This is the third piece in an ongoing series in which we explain how local housing costs cause homelessness, why solutions to homelessness should be funded from a land value tax, and the merits of redistributing land values through a universal basic income.
Part 1: “In a good economy, homelessness goes up”: The Paradox of Progress and Poverty
Part 2: Basic Income for the Homeless: Findings from Three Experiments
Part 3: Universal Land Dividend: Why LVT and UBI are even better together 👈 (you are here)
Part 4: Citywide Land Dividend: Can a LVT-funded UBI help solve homelessness?
Source: @LandTaxerMemes
Every spring, Alaskan residents receive a check worth over $1,000, no questions asked. They are free to spend or invest the money in whatever way they see fit, and they receive the same amount regardless of their wages or wealth. This Permanent Fund Dividend is their slice of the returns earned by the Alaska Permanent Fund, a pool of investments that have been funded from the state’s oil and mining revenues since 1976. In essence, this program recognizes that all Alaskans deserve an equal share of the state’s precious natural resources, and realizes this principle through unconditional cash payments (often called a universal basic income or UBI).
In this article series we have been exploring the causes of and solutions to homelessness. We began by explaining why there is more homelessness in locations with high housing costs, and recommended that solutions to homelessness be funded by a local land value tax (LVT). In our second article, we summarized the findings from three experiments which provided a basic income to people experiencing homelessness. Studies of these programs found that cash was effective at helping homeless individuals find secure housing.
In this article, we briefly expand our horizons beyond homelessness and consider the merits of UBI more broadly. We describe its key features and detail how UBI finds its historical and ideological roots in the idea that all of humanity shares a common right to the planet’s natural resources. We then explain how these ideals can be actualized through a policy combination that we refer to as a Universal Land Dividend: using a land value tax (LVT) to fund a universal basic income (UBI).
Key Features of Universal Basic Income
A UBI has a few key identifying features. It is a cash payment, differentiating it from transfer programs that provide recipients with earmarked vouchers or in-kind provision of specific goods or services. It is unconditional, and therefore not subject to any kind of means-testing against recipients’ abilities, income or wealth. Last, it is universal, meaning that it is paid to all citizens or residents of a given polity. Previously, we explained the benefits of this universalist approach to welfare provision. Below, we apply these justifications to the specific case of a LVT-funded UBI.
A host of empirical studies from experiments around the world indicate that UBI helps to: reduce poverty; progressively boost workers’ wages; improve labor market flexibility and self-employment; increase education, volunteering and maternity leave; and better physical and mental well-being. Ultimately, the case for UBI will depend on how these outcomes compare to more targeted forms of social support, but the results so far certainly appear promising.
Estimates of a Universal Land Dividend
Universal Land Dividend (ULD) as we describe it here refers specifically to a UBI funded from a recurring tax charged as a percentage of land value (similar to a property tax but exempting the value of buildings and other improvements).
CommonWealth Canada recently estimated that a 17% land value tax could fund a tax credit (equivalent to a UBI) of $12,700 per household, raising incomes for 80% of households. For the UK, PolicyEngine estimated that an annual LVT of 1% could fund a nationwide UBI of £16 per week (USD$20), reducing poverty by 20% and leaving 70% of the population better off. These analyses both highlight that a ULD is highly progressive: the tax burden falls on wealthy households, while the UBI benefits poor and middle class households.
A Universal Land Dividend would benefit the bottom 80% of Canadian households (left image) and 70% of households in the UK (right image). Sources: CommonWealth Canada and PolicyEngine.
While similar analyses do not yet exist for the US, the Federal Reserve estimates that total US land value is $24 trillion which, assuming a 5% cap rate, would be enough to fund an annual UBI of USD$3,500/year for every American citizen. However, political constraints mean that the ULD is much more likely to find its start in state or local politics, as the Alaska Permanent Fund demonstrates.
For a ballpark estimate of how ULD could be designed at the city level, we consider the Denver–Aurora–Centennial metropolitan statistical area (MSA) as an example of a typical American city, and one where there is an existing basic income experiment. Albouy (2018) estimates that aggregate land value across the Denver MSA is $185 billion, for an area where around 2.8 million people lived at the time. Assuming a 5% cap rate yet again, this suggests that land rents could fund a UBI of $275 per month for every Denverite ($3,300 per year).
History of the Universal Land Dividend
The concept of using valuable land and other natural resources to fund a UBI, has a long ideological lineage, and has alternatively been referred to as a Citizen’s Dividend and a Social Dividend. Indeed, the principles underpinning the ULD feature prominently in the writings of early UBI proponents, typically through arguments that all humans share a common birthright to an equal share of the earth’s natural wealth.
For example, Thomas Spence, an English Radical, wrote in Property in Land and Everyone’s Right (1775) that all people have “natural and equal rights of property in land.” He proposed that all land be owned by democratic local parishes and rented out for private use, with revenues shared equally among all parishioners as a social dividend.
Thomas Paine continued these themes in Agrarian Justice (1797), writing that while buildings could legitimately be seen as private property, “men did not make the earth” and therefore that “every proprietor owes to the community a ground rent for the land which he holds.” He suggested that these ground rent revenues (plus a 10% inheritance tax) be collected in a national fund, out of which a UBI could be paid to every citizen on their 21st birthday. Paine explicitly tied this payment to the privatization of the planet, describing it as “a compensation in part, for the loss of his or her natural inheritance, by the introduction of the system of landed property.”
Nearly a century later, the American political-economist Henry George identified private land ownership as the reason why social progress had failed to abolish poverty, calling for this to be remedied with a land value tax (LVT). In his 1888 pamphlet titled Land and Poverty, George proposed that LVT revenues be divided “among the whole community, share and share alike,” and used to help free all citizens from the threat of poverty: “[O]ut of the fund which would thus accrue from the common property, we might, without degradation to anybody, provide enough to actually secure from want all who were deprived.”
The Elegance of the Universal Land Dividend
Clearly, the Universal Land Dividend has a long ideological lineage. In this section we consider the symbiotic relationship between LVT and UBI, and the ways in which they mitigate each other’s weaknesses and reinforce each other’s strengths.
Guy Standing, a leading champion of UBI, often explains that it ensures that everyone in society benefits from social and economic progress. Conversely, in our current economic system, land rents rise with social progress, drowning tenants while inflating the wealth of land owners. Because LVT automatically captures rising land values, funneling those revenues into a UBI will ensure that the economy is distributive by design. ULD guarantees that the rising economic tide lifts all boats.
Similarly, advocates for UBI often stress its role in helping dull the sting of creative destruction; for example, by providing income to workers who have had their jobs innovated out of existence by automation or AI. Likewise, thriving cities benefit from having dynamic employment and housing markets where workers can easily chase job opportunities or move close to a nascent cluster of innovation. Such dynamism often comes at a cost to incumbent tenants, who face rent-hikes, eviction, and displacement into homelessness or a cheaper neighborhood. With such changes embedding into higher local land rents, a ULD at the city level would provide a built-in mechanism for insuring incumbents against this paradox of progress and poverty, while ensuring that the gains from a thriving city are shared widely.
One common concern associated with UBI is that larger household budgets will immediately be eroded by higher prices of goods and services, leaving most people no better off. Given that housing is a necessity and land is in fixed supply, there is a particular risk that a UBI may cause rents to rise. Indeed, Collinson & Ganong (2018) find that half of the value of housing voucher subsidies were captured by landlords through higher rents, a result that is mirrored in Susin (2002). Should it also be the case that payment of a UBI simply results in higher housing rents, this will quickly be reflected in taxable land values, increasing LVT bills in the next period. Thus, the ULD nicely closes this loop, by ensuring that any increase in rents arising from UBI are immediately taxed away and recaptured through LVT obligations:
Symbiotic cycle of land value tax and universal basic income. Prepared by Author.
Any UBI program will inevitably require a large amount of tax revenue. For example, the Freedom Dividend UBI proposed by Andrew Yang in his 2020 presidential campaign was set to be funded with a 10% Value Added Tax. LVT is the optimal tax from which to fund UBI programs: it is an efficient and equitable tax, is a more stable source of revenue, and is less inhibiting to economic growth than are taxes on income, consumption, or investment.
Funneling revenues from an LVT into a UBI can also help to compensate households that would be disadvantaged by the implementation of a LVT while ensuring that the ULD is progressive overall. For example, the combination LVT & UBI proposed by The Opportunities Party in New Zealand would raise the annual incomes of all tenants by at least NZD$3,800 (USD$2,200). Homeowners on low or no incomes, such as retirees, are likewise guaranteed to be better off unless they own more than NZD$1.3m (USD$770m) of land. Thus, UBI can help to make LVT more politically sustainable, by ensuring that it benefits a wider constituency and does not unduly disadvantage retired homeowners.
A UBI funded by LVT would be highly progressive in New Zealand. Prepared by Author.
Conclusions
Universal Basic Income (UBI) finds its historical origins in the writings of Thomas Spence, Thomas Paine, and Henry George, who all argued for an equitable distribution of the planet’s natural resources, and especially to land. This principle can be actualized by charging landowners a recurrent land value tax (LVT) and redistributing the revenues through a UBI, a symbiotic relationship that we call the Universal Land Dividend.
As social progress flows into rising housing costs, the Universal Land Dividend captures and redistributes these land rents, protecting the landless against rising housing costs and ensuring that a rising economic tide lifts all boats. LVT can efficiently help to guard against any inflationary effects of UBI, while UBI helps to boost the overall progressivity of LVT and build inclusive political buy-in.
Implementing a Universal Land Dividend therefore promises to be an inclusive, efficient, and progressive way to ensure that all citizens share in social progress and have sufficient resources to afford basic standard of living.
