7. (2014 July-August) Numbers: Measuring Economic Rent

The RSF staff discovered the following note in a letter by Elbert Segelhorst in December 2003.  He describes a “back of the envelope” calculation of national economic rent that is about 6 times higher than the official statistics say it is.  He got approval from some Columbia University economists for his method.  We recommend you talk to some economists in your area about this and report to us your findings.

“I find it useful to explain the very important role of economic rent in the following manner:

a. The average person spends about 1/3 (or more) of his or her personal income on housing (as either owner or renter). On average, 1/3 of the assessed property’s value is that of the unimproved site–the land value.

Consequently, 1/3 x 1/3 = 1/9 of national income is being paid to the owners [or mortgage lenders] of these residential sites.

b. The market value of land in all other uses (e.g., commercial, industrial, transport, government, etc.) is approximately equal to the residential land value, or 1/9 of national income.

c. Combining residential and all other land uses, the total amount spent on site rent is around 2/9 of national income, or 22%. I made this presentation to five fellow Ph.D’s from Columbia University in NYC in June 2003, and my estimate was accepted.”

2 thoughts on “7. (2014 July-August) Numbers: Measuring Economic Rent

  1. Many Georgists say economic rent is 1/3 or more, of GDP. These include Mason Gaffney, Fred Harrison, and Michael Hudson (in his more pro-Georgist moods). I heard Ted Gwartney once say it could be 50%, when Andy Mazzone asked him a few years back.
    2/9 then, seems a bit low unless you mean something other than GDP by “national income.”

  2. Economic rent may be much more than a third of total GDP considering not only the current market value of inert land or natural resources but also the enhanced or increased values of natural resources, private and public assets as these are influenced by the fourth factor of production – government. Accessibility of resources and linkages to markets provided by government infrastructure investments, as well as provisions for security, all contribute to increase economic rent beyond the conservative estimate of one-third of GDP. In the Philippines, local governments across the country uniformly assess residential and agricultural land values at 30% or less of market value. Commercial and industrial land in urban areas are assessed at 10% of market value. The highest government assessment of land value (for capital gains tax purposes) is the Bureau of Internal Revenue’s zonal values which correspond to about 50% of market value. All this official undervaluation goes on despite the infrastructure construction and government maintenance of peace and order, mass education, and health service expansion that cause economic rent to rise. More integrity in rent calculation is called for.

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