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1. The Role of Land Markets in Economic Crises

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  • Mason Gaffney

Abstract

It is widely recognized that the economic crisis of 2009 was caused by unsound lending for real estate. Largely ignored, however, is that this contraction was easily predicted on the basis of a well‐established pattern of land speculation, premature subdivision, and excessive building on marginal land that recurs approximately once every 18 years. Capital locked up in projects that are started during a land bubble is effectively lost during the downturn, leaving the nation without sufficient capital to finance ordinary business operations during the recovery period. The best instrument for avoiding this boom‐bust cycle is the property tax and, more specifically, the portion that falls on land. We explore here the ways in which the property tax influences the intensity, timing, and location of development. We also examine why frequent and accurate assessment are essential to make the property tax an effective method of preventing speculative real estate bubbles.

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  • Mason Gaffney, 2009. "1. The Role of Land Markets in Economic Crises," American Journal of Economics and Sociology, Wiley Blackwell, vol. 68(4), pages 855-888, October.
    • Handle: RePEc:bla:ajecsc:v:68:y:2009:i:4:p:855-888
    DOI: 10.1111/j.1536-7150.2009.00657.x
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    1. Gary C. Cornia & Barrett A. Slade, 2005. "Property Taxation of Multifamily Housing: An Empirical Analysis of Vertical and Horizontal Equity and Assessment Methods," Journal of Real Estate Research, American Real Estate Society, vol. 27(1), pages 17-46.
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