What is Land Speculation? Overview, Risk, 4 Facts

A land speculator is an individual who purchases land with the intent of reselling it for a profit at a later date. If you are interested in purchasing a new home or land, you should consider the land speculator market. 

What is Land Speculation?

Land speculation is an investment strategy involving the purchase of real estate with the expectation that its value will increase. Due to factors such as scarcity, land tends to increase in value over time, so the majority of land acquisitions are best described as real estate investments.

What is Land Speculation?

Land speculation frequently entails the acquisition of potentially depreciating real estate and frequently relates to early American history.

Land speculators occasionally acquired large parcels with the intent of removing them from the market during the majority of the United States’ history, when vast tracts of public land were accessible. This act of land speculation may increase prices, but it may also have negative repercussions.

Risk of Land Speculation

Buying land is typically not considered speculative because it is a valuable and stable good. If an investor conducts sufficient research to comprehend the local market, a reasonable return expectation can be attained.

Due to a lack of information or an inherently unstable situation, land speculation frequently involves the purchase of riskier properties.

A person may engage in modern land speculation if he purchases land without conducting adequate research or if he purchases low-priced property that he expects to appreciate rapidly due to external influences. These endeavors are regarded as speculative because they could result in a net financial loss.

What is Land Speculation?

Historical land speculation

Land speculation emerged historically when vast tracts of land were available for individual purchase. Beginning with the British colonization of the continent, this circumstance has occurred numerous times in the United States.

Numerous colonists acquired vast tracts of land in the belief that they could generate income from the purchases. In other cases, tensions between colonies or, later, between states rendered these land transactions null and void, leaving the investor with nothing.

During the westward expansion of the United States, more public land became available for private investment. The government attempted to curb potentially harmful speculative practices by enacting homestead acts that granted tracts of land to those who actually resided there.

Even after the implementation of such regulations, land speculators continued to acquire vast quantities of land for the purpose of withholding it from the market. Occasionally, this resulted in substantial profits for the investor, but in the majority of instances, the site remained undeveloped.

How to Kill Land Speculation

Communities are productive places to live, work, and play because of their natural and artificial resources. Since geographically based resources are gifts from nature or were produced by the community, it makes sense for them to be managed by the community.

What is Land Speculation?

Typically, community control is attained via public parks, community land trusts (CLTs), and zoning. However, there is an alternative: the return of land value and recycling.

Land values reflect the aggregate of all nearby amenities (and nuisances) that make a particular location suitable (or unsuitable) for residential, commercial, or industrial use.

Today, the majority of land value created by infrastructure is a windfall for those who own the best-served land. Consequently, the majority of the public pays twice for infrastructure.

First, they pay taxes for infrastructure development or improvement. Second, if they wish to locate their home or business nearby, they are required to pay a landowner a premium rent or price to gain access to the infrastructure that their taxes have funded.

Landowners’ exploitation of publicly produced land value fuels land speculation. Speculation does not generate any value. However, it restricts the availability of developable land, thereby increasing land prices.

What is Land Speculation?

Inhabitants and businesses are compelled by inflated land prices to abandon the most valuable and productive properties in favor of less expensive, more remote, and less productive regions.

This results in sprawl, which is detrimental to the environment, necessitates the duplication of expensive infrastructure, and reduces economic output. Furthermore, speculation causes land price bubbles, which are detrimental to the economy.

Land Value Return and Recycling

Most municipalities practice land value return and recycling in some fashion (LVRR). This portion of the property tax paid on land values returns natural and publicly developed values to the public sector, where they can be recycled to help infrastructure achieve financial independence.

The vast majority of communities, however, retain only a small portion of the land value they generate. In the majority of municipalities, the property tax rate ranges from 1% to 2% of the assessed value.

If this payment stream was consolidated into a single, one-time payment, its value would be between $10 and $20 per $100 of publicly produced land value. Thus, eighty to ninety percent of the land value created by the majority of communities is given away. In most towns, the best-served land is owned by wealthy individuals and corporations.

Therefore, the majority of towns collect taxes from all residents and benefit the already wealthy by providing infrastructure. This contributes to the intensification of inequality.

Some cities use LVRR more intensively than others. The following results are obtained:

  • There is a reduction in land prices. Land is valued in proportion to the anticipated benefits of ownership. Taxing land values at a higher rate reduces the benefits of ownership, thereby lowering the prices paid by prospective buyers.
  • Reduced taxes on privately developed building values, thereby reducing the cost to construct, improve, and maintain buildings. (To the advantage of residents and businesses.)
  • Taxation that is comprehensible, reasonable, and equitable. Landowners pay based on the public benefits they receive.
  • Less Sprawl. Taxes are high in areas with high land values, which encourages development in order to generate tax revenue. We want development to occur on high-value sites near existing infrastructure (e.g., parks, transportation, etc.). Increasing construction near existing infrastructure reduces growth pressure in remote regions, thereby reducing sprawl. Compact cities require less infrastructure. They are more sustainable ecologically and economically.

Conclusion

Land speculation is when an individual or company purchases land for investment purposes. This is a difficult and capital-intensive industry with rapid expansion.

A land speculator purchases undeveloped land for future construction. This indicates that they are willing to purchase land in a declining real estate market because they anticipate a future price increase.

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Pat Moriarty
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