The Return of Land Prices

A blog about business and economics.
Feb. 3 2014 3:43 PM

The Return of Land Prices  

Classical economics had three factors of production—labor, capital, and land. Contemporary economists normally treat land as simply a form of capital. This is mostly the pattern Thomas Piketty follows in his important new book Capital in the 21st Century. But as Karl Smith writes, many of Piketty's findings about "capital" seem like they may mostly be findings about land.

I think I can make the point clearer than Smith does with two charts. First, here's Piketty's black-and-white chart depicting the evolution of capital in France:

FrancePiketty
Advertisement

Now here's me using the same data, but ignoring foreign capital, using colors, and rearranging the order of the stack:

Piketty

In the first chart you see the U-shaped story of inequality. The ratio of capital to income used to be very high, then you had the midcentury compression, and now you have a return of capital. In the second chart, you see that "other capital" has actually been fairly constant throughout this period. The compression is a collapse in the value of agricultural land. The return of capital is a massive increase in the value of residential housing.

So an interesting analytical question becomes this: Have these French houses become so valuable because the structures themselves are so grand (giant mansions, expensive building materials) or are they expensive because Paris and select upscale suburban communities are so pricey and desirable. I don't have comprehensive data on French real estate. But certainly Paris is an extremely desirable, extremely expensive city. And I think that's a large part of the story here. In the 19th century, you had wealthy landowners who owned vast tracts of rural land. In the 21st century, wealthy landowners own substantially smaller—but more expensive—swathes or urban or suburban land in Paris or greater London or Manhattan or coastal California.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

TODAY IN SLATE

History

The Self-Made Man

The story of America’s most pliable, pernicious, irrepressible myth.

The GOP Senate Candidate in Iowa Doesn’t Want Voters to Know Just How Conservative She Really Is

Does Your Child Have “Sluggish Cognitive Tempo”? Or Is That Just a Disorder Made Up to Scare You?

Why Indians in America Are Mad for India’s New Prime Minister

The Strange History of Wives Gazing at Their Husbands in Political Ads

Television

See Me

Transparent is the fall’s only great new show.

Building a Better Workplace

You Deserve a Pre-cation

The smartest job perk you’ve never heard of.

Rehtaeh Parsons Was the Most Famous Victim in Canada. Now, Journalists Can’t Even Say Her Name.

Parents, Get Your Teenage Daughters the IUD

The XX Factor
Sept. 30 2014 12:34 PM Parents, Get Your Teenage Daughters the IUD
Moneybox
Sept. 30 2014 12:04 PM John Hodgman on Why He Wore a Blue Dress to Impersonate Ayn Rand
  News & Politics
Jurisprudence
Sept. 30 2014 2:36 PM This Court Erred The Supreme Court has almost always sided with the wealthy, the privileged, and the powerful.
  Business
Building a Better Workplace
Sept. 30 2014 1:16 PM You Deserve a Pre-cation The smartest job perk you’ve never heard of.
  Life
Education
Sept. 30 2014 1:48 PM Thrashed Florida State’s new president is underqualified and mistrusted. But here’s how he can turn it around.
  Double X
The XX Factor
Sept. 30 2014 12:34 PM Parents, Get Your Teenage Daughters the IUD
  Slate Plus
Slate Picks
Sept. 30 2014 11:42 AM Listen to Our September Music Roundup Hot tracks from a cooler month, exclusively for Slate Plus members.
  Arts
Brow Beat
Sept. 30 2014 2:56 PM How Faithful Is David Fincher’s Gone Girl?
  Technology
Future Tense
Sept. 30 2014 2:38 PM Scientists Use Electrical Impulses to Help Paralyzed Rats Walk Again
  Health & Science
Bad Astronomy
Sept. 30 2014 7:30 AM What Lurks Beneath the Methane Lakes of Titan?
  Sports
Sports Nut
Sept. 28 2014 8:30 PM NFL Players Die Young. Or Maybe They Live Long Lives. Why it’s so hard to pin down the effects of football on players’ lives.