{"id":4967,"date":"2015-09-21T14:01:21","date_gmt":"2015-09-21T14:01:21","guid":{"rendered":"http:\/\/www.rationalargumentator.com\/index\/?p=4967"},"modified":"2015-09-21T14:01:21","modified_gmt":"2015-09-21T14:01:21","slug":"fallacy-of-buy-land","status":"publish","type":"post","link":"https:\/\/www.rationalargumentator.com\/index\/blog\/2015\/09\/fallacy-of-buy-land\/","title":{"rendered":"The Fallacy of “Buy Land \u2014 They\u2019re Not Making Any More” – Article by Peter St. Onge"},"content":{"rendered":"
\n
\"The<\/div>\n<\/div>\n
Peter St. Onge
\n<\/big><\/big><\/strong><\/span><\/div>\n
September 21, 2015<\/big><\/span><\/div>\n
******************************<\/div>\n
\n
\n

\u201cBuy land \u2014 they\u2019re not making any more!\u201d is an old investing chestnut, and a common sense one to boot. Economically, it\u2019s also completely false.<\/p>\n

As counterintuitive as it may seem, we make land all the time. It just doesn\u2019t look like land.<\/p>\n

Why? Because land\u2019s value doesn\u2019t come from its ability to cover up the naked earth. Land\u2019s value comes from its economic usefulness. From the value of things that can be done using that land (Rothbard\u2019s \u201cmarginal revenue product\u201d of the land). And that value is, indeed, changing all the time. Economically, from a price perspective, then, we make land all the time.<\/p>\n

Step back a moment and ask why land has value anyway. Why do people want land? Well, obviously, because you can put stuff there \u2014 including yourself \u2014 plus buildings, swimming pools, and factories.<\/p>\n

Now, anybody who\u2019s visited West Texas knows there is plenty of building space in the world. You could drive for hours and meet nobody. There\u2019s lots of space for that factory of yours. But it\u2019s not really space itself that makes land valuable. It\u2019s location. As in, there\u2019s only so much room in Manhattan. Or Central London.<\/p>\n

Once again, though, it\u2019s not the actual space that matters. It\u2019s the access. Put a strip mall on Manhattan surrounded by crocodile-filled moats and snipers and it will have low value. The value is in access. So Manhattan is valuable because it\u2019s easy to get to other parts of Manhattan. And it\u2019s easy for other people to get to you. Customers, partners, and friends can all easily visit you if your apartment or office is in Manhattan, moatless and sniperless.<\/p>\n

So if it\u2019s the access that matters, are they making new access? Of course. They\u2019re doing it all the time.<\/p>\n

New highways, new exits, new streets, mass transit, pedestrian malls are being regularly constructed. These all effectively \u201cmake new land\u201d because they offer access to existing space. They turn relatively \u201cdead zones\u201d into “useful zones,” or new land.<\/p>\n

What are some of the meta-trends on land as investment, then?<\/p>\n

First: roads. This was a bigger value-driver a generation ago in the US, as new roads made the suburbs more accessible, helping to drain many cities even as US population grew. Outside the US (Mexico, Thailand, Russia), new roads are still a big deal, and even in the US, new highways can reshape values \u2014 draining old neighborhoods and building value in new ones. The decline of cities like Baltimore or Detroit are partly thanks to those beautiful roads that redistribute access to the suburbs.<\/p>\n

Second: population. In the US \u201crust belt\u201d of declining manufacturing, many regions have dropped in price simply because people are leaving. Detroit homes for $100 is emblematic, although of course there are also political reasons some cities are so cheap \u2014 in particular, taxes and crime.<\/p>\n

And that brings us to politics. Real estate can be cheapened shockingly quickly by taxes and crime, and those traditional drivers have been joined in recent decades by environmental politics.<\/p>\n

Environmentalists, by taking land off the market, effectively squeeze the remaining accessible locations, driving up the price. Regions like Seattle or San Francisco are poster children of this environmental squeeze, with modest homes even in remote suburbs costing upward of a million dollars. On the other extreme, cities like Dallas or Houston have kept prices down despite exploding populations by allowing farmland to be converted to residential, commercial, or industrial use.<\/p>\n

Beyond the access and political angles, land is also vulnerable to \u201cnetwork effects.\u201d In other words, the neighbors matter. Gentrification or urban decay can be hard to predict. Even in a compact city with rising population like Washington, DC, it can be hard to predict where the middle class or rich want to colonize, and where they want to flee.<\/p>\n

There are clues, of course \u2014 in large US cities, gays moving into a neighborhood, new coffee shops or art galleries are some leading indicators that property prices might swing up. But gentrification has it\u2019s own mind; even in a booming city it might go into some other neighborhood. New York\u2019s Harlem or Silicon Valley\u2019s East Palo Alto are two very accessible locations with low prices because of perceptions of the neighbors.<\/p>\n

So, while they\u2019re not \u201cmaking\u201d land, they are constantly making things that affect land price: access, regulations, changing neighbors. These are the kinds of factors that make land valuable, not it\u2019s ability to cover the earth.<\/p>\n

And so land comes back to earth, joining boring old commodities like wheat or copper. Just as vulnerable to changing supply and demand factors.<\/p>\n

And if you are looking for something they\u2019re not \u201cmaking more of?\u201d Well, gold does come close – hence its appeal. They do mine new gold all the time, but the costs are high enough that gold is a very \u201cinelastic\u201d commodity. It comes close to \u201cthey\u2019re not making more.\u201d<\/p>\n

Beyond that? Develop your ultimate resource: yourself.<\/p>\n

Peter St. Onge is an assistant professor at Taiwan\u2019s Fengjia University College of Business. He blogs at Profits of Chaos<\/a>.<\/strong><\/div>\n
***<\/span><\/div>\n
This article was published on Mises.org<\/a> and may be freely distributed, subject to a Creative Commons Attribution United States License<\/a>, which requires that credit be given to the author.<\/strong><\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Peter St. Onge September 21, 2015 ****************************** \u201cBuy land \u2014 they\u2019re not making any more!\u201d is an old investing chestnut, and a common sense one to boot. Economically, it\u2019s also completely false. As counterintuitive as it may seem, we make land all the time. It just doesn\u2019t look like land. Why? Because land\u2019s value doesn\u2019t come from its ability to cover up the naked earth. Land\u2019s value comes from its economic usefulness. From the value of things that can be…<\/p>\n

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