In your editorial you asserted that the ANC-EFF’s expropriation of land without compensation is a major disaster (A desperate, terrible, horrible land mistake, March 5). However, you forget that the only reason land has any capital value is because the state fails to capture SA’s unimproved and unearned R1-trillion land rents.
Instead it relies on the South African Revenue Service for the jaw-dropping expropriation without compensation of a portion of the hard-fought fruits of citizens’ work and wealth through income taxes and VAT. Being economically elastic, these taxes lower GDP by about R1-trillion annually — that’s 25%. Being inelastic, land differs from labour and capital as it is neither produced nor reproducible, so its supply is fixed. It does not easily wear out, depreciate, spoil or obsolesce. It is permanent and immobile. It is priced at a p:e of 15 to 20 years of rent.
The market value of land relies entirely on the state subsidy of land prices, since there is nothing landowners can do to increase land prices. They rely absolutely on nature, state infrastructure and services, title protection and population growth. According to Absa the countrywide residential property subsidy was R8.25-trillion in 2017. That is 11-million formal residential stands with an average value of R750,000. The average land rent in 2017 was about R8,158 per hectare across SA’s 122.5-million hectares.
This state subsidy is why Nobel economics prize winners Franco Modigliani, James Tobin and Robert Solow disagree with your editorial. In their 1991 letter to then USSR president Mikhail Gorbachev they argued that land was not private property: "A balance should be kept between allowing the managers of property to retain value derived from their own efforts to maintain and improve property, and securing for public use the naturally inherent and socially created value of land.
"Users of land should not be allowed to acquire rights of indefinite duration for single payments. For efficiency, for adequate revenue and for justice, every user of land should be required to make an annual payment, equal to the current rental value of the land that he or she prevents others from using."
Nobel laureates Joseph Stiglitz and Sir James Mirrlees have since endorsed that principle.
The elephant-in-the-room question is who signed the first title deed. Was it the Creator or the well-armed governor of the Cape?