A New Land Contract

This is a written version of a talk given for Civic Square’s ‘Department of Dreams’ event on Friday 19th June, 2020.

I heard a line recently by an American poet called Theodore Roethke, and it has kept coming back to me ever since.

“In a dark time, the eye begins to see”

Crises and tragedies have this strange effect of revealing our real priorities, even to ourselves. They also give us clarity in another way: by stripping off the wallpaper of society and revealing the hidden structures underneath.

In the case of the UK and US, COVID-19 has exposed some deep underlying health conditions.

It exposed a government machine that has been so weakened by decades of outsourcing and intellectual capture that it literally no longer has the capacity to act effectively to meet strategic social aims, even when it needs to.

It exposed the fragility of our social infrastructure – again, from decades of being mined away. An overstretched NHS. Millions of people living in dark, tiny, cramped, depressing homes and neighbourhoods that are simply not fit for living in for any extended period of time: many with little or no outdoor space or access to green space.

It exposed deep structural racial injustice. If you’d asked most white people two months ago whether Britain has an issue of structural racism they’d have said, ‘no, not in the same way that America does.’ Then it turns out that if you’re from an ethnic minority you are twice as likely to die from COVID than if you’re white. If you’re black, you’re four times as likely. Why? Because if you belong to one of those groups you’re significantly more likely to be in low-paid service sector work, significantly more likely to live in a deprived neighbourhood, an overcrowded home, and you’re significantly more likely to be suffering from respiratory illness, diabetes or obesity — all of which are health conditions that we know are tied to environmental factors.

It exposed an underlying epidemic of loneliness, depression and stress. Thousands of people stuck in abusive or toxic relationships. Domestic abuse has gone up by 49% during lockdown. It exposed 280,000 people living homeless. 1 in 5 households — and 1 in every 3 children living in poverty. Millions of parents going without meals to feed their children during lockdown. In one of the wealthiest, most technologically advanced societies in the world.

It also exposed a desperately weak real economy. Even before COVID hit, the UK had flatlining productivity, record low levels of investment, record high levels of debt. Struggling SMEs. An economy massively centralised around London, and divided North / South. High streets failing. Outsourced manufacturing. Obsolete construction industries, with a massive skills shortage, fragmented supply chains. None of this is news to you.

But there was one particular hidden structure that was exposed with extraordinarily vivid clarity. And that was to do with the cost of housing.

As we know, Britain already had a deep housing crisis, with the cost of housing inflating by 5000% since the 1970s — vastly outstripping wages. There is now a whole generation — and more than half of all families in the UK — locked out of owning their own home.

In that first week of lockdown, when the Treasury were racing to “do whatever it takes”, the challenge they faced was essentially to press a massive ‘pause’ button on the economy; to put the whole thing on ice. And for both households and businesses the basic survival principle was the same: since your income was going to be freezing-up, in order to survive you also needed to freeze your outgoings. And for most families, the single largest monthly outgoing is… the cost of housing.

For people who own their homes with a mortgage, it’s pretty easy: you let families ask for a mortgage repayment holiday if they need it. No one really loses out from that, it really is just a pause button. The extra time gets added on to the end of the mortgage.

But there was one form of housing cost that the government couldn’t pause: rent. The whole economy was going into lockdown, but the rent was still due.

So we found ourselves confronted by this weird situation where as taxpayers we’re pouring billions of pounds of life support into the economy, but a huge chunk of it is just being paid straight on to private landlords. If you think of the economy as a bucket, it’s like having a huge hole in the bottom of it. Or rather, the top.

So inevitably, millions of young people started asking the question that had been under our noses all along, which is, ‘wait, what work exactly is it that we’re paying Landlords to do?’

And basically the answer is: nothing. We’re paying them to… not evict us.

And that’s an extraordinary realisation isn’t it? That in a country that believes so strongly in fairness, and hard work, and enterprise, and innovation, and meritocracy, the single biggest cost burden on most households and most businesses is a kind of fee, paid by poor people to rich people, for no work. Just for having money in the first place.

And that fee has been going up and up.

Our ‘housing crisis’ is really a function of our land system

Mostly when we talk about the spiralling cost of housing, we refer to it as the ‘housing crisis’. But the truth is that our housing crisis is actually a land crisis; of which the housing crisis is just one of the many symptoms.

If you own a house worth £400,000 (lucky you), I’ve got news for you: almost all of that value is not in the house, it’s in the land. The house is just a heap of old bricks. If you want to test this theory, try putting your house onto the back of a lorry and see how much you get for it on eBay.

And actually, it’s not really a Land crisis, it’s a Land system. It’s the rules of the game, hard-coded into the firmware of our society and economy.

All the systemic crises and structural weaknesses that I mentioned— social resilience, health, climate, economy, democracy, are complex, and intertwined. But here’s the thing. Every single one of them has its roots in that land system.

I believe that redesigning that land system is the single most important reform project of this century.

And hopefully, in about half an hour’s time, so will you.

The origins of our land system

Like all journeys forwards, we have to begin by going backwards.

So where did our land system come from?

Weirdly enough, the land system that we have today has its origins in a problem specific to medieval kings, which is ‘how do I fund military campaigns and defence, without paying to keep a standing army?’

And it was William the Conqueror who perfected the answer. It was a piece of paper. And on that piece of paper was basically an agreement between the Crown and a noble, saying ‘if you provide men for military campaigns when I ask, in exchange I will grant you a monopoly over your own private fiefdom, where you can levy as high taxes as people can bear to pay’.

So effectively — rent is the original tax, paid via lords to the King.

In fact the word ‘feudal’ derives from the latin word feudalis — for ‘fee’. In other words, rent. So the whole system of government by which the Normans ruled over the Anglo Saxons was based on rent.

If you’re a King, there’s only really three groups of people you’re scared of: other kings, your family, and your nobles. So over time landowners managed to engineer a set of concessions, whereby increasingly taxes were levied directly on people and business, leaving them (the lords) as the owners of a monopoly right to extract privatised land tax.

So what you’re left with is a set of power relations in society: an enforced system of servitude and control. As the economist Henry George pointed out, it is essentially a diluted version of slavery.

“Ownership of land always gives ownership of people… Place one hundred people on an island from which there is no escape. Make one of them the absolute owner of the others — or the absolute owner of the soil. It will make no difference — either to owner or to the others — which one you choose. Either way, one individual will be the absolute master of the other ninety-nine.”

Fast forward a few hundred years, to post-civil-war America and that’s exactly what played out. The plantation owners could no longer own slaves, so what they said is ‘Ok, I’ll pay you, say, $2 dollars a day’ — but by the way, I own the land, and the rent is… $2 a day.’’. Which, incidentally, led to the invention of a clever invention called a ‘chattel house’ which was a kind of kit house that gave families of plantation workers the ability to relocate to try to escape exploitative landlords.

Fast forward again to today, and land is still the fundamental mechanism of racial inequity. To be blunt, all across the UK and the US, there are tenants with black and brown skin paying rent to landlords and mortgage lenders with white skin. Or commuting for hours. Or both.

I imagine all of you have seen the speech made a couple of weeks ago by a young American writer called Kimberly Jones — if you haven’t, do — it’s absolutely the most eloquent piece of public speaking I’ve seen in a long time. In it she uses this incredible image of getting white people to imagine what it feels like to play “four hundred rounds of Monopoly” with the game rigged against you, enforced by violence. There’s an interesting backstory here, that you may know, which is that the game of monopoly was first invented by a woman called Elizabeth Magie — and originally called ‘The Landlords Game’ and it was created so that… basically one day someone could make exactly the speech that Kimberly Jones just did.

So, broadly speaking — and I’m simplifying here — there were two positions in this power diagram. Tenant and landlord.

And over time that piece of paper became a tradable asset, as well as an inheritable one: so you can literally buy the right to extract taxes from people. And it’s amazing to me that we don’t find that more weird than we do — it’s right there hidden in plain sight in the language we use: landlord.

But such an extreme overclass/underclass diagram is politically hard to sustain. So, over time we saw the slow emergence of a middle position, which is for those who could get together just enough money to buy their own freedom from rent. Again, that’s why we have the word ‘Freehold’; it’s not free as in ‘no cost’ it’s free as in, ‘liberty’.

Why are house prices so high?

And this is where we come to the real reason why land prices in the UK have exploded.

Because remember, the rent you pay isn’t determined by what it costs to produce that land. The land was already there. Ownership is a piece of paper. It doesn’t cost anything to produce. The price is determined by what someone, somewhere is willing to pay for it. This is what Adam Smith and David Ricardo’s work was about — the ‘Law of Rent’.

So if a community becomes wealthier, say because of trade or enterprise — or if other people arrive with more money — then the rents go up.

But that should at least be a linear system, right? When the travellers on a road get wealthier, so do the highwaymen.

But this hunger for economic freedom also creates a demand market for debt. People are so desperate to escape rent, they will borrow as much as they can to buy their freedom from it.

What happened in the 1970s, through to 2008, was that governments deregulated the private mortgage lenders — allowing them to create more and more debt, at lower and lower interest rates. And of course, as people could borrow more, land prices went up. And because prices went up, the mortgage lenders could create even more debt against it. So we went on this mad upward spiral of land price inflation and debt creation. If you’ve seen the film the Big Short, you know this story. Then in 2008, the whole thing crashed.

But after 2008, instead of taking the opportunity to do a managed de-escalation, the UK government basically stepped in to re-inflate the bubble. Which was basically like putting up a massive advert over Britain that said ‘Rich people of the world! Stop investing in actual productive enterprises or useful innovation, and just park your money in UK land! It’s free money! We’ll underwrite the risk, and as a bonus you can even extract rent from our citizens!’ So what we’ve seen since is a massive surge in landlordism, and a steady drop in home ownership. And we’ll probably see the same thing happen this time.

(As an aside, it always surprises me that governments who do this can get away with claiming to be patriotic.)

All this brings us to the point where we are today — or I should say were at the beginning of this year — where the combined value of UK property rights — by which I mean, those pieces of paper — those land taxation rights — is £8.6 trillion. That is 83% of the total wealth of the UK.

The equivalent figure globally is around £280tn. To put that in perspective, all the gold in the world is only worth about £7tn, and all the data held by all the silicon valley companies is only worth around £3tn.

We talk about this as a form of ‘wealth’ — but of course, in reality, it’s not. It’s a private sector tax; on every form of social and economic activity. Last year, in the UK, we spent £71bn on rent and £67bn on mortgage payments. That’s enough to run a whole second NHS. Imagine what else we could do with that if we were to re-inject all of it back into society and the economy — or simply leave it there in the first place.

It also falls back onto the taxpayer, in the form of emergency housing and housing benefit. Last year the housing benefit bill alone was over £23bn. That’s more than we spend on highways, police and military equipment put together. Just to rent back our own land from landlords.

All goes back to land. In very simple terms, the more we are forced to spend on the cost of land, the less we have left to spend on the buildings and activities that happen on top of it. The cost of land is a tax on everything. Every form of human enterprise or progress.

So the truth is that our legacy land system isn’t making us wealthy. It is literally impoverishing us. It is a manufactured form of poverty.

What gives land its value?

At this point you might reasonably ask: wait a minute, if these monopoly land rights are so expensive, it must be because they’re scarce. But there’s lots of undeveloped land. So why don’t we just create more land rights? We could just use the planning system to just open up the greenbelt. Solved, right?

Well. No.

Because when we’re talking about land value, it’s not really the land we’re talking about. Land is just mud. Unless it has coal, or some other gift from nature in it, mud is mud. The mud in Westminster is no better than the mud in Warwickshire, and yet it costs millions of pounds more.

What you’re paying for isn’t actually land value, its location value. It’s access to infrastructure, proximity to jobs, to schools, to trains, to culture, to community infrastructure to green space, or to a high status postcode full of attractive people, or a view of the sea or whatever.

If I said to you, I’ve got a plot of land in upper Siberia, it has no infrastructure it takes five days to get there, it’s roamed by bandits, and there’s no police, how much will you offer me for it?… You’d say ‘thanks, I’ll pass’. Its financial value is zero. But if I said I was going to give you the same size plot of land in Kensington, you’d look at me like you’d just won the lottery.

One of the best speeches ever made on this subject was made in 1909, and it was called ‘The Mother of All Monopolies’.

“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.”

“To not one of those improvements does the 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.”

Incidentally the person who gave that speech was Winston Churchill. And I don’t include this as a blanket promotion of his character. Actually in a way, the recent increased focus on the darker sides of his character and record are quite an appropriate symbol for the way Britain is having to come to terms with some of the contradictions within its national story right now. Rather what I mean to show is that this is not a Left vs Right issue. It runs deeper than that.

As an interesting aside, shortly after making that speech he and Asquith successfully got a radical Land Reform bill through the commons, only for it to be defeated in — not surprisingly, the House of Lords.

But the point he was making in that speech is incredibly important, and timeless. It is one that had been made by Adam Smith and many others before him. That land value is not created by the owner. It is created by the taxpayer through our investment into infrastructure, and by the activity of the community, and our collective consent for development.

And yet our current land system allows that public value to be privately captured and monopolised. Not just by landlords in the form of rents. Also by freeholders. For example, being near to an Ofsted ‘excellent’ rated school adds between £40k and £100k to the value of a residential property. And yet we tell ourselves that our system of state education has no school fees. And we wonder why children from deprived backgrounds struggle to get an equal shot.

That’s the thing about ‘the postcode lottery’: it’s not really a lottery. It’s a stitch-up.

The land value capture industry

And this is where we get to the final twist of the knife of this broken land system. And it’s a fatal one.

By allowing uplifts in the value of land to be captured by the current owner, we have basically created a multi-billion dollar land speculation market, which has essentially the same business model as ticket touts at a concert.

Basically the way it works is, you use capital to buy up all possible development land before it has planning permission — so its market value is, in theory, only a few thousand pounds per hectare. Then you just sit on it. Eventually, in desperation, the local council give planning consent for development — and the moment they do, the value of the land instantly goes from a few thousand per hectare to a few million. You then proceed to build out the cheapest, crappiest, tiniest, ugliest, least sustainable homes you can get away with, and provide the least possible number of social rented homes you can, swimming in a sea of tarmac. You also negotiate-down the amount of community infrastructure or business space you provide to zero, if possible.

And this is the dark, open secret at the heart of our built environment today.

Pretty much everyone broadly agrees on what we want: beautiful architecture, generous, affordable, healthy, zero-carbon, circular homes and resilient communities living in green, walkable, prosperous neighbourhoods filled with a thousand small, local businesses. Places where children can grow up happily, where the elderly can grow old in good company, and where everyone has the chance to flourish and realise the best version of themselves. And to create all that, we want a booming, innovative design and construction industry.

But yet our land system is perfectly designed to never, ever give us that.

For example, we know buildings are responsible for around 40% of all carbon emissions. 29% of that is the energy required to run a home. 11% of that is embodied carbon, emitted during its production. Now, the 29% bit is a bit slower to bring down anyway because it involves upgrading our existing housing stock. But the 11% we could pretty much eliminate tomorrow. We know how to build zero carbon, circular buildings. But we’re not doing it. Why? Because the people who hold all the land and develop the homes we end up living in have no incentive to do it.

And you can say the same for pretty much every other aspect of the homes and neighbourhoods we create.

Again, to quote Churchill, “the land monopolist reaps their reward in exact proportion not to the service, but the disservice done to the community”.

And I want to be clear, this is not because landlords and speculative land developers are not perfectly decent, well-intentioned people. Most of them are. I used to be a landlord, and I hope I am a reasonably decent person! This is not about punishing anyone. It’s about rehabilitating ourselves — fixing a broken game that we are all locked into, because it is taking us over a cliff.

Land monopoly is eating our economy, our society, our environment, our climate and our democracy, and yet to many it is still invisible.

The most extraordinary thing about this land system is that no-one, either Left or Right has a reasonable economic or moral justification for it. You will not find one. It is simply an accident of history — an obsolete bit of code — a legacy of the feudal system that has persisted simply through unconsciousness, vested interests, corruption and obfuscation.

And it’s time for us to wake up and fix it.

A New Land Contract

So, if we were to go back to the drawing board and redesign a new 21st century land economy from scratch. What might it look like?

Well, the good news is that pretty much every major economist and philosopher who has looked seriously at this question, from Marx to Milton Friedman, from Martin Luther King to Mariana Mazzucato from Adam Smith to Abraham Lincoln, from the the ancient Israelites to Elinor Ostrom, has always come back with the same basic principle: that Land is a natural commons — it belongs to everyone, and that land value (rents) should be recaptured by the community, who create the value in the first place.

So, as a landowner, you shouldn’t be a Lord over anyone, you should be a steward; you are effectively renting a piece of land from Everyone for as long as you want it, and in return you should pay a proportionate ground rent — or ‘Land Value Tax’ (though I don’t like that term) — back to the community for its use.

What we might then use those rents to pay for is a matter for debate. If you’re towards the centre-right of the political spectrum, you might want to use it to cut other taxes on income, employment, or productive enterprise. And certainly I’d say there would be a clear case for getting rid of council taxes immediately. Essentially rent is a tax you’re paying anyway, so the moment it goes to the treasury instead of to landlords, government can afford to cut other taxes.

Or you could even pay some of it out directly as a citizens’ dividend to every single person. And I think even if it’s only a small symbolic amount, this might be a good thing to do. It would serve as a monthly reminder that the land belongs to all of us — and that we all have a stake in society.

Or, most obviously, you could reinvest that money into community services and infrastructure — including using the land revenues from overheated locations like London to invest in creating new location value in the rest of the country — to reverse this corrosive, unnecessary North / South divide that is perpetuated by our current land system.

But there’s an obvious problem.

Remember that the inflated value of property rights represent 83% of Britain’s ‘wealth’ — and that is propped up by banks’ mortgage loans. Introducing a Community Land Rent might well involve a write-off (or buy-out) of money (debt) on a scale probably not seen since the abolition of slavery.

A reform of this scale, however morally and economically justified, would require a government of extraordinary vision, courage and skill, to design the transition in a way that is fair to everyone. And you’d have to win a mandate to do it from the British public in the face of an unprecedented campaign of disinformation and misinformation. In reality, almost everyone is losing out in our current system (even homeowners, who think they’re wealthy, but aren’t really). But let’s not be naive: a very small number of very powerful vested interests would unleash a misinformation machine on the British public that would make Brexit look like a picnic.

So I’m not holding my breath. Especially given that almost every housing policy in recent years — though often dressed-up to look like support for first time buyers — has, in reality, been a measure to subsidise land speculators in some way or another. Which is the logical equivalent of trying to encourage ticket touts at a concert to sell more tickets by giving them more tickets for free.

So let’s start with the assumption that that’s sadly not likely to happen any time soon. What are our other options?

1. Public land buy-backs

Instead of introducing a Land Value Tax another way for the public to recapture land rents is to simply buy the land ourselves. One proposition put forward by Martin Farley is the idea of land buy-backs. He has worked out that because of the way the cost of our failed land system is falling back onto the taxpayer anyway, we could actually buy every single private rented property in the UK, and as taxpayers we would actually be saving £6bn a year — and it could save renters £35bn a year too. With land values probably dipping now because of COVID, now would be a perfect moment to do that.

2. Land value capture

A second related move does involve a small change in legislation — but its one that already has cross-party support. Basically its a small change to the text of the 1961 Land Value Compensation Act, that would allow local authorities to buy agricultural and ex-industrial land at its current value — only a few thousand pounds per hectare– and then use the uplift that is created by us, the community, to pay for community infrastructure, or to keep the land affordable. It has been estimated this alone would reclaim an additional £9.3bn per year of public value.

3. Soft landings

Another idea put forward by the economist Beth Stratford is the idea of creating a National Land Trust and Building Society that slowly buys land from under people’s homes, and then leases it back. She is, as far as I know, one of the only economists looking explicitly at a ‘soft landing’ / climb-down strategy in the event of a crash, which would give home owners a way out of negative equity.

4. Fairhold

An overlapping idea that we have been beginning to look at is the idea of going back to that original piece of paper — and inventing a new form of land ownership, which we call Fairhold, where public authorities buy land, and instead of selling it to speculators, public authorities retain long term ownership of land and lease — or licence it — it directly to citizens or steward organisations, like community development companies or community land trusts; who in exchange have to pay a fair community ground rent. So essentially it’s creating an opt-in parallel land economy that can exist alongside the existing one: like a kind of lifeboat, to transition to as the old one fails.

This idea is something we’re hoping to test and design further in collaboration with Dark Matter Labs and as many other organisations as possible. But in its simplest form, it’s something councils could start using tomorrow without permission from central government, and if it was used at scale, it would effectively allow local authorities to end their housing emergency within a few years — for zero cost.

There are so many other possibilities — some of you may already have other ideas of your own. Once we start seeing clearly, we can understand how the system actually works, then we can start applying our collective ingenuity to changing it.

But one thing we can and must absolutely all be doing is talking about it. Changing the language that’s designed to distract and obfuscate the real issue; these false framings that keep our obsolete land system hidden in plain sight. We probably need to stop talking about symptoms like ‘the housing crisis’ and we definitely need to stop buying-into simplistic false solutions like ‘we just need to build more homes’ (it never happens). We need to stop throwing money at a broken system, and saying things like ‘if only we had enough money to end poverty’ and to increase ‘social mobility’. Poverty is not a problem of money, it is a function of the rules of the game. The best way to end poverty is to stop manufacturing poverty.

We also need to invite everyone — and I mean everyone — to see what another land economy could look like. Imagine a Britain in ten years time where everyone has a basic level of security, and a stake in society. Perhaps you’d live on the same street you do today, but the house is yours. It’s twice as beautiful, and half the cost, and it costs only a few pence a week to heat. The shops at the end of the road are occupied by small local businesses. Money is being invested into productive enterprise, education and green infrastructure. The North of England is booming.

How would it change your life? What would you do differently? Where would you invest that extra money, or time?

I want to finish with another quote, this one from Thoreau:

“There are a thousand hacking at the branches of evil to one who is striking at the root.”

There are so many crises now that demand our attention, and so many fantastic people doing their part. But everyday I feel a frustration and sadness, because I see so much work being done on the symptoms — on alleviating poverty, on trying to promote more sustainable circular construction, on trying to empower communities, on trying to encourage better, healthier, more human-centred design, more socially diverse neighbourhoods — but I know that it won’t work as long as we are ignoring the root cause in the first place. It’s like trying to bail out a sinking ship with teacups, while at the bottom of the boat there’s a bloody huge tap pumping water in. The problem is, the tap has been there so long that people can’t see it. They think it is an inevitable feature of the ship.

If we really want to prevent climate collapse, renew our society and build a successful, prosperous market economy, we will need to fix this obsolete right of extraction that is coded into the foundations of our society, this dysfunction that is coded into the foundations of our economy, this injustice that is coded into the foundations of our democracy.

The land system is not sexy, it’s not emotive. It’s complicated. But once you see it you cannot unsee it. It sits at the root of so many of the issues that are flooding across our timelines every day.

But it is not inevitable. Our land system was designed. And if it was designed in the 11th century, it can be redesigned in the 21st.

So whenever we see a project like Amahra Spence’s Black Land & Spatial Justice project — which is trying to focus the energy of this collective awakening into a spotlight beam that shines down into the deep, systemic stuff of our land system- just fund it.

That’s something we can go and do right now.