Mason Gaffney has been a Professor of Economics at the University of California, Riverside for 33 years; e-mail: firstname.lastname@example.org. He is the author of The Corruption of Economics, an explanation of how land became excluded from neoclassical economic models. He has also written extensively on various aspects of resource economics, urban economics, tax policy, and capital theory.
1. The Role of Land Markets in Economic Crises
Article first published online: 28 SEP 2009
© 2009 American Journal of Economics and Sociology, Inc.
American Journal of Economics and Sociology
Volume 68, Issue 4, pages 855–888, October 2009
How to Cite
Gaffney, M. (2009), 1. The Role of Land Markets in Economic Crises. American Journal of Economics and Sociology, 68: 855–888. doi: 10.1111/j.1536-7150.2009.00657.x
- Issue published online: 28 SEP 2009
- Article first published online: 28 SEP 2009
It is widely recognized that the economic crisis of 2009 was caused by unsound lending for real estate. Largely ignored, however, is that this contraction was easily predicted on the basis of a well-established pattern of land speculation, premature subdivision, and excessive building on marginal land that recurs approximately once every 18 years. Capital locked up in projects that are started during a land bubble is effectively lost during the downturn, leaving the nation without sufficient capital to finance ordinary business operations during the recovery period. The best instrument for avoiding this boom-bust cycle is the property tax and, more specifically, the portion that falls on land. We explore here the ways in which the property tax influences the intensity, timing, and location of development. We also examine why frequent and accurate assessment are essential to make the property tax an effective method of preventing speculative real estate bubbles.