3.6.1-9: Real Estate Speculation and Land Price Bubbles

Module 3, Section 6.1-9

Real Estate Speculation and Land Price Bubbles

6.1 One of the most destructive aspects of finance capitalism is the borrowing of money to purchase land in the expectation that the land rent will increase in order to repay the loan while making a profit from land. In other words, borrowing money to play the game of rent-seeking. There may be different phrases in different languages, but in English this game is sometimes called “making a killing in real estate.”

6.2 Meanwhile tens of thousands of people die of hunger each day because they cannot access productive land from which to make a living. Just as slavery was abolished, so must be real estate speculation and land hoarding.


6.4 Land speculation produces no tangible wealth and leads to land price bubbles. When the bubble bursts, the banking system managers try to stabilize the situation by manipulating interest rates. But if the interest rate is placed too high, the economy slows and the “real” economy goes into recession. Workers lose their jobs and source of income. If the interest rate is placed too low, the real estate speculation game starts again and the land price bubble (and thus the housing price bubble) begins to grow. Once again, those who must work for their living have to work longer and harder to buy their house lot. When they take out a mortgage before the bubble bursts they are left with negative equity.


6.6 There is in fact no “just right” interest rate when the land problem is the real culprit. The average person suffers if the interest rate is high or low. See-sawing the interest rate back and forth in this way is commonly understood as an attempt to stabilize the economy but the end result is the same. The rich get richer at the expense of the rest. The wealth gap grows, sometimes faster, sometimes slower, it is just a matter of speed. Land rent is privatized and those who work for a living are penalized.


6.8 Note again what you have learned about the two dimensions of the land problem:

  1. a small percentage of people now own and control a largely disproportionate amount of land and natural resources; and
  2. as development proceeds, land rent increases faster than wages and the return to other economically productive activities due to the treatment of land as a market commodity.


6.9 The core solution to both market malfunctions and the growing wealth gap lies not with interest rate manipulations but in solving the land problem. This is the primary goal of land value capture and from which flows a number of additional social benefits which we will describe as we continue through this Module Three.