Debate Magazine

David Triggs' Law of Rent

Posted on the 28 September 2016 by Markwadsworth @Mark_Wadsworth

He summed up the recent IU conference with one final thought, he said there are so many theories and explanations regarding land rent (von Thünen, Ricardo etc), but it's actually very simple:
"Rent arises where more than one person wants to occupy any particular plot of land. It arises quite independently of any actions or inactions of the 'land owner'."
Which pretty much covers it. Quite why the rent for one site is higher or lower than for other sites depends on a million and one factors, none of which have anything to do with the 'owner' of any particular site. There are plenty of examples where there is no 'owner', such as the middle of the ocean. If there is oil to be drilled or fish to be caught, that site will have value. And there is plenty of privately owned land in the UK with a rental value of effectively zero.
It also covers all sorts of KLNs, for example "It's about supply and demand. If we built more houses/restricted immigration, there would be more housing to go round and hence lower rents and prices"
Even if that were true, so what? The newly developed land has a much higher rental value than it did as farmland and the rental value of previously developed land falls a bit; the total rental value stays much the same, there will still be high and low value areas etc. The law still holds.
Or this KLN: "How can you say that land is a monopoly? I only own a small number of homes out of 27 million in the UK. I am competing with millions of other landowners."
There are 27-million households in the bidding for those 27 million homes; there is nowhere else for them to go. That is a monopoly which generates higher rents in the more desirable areas, tapering away to negligible rents in the marginal areas (there are plenty of homes in low wage, undesirable areas of the UK where the rent is effectively zero).
You can sub-divide this monopoly as much as you like, once all the other homes in non-zero value areas are taken, for the last remaining available home there will be dozens or hundreds of potential bidders. Even if there are only two bidders, the price that the winning bidder has to pay is rent and is dictated by how much the other person bids; which largely depends on how much he or she earns/can afford to pay, which has absolutely naff all to do with the current 'land owner's' actions or inactions regarding the site.
And so on.


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