased at will. Our state has a finite amount of it and should use it as well as possible. Land is also not interchangeable: every plot is unique. And if the state needs a particular piece of land for infrastructure (for example, a rail line), it has to be able to use it. Pure capitalism (land belongs to private individuals, and they can do whatever they want with it) does not fit well with all of that. Even in Germany, the option of expropriation (with compensation) exists when the state needs a specific piece of land for expanding infrastructure.[53]
Beyond these practical problems, private land ownership is also deeply unjust. When someone buys shares in a company, the company receives capital and can grow with it. The buyer shares in the success, but also carries the risk of failure. If you buy land from the state, by contrast, you pay its current value (and the state often sells cheaply in order to settle a new area). If the state and society then invest a great deal of money in that region, the value of that plot rises enormously—but private owners benefit from this increase without having provided anything equivalent in return.
Property tax is a small compensation for this: in Germany, each year a small portion of the property’s value (including development) has to be paid as property tax. Still, the basic point remains: anyone who owns land permanently will become wealthy as long as the state develops well. But the state and society are not helped by this.81
Plots of land being so expensive—and having to negotiate their purchase with the current owners in order to implement a project—holds back the state’s economic growth. It can massively delay, raise the cost of, or completely prevent private projects, and it is one of the reasons why infrastructure projects in Germany often take decades to realize.
My approach to letting the state and society benefit from increases in land value, rather than individuals, and to make it easier for land to end up with those who generate the most economic activity from it, is an old idea: land is leased, not sold.82 If land always belongs to the state—and thus to society as a whole—then it is the state and society that benefit from increases in value (as more valuable land can be leased at a higher rate).
But this is not meant to be leasing like in the Middle Ages, when any local ruler could decide at will. Instead, I want to bind the state to a rigid set of rules that determines who gets to lease land and how high the lease rate is. A rule set that can react more flexibly to change than capitalism, means lower hurdles for startups, calculates lease rates fairly, and is predictable for all sides.
In the following, I will try to lay out this rule set as clearly and well structured as possible.
Land Categories
All land is divided into five types.83
• C: City
○ 50m × 50m building plots (the high-rises in my city concept)
○ attached to state utility networks and to traffic tunnels
○ local-transit connection to the train station in the city center
• A: Attached (village, industry, commerce)
○ attached to state utility networks and to roads
○ public transportation; train station if adjacent to rail lines
• U: Undeveloped (agriculture)
○ connection to power if a power line is present
○ road access if a road runs in or along the leased area
○ no connection to the rest of state infrastructure
• I: Infrastructure
○ not leased, used for state infrastructure
○ this includes land surrounding building plots in the city
• N: Natural (includes forestry)
○ not leased; recreation areas and ecosystems
○ can be leased as Type C (in the form of city squares)
Type I or N: Cannot be leased, because it is either land meant to benefit society as a whole and the country’s ecology (Type N), or land the state needs to provide state infrastructure across the entire country (Type I).
Type C, A, or U: Leasable land is classified as Type C, A, or U depending on how well it is attached to state utility networks and transportation systems. The ongoing costs for that are covered by the lease. Infrastructure within the leased area is the lessee’s responsibility.
Possible Type Changes
Leasable land can always be leased as the type under which it is currently classified. Type changes are possible, but tied to conditions.
• Type N ⇒ C: The lessee pays a one-time fee to expand the traffic tunnels around this new city square. If it is not adjacent to existing city squares, it requires state approval, and the lessee must pay once for the necessary infrastructure buildout (rail lines and a station, roads, waterworks, …: this is the founding of a new city).
• Type N ⇒ I: Happens if the state will use land for infrastructure. This occurs for land that surrounds the city’s building plots (Type C): traffic tunnels, above-ground park roads, development of the area within the high-rise groups, the rest as green space with hiking trails (see 9.3).
• Type U ⇒ A: Must either border land of type A, or it requires state approval and the lessee must pay a one-time fee for the necessary infrastructure buildout (roads, a station if there is a rail line, waterworks, …: this is the founding of a new industrial or commercial area, or of a new village).84 This one-time payment makes this lease a primary lease.
Happens automatically if buildings are constructed on Type U land, but close to land of Type A.
Enables taking over land that is currently leased as Type U (exception: the current lessee holds a primary lease nearby) by paying a base compensation and a compensation for development.
• Type A ⇒ U: It is up to the state whether it allows a lessee this downgrade or not. The state can choose this category change for unleased land in order to dismantle infrastructure and end disproportionately high maintenance expenses.
• Type A/U ⇒ I: The state can terminate a lease agreement (except for Type C) if it needs land to expand infrastructure. The previous lessee receives both a base compensation and a compensation for carried out development (and, to protect against abuse, additionally a generous payment if this land should ever be leased again).
Lease Rate for Land
The lease rate the state charges for a plot is not static. It will vary by land category (Type U, A, or C) and by region of the country. It is calculated by the state using a fixed formula based on reported revenue, and changes from year to year.
Calculating land lease rates: To determine the lease for a plot, the state collects, as part of companies’ reported revenue, information on what share of their revenue is attributable to which of their plots. Gross negligence or deliberate false reporting is punishable. It will not make sense for companies to submit intentionally false reports, because they would gain no advantage from doing so. And inaccurate reporting due to sloppiness should largely balance out across all companies and plots.
The revenue per m² used for calculating lease rates is capped to prevent distortions from extremely high revenues of individual companies (e.g., financial transactions).
With this information, the state determines an average revenue per square meter for each land category in each region. For each land category, a certain percentage of this average revenue is set as the lease rate for land. This makes it possible to calculate the specific lease for each plot. Lease costs per square meter differ by land type and by region, but the formula is always the same, so these costs are not arbitrary. Regions should be defined as broadly as possible so that a single company’s reporting has little impact on its own lease rate.
Additional factors can be introduced to make lease rates fairer, as long as (1) the lease rate remains clearly predictable and (2) the average lease rate remains unchanged. Example: higher lease rates the closer the land is to the city center or train station, with a balancing factor based on the average distance of all leased land of this type.
The maximum increase in the lease rate is capped as a percentage, unless higher values were already reached in the past. However, this cap will be higher than average economic growth. It is meant to prevent sudden jumps and to make lease rates more predictable for lessees. In economic crises, the automatic decrease in the lease rate acts as relief; when the economy recovers, the lease rate automatically rises again without delay.
The state sets the lease rate (via the revenue percentage) so that supply and demand for Type U land remain in balance—so that lease agreements for enough land are regularly ended to leave sufficient land for new, well-funded interested parties, but not so much land that too much remains unleased and thus unused.
Types A and C can be created as needed, as long as new lessees finance the necessary infrastructure. Thus, scarcity isn’t as much of a problem there.
In addition to the land lease itself, when extracting resources the state will receive a portion of the value of the extracted resources as a lease payment or levy, since they, like the land itself, are owned by the state.
Protection from Competition
If a new industrial or commercial area, or a village is founded on Type A land, then usually one lessee will lease the entire area over a wide radius: Type A in the buildable center, surrounded by Type U. Not because the law would require it, but because this allows the lessee to rent land to the actual users and set rules through the rental contracts that everyone has to follow: maximum noise levels, what the land may and may not be used for, and so on. The primary lease, combined with the surrounding land leased as Type U, protects the lessee from unwanted direct neighbors.
Incentives to use Type A
Buildings may also be constructed on Type U land—whether wind turbines, grain silos, an equipment shed, greenhouses, or similar. But aside from power and road access (if adjacent), there is no connection to state infrastructure, and there are no public-transport stops.
As an additional measure to deter lessees from looking for ways to lease built-up land as Type U in order to save money, we can use the utility networks. These are in state hands for power, water, wastewater, internet, and the capsulenet (see Chapter 8.4). It should be relatively easy to organize billing in such a way that the state is involved (after all, it provides the physical network and receives a fee for it). The state can therefore stipulate that for Type U plots, only power can be billed, but not water, wastewater, internet85, or capsule deliveries. And for power, the usage fee demanded by the state can be significantly higher in this case. So for Type U land, the state actively prevents connection to state infrastructure.
This is not a problem for a barn or storage hall, or for wind turbines and solar modules that feed power into the grid instead of consuming it. But as soon as buildings are meant to do more than provide storage space and produce power, these restrictions will be annoying enough that Type A becomes the more sensible choice—rather than trying to cheat.86
Industry Locations
What prevents industry and commerce from setting up in villages and cities?
If the jobs are unproblematic ones, such as offices, then nothing. If land or space in buildings is rented rather than leased, the lessee (=landlord) can set the rules that determine how the plots/rooms may be used.
As long as the lessee of the village has also, with wise foresight, leased the surrounding Type U land, they can prevent industry from setting up directly next to the village. If not, they can at least deny rights of way—which will not help, however, if the industrial area borders the state-owned connecting road.
In cities, the state will impose additional high levies on anything that reduces environmental quality. So if industry or commerce creates noise, exhaust, or similar, it will simply be economically unattractive to use a city’s expensive building plot for it.
If Type A land is not located along a rail line, goods transport has to happen by truck. Here, the state can intervene with high levies that make it unattractive to produce far from rail lines, favoring rail freight instead (and thus other locations).
Involuntary changes of lessee
Why do we allow an involuntary change of lessee if someone wants to lease Type U land as Type A?
Because the same area will produce far higher economic output as Type A (an industrial or commercial area, or a village), and the state will therefore receive a much higher lease rate. This higher economic output benefits society as a whole; the state is not thinking only about its own lease revenue here.
Any lease agreement can be lost due to a court order or because the lease was not paid. Aside from that, the state’s need for infrastructure is the only way a lessee can lose Type A land. For Type C, even this risk does not exist.
Leasing
When the state offers unleased land for leasing, there will be a deadline for submitting requests. Any plot of land for which there is exactly one potential lessee is awarded to that lessee. If there are multiple interested parties, Type A takes priority over Type U.
Multiple interested parties with the same intended use: The state holds an auction. Whoever is willing to pay the highest multiplier on the lease costs receives the lease contract. The multiplier only disappears again if the land is returned to the state.
No interested parties: The state can offer a discount if it considers that sensible. It then offers the land with a percentage reduction on the lease costs for a certain number of years (after that, the land costs the normal annual lease amount). Alternatively, it can also cover part of the one-time connection costs to state infrastructure, for example to subsidize the settlement of new industry.
Developed land: The state can require a one-time payment from the new lessee for the value of the development.
Return: If someone no longer wants or is no longer able to pay the lease, the plot reverts to the state. Normally, no one will want to return developed land to the state. If the state did not force the lessee into it, it will not pay compensation for the value of the development except in hardship cases. Therefore, every lessee will instead try to find a new lessee for the land and receive compensation from them for the development. Because yes: transferring lease contracts to other individuals or companies is, of course, possible.
Adjustment of Lease Rates
The division of land into different types is intentionally extremely coarse. As in the example of distance to the city center or train station, the lease rate can always be further adjusted to the actual potential each plot offers—always with the goal that scarcer land is more expensive to lease and is therefore more likely to be used where its special properties are an advantage.
Example: If land bordering lakes or rivers has more possible uses (recreation, industrial cooling, …), the lease rate for such land can be increased (and lowered elsewhere so that the average lease rate remains unchanged). Lessees who do not need proximity to water will shift to other land. That keeps water-adjacent plots available for the purposes that benefit from them. The cap on annual lease increases gives lessees enough time to adjust to the change.
Of course, we also see these effects with privately owned land. Then plots near water are simply more expensive. But then the increase in value is in private hands, the steering effects on the economy are far more sluggish, and the whole system is much more prone to exaggerations in both directions, making the state more unstable.87
Conclusion
I think these rules for the lease system can, on the one hand, ensure that land has the desired structure (cities in the middle of the forest and thus at a distance from industry/commerce/villages, forests under state administration, industry along rail lines, …). On the other hand, they leave residents a great deal of freedom to carry out their plans as they see fit—provided they have sufficient capital. Because of course, it will never be cheap to build an industrial facility, a village, or even a city.
Because land always remains in state ownership, the state as a whole—and thus all its citizens—benefits from increases in land value, rather than that gain being private. A good portion of the state’s necessary revenue can be raised through lease payments instead of other taxes.
If a state sells its land into private ownership, that is comparable to how selling concert tickets worked until a few years ago: tickets sold out immediately when sales opened, and ordinary concertgoers bought them on the black market at outrageous prices. Today, by contrast, concert tickets are sold quite officially at outrageous prices.
As a concertgoer, you pay the same high sum in both cases. But in the second case, at least that money benefits the artist and the organizer, rather than the black-market reseller.
In our case, the beneficiary of higher lease revenue is the state, which can use this income to replace other taxes and to finance social benefits or other societal systems.
The fact that land speculation does not work in this concept88 will ensure that land can actually be used by those who have a use for it here and now. The rules for possible land use and lease costs are known in advance, so planning is possible. And while money for construction is, of course, still needed, there are no high costs for purchasing the land in order to get a project started. Lowering this investment threshold should go hand in hand with higher economic growth.
I do not present a futurity in this book for a new tax system, any more than for a new economic system. Economy and taxes are too broad and too complex for me to present something in a single book chapter that would not be laughably incomplete. But in Chapter 5, I redesigned individual building blocks of the economic system (unconditional basic income, culturepoints) that, in my view, would significantly improve the overall system.
The concept presented in this subchapter—leasing instead of land ownership—is another such building block for a better-functioning economic system. In addition, it also has the potential to massively simplify the tax system. After all, the lease rate is a percentage share of the average revenue generated on such land.
I see good chances that a value-added tax would no longer be necessary with this concept. And that would be extremely helpful. Not only because the state would no longer have to be informed about every transaction, and citizens and companies would therefore have to be monitored less heavily. But also because companies would no longer have to deliberately look for ways to deduct as many expenses as possible from their own value creation in order to reduce their tax payments.
Instead, each company can simply report its booked revenue to the state (assigned to plots). No business category is disadvantaged, because it simply spreads back out as the average lease rate across all land of the same type in the region. And the lease percentage is chosen correspondingly lower, because the base sum is higher than the share of revenue on which companies currently pay value-added tax.
Barter transactions and digital currencies also become far easier to handle, because not everything has to be reported to the state anymore in order to be taxed individually.
Other taxes for companies will still be needed: on corporate profits, wherever the state wants additional steering effects, and wherever a company needs almost no land for its revenue (e.g., software companies or banks). However, the state will certainly welcome it if companies can generate a lot of revenue without needing land for it—that is efficient land use…
This futurity of state-leased land can be tested well as a game, and that should definitely happen. There are some rules in this concept where I am unsure what they need to look like in order to reliably prevent abuse:
Is the exception I described for land takeovers—having your own primary lease nearby—sufficient to enable stable Type A areas (commerce, industry, villages) without being vulnerable to sabotage by competitors? What rules are needed for minimum size and shape of plots so that in villages, not only the houses themselves are leased as Type A? What exactly counts as “development” of a plot? Under what rules may plots be split by lessees in order to be treated differently (e.g., to relinquish part of a plot)?
Just to name one example of another additional rule that will be necessary to prevent problems: if a plot previously leased as Type U was taken over as Type A by a different lessee, and that lessee later returns it to the state, the original lessee should have a right of first refusal if no one wants to lease it again as Type A.
The better we can find and fix problems in advance through testing, the better this futurity will work and the fewer problems there will be when it is introduced.
If this futurity is refined well enough that it really works, then it has the potential to put a state’s economy and tax system on a more solid foundation. To give the state more structural steering options to optimize economic development over the long term, based on criteria other than momentary profit alone. To let the state partake appropriately in the growth of economic output and corporate profits without triggering strong flight and avoidance efforts by companies. And then to use this revenue to further improve the state’s infrastructure and societal systems and to share the created wealth with citizens.
Beyond all improvements to a state’s economy and taxes, and to fairer distribution of prosperity, this futurity enables other forms of state organization that would be impossible without this more flexible use of land.
But we will save that for the next chapter.
Review of Requirements