Limitations in Orthodox Economic Analysis of Urban Realty

Abstract

Orthodox economic analysis cannot identify how to provide affordable housing on a sustainable basis because it: (i) Considers the nature of property rights as a given rather than as a policy variable; (ii) Focuses its analysis on the production and exchange of goods and services to neglect values that arise from the ownership and control of assets and liabilities; (iii) Does not identify Surplus Profits; (iv) Neglects how government investment in urban infrastructure creates private profits for land owners and so also neglects; (v) How windfall gains and surplus profits can be used to cross subsidize housing and commercial investors. Duplex property rights are described that separate the value of buildings from the values created in their land by neighboring infrastructure investment. This allows uplift in land values created by infrastructure expenditure to be used to make all neighborhood sites self-financing to halve the cost of urban housing and eliminate the cost of land for commercial developments. The resulting increase in economic efficiency improves equity by providing eight ways to distribute wealth to citizens without government taxes or welfare. The paper recommends that approval for public infrastructure expenditure and/or development be made conditional upon adopting duplex ownership of urban realty.

Keywords: Cash-flow analysis, Housing affordability, Property rights, Self-financing suburbs, Surplus profits

JEL Classification: B41; D02; H7; R31