Land Rents Rising Faster than Costs:

A New Theory of Inflation from Seventy Years of U.S. Data

Abstract

This paper develops a deductive and empirical framework for understanding ordinary inflation: the persistent failure of productivity gains to translate into lower real living costs or higher real wages for most workers. The paper argues that escalating land rents and land values are a primary structural mechanism behind this phenomenon.

The core deductive observation is simple. Sustained realized real-estate capital gains net of improvements can only occur if land rents and location values rise persistently faster than the reproducible costs attached to property over time. Because land is fixed in supply and embedded in the cost structure of nearly all goods and services, these rising costs propagate through wages, occupancy costs, infrastructure, financing, and consumer prices across the broader economy.

Using IRS realized capital-gains data, the paper documents more than $20 trillion in cumulative U.S. real-estate capital gains attributable primarily to land and location value over the 1954–2023 period in real 2023 dollars. The cumulative magnitude of these gains exceeds the measured productivity dividend over the same period, implying that rising rents captured nearly all productivity gains generated by the modern U.S. economy.

The paper further argues that competing explanations for ordinary inflation — including monopoly power, wage-price spirals, monetary expansion, and Baumol’s cost disease — either lack the required structural permanence or operate primarily as downstream propagation mechanisms rather than upstream absorbers of productivity gains.

Together, the findings suggest that escalating land rents are not merely a consequence of inflation, but a primary structural driver of persistent ordinary inflation itself.

JEL Classification: E31, R14, O47, E52