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The Fallacy Of "Buy Land - They're Not Making Any More"
Submitted by Peter St.Onge via The Mises Institute,
“Buy land — they’re not making any more!” is an old investing chestnut, and a common sense one to boot. Economically, it’s also completely false.
As counterintuitive as it may seem, we make land all the time. It just doesn’t look like land.
Why? Because land’s value doesn’t come from its ability to cover up the naked earth. Land’s value comes from its economic usefulness. From the value of things that can be done using that land (Rothbard’s “marginal revenue product” of the land). And that value is, indeed, changing all the time. Economically, from a price perspective, then, we make land all the time.
Step back a moment and ask why land has value anyway. Why do people want land? Well, obviously, because you can put stuff there — including yourself — plus buildings, swimming pools, and factories.
Now, anybody who’s visited West Texas knows there is plenty of building space in the world. You could drive for hours and meet nobody. There’s lots of space for that factory of yours. But it’s not really space itself that makes land valuable. It’s location. As in, there’s only so much room in Manhattan. Or Central London.
Once again, though, it’s not the actual space that matters. It’s 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’s easy to get to other parts of Manhattan. And it’s 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.
So if it’s the access that matters, are they making new access? Of course. They’re doing it all the time.
New highways, new exits, new streets, mass transit, pedestrian malls are being regularly constructed. These all effectively “make new land” because they offer access to existing space. They turn relatively “dead zones” into "useful zones," or new land.
What are some of the meta-trends on land as investment, then?
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 — 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.
Second: population. In the US “rust belt” 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 — in particular, taxes and crime.
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.
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.
Beyond the access and political angles, land is also vulnerable to “network effects.” 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.
There are clues, of course — 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’s own mind; even in a booming city it might go into some other neighborhood. New York’s Harlem or Silicon Valley’s East Palo Alto are two very accessible locations with low prices because of perceptions of the neighbors.
So, while they’re not “making” 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’s ability to cover the earth.
And so land comes back to earth, joining boring old commodities like wheat or copper. Just as vulnerable to changing supply and demand factors.
And if you are looking for something they’re not “making more of?” 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 “inelastic” commodity. It comes close to “they’re not making more.”
Beyond that? Develop your ultimate resource: yourself.
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Do not purchase land in northern latitudes due to the onset of the grand solar minimum.
And that's why you're moving from your parents' basement to some Peruvian basement, ASAP.
Because of the breathing problems at such high altitudes, the Peruvian parents live in the basements and make their kids sleep in the attic.
So there is some degree of acculturation necessary for newcomers.
I just created more land.
Then I flushed the toilet.
What's wrong with someone's parents basement?
My parents had a nice basement.
But they bought me a house instead.
Nothing. I had lots of sex in someone's parent's basement.
Ah, but that's how you make Chinese islands. No wonder Chinese food is less filling...
I live in Brazil and I say to you:
"Buy the earth" (farm) is an art!
I am Geographer.
The geologist tells you that the underground sucks.
The biologist says that is a paradise.
The Environmentalist speaks of species.
The engineer calculates distances.
The Economist looks at the price.
His wife says he is a development far.
Gather all of this, and the land will be used to a very cool project!
A brothel!
hehe.
Now talking seriously.
The first thing to notice a farm area is the perimeter of the document, talk to confronting the neighbors.
The second, go on site and gather soil samples, do your own survey.
The third, check for running water (if water artesian well, run away).
The fourth, oddly enough, "breathe the air," take off your shoes and socks, to feel the ground, where the wind blows.
The fifth, notice the buildings, the oldest and best, notice where the sun is born and dies with respect to these buildings.
The sixth, native birds near the caves. if there are not buy the land, much pesticide nearby signal.
The seventh note where the rain water entering inside the property.
The eighth, calculate how much time you will spend to go to the place where you are.
The ninth question is: "I want to live here or take away my livelihood?"
The tenth and final question is: "My children will continue my dream?".
:-)
ZeroHedge sometimes seems the "ball club."
We do not accept people from other countries using the same technology.
hehe.
You will not find a basement Anywhere in Peru, Period. They just don't build that way. From Piura to Lima to Arequipa, Cuzco or Anywhere in the Andes, on down to Iquitos in the Amazon basin.
What you mean to say is a room on the other side of the courtyard in the middle of your parents' Peruvian house. I've travelled more extensively in Peru than any other Latin country, travels I would not trade for time spent in Any other country. I was fortunate to befriend a guy from Lima while in college. He invited me to stay at his parents house if I cared to fly down there. In the 1980's it was so cheap that we travelled almost everywhere, many places he'd never been in his own country. His immediate family has since emigrated to Texas and Cesar, a truck driver now, is still one of my best friends!
I'd rather deal with the grand solar minimum than the grand brown invasion of the southern latitudes..........
You can't escape the brown effulence overflowing the toilet no matter where you go on the North American continent.
what if I want to start a business chopping and distributing large blocks of ice?
Fucking idiot apartment dwellers telling all the other foxes to cut their tails off too.
Another gherkin-head shouting for you to forego any capital asset and get busy in services.
Frankly, the more I read from the Mises Institute, the more convinced I am that they have been subverted a la the Ford Foundation and are now spewing the exact opposite viewpoint of what their founder envisaged.
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WE ARE ALL DUMBER FOR HAVING READ IT
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Pobre cita.
I take it you've never heard the fable about the fox who cut off his own tail and tried to convince all the other foxes that life was better without one.
First time I drove through west texas I loved the rugged emptyness of the stunning landscape. It just appeals to me I don't know why.
Second time, well, I wish I brough a huge industrial metal saw and some tow chains ( and maybe a few drunk friends ) to pull down those fucking windmills.
I wonder to myself how many, out in that remote landscape, I could bring down before the cops got me.
I wonder how many birds and bats die there yearly.
Had a strikingly similar conversation with the bro yesterday.
If the apartment dwellers need elecftricity so bad, they can put the damned things on their own rooftops.
While I appreciate the merits of renewable energy sources, I am no more interested in being captive to their wind farm than I am in being hostage to their coal plant.
Ergo, I grow my own and fuck them all.
"Ergo, I grow my own and fuck them all."
As long as they pay you I guess it is all right, I wont criticize you, you are a modern Gal who can pay her own way!
So you value birds and bats above humans? You are willing to destroy other people's property based on your own whims, also? Wow.
No, I completely understand your point.
HOWEVER, how come the moment you put up a windmill, you are immune to the Migratory Bird Act? Why are you immune to other laws that protect the birds and the bats?
If I just sat on my property and shot those protected bitds that flew by, the FWC would be here in a heartbeat and arrest me. If I do it with a windmill though, it's A-OK?
Heck, I think it is A-OK for you to shoot those critters that flew by just from sitting on your property.
I do not give a shit either way. Which way do you want it? You want the law or not?
You might well ask how many people value their pet dog or pet cat above their fellow human being...
Standard Disclaimer: Mirrors would do well to reflect further.
My pet dogs and cats support my lifestyle, give me pleasure and pleasant company. We speak different languages but we understand each other. Fellow humans? That's a pretty wide swath. I have fellow humans that are also friends or family. Some are clients or people that I depend on for their services. Beyond these, I do put my dogs and cats above my "fellow" humans. Whats more, I'm relatively sure that many numbers of my fellow humans feel the same about me. In the 60's I did participate in all that "Peace" bullshit. Looking back it makes me sick.
There is a nice windmill museum in Lubbock and Rip Griffins truck stop the way point for OTM's without passports.
Many don't know that the USA is the only country where you buy and own land and the minerals under it and the wind rights above it. But many government power hungry dictators claim they in effect own the water that falls on your land.. the way things are heading in this country they will soon be saying they have the right to direct where the food goes that is grown on the land
Colorado is like that. Can't (so far) even collect a couple of barrels of water off your roof during a rain, because the rain falling on your property belongs to somebody else. Cocksuckers.
Every landowner in this country and in most of the world is sitting right on top of a store of wealth. Start digging people!
Renters can dig too if they are courageous!
not from the 5th floor, they can't
You people need to get off the Internet and go watch Celebrity National Republican Debate 2015 America Kicks Ass.
AMERICA FUCK YEAH!
Who wants to "legally" own land anyway? Legal ownership means you're renting from the government. The only way to truly own land is by squatting (as paradoxical as it sounds) because only then do you maintain possession without making repeated payments. I don't need a title to land from the court cartel to use unused land, I just find it and use it.
Lol. Good luck with that in any urban (accessible area). Trust me, SOMEONE owns it, and when you are found your squatting days will be over. Although you might be able to squat at the city jail toilet if you need to go. Of course after the SHTF a lot of people might get the same idea and you will have a lot of friends (and enemies) to deal with. Just a note: Water is a precious commodity.
there's always adverse possession... although the moment you claim it you gotta pay rent to the government
It isnt rent, its protection against intruders. The government defends your property for a fee. No sarc.
I can see that you have never started your own church.
I became a Revernd?
In the years before the Alzheimers took root, yeah.
Your last six months of sermons were hysterical. Attendance was way up and we bought a new metal roof for the church from the huge uptick in donations.
We felt bad when you got worse and couldn't preach any longer.
Real bad.
If Jesse Jackson and Al Sharpton can be Revernd's I can to so fuck off!!
Well if lands value comes from it's economic usefulness, than explain why nationally only 20% of all farmed ag lands are actually owned by the farmers working it. Something pretty wonky going on there.
There's your real story, an impending disaster, land transfers to the next generation have all but ceased for the last two decades. The props that feed you can and will vanish overnight, easy when they don't even have a stake and cash rent everything. Look into the average age of the real land owners, than answer why they won't let go and you'll have the real story. And no, it ain't the corporate's who've taken over everything, they barely factor in. Your Ag sector is dying a swift and painful death, land will be dirt cheap nationwide soon enough.
Interesting post and a few good points I have not heard of previoulsy
Freedom. They don't make that anymore. It's scarce too. Of course there's not much of a market for it......
Right. Not much of a market to OWN it. We currently sub lease it, maybe rent-to-own if you're wealthy enough
land value is socially created, but privately held.
this is a fundamental problem of our capitalism - as quesnay and ricardo and smith and george and stiglitz and hudson all argue...
http://www.economist.com/blogs/freeexchange/2015/04/land-value-tax
People cannot own land. We can only use it for a time, sometimes exclusively, restrict others' access to it through force or assumed force through law and then we die. The land remains.
Native Americans understand this. How can we, temporary beings in the flesh, own something that goes far beyond us?
It's a definition thing much like what is is. Owning is another name for controlling, so while you are alive and strong enough to control it you own it. Owning as a word implies an absolute but as a word it is misunderstood.The Native Americans didn't own land but they sure as hell fought each other to protect that which they considered their territory and/or hunting grounds. In some cases whites while passing through known indian territory secured (traded for) safe passage from the dominant tribes in the area.
Owning applies to anything. A hipster "owns" his Michael Jordans until some bigger, stronger asshole(s) take them away from him.
People ought to speak of having some properly defined property rights rather than generic talk about owning. But you wont see that in among Zerohedge's superstitious volk, most of them think their rights are either natural (come from the sacred forest) or come from god, and take great pride in that "fact".
Take a look at the Real Estate taxes for Woonsocket, RI. Even a dumpy little house has taxes from $500 to $600 a month - every month !!
A medium-nice house can easily have taxes exceeding $10,000 a year - that's over $800 a month !!
For what - bloated municipal emplyee pensions ??
Actually they are still making land. It's called artificial islands. Good for airstrips, tourism, and ambitious derelicts. Richart Sowa is my hero :)
Back Bay Boston, the most expnsive property in the state of MA, is all filled-in former harbor/swampland
The value of land does not only come from it's commercial value. That maybe true of your average suburban lot but rural land takes a good part of its value from its commodity potential. Timberland, farmland, and etc are priced based upon their commodity output. These raw goods are always finite, and paper money must be inflating infintely by it's very nature.
Thermal, hydro, and solar are finite insofar as it rains, shines, and well, stays warm underground...
I'd argue these are renewable. But then again the EPA might just take a shit in the river and destroy it, the gov could reroute or dam the river, and they might chemtrail the shit out of the sky until clouds are the norm.
Nevermind.... you are right. :)
"Put a strip mall on Manhattan surrounded by crocodile-filled moats and snipers and it will have low value."
I dunno, I might pay to see that.
Put a strip mall on the border between Texas and Mexico surrounded by crocodile-filled moats and snipers...
I would DEFINITELY pay for that...especially if the restaurants had patios overlooking the moat.
I think this article makes some good points, it helps to be reminded from time to time that the general population will often make ingnorant decisions and one doesn't want to get sucked into their group think as it applies to property. As there is a ton of property (if not all of it) that is overpriced in the US right now there will be opportunities down the road when the bubble blows. It helps to keep in mind what has real value and what doesn't. Access applies in many ways, I like to keep an eye on awesome rural areas that don't have modern road and utilities but that are certain or likely to become hooked up down the road. I have seen fortunes made off of that, it sometimes requires living off the grid temporarily or leaving a property vacant.
Of course the government can fuck our whole world in this respect on a moments notice. Also, P99x2 may be on to something too, the winters up north have been getting increasingly brutal as of late and it seems to be running those that can afford it further south. It is unclear if this trend will continue but there are theories with validating evidence that these weather patterns may continue or worsen and very few people seem to be aware of this as the media constantly hypes global warming. If a big shift in concentration of population comes it would be wise to stay abreast of it.
You never really own the property anyway...either you're renting it from the bank or you're renting it from government.
Ummm.....no. Congestion is MASSIVE. Even if you take the subway there is a crush of people and delays. Was in Oklahoma over the summer and it is easier to get around there.
"The value is in access. So Manhattan is valuable because it’s easy to get to other parts of Manhattan."
Its the same in any metropolis and the value is in how close everything is, congestion or else. In large cities you have access to all markets and lots of merchants and moreso in coastal cities, historically speaking.
Agree with this article 100%.
Mom and dad bought their house for C$18,000 in 1964. Had dad borrowed that money, bought gold at the going rate he would have had 474 ounches of gold. Dad passed last year so mom is looking to sell. The neighbour sold 1 month ago for C$350 grand, mom's lot is bigger, lets say she gets C$400 grand. Problem is, if she were to sell 474 ounces of gold, she's get ~C$570 grand. I have not included:
1. The interest payments on the mortagage (though to borrow 18 grand in 1964 to buy gold would also have incurred interest),
2. The property taxes for 50 years,
3. The side walks, double garage, land scaping and maitenance costs over 50 years.
Real estate in this case is almost a 70% loser as compared to gold....even ignoring items 2 and 3. Add those in and its likley an 80% bath as compared to gold.
That's the arithmatic.
Squid.
Did you deduct what it would have cost them to live someplace else for 50 years?
As soon as the federal government is broke and powerless, cities will discover an easy way to make new land, by bulldozing dangerous inner-city neighborhoods and building luxury condos in their place. James Baldwin said it best, "Urban renewal means negro removal."
A wise (and very rich) man once told me "buy raw land 10 years beyond and in the direction of growth". Remember, downtown Dallas was once pretty cheap ... as was Manhattan. It's all about common sense folks.
This article is obviously written by a Mises Monk so it lacks credibility on its face.
Mises needs to let this twit go.
"New highways, new exits, new streets, mass transit, pedestrian malls are being regularly constructed."
Ummm, actually they are NOT. And they are not going to be. We cannot afford to maintain what we have and it is going to be going away. It already is. In some places roads are being allowed to return to gravel. And we are going to be seeing MUCH more of this. And bridges will need to be triaged, too. There is going to be less access to space in the future.
Buy land? You mean rent it from the US gov't, right?
Land is a good investment long term.. CROPS = 1/10 original cost....oil royality lease (3 yrs) = 4x cost of land + 3/16 royality if they ever get sround to drilling...if not they release in 3 years.....more money....They have been leasing this for 30 years...I would guess hey have paid 10 x the original purchase price over the years...Then they paid nearly 2x to run a pipeline accross it...
Plus it is a great place to live... I have added to it twice thanks to the stock markets inflationary aspects..so far...
people are getting smarter...the additions did not come with oil royalities...granddad was a very smart or lucky guy...came back from WW2 and set his family up for the next 3 generations....my advice marry a farm girl.....biggest additin came from doing that ..and that did come with royalities.....taxes are very low....about 1 / 100th of original purchase price...Being dirt poor is very profitable in my experiance....
Cramer touted that Toll Brothers stock wouldn't go down, because it was a land bank.
It became a good shorting opportunity.