Land Currency

The text below is adapted from a proposal put forward during the ConstitutionUK project run by the LSE in 2015 to crowdsource a new constitution for the UK, and will be substantially rewritten before this website goes live.

We consider that the right to inherit a fair share of the nation’s natural resources is fundamental to a just society

The two main barriers to the introduction of such a right are:

  1. The fact that, in Britain, there is no unowned land – so a right to land for a new-born necessarily involves a transfer from someone else.
  2. The fact that land values vary hugely and different people have different land use requirements, so simply parcelling out land would not be an effective or equitable way of giving everyone a right to land.

Our proposed reform clarifying the purpose of inheritance law should solve the first of these problems but another reform would be needed to solve the second.

Since the amount of land is fixed, all that is needed is to separate the land market from the broader market. If the land market operated with its own tradeable, fixed-quantity currency it would be a relatively simple matter to give everyone a more-or-less equal share of land-market-value. As each generation died, their allocation of land-credits would be released and could be shared out among the generation just coming of age.

Establishing a fixed-quantity currency for trading in land looks, at first glance, as though it would be fraught with problems. And doing it in a single step probably would be. However, there’s no reason why it shouldn’t be introduced over a generation or so, in tandem with the inheritance reform, by transferring real estate into such a system when it changes hand, either by sale or bequest. Whenever a landowner or house-owner passed on real-estate, that property would be brought into the system, the stock of land-credits would be increased appropriately and that particular property would, from then on, be traded using land-credits.

It’s difficult to describe how the land-credit system would work without going into a lot of detail (and the transition phase would obviously involve extra procedures). Essentially, the nominated heirs to a property would receive the appropriate amount of land-credits (up to the beneficiaries’ personal limit) and would have a right to buy the property, perhaps for the same price as the testator had paid or perhaps (if the testator had benefited from a special price) for its market-value at the time it last changed hands.

Land-credits could be bought and sold (or rented out) using ordinary money so, if the heirs didn’t want to buy the property, they would be able to simply sell the credits. In the earliest stages, until there was a significant stock of property covered by the scheme, they would have to wait until the property was sold (just as they have to currently) but, once it was established, they would be able to dispose of the land-credits through an exchange, while a trust would take on responsibility for selling the actual property.

Initially, during the transition period, we would expect the fact of a property being tradeable only with land-credits to be largely invisible. It would be an additional legal technicality but we don’t think it should have any significant impact on the way the market works. The market would have an additional layer of formality because putting a property on the market would release credits into circulation, and taking it off the market would remove from circulation either the amount paid (if a sale is completed) or the amount previously released (if it is withdrawn from sale). However, we don’t think that would be a significant burden.

What we’ve outlined above is the core of what would happen during the initial stage of introducing the land-credit scheme. The value of most properties would go to the nominated heirs and most beneficiaries (probably 85 to 90%) would receive as much as they would under the current system. However, any land-credits above the limit for individual beneficiaries would go into a pool which would be shared out (once the scheme was well-established) among those who would not otherwise inherit anything.

This system is based on every owner having a natural life-span so there would need to be legislation, at some point, converting freeholds owned by corporations to fixed term, but that could be done at an uncontroversial rate (perhaps based on the typical differential between freehold and leasehold prices). There would also, no doubt, be a need to prevent evasion, but probably no more than there is currently, for inheritance tax. How to deal with all the various forms of trusts is also a question which will need a lot of thought but we don’t think it’s likely to throw up any serious obstacle.

Does it really need a special currency? Wouldn’t it be easier, if the proposed reform to inheritance law is implemented, for the trust to simply share out ordinary money? It would certainly produce a more equal society than we have currently but there is an obvious problem. If the real estate market is not separate from the broader market, land will continue to be used as the ultimate store of wealth and will continue to be subject to the house-market roller-coaster; the people who receive their allocation at the bottom of the market would therefore receive considerably less than those who get it at the top. A land-credit system would not prevent the value of land rising and falling relative to other forms of wealth but it would mean that everybody’s share of land-value would rise and fall together.



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