Enlightened Capitalism

Essays about how to harness people's natural desire to create wealth and improve their quality of life to solve global problems such as war and poverty.

Thursday, July 28, 2005

The Value of Land

The value of land depends partly on its natural beauty and climate, partly on reputation, but mostly on the behavior of the people there.

The most expensive land is office space in places like Hong Kong, London, and New York City. The reason those offices are so valuable, compared to an equally lavish office 50 miles outside the city, is because the people around those offices buzz about in a way that is particularly advantageous for closing a high volume of high value business deals, and which provides a convenient and pleasant atmosphere for closing the deals.

A person who wants to run a certain kind of business can make exorbitantly more money by running it in that exact location, which explains the exorbitant price tag.

In some cases a place has a fancy reputation, like Rodeo Drive in Los Angeles, and some people will pay exorbitant prices just to have that address.

And in some cases a place has incredible natural beauty, like Waikiki, or Yosemite Valley, and people will buy land there just to camp there and enjoy the view. They might not need anyone to do anything for them in that case.

But 99.9% of the time, the value of land depends on the behavior of the neighbors.

The bad news is that the neighbors are free to choose how they behave, so the value of your land is partly out of your control. The good news is that people, and especially groups of people, are somewhat predictable, particularly in the specific circumstances studied by economists and social psychologists.

So, if we can figure out which behaviors of our neighbors make our land more valuable, and what we can do to cause those behaviors, then we can actually increase the value of our land.

And if we can figure out what causes people to change their behavior, and either do that or find out when and where it is being done, then we can predict where the real estate is going to rise or fall in value.

This is valuable information to an investor. It might also be valuable to a society. With that knowledge, a government could actually legislate economic prosperity. That would be cool, especially in places like Liberia.

So what are the behaviors that raise the value of real estate? One is opening lots of small shops, restaurants, and bakeries all within walking distance of one another other, and keeping these areas clean and free of disturbance.

Another is neighbors talking to one another about common issues, and attending civic meetings and functions in significant numbers.

Another is parents volunteering at their kids' schools and paying close attention to the quality of the education.

Another is planting trees, adding speed bumps or closing off streets, and beautifying the buildings, streets, and parks. When a community puts in large beautiful monuments such as fountains, museums, and memorials, with shady benches to sit on, it is behaving like Paris, or Boston. This tends to raise land values.

In general, when a community behaves the way the most expensive communities do, then the land tends to get expensive.

Some of those behaviors don't seem that difficult to incite. The interesting question is "What is the simplest, fastest, and most inexpensive way to incite a community to behave in such a way that the value of land doubles?"


Post a Comment

<< Home