The Return of Henry George?

NYTimes: Today, with the subway in precipitous decline and the city enjoying an economic boom, some policymakers think the time has come for the subway to profit from the financial benefits it provides, including its considerable contribution to property values.

…In Manhattan’s main business corridors, from 60th Street south, the benefit of being near a subway adds $3.85 per square foot to the value of commercial property, according to calculations by two New York University economists.

The notion that property owners should pay extra for their proximity to the subway is called “value capture” and has long been debated in urban planning circles. Now Gov. Andrew M. Cuomo, a Democrat, has made value capture a prominent part of his plan to salvage the subway system by proposing to give the Metropolitan Transportation Authority the power to designate “transit improvement subdistricts” and impose taxes.

..The Cuomo proposal calls for before and after assessments in neighborhoods where a new transportation project, like the extension of a subway line, raises property values. Officials would determine the difference between the previous assessment and the new, higher one.

Of the tax on that difference, 75 percent would go to the transit agency and 25 percent to the city.


Wouldn't that value be captured by simply increasing subway fares to the point where properties near subways don't have any added value?

But doesn't this act as a commuter tax, penalizing those who use the subway to get to work. .


The cornerstone of the theory of optimal taxation is that taxes should be applied where they change behavior (distort) the least. The owner of a building that sits next to a recently upgraded subway stop stands to capture as a pure rent windfall all of the increase in value from the improved subway access. So should that 'rent' or 'tax' be captured by the landlord who did absolutely nothing or by the taxpayers who paid for the subway improvement? Simple economic theory says the MTA or the city can tax away the entire windfall without changing any behavior: the landlord will still supply the land, the tenant will now pay more because they're closer to an improved subway. The only difference is whether the social value created by the MTA goes to private landlords or whether it goes back to the taxpayer. If you want the MTA to deliver good infrastructure and city residents to pay lower taxes, the answer is obvious.

Everyone who commutes already essentially pays for the subway accessibility proportionately to how accessible the subway is from their home. So there should be no net change in behavior. Their fares will go up but their rents will fall, and the difference is captured by the MTA and the city instead of landlords. If anything people who live near subway lines but don't use them should see their rents fall slightly, which is a more efficient outcome.

Do we want to incentivize building or improving subways? If so, taxing the windfall to property owners incentivizes taxpayers in general to do so. Cui bono?

I bet they have no idea what is the profit maximizing subway fare. In socialist paradise Oslo, Norway, the cost is about $4.5 for a single ticket for the subway.

That's not that much more than a trip on the DC metro these days.

Why would 'profit maximizing' be the optimal price for a subway fare? The subway is a natural monopoly. Profit maximizing subway fare is probably $10 or higher, but the deadweight loss would be huge. .. The efficient fare is likely much closer to what is charged now.. Furthermore the whole point of the blog post is that the MTA is positive spillovers for property holders which logic and economic theory tells us ought to be better appropriated by the MTA for efficient resource allocation


"Furthermore the whole point of the blog post is that the MTA is positive spillovers for property holders which logic and economic theory tells us ought to be better appropriated by the MTA for efficient resource allocation"

It is hard to tell if you're pulling my legs or you seriously believe this, or you are simply showing an understanding of the perspective of the authors of the paper!

However, the logic is: I am building something nearby your property that you didn't ask for, if I can determine by my methods that this benefited your property value, then I will confiscate those gains.

I'm not pulling your leg, it's basic economic theory. It's also an idea supported by many libertarians (if you're going to have a tax.... tax rent on inelastically supplied factors, almost any other type of tax is theft and distorts... a land value tax is neither). Milton Friedman himself called it "the least bad tax"

Many cities around the world finance urban infrastructure improvements this way... Do it right and you can *lower* many types of property taxes (namely any tax on improvments).


I am not totally adverse to a land value tax, and I respect your enthusiasm for it, however, I do question whether your claims are well supported:

1. You claim by (a) logic and (b) economic theory, property value gains are better appropriated by the MTA.
Response: I expect any budget gains for the MTA will go to exaggerated pensions, and not to improve the capacity of the transportation system. A claim that the city would appropriate the added value better would be more credible than the claim about the MTA.

Even if one accepted the logic of a land value tax in lieu of other taxes, what you are suggesting is that the derivative of land value with respect to an infrastructure improvement should be used to finance that particular improvement. There is a logistic problem, that the property value improvement comes after the investment must have been made, so this scheme requires years of float financing. Also, there is a measurement problem, as in other social sciences, the R^2 coefficient in economics is nothing to write home about. Likewise, your methodology could lead to fairly absurd conclusions. If Bill Gates and Warren Buffet moved into a neighborhood, and this dramatically increased nearby property values, shouldn't they then receive the gains, otherwise the neighbors would simply get an undeserved windwall?

Lastly, supply and demand curves are "basic economic theory", the superior fairness of the land value tax is merely an "economic hypothesis".

Anyway, a nationwide implementation of the land value tax might lead to some interesting conclusions regarding the vast holdings of federal land. With one or two more Trump appointees to the supreme court, they might reach the conclusion that states have the right to levy property taxes on federal land, which would probably hasten the sell off that is bound to happen when the feds get closer to a default.

So, Walmart should be compensated for the increase in property value for the locations when it builds a store?

"So, Walmart should be compensated for the increase in property value for the locations when it builds a store?"

Otherwise, it would be an undeserved windfall!


Thanks for the longer thoughtful reply below. No time to reply now except briefly:
- float financing: yes precisely .. value capture.

- measurement problems sure... but movement in the direction of a LVT away from more inefficient sources of finance is surely a move in the right direction..

- I'm no fan of the MTA, so sure let the value return in more efficient ways...

- Not sure I understand the point about " value tax is merely an “economic hypothesis”. The supply of unimproved land under Manhattan is not *completely* fixed (the dutch added some land and I suppose if the price rose to astronomical highs there's probably room to add fractions of one percent to the land mass..). But if we agree on that definition, then what is the hypothesis to test? A reasonable tax on an inelastically on unimproved land will (by the very definition of inelastic supply) not reduce supply much at all and will therefore simply change the distribution of the 'unearned rent on unimproved land'. By definition this is a more efficient tax than a tax that falls upon land improvements or any other more elastically supplied resource.

Not if the increase in price lowers use enough to reduce total revenue.

Offset by the congestion fee on all vehicles using the streets and the sidewalk tolls.

Alex objects to zoning setbacks and requirements on property owners to provide free sidewalks.

It's forbidden to charge the users of public transit the actual cost of the service. If they did that, we'd quickly realize that users don't value the public transit service more than its cost and its revenues would plummet.

If you increased fares to the point that nearby properties would not have any added value, wouldn't you reduce drastically the number of people who would take the subway? Local businesses might be in real trouble if they had to raise wages to help pay for subway fares for their workers and lower prices to help pay for subway fares for their customers. Is that what you want?

Certainly there are higher property values for houses inside the Washington DC beltway. One also sees enhanced development, both commercial and residential in the proximity of Metro stations. Isn't the mantra of real estate, "...location, location, location?" I read the story this AM and found it totally unsurprising.

The value created by a nearby subway station is already reflected in a property's value, and hence its property taxes (subject, in NYC, to a thousand special rules, which wouldn't necessarily be affected by Cuomo's proposal). So this proposal just amounts to siphoning off a portion of the government's general revenue and dedicating it to the subways. Nothing wrong with that, if you lack the discipline to spend adequately on infrastructure, which seems to be the case in NYC, but not economically revolutionary.

Well, if building the subway leads to an increase in value of 100$, only a fraction of it will be taxed. It would make sense to tax it at a higher rate than taxing any random property, which the government had nothing to do with. No, the problem is that the value was already incorporated into the price when the current owner bought it, unless he bought it before the subway was constructed. So he'd get screwed over.(Not that NYC property owners are a group I particularly care about.)

Agreed, but this proposal didn't seem from the article to contemplate a higher rate of tax on the increased value, just isolating that increase and dedicating the resulting revenue.

"The value created by a nearby subway station is already reflected in a property’s value,"

That assumes property owners have perfect foresight as to each and every future MTA expansion from now to eternity. But even if they did, so what? They paid that money to other private parties that capture the windfall. Why should PUBLICLY created value be capture as private taxes/rent. I'm a city taxpayer and MTA user. I resent that higher values created by my taxpayer dollars and subway fares are going into the pockets of real estate speculators. What kind of economic system is this where social investment is mainly capture as private gain by the richest of the rich. That seems the worst combination of capitalism and socialism:

"Why should PUBLICLY created value be capture as private taxes/rent."

Why should PRIVATELY create value be captured as taxes?

"Why should PUBLICLY created value be capture as private taxes/rent."

Why should PRIVATELY created value be captured as taxes?

Agreed, privately **created** value should NOT be taxed.

That is at the center of the 'single tax' proposal: avoid taxing returns to effort or improvements (be they by private or public parties) and instead tax increases in the value of unimproved land.

A 'rent' is a 'tax'.

Not enjoying a windfall is not the same as getting screwed over.

Value capture for stadiums too.

I suspect that stadiums reduce nearby property values.

Yeah, they're probably like college campuses: everyone wants one in their town but no one wants to live near one. When California was deciding where to build the latest (9th?) University of California campus, the lobbying was like a mini-version of the Amazon HQ2 sweepstakes. A UC campus can have a transformative effect on a metro area, but most people don't want to live so close to the campus that they have to put up with noisy students, traffic, etc.

Hmm, I wonder if that's why UC San Diego and UC Santa Barbara are both located outside of their namesake cities.

Yep, Wrigleyville is really suffering

Remember the folks in Georgetown did not want a subway. This is nothing more than another tax, dressed up in technocrat garb.

And, today those Georgetown residents would want it, but have you pay for it.

Try to find a parking space in Georgetown, and ask how many cars in Georgetown contribute to congestion in Georgetown and DC.

Given the ubiquity of personal digital devices, it is easier now to charge people for the use or benefit of government infrastructure and services, whereas in the past part of the reason for treating a good or service as a public good was because the transactions costs of collecting a fee would have made the product or service too expensive.

I am in favor of placing a value on infrastructure products both as a way to build them but also as a way to maintain them.

Perhaps they should address the rampantly corrupt and wasteful system before engaging in creative finance.

To the extent that benefits of being located near the transit system have been capitalized into land values, Gordon Tullock's "Transitional Gains Trap" is relevant here.

Just because someone paid money to be a private tax farmer (i.e. a landlord) does not mean the public should not be able to reclaim more of the returns from their tax-payer funded investment.

To give you an extreme example, if you pay $1000 for stolen property, are you owed $1000 by the police when they find it in your possession? Or even more extreme, would you argue that slaveholders were due government compensation after abolition just because many of them had bought their slaves at prices that capitalized the future stream of rents to be captured from being able to capture the marginal value product of their slaves' labor while only paying said slaves a subsistence wage? Yes the slaveholder is 'expropriated' by abolition, since their property rights to such rents are suddenly diminished. But those were property rights to stolen property.

These are extreme examples, but it differs from the case at hand only in degree. Henry George (and before him Smith, Ricardo, Locke and Mill) were unequivocal in making it clear that landlords should be compensated fully for any increases in the value of their properties due to improvements, but that any windfall rents above that really should be thought of as theft of the commons or 'unearned income' that could and should be taxed away.

While there is plenty of room for debate on how one might try to do this in practice and in a politically feasible way (landlords and real-estate developers can be a powerful, nasty bunch..) the underlying principle is rather uncontroversial: efficient allocation requires appropriation of the benefits of investment and effort going to those who make the investment and the effort.

"25 percent to the city.”

To the city or to the city government. Big difference.

Wouldn't this just push "affordable housing" even further away from the subway system that people who most need the "affordable housing" rely on the most? in addition all small businesses along a subway line will see similar pressure and have to raise prices, or be pushed out by more corporate entities that could afford the additional costs.

Not at all. The question is just who captures the windfall. Under the current system all of the windfall (from better subway access) goes to the private landlord who can charge his tenants higher rent and then deposits that in his private bank account. If the city or the MTA captured the rent via higher land taxes the tenants would pay the same (and some argue less) in rent. The ONLY difference is that now the city would have an extra source of revenue with which it could help promote affordable housing, give city residents a tax break, or some combination of the above.

Look up land value tax. This is a very old idea, and one that is implemented in many cities around the world.

"If the city or the MTA captured the rent via higher land taxes the tenants would pay the same (and some argue less) in rent. "

The idea that owners wouldn't raise rates to recapture the tax from tenants is silly. Granted, it's possible that market rates wouldn't allow them to completely capture the total taxed amount. But history shows that the overwhelming bulk of such additional taxes is passed to the consumer within a few years.

The tenants are paying more rent by definition because that is what the land tax is suppose to capture from the landlord. The city could then send the money to the renter so they net don't pay anymore, but in that case the money isn't funding the subway

Unless the property owners bought their properties prior to the building of the subway, which seems unlikely, then they've already paid for this increase in value.


So it's a taking, prohibited without due compensation by the Constitution of the United States as well as stealing being wrong... but I suppose we could compromise on a 75% federal property tax for blue counties in exchange for allowing you to seize property internally? Fair is fair.

Hardly. And who is taking from whom?

It is clearly inefficient for society to allow 100% of the spillovers from MTA investment to be captured by private property owners, without compensation. Taxation in this case is not taking, it's simply asking property owners to pay for the value of government sponsored improvements.

Say I buy a property for $1M. 10 years later the property is worth $3M in part because the MTA built a new station to my neighborhood. And say economic analysis suggests conservatively that $1M of the $2M gain is due to the MTA building a new station. Is it taking if the property owner is taxed $1M on the capital gain? They've still made 100% return on their investment (or about 7% annual rate of return), there is no land supply disincentive effect... if anything a land value tax should increase land use

It is clearly inefficient for society to allow 100% of the spillovers from MTA investment to be captured by private property owners, without compensation.

If they purchased the property AFTER the spillover happened, they aren't capturing any gains.
You want to tax someone, you have to retroactively tax the people who owned the property before the subway got built, which is also illegal.

There's no efficiency argument here.

Hazel: "If they purchased the property AFTER the spillover happened, they aren’t capturing any gains."

So is your opposition based entirely on the transition complications, not to the long-run soundness of the idea?

Any politically feasible implementation of the tax would have to be forward looking, .. There are many examples of making this work in practice. A comprehensive land value tax system would help finance new infrastructure building.

I'm really trying to understand the contrary position here. Are you saying that it's better to finance infrastructure out of general taxes (such as taxes on labor income) rather than raise taxes more heavily on those who stand to gain the most because they happen to own an inelastically supplied factor?

Suppose you have a landlord and two tenants who get charged $500 for two s***hole apartments. Tenant A paints and fixes up the property making it a much more desirable place. Would you now support that the landlord now charge tenant A $1000 because tenant A has now made the property more valuable? After all the landlord can now charge $1000 to a newcomer. You would not see that as expropriation of the tenant's efforts.

Now change the situation. Landlord has two properties one in neighborhood A and another in neighborhood B. The MTA builds a new subway stop close to apartment A. Rents for apartments in neighborhood A jump to $1000 through no effort of the landlords. You believe that the landlord is fully entitled to the full windfall.

I support free market competitive capitalism and efficient financing mechanisms... I do not support distortionary taxation or rent-seeking.

Dude, do you have problems understanding causality or something?

The landlord didn't purchase the property until AFTER the previous owner fixed it up and painted it. And he paid more for it as a result. You want to tax the landlord on gains that occurred before he owned the property. The MTA built the subway stop 40 years ago and you want to tax people on the property values now, people who just bought the property last year.

Maybe I see where the confusion is. The landlord is already paying the property taxes on the increased property value. That's just the default state.
What is being proposed is that the city tax away the *capital gains* caused by the increase in property values.
Our objection is that you can't tax someone on capital gains that were captured by the previous owner. That's just a taking.

"The landlord didn’t purchase the property until AFTER the previous owner fixed it up and painted it. And he paid more for it as a result."

I think there are two misunderstandings here. First, the whole point is precisely to AVOID taxing (or failing to reward) IMPROVEMENTS. That would indeed be taking, and that was precisely the objection that Smith, Ricardo and Henry George had to landlords!

In the Wealth of Nations Smith writes disparagingly of: "The landlord [that] demands a rent even for unimproved land [when] those improvements are ... made by ... the tenant. .... [and who] demands rent for what is altogether incapable of human improvement. ...
The rent of the land... is naturally a monopoly is not at all proportioned to what the landlord may have laid out upon the improvement of the land..."

The Smith and HGeorge message: don't tax improvements (otherwise we won't get enough improvements) but do tax rising rents on 'unimproved lands' since *by definition* they are not due to any effort or improvement by the landlord, they're pure windfalls. In the example at hand, to force the MTA to raise financing for infrastructure improvements that end up in large part resulting in higher rents on unimproved land by landlords who did essentially nothing but sit and wait (or often worse than nothing... in many developing and transition economies elites are grabbing lands and pushing out customary or weak stakeholders).

Your main objection seems to fall back again in the end on your feeling that it would be somehow 'unfair' to those landlords who bought land recently because they might have paid a price that capitalized those rents. Two things to note on this: 1) it's not an efficiency objection, it's a distributional one and 2) when does this argument end? Are you saying society can never move to a more efficient tax system..?

So it defeats the justification that is being advanced for the tax- that "the subway is making some people very, very wealthy without paying into the system.”

Americans don't like to pay for public transit for a variety of reasons. Here at MR the objection isn't to transit per se but public. For those paying attention, autonomous vehicles are "transit", and they may become "public" once folks realize that autonomous vehicles will require their own right of way (if they are to travel more than 30 mph). Or they won't become "public" if the public agrees to pay for the separate right of way so the "private" can profit from "transit". Personally I don't believe autonomous vehicles are the most efficient way to move a lot of people around in an urban environment. One of the leaders in the development of autonomous vehicles is also one of the leaders in the development of a separate right of way for them, separate because, like the subway, the right of way would be underground. Where I come from if it looks like transit, moves like transit, and costs like transit, it's transit. But lots of people don't come from where I come from, they come from fairyland.

Giving money to the MTA is as fully a good idea as giving wine coolers and loaded guns to a room of unsupervised nine-year-old boys.

So what are you saying, That the same windfalls from MTA created improvements are better left to be captured as private windfall by land property owners and speculators like, say, Donald J Trump (who of course never sought the influence of politicians, the mob, or other special interests in positioning themselves to get those properties). They will spend it in much more socially useful ways. Really, is that your argument?

No, the argument is very simple. We are not allowed to talk about what the MTA really is so we have a bunch of academic discussions about efficiency and whatever. It's like if you weren't allowed to talk about helium so when you saw a balloon you started talking about quantum antigravity something math something. MTA should be sold to Donald Trump's for one dollar and he should be given immunity to lawsuits of any kind from his new employees. We'd have flying subways in ten years.

Has it ever occurred to you that perhaps the MTA is so damn inefficient because the 'subway builder' contractors that have captured the agency are one and the same as the 'real estate' builders and investors whose windfall rents you are so keen to protect.

It's not an academic argument, it's an argument that Smith, Ricardo, Locke, Mill, Hume and Henry George understood hundreds of years before 'modern economics' came around.

I don't like the MTA either. I'd be happy to see the agency abolished and replaced. But to say the MTA is inefficient is a red herring argument. The issue at hand is how should capital infrastructure improvements be financed. You don't need to be a rocket science economist to reach the simple conclusion: it should be financed in the least distorting way and the revenues should be raised from those who stand to gain the most. Why is that so hard to understand?

With a few more recent additions, the New York subway was materially finished more than 50 years ago. The rents associated with proximity to subway stops were captured by those who owned those properties more than a half century ago. This is almost certainly not the current owners, who paid for the subway premium in the purchase price of the respective properties.

Thus, there is no residual premium for proximity to a subway stop. That premium was captured by property owners decades ago and now long gone.

Yea, but this is a lot more fun and provides better photo ops for the politicians than the grunt work of efficiently running the subway system, or even worse, tackling the systems pathological personnel problems.

So right you are.

So in your mind there are no remaining infrastructure improvements to the subway or the City of New York than can still be made? If you believe that, you obviously do not live in NYC. If you do believe that infrastructure and parks and public goods do need to be financed from time to time, you opposition to more efficient forms of taxation that try to place the taxes on those (a) best positioned to capture the gains and (b) those who are holding an inelastically supplied resources, is what again exactly?

I thought the people in the comments section of this blog were supposed to be libertarians and free market supporters... instead we seem to have those who support socialism for rich: windfall rents for landowners financed mainly out of general taxes and fares on the public..

When the government is providing an excludable service, the best target for financing that service is the user. Here, that's the riders. If MTA needs more money to run, then the fares should go up. Frankly, I doubt that it actually "needs" more money. There is almost certainly a lot of fat in its operations.

But the whole premise of this discussion is that the benefits are NOT excludable... to wit, a large fraction of the benefits accrue to property owners who benefit from subway improvements... and you can't exclude them from the benefits (your value of your property WILL go up when that new rapid transit station is built). By your very own logic -- that the beneficiary should pay -- this group should contribute.

I was making a narrow point, Jonathan, that current owners of property near subway stops have, in almost all cases, already paid a premium for their location when they bought the property from the previous owner. Thus, the notion that there is 'excess return' in these properties for the government to take is likely false. These properties trade hands at a premium over properties located away from subway stops, no doubt (ie, all Manhattan properties are going to be priced by foot traffic and historical store volumes, which captures both subway and non-subway traffic effects).

As for infrastructure, New York makes sub-Saharan Africa look well-tended by comparison. That is principally a function of New York politics, not funding per se.

So, by similar reasoning, we should never return stolen property to the original owner, once the original robbers have sold the painting to a buyer who pays full market price? That would be hurting the last buyer.

I'm being partly facetious, but the difference in argument here is one of degree, not of kind to the one you are making.

You don't seem to be arguing that those rents on unimproved land are not windfall gains that were created through no extra effort by landlords but came instead from infrastructure and other improvements and services (e.g. police, public parks, etc) paid out of general taxpayer funds, the only point you seem to be making is that because the last buyer paid the prior landlord for the value of the gains, that the debt to society and its taxpayers are thereby extinguished.


Having your property values rise due to other people's actions you can't control is not theft.

Well, kind of. Let's just say the amount being near public transit is worth in NYC has changed as the crime rate has changed

There's a key point that commenters have missed: property taxes already go up when a new subway stop is built. When the stop is created, surrounding value rises, is integrated within a few years into updated tax assessments, and results in higher revenue to the City. What really changes under Cuomo's proposal is that the lion's share of the increase would go to the Cuomo-run MTA instead of to the City. This isn't really any kind of new tax on land-owners, but rather an inter-governmental money grab.

As an inter-governmental money grab, it makes some sense. The basic idea of a property tax is that the workings of government make property (especially real property) more valuable than otherwise, so it is reasonable to tax property value to fund the government. Public schools make property more valuable, so some portion of property taxes go towards schools. Fire stations make property more valuable, so some portion of property taxes go towards fire stations. And public transit makes property more valuable, so some portion of property taxes should go towards public transit, even if a separate agency administers the transit system. So then the question is how to allocate property taxes among the governmental unit that pays for schools and fire stations and the one that pays for subways. One could certainly imagine less rational approaches that tying the MTA's allocation to the measurable value that its operations create.

The value capture model is probably better suited to facilitating capacity increases I think. That is, re-zone an existing low to medium density area within a commute to a CBD to allow for higher density accommodation, add new mass transit capacity linkages, incorporate a value capture tax at the time of re-zoning / development approval and use proceeds to fund the new infrastructure development.

This is a relatively fair method of paying for the improved amenity provided, which will ultimately be borne by the person buying the new apartment at the time of first occupation. I'd agree this is an imperfect model for an area as developed as Manhattan, but I'd expect this funding model to be rapidly adopted where in fill opportunities are more obvious (it is already being adopted in urban areas of Australia as an example).

Hi Jonathan,
Your argument is very convincing. Would you be interested in giving a talk at the Henry George School?
Please contact me at


In other words, levy a fine on those close to the choo-choo. Brilliant.

It's a shakedown to fund expenditures that will buy votes and campaign donations, not fix mass transit. Don't dignify this dollar-grab with economic analysis

And a confounding factor by the way is that some NYC-area neighborhoods (e.g. Bayside) are happier and property values higher because there is no subway nearby, helping maintain the neighborhood's insularity

Meanwhile, governments now have the means to quickly turn any road into a toll road, so that will be the new frontier in gouging the public in NY, CT and NJ

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