Dublin’s new tram highlights the untapped bonanza of land values

A Luas tram crosses the Liffey. Image: C.G.P.Grey/Wikipedia.

Few, apart from the odd urban motorist, whose well of sympathy has surely run dry, would argue that Dublin’s new tram (Luas) line extension isn't both overdue and welcome.

The new crosscity Luas opens up the city in a way not seen in generations, since the previous tram line was closed in 1949. And it’s had an instant impact on the atmosphere of Dublin, and will ultimately add to the city’s confidence and identity as a European capital.

Besides the tangible benefits of ease of access to previously sequestered parts of the city – the multi-award winning Grangegorman campus springs to mind – the Luas has also had a less visible impact on the value of Dublin, in particular its land prices.

The numbers make this contribution clear: conservatively, the value of land along the new Luas line has increased by 15-20 per cent as a result of its construction. This increase in land values is typically capitalised in house prices.


To be clear, what has actually increased as a result of the Luas being built is the value of the land the house sits on, not the cost of the house itself, a detail that is often lost in the ether of the national fixation on house prices. The price of property along the line surged by 15-20 per cent during 2017 as result of Luas inspired land value uplift, while the value of the actual houses that sit on it has not increased (notwithstanding any improvements the owners have made). This is an important distinction: it disaggregates the value added by the collective (society) to the land, from the value added by the individual property owner to the building that sits on the land.

The important point is that this 15-20 per cent uplift in land value along the Luas line is an absolute cash bonanza resulting from collective public effort. And what we do with it says a lot about where we are as a society. 

As it stands, it is presented as a fait accompli that this uplift should all flow to property owners, in spite of the fact that it is created not by anything individual property owners have done. Instead, it’s created by the collective efforts of citizens: paying taxes to finance the building of the Luas, and partaking in the activities that make having access to a city valuable: working, eating, drinking, studying, playing and whatever you're into that contributes to the economy. As Churchill put it

Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains – and all the while the landlord sits still.

Every one of those improvements is effected by the labour and cost of other people and the taxpayers. To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is enhanced. He renders no service to the community, he contributes nothing to the general welfare, he contributes nothing to the process from which his own enrichment is derived.

If we had a progressive tax on the uplift in land value that currently flows to landowners as a result of publicly funded infrastructure projects like the Luas – call it a Land Value Uplift Tax on 80-100 oper cent of the uplift – this value would flow back into the public purse. That way, it could be invested in other public infrastructure projects like, say, a public programme of local authority house building, which we are struggling to finance under the status quo.

Crucially, the idea of a Land Value Uplift Tax is not blue sky thinking. Land value uplift capture is done all over the world: Hong Kong built an entire metro and funded public housing for free using land value tax; a significant amount of London’s new Crossrail line has been funded with a land value uplift tax; and urban regeneration in the US is typically funded through a value uplift capture mechanism called tax increment financing.

There is no difference in the mechanics of how this all works between Dublin and other cities: public investment on or near a piece of land significantly increases its value wherever you are. The difference lies in our attitude to property owners. Other cities building or expanding public-transit systems to cope with population growth and urbanisation have acted swiftly to both recognise and exploit rising land values for the public good. It is time to connect the dots, and stop the long arm of property assets reaching into the pockets of citizens. 

 
 
 
 

“Stop worrying about hairdressers”: The UK government has misdiagnosed its productivity problem

We’re going as fast as we can, here. Image: Getty.

Gonna level with you here, I have mixed feelings about this one. On the one hand, I’m a huge fan of schadenfreude, so learning that it the government has messed up in a previously unsuspected way gives me this sort of warm glow inside. On the other hand, the way it’s been screwing up is probably making the country poorer, and exacerbating the north south divide. So, mixed reviews really.

Here’s the story. This week the Centre for Cities (CfC) published a major report on Britain’s productivity problem. For the last 200 years, ever since the industrial revolution, this country has got steadily richer. Since the financial crash, though, that seems to have stopped.

The standard narrative on this has it that the problem lies in the ‘long tail’ of unproductive businesses – that is, those that produce less value per hour. Get those guys humming, the thinking goes, and the productivity problem is sorted.

But the CfC’s new report says that this is exactly wrong. The wrong tail: Why Britain’s ‘long tail’ is not the cause of its productivity problems (excellent pun, there) delves into the data on productivity in different types of businesses and different cities, to demonstrate two big points.

The first is that the long tail is the wrong place to look for productivity gains. Many low productivity businesses are low productivity for a reason:

The ability of manufacturing to automate certain processes, or the development of ever more sophisticated computer software in information and communications have greatly increased the output that a worker produces in these industries. But while a fitness instructor may use a smartphone today in place of a ghetto blaster in 1990, he or she can still only instruct one class at a time. And a waiter or waitress can only serve so many tables. Of course, improvements such as the introduction of handheld electronic devices allow orders to be sent to the kitchen more efficiently, will bring benefits, but this improvements won’t radically increase the output of the waiter.

I’d add to that: there is only so fast that people want to eat. There’s a physical limit on the number of diners any restaurant can actually feed.

At any rate, the result of this is that it’s stupid to expect local service businesses to make step changes in productivity. If we actually want to improve productivity we should focus on those which are exporting services to a bigger market.  There are fewer of these, but the potential gains are much bigger. Here’s a chart:

The y-axis reflects number of businesses at different productivities, shown on the x-axis. So bigger numbers on the left are bad; bigger numbers on the right are good. 

The question of which exporting businesses are struggling to expand productivity is what leads to the report’s second insight:

Specifically it is the underperformance of exporting businesses in cities outside of the Greater South East that causes not only divergences across the country in wages and standards of living, but also hampers national productivity. These cities in particular should be of greatest concern to policy makers attempting to improve UK productivity overall.

In other words, it turned out, again, to the north-south divide that did it. I’m shocked. Are you shocked? This is my shocked face.

The best way to demonstrate this shocking insight is with some more graphs. This first one shows the distribution of productivity in local services business in four different types of place: cities in the south east (GSE) in light green, cities in the rest of the country (RoGB) in dark green, non-urban areas in the south east in purple, non-urban areas everywhere else in turquoise.

The four lines are fairly consistent. The light green, representing south eastern cities has a lower peak on the left, meaning slightly fewer low productivity businesses, but is slightly higher on the right, meaning slightly more high productivity businesses. In other words, local services businesses in the south eastern cities are more productive than those elsewhere – but the gap is pretty narrow. 

Now check out the same graph for exporting businesses:

The differences are much more pronounced. Areas outside those south eastern cities have many more lower productivity businesses (the peaks on the left) and significantly fewer high productivity ones (the lower numbers on the right).

In fact, outside the south east, cities are actually less productive than non-urban areas. This is really not what you’d expect to see, and no a good sign for the health of the economy:

The report also uses a few specific examples to illustrate this point. Compare Reading, one of Britain’s richest medium sized cities, with Hull, one of its poorest:

Or, looking to bigger cities, here’s Bristol and Sheffield:

In both cases, the poorer northern cities are clearly lacking in high-value exporting businesses. This is a problem because these don’t just provide well-paying jobs now: they’re also the ones that have the potential to make productivity gains that can lead to even better jobs. The report concludes:

This is a major cause for concern for the national economy – the underperformance of these cities goes a long way to explain both why the rest of Britain lags behind the Greater South East and why it performs poorly on a

European level. To illustrate the impact, if all cities were as productive as those in the Greater South East, the British economy would be 15 per cent more productive and £225bn larger. This is equivalent to Britain being home to four extra city economies the size of Birmingham.

In other words, the lesson here is: stop worrying about the productivity of hairdressers. Start worrying about the productivity of Hull.


You can read the Centre for Cities’ full report here.

Jonn Elledge is the editor of CityMetric. He is on Twitter as @jonnelledge and on Facebook as JonnElledgeWrites

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