Proximity 2.0: Cutting transport costs and emissions through local integration

Emer O’Siochru

Rather than bringing similar activities closer together to reap the benefits of scale and agglomeration, different activities should be situated beside each other to be more energy and carbon efficient.

“is ar scáth a chéile, a mhaireann na daoine”
Seanfhocal Gaeilge

“In the shadow or shelter of each other, live the people”
Old Irish saying

This old saying tells us there was a time when it was an uncontested fact in Ireland that living close to each other was essential for a happy human life. That human life thrives when human actions are so confined in space as to impact on others today seems strange given our current desire for ever more expansion and separation in our living and working arrangements. Did this old saying emerge from a need to make the best of a bad situation or is it a forgotten but essential truth that still has resonance today?

This paper will advance the case that closeness, or ‘proximity,’ was valued as life enhancing in the past — and for good reason, despite the propaganda of the rural revisionists. It describes what I call the Proximity Principle 2.0, the idea of a redefined and augmented ‘proximity’ that has a great deal to offer communities in the troubling times ahead. There’s more than a little bit of magic about the notion that something unexpected and wonderful can come simply by confining and combining existing elements differently, but that’s exactly what the Proximity Principle 2.0 offers us.

In Ireland over the past 50 years, we’ve invested heavily in putting distance into our living and working arrangements. We live apart from each other, work far from where we live, shop far from where we work, grow food far from where we eat and so on. Our support systems are all fall-flung and invisible; electricity is generated remotely, waste is processed remotely, knowledge is generated remotely to our everyday experience. Something profound has happened to the way we live.

Fig 1. The way we live now: scattered houses, Co. Galway, Ireland.

This paper does not explore what happened; others better able to do so will contribute to that topic in this book. Instead it will look to the past for clues to the immediate future.

Irish settlement patterns myths

First we need to debunk some myths. Contrary to what is generally believed, the Irish people are not culturally predisposed to isolated settlement patterns. In fact, the historical records and the maps show that Irish people consciously chose to live close together where and when they had the freedom to do so. The Vikings founded many of our coastal towns but the Irish had their own proto town, set in the fertile plains and river valleys. These were the monastic settlements of the early Christian era and were centres of trade as much as of learning and piety.

What is less well known is that as the population increased, Irish society was developing the village structure along the European model in the 16th and 17th centuries, i.e. farmer and farm labourer families living alongside artisans and small-scale merchants in compact mixed settlements. In these villages, farmers travelled from the village everyday to the tillage and orchard in-fields and further to the out-field pastures.

The Cromwellian re-conquest put an abrupt halt to this evolution; towns and villages were broken up and new settlers and the non-rebellious installed on isolated farms. Only in the areas protected by the powerful Norman Butler family around Counties Kilkenny, South Tipperary and Waterford can we see surviving evidence for this farm/village from the 1830 OSi map records.

Fig 2. The way we lived then 1: this 1816 map of Listrolin, a farm village in Co. Kilkenny, shows how farms and houses were clustered together in the past.

The displaced Irish were prevented from coming together in the better lands, but, given the relative freedom of the poorer lands on coasts and hillsides, they again formed settlements. We can see evidence of this in the many clachán settlements on Ireland’s western seaboard, today mostly abandoned. This seaboard contained the highest density of rural population in Europe in the first half of the 19th century, when the entire island hosted and fed eight million people.

This evidence is countered by those who claim that the Irish had little choice but to live in these dense settlements because all of the better land was retained by the absentee landlords and let out to conforming tenants. Another argument is that famine was brought on by the unrestrained breeding of the Irish, who foolishly ignored the fact that the poor land could not maintain their families. In fact, the land maintained them pretty well for many generations; they did this by using the nutrients from the sea to feed the soil, having well-organised pasturage systems and using the efficient lazy-bed system of cultivation — until, of course, the potato failed. Contemporary accounts tell of healthy, handsome, happy people, even if a bit unwilling to take instruction from their “betters”.

Fig 3. The way we lived then, 2. Terman, a clachan village in Co. Kerry, demonstrates how densely people once chose to live together.

The native Irish had to wait until the 18th century for the political and economic conditions that would foster the founding of the market villages and towns most of which survive today. These new villages and towns were centres of trade and exchange, not the homes of farmers. While they were often laid out by the freehold-owning landlord, they were built by Irish Catholics who had won a significant interest in their property in the form of long leases and lifelong leases.

This model was in complete contrast to the village-development model in England, where the landlord offered only limited tenancies in buildings that he built. This newly propertied merchant and professional class of Catholics led the struggle for the Land Acts, a struggle that was ultimately to redistribute the agricultural land and which, from that platform of security, later led to the national struggle for nationhood. So it can be said, not unreasonably, that the Irish villages and towns can be thanked for national independence.

The loss of Proximity 1.0

Fig 4. Castlepollard, a market village in Co. Westmeath, also shows a compact development pattern

Over the years the native Irish began to accept that living in isolated farm-steads was the natural order, its original imposition forgotten. This loss in folk memory led to a second great scattering, this time guided by well-intentioned motives.

After the terrible Famine of the 1840s, the improving Congested District Boards consolidated the fragmented holdings of clachán dwellers into separate freehold farms and individual farmhouses, breaking up the settlements in the processes. It never crossed the minds of these public servants that the villages had any value in the new Ireland they were building, nor that consolidated farms could be provided at the same time as retaining the existing settlements in use.

Not only did this policy undermine the survival of the Irish language by making it synonymous with isolated rural life, it also destroyed much of the potential for economic development by destroying the potential for specialisation.

Figs 4a, 4b and 4c. The Congested Districts of the 19th century shown in the map on the left were in most of the same places as today’s Clar areas of Disadvantage (middle map) and where the National Spatial Strategy has identified a “weak” village structure.

Figs 5a and 5b. These cartograms show the areas of the counties drawn in proportion to their populations. They reveal how some populations, particularly in the West, shrank from their level before the Famine while the population of Dublin soared. Source: Martin Charlton, (2007), NUI, Maynooth. http://ncg.nuim.ie/content/media/downloads/CartogramsQuantumLeap.pps

The evidence for this conclusion is convincing. Today, the area where the Congested Districts Board operated along the Western coast coincides almost exactly with the areas of disadvantage and population loss identified by the government’s ‘Clar’ designation (Fig. 4b) and the areas identified in the National Spatial Strategy (NSS) as having weak village structuration (Fig.4c).

The loss of village structure and thus of the benefits of proximity led to the loss of opportunity, especially for non-farming families, which in turn led to mass emigration of the young and enterprising. Martin Charlton’s cartographic project which adjusts the areas of counties according to their population makes the results of this very clear. The first map illustrates the population before the Famine; the second population loss and gain by county size in 2002. (Fig.5a and 5b)

Proximity 2.0: some definitions

Proximity has recently been rediscovered and to a certain extent reinvented as a positive principle, having earlier been eclipsed for many years by the potential of globalisation and the elimination of distance by cheap fossil fuels. A Google search brings up a surprising number of incarnations in widely differing contexts. Each context illustrates a particular attribute, and the combination of all these is what I term Proximity 2.0.

Definition 1, the most familiar interpretation or use of the term, comes from the environmental sector and refers to waste-management systems.

“The proximity principle advocates that waste should be disposed of (or otherwise managed) close to the point at which it is generated, thus aiming to achieve responsible self-sufficiency at a regional/or sub regional level”

Basel Convention 1989

In this case, the proximity principle enables and delivers “responsible self-sufficiency” which is something we will need in times of emergency.

Definition 2 comes from the technical field of industrial processes.

“Proximity is the main tool used in manufacturing to enable one-piece flow, flexibility and to quickly assist another station on the U shaped production line”

Principles of Product Development Flow 2009.

Here, proximity fosters smooth-flowing processes where glitches can be spotted and rectified quickly. This kind of flexibility is essential to resilience building, again a useful attribute in uncertain times.

Definition 3 comes from the knowledge economy discourse.

“In spite of increasing global flows of ideas, capital, goods and labor, the rise of a knowledge-based economy and changes in the organization of the innovation process have actually increased the value of geographical proximity to innovation.”

Sonn and Storper 2003

Geographical nearness fosters the random encounters that spark new ideas, something that no IT media has been able to replicate. This runs counter to the argument that all you need for innovation in the countryside is fast broadband.

Definition 4 comes from town and country spatial planning and is familiar to local government administrators, professionals and social and environmental advocates.

“Proximity should be favoured over dispersal in settlements to encourage community interaction, make public transport, local services and environmental initiatives more viable”

Campaign to Protect Rural England 2008

Rural services are in decline in Ireland and will be under greater threat with the New Emergency. The more dispersed the settlement, the greater the cost of providing its population with the services and maintenance it needs. Even though councils coped reasonably well with floods and snow of Winter 2009-10, rural roads remain potholed and pitted as budgets were exhausted by the immediate emergency measures. A second harsh Winter would render some roads impassible.

Definition 5 stems from economics and the theories of US economist and writer Henry George.

“This premise that parks have a positive impact on property values is known as the ‘proximity principle’. It suggests that the value of living near a park is captured in the price of surrounding properties.”

Frederick Law Olmstead 1856 (Olmstead was the architect who laid out Central Park, New York City).

This aspect of proximity is the most revealing and useful when we plan for the future because it tells us that investing in useful infrastructure or desirable amenities can be paid for from the increased value of the nearby/adjacent land. Proximity, here, generates value, and if recouped by the community, also generates money to pay for further services.

In sum, then, Proximity 2.0, combining all of its benefits of its various aspects, offers the following:

  1. Enables recycling of waste especially for energy
  2. Creates flexibility and resilience
  3. Fosters innovation
  4. Makes services viable
  5. Adds value to land

What Proximity 2.0 is not is about is agglomeration. Agglomeration is a term used to describe the benefits of putting similar uses together. It is familiar in retail studies i.e. retailers benefit from other retailers selling similar goods nearby as consumers are attracted to the choice and convenience offered and increased footfall leads to increased turnover for everyone. The agglomeration effect often outweighs the advantage of a local monopoly in particular classes of goods. Neither is Proximity 2.0 linked to ‘benefits of scale’, such as the efficiencies made possible by building and servicing a large number of similar houses or other buildings in a limited area.

On the contrary, Proximity 2.0 describes the advantages of placing very different, not similar, uses and functions in close relationship. The advantages that accrue to agglomeration and scale are dependant on cheap energy and globalization, and this produces an apparent simplification locally that masks a remote and therefore opaque and potentially vulnerable complexity.

‘Localisation’ is an emerging concept used by environmentalists advocating the reversal of globalization. But it is a modest and uninspiring concept on which to base an emergency response. Proximity 2.0 goes beyond negative definitions to suggest potential synergies that emerge when different activities and functions are linked at the local scale. The next section describes some examples of these benefits.

Applications of the Proximity Principle:

The Natural Step [1] is a framework for industry and business covering the generation and processing of waste. The framework builds on a basic understanding of what makes life possible, how our biosphere functions and how we are part of the earth’s natural systems. It points out that in a sustainable society, nature would not subject to systematically increasing concentrations of substances extracted from the Earth’s crust or created by scientists and that people would not be subject to conditions that systemically undermined their capacity to meet their needs. The Natural Step seeks to make these systems apparent to producers through a rigorous checklist process and the use of a non-political logic that eliminates pollutants through design.

Similarly, Natural Capitalism [2], developed by the US-based Rocky Mountain Institute that researches and advises on sustainable settlement, building and transportation design, describes the objective of ‘industrial ecology’. This strategy discourages forms of amoral purchasing arising from ignorance of what goes on at a distance and implies a political economy that greatly values natural capital and relies on what Amory Lovins calls ‘instructional capital’ to design and maintain each unique industrial ecology.

These principles converge and locate in the concept of ‘Industrial Symbiosis’. The tasks of identifying and eliminating the unsustainable increase in substances and deleterious conditions and of eliminating ignorance of far-flung effects is solved through the Proximity Principle 2.0 because it places different but related production systems physically adjacent to each other. This makes the problems and solutions clear without the need for checklists and renders those problems solvable without a huge investment in instructional capital.

The Municipality of Kalundborg in Denmark was one of the first to introduce the world to Industrial Symbiosis when it applied the Proximity Principle 2.0 in industrial-estate planning. In Kalundborg, all waste is someone else’s raw material. Symbiosis here means the co-existence of diverse organisms that may benefit from one another. A symbiosis network links a 1500MW coal-fired power plant with the community and other companies. Surplus heat from this power plant is used to heat 3,500 local homes in addition to a nearby fish farm, the sludge from which is then sold as a fertilizer. Steam from the power plant is sold to Novo Nordisk, a pharmaceutical and enzyme manufacturer and a Statoil plant. This reuse of heat reduces the thermal pollution of hot wastewater discharged to a nearby fjord. Additionally, a by-product from the power plant’s sulfur dioxide scrubber contains gypsum that is sold to a wallboard manufacturer. Almost all of the manufacturer’s gypsum needs are met in this way, reducing the amount of open-pit mining needed. Furthermore, fly ash and clinker from the power plant are utilized for road building and cement production.

Industrial symbiosis

Fig 6. This flow chart illustrates how the waste and by-products of companies on a municipal industrial estate in Kalundborg, Denmark, become the raw materials for other companies.
Source: Ecodecision, Spring 1996.

This kind of symbiotic co-operation has developed spontaneously over several decades and today comprises some 20 projects. The exchange of residual products between the companies is laid out in Fig.6. The collaborating partners also benefit financially from the co-operation because the individual agreement within the symbiosis is based on commercial principles. All projects are environmentally and financially sustainable. It’s a win-win scenario for all concerned. (Fig.6)

According to Amory B. Lovins of the Rocky Mountain Institute, 19th- and 20th-century model power plants had a higher cost and outage rate than the grid, so both supply and demand had to be aggregated through the grid to make sure that electricity production continued without interruption. In the 21st-century model, in contrast, power plants have a lower cost and higher reliability than the grid, so affordable and reliable supply should now logically originate at or near the customer for security of electricity supply. Indeed this has been happening in Fig. 7 below we can see that non-utility i.e. non–power company electrical generation, has been increasing since the mid 1980s.

Fig 7. This graph, from Amory Lovins’ book Small is Profitable, shows how, after a period in which very few US consumers produced their own electricity, more are beginning to do so at the expense of the commercial utility companies

In his book Small is Profitable, Lovins measured the benefits of ‘distributed’ or electrical generation in proximity to consumption at two to three times that of remote generation, more if the grid is congested or reliability required. If the heat from electrical generation can be used, then the benefits double again. There are often other extra-over benefits or positive side effects or ‘externalities’ as economists call them for certain sites.

We can see these benefits in Güssing, a small town in Austria that today has a rape-oil refinery for the production of bio-diesel, a district heating unit supplied with wood, and a state-of-the-art biomass-power plant with a generation of 2 MW electricity and 4.5 MW heat. The town is now 45% self-sufficient in energy and has attracted 50 new companies, more than 1,000 new jobs, and total increased sales volume of 13m Euro per year. An eco-tourist business now sees 1,600 visitors per week visit the town, eager to learn how it reinvigorated itself.

The German town of Lünen, north of Dortmund, will use organic material from local farms to provide electricity for its 90,000 residents, producing 6.8mw to power and heat 26,000 houses. The gas is distributed through a new biogas pipeline network being built underground using a horizontal drilling robot.

Fig 8. Farm anaerobic digester Wexford.

Using the process of anaerobic digestion (AD), biogas can be produced from agricultural wastes, mainly slurries, of which there is an abundance in parts of Ireland. However, manure-only AD will not generate enough biogas and thus sufficient electricity to give a good return on its costs, as manure at best produces 20 cubic metres of biogas per tonne. Mixing bio-waste from commercial and municipal brown bins transforms the economics of farm-based ADs. An AD facility would be financed easily through gate fees (the fee chargeable for accepting wastes for processing or transformation), along with the money earned from the extra energy production that comes from the higher energy content of bio-waste. Hauling bulky manure from many widespread locations to a central point is expensive; taking the smaller quantity of pasteurised bio-waste to a rural location near or in a livestock farm has lower costs and lower CO2 emissions. It also returns food waste to where it was generated, thus closing the nutrient cycle.

If the 1.5 million tonnes of manure produced annually by 200,000 adult cattle, about 5% of the Irish herd, was augmented with 300,000 tonnes of bio-waste to give a 60/40% mix in dry matter terms, rural ADs could produce 180GWh per year. This digestion of 1.5 million tonnes of manure would also reduce greenhouse emissions by about 150,000 tonnes per year in terms of CO2 or its equivalent in other gases. This is 2.5 times the reduction required from manure management by the Irish government’s 2000 Climate Change Strategy, and there are also energy-related savings. Another significant benefit would come from the reduction in artificial fertiliser nitrogen use by around 400 tonnes per year of nitrogen, thereby preventing about 100 tonnes per year of nitrogen getting into watercourses.

Simply combining food production and consumption close together brings benefits to consumer and producer by cutting out the middleman and eliminating transport costs. Traceability is not a problem in the Herrmanndorf farm market in Hanover, Germany. Herrmanndorf, originally a sausage manufacturer, vertically integrated all aspects of food production, processing and sales in one location. Beef, milk and pork are produced on the farm and neighbouring farms using own-grown grass and cereals. Animals are farmed, slaughtered and processed on site using energy from their wastes. Beer is brewed and bread is baked from local cereals and sold in the farm market in the same way. Accommodation for workers and trainees is provided on site. The farm is a popular weekend destination for Hanover residents who enjoy a day out while doing their shopping.

Fig 9. Herrmannsdorf shop and animal housing, Hanover, Germany.

Rural settlements in Ireland are uniquely well-positioned to respond to the developing crisis. Local agriculture can produce food, biomass for energy and structural materials and fibre for construction, providing all the materials for village production and reproduction. Hemp is a neglected but particularly versatile crop that offers seeds and oil for human consumption, fibre for paper and clothing and hurd for use as an insulant and binder in construction. Combined with lime, hemp forms a composite material that has many useful qualities. Hemp-lime is insulating, fire-proof, rot-proof, vermin-proof and moisture-buffering. With passive design, it can eliminate the need for space-heating systems in new homes. Hemp-lime with timber construction saves 50 tonnes of CO2 and stores 5 tons of CO2. Hemp can be grown locally in normal crop rotations with low inputs, and is easily harvested and processed with conventional machinery. Lime and other additives are widely available in Ireland.

We now come to the most overlooked form of waste, human sewage. It’s not usually included in waste-management plans but lumped under a special category called ‘wastewater’ in government and local government regulations. Water could hardly be described as a waste so it must be something we have put into the water and the question is why? Conventional sewage systems consume scarce freshwater and dilute useful nutrients. The nutrients are carried to rivers and the sea, where they are extremely harmful causing eutrophication. In turn, more nutrients have to be produced for agriculture, causing depletion of fossil resources and high energy demand. Considerable fossil energy is used to treat sewage and grey water this way. There is, however, a better way than gravity sewerage pipework to transport human waste to treatment and processing facilities. Vacuum-based transportation, another Victorian invention, is already used successfully in virtually every train, airplane and ship.

External and/or internal vacuum wastewater systems give design flexibility; small pipes 25-100mm can go up to 6 metres vertically and 3 km on the flat. Costs are low for installation, maintenance and future modification as the many vents and traps of the gravity system are eliminated. Importantly, water is conserved; a vacuum system uses 1 litre of water per flush. Multiple collection tanks and pumps can be used to separate different types of wastewater. Vacuum transportation is the final component of a re-designed domestic system that can recover all energy and nutrients in the food cycle. There are a few examples of such a complete system in place. A small housing development in Lubeck, Germany installed a completely independent sewage and domestic food waste–treatment systems. (Fig.10)

Fig 10.  A chart illustrating the flows of energy and nutrients in a small housing development in Lubeck, Germany, which has installed completely independent waste-treatment systems for sewage and domestic food.

Cellulosic waste or woody wastes, of which there is a vast amount left over from food production, forestry and construction, are not suited to anaerobic digestion, which deals better with green or wet bio-wastes. Burning cellulosic waste recovers energy but leaves little of the original nutrients or carbon to return to the soil. Far better is pyrolysis, the process of heating without oxygen to release the volatile gases of the cellulosic material. Pyrolysis is a new name for the old-fashioned process of charcoal making. If applied in a certain way, it produces a ‘biochar’ that locks up the CO2 of the biomass and returns it to the soil where it stimulates and supports the soil organisms. (Others will describe the benefits of biochar in this volume). (Fig.11)

Pyrolysis is not yet a commercial reality in Ireland, nor has it been convincingly established elsewhere. Its promise is enormous, as it can deliver renewable electricity to the grid, considerable heat for a local factory, bio-oil for heating and transportation, and biochar for commercial agriculture and possible future carbon-credit sales. High rate of investment return can only be delivered if all of the co-products are realised i.e. when production of biochar is in the right location and is integrated into other production and consumption activities. In other words, proximity is a sine qua non for biochar to reach its potential as a climate-saving technology.

ENLIVEN Study

Energy was an already an important element of proximity 1.0 in the past. Before oil was exploited for energy, settlements were often established near energy sources. An example can be found in Co. Offaly on the foothills of the Slieve Bloom mountains, where a necklace of villages grew up around watermills on the Silver River. In the 1930s, the source of energy changed to exploitation of the bogs for turf. As the source of energy shifted, so too did the economic and political power. Ballyboy ceased to be the chief county town, and little-known Frankfort, renamed Kilcormac, rapidly developed with new worker housing because of its proximity to the turf works. As the bogs lost their importance as the importation of oil and gas rose, Kilcormac also fell into sleepy decline.

Figure 12: The watermills in Ballyboy and Cadamstown villages were once the heart of the community.

In 2005, EOS Future Design participated in a research project entitled ENLIVEN to prepare for a European funding submission exploring how renewable energy resources could once again be used as an engine for village development. We identified hydro, wind, forestry bio-energy and agricultural bio-waste resources available to the villages of Cadamstown, Ballyboy and Kilcormac. It was a first attempt to outline a new vision for rural communities using renewable energy sources located close by. In the past, rural development policies have sought to preserve threatened ways of life or to revive those that had already passed into history. The ENLIVEN study looked to the future instead of the past and actively prepared for largely predictable events. But the report did not overlook local place and local culture; the plans were rooted in specific natural and social contexts. The study easily identified a potential 43% reduction in fossil-fuel use and CO2 emissions in a rural community of 1,200.

We proposed a new plan-led process of village development that would shift from incremental one-off house development in the rural village hinterland, or the sudden huge developer-led anonymous housing estate at the edge of the village, to a more controlled process. The following is a slightly amended version of this process that takes into account political fiscal changes.

The first stage of the ENLIVEN development process covers planning and design.

  • The community of a village in decline or under potentially damaging development pressure would request a framework plan for the village.
  • A revolving fund would be available to manage the upfront costs of the plan and the infrastructure development that follows.
  • The local authority would contract a team of consultants directly or approve a set chosen by the community and would partner the team in the preparation of the plan.
  • A ‘Charrette’ in which all stakeholders participate to plan their village is facilitated by the planning and design team on location over a number of days.
  • Agreement would be sought as much as possible with landowners about what land should be developed within a five-year time horizon guided by sustainability objectives and community needs.
  • These identified lands would be prioritized for new infrastructure and investment
  • New access roads, parks, water, drainage and waste-treatment and energy-generation facilities and amenities and services required would be located, sized and costed.
  • A three-dimensional plan would show the new roads, squares, parks and also the heights, shapes and uses of the buildings that enclosed them.
  • A design guide would be developed which reflected the local building vernacular and the distinctive qualities of the local settlements and set energy and other ecological standards for the construction.

Implementation would be carried out in two stages: a) Infrastructure, services and public spaces and amenities; and b) building construction on sites.

  • The local authority would use its powers to clear title and/or acquire key land where the community and authority as a whole thought it was necessary for the benefit of the wider community.
  • The local authority or, in partnership with a private or not-for-profit infrastructure developer/s–under building licences from the land–owners, would carry out the infrastructure works and agreed amenities and service buildings. Equity partnerships are the optimal vehicle to align everybody’s interests.
  • Landowners would build on the fully developed sites or sell them to self-builders or in small groups to local builders in accordance with the design guide.
  • The community, or at least the landowners in the community, would have control of the sale price and to whom it sold the houses and sites.
  • In addition a portion of the land (equivalent to Part V of 2000 Act) should be given over to a Community Land Trust in the form of an Equity Partnership, which would provide housing for rent or purchase at a lower-than-market cost as it would not include the land element. This would ensure that locals were never priced out of their own area despite the high values created and that the key skilled people (mechanics, teachers or nurses, for instance) that the community needs for its development and maintenance would be attracted into the area.

The Proximity Principle tells us that the land values created by the development of infrastructure, services and amenities can be recouped by the upswing in land values of served and adjacent property. Section 49 of the 2000 Act provides for the recouping of investment by a local authority directly relating to a served site i.e. roads and pavements. The value added by the combined renewable-energy and waste-processing plant will attach to all land in the vicinity including developed properties. A new Site Value Tax (SVT) promised in the programme for government will provide the means to collect that value created. The SVT will also ensure that the developed sites are sold quickly and the revolving fund recouped to be made available to other communities.

Over a year, ENLIVEN showed that it could deliver 100% net renewable-energy services through electricity and hot water mini-grids in the participating villages. However, at any one time, the villages could be exporting or importing non-renewable energy from the national grid. The balancing of supply by suitable demand uses will be pursued through the planning process (the Framework Plan) and by the active participation of local development agencies to identify energy-hungry, job-creating uses.

It may be advantageous to involve an ESCo (an Energy Services Company) to undertake the ‘top up and spill’ technical and pricing interface with Eirgrid and the billing of customers. Again an Equity Partnership structure would include consumers, investors and energy producers in a sustainable relationship. Activities that are flexible enough to use off-peak electricity generated by the wind turbine, such as refrigeration or kilns, will be attracted by very cheap rates to the participating rural villages.

A local ESCo could make the extra costs of peak electricity use visible to users so that they have the option of postponing discretionary electricity use, such as the drier or dishwasher, until the energy demand and price are lower. Metering and billing systems should be intelligent so that using electricity or hot water at the high demand times will cost more than the off-peak times.

We estimated that the energy savings arising from intelligent design, construction and retrofit could eventually reach 6,282,000kWh as a direct result of the ENLIVEN project for the three villages which amount to 3,700 tonnes of CO2 saved every year. At 22.47 per tonne, this represents a saving for tax-payers of 83,228 per annum if emission rights have to be bought by the government.

Because of the insolvency of Irish banks and the pressure on public funds due to the crash in fiscal receipts, the more pessimistic observer might argue that the funding is simply not available for this kind of ambitious energy and waste infrastructure. But the Proximity Principle tells us otherwise.

Funding has been allocated under two different category streams for rural development. The first is the Rural Development Programme which was set up to tackle the quality of life in rural areas and to promote diversification within the rural economy. 50% funding for private projects up to 150,000 is available which not-for-profit community groups will be eligible for a higher rate of aid at 75%. Administration and training is funded up to a generous 100%. 30,000 per project is offered for analysis and project development.

This funding is appropriate for the Plan and Design Stages of the ENLIVEN process and would be available for reuse by further communities when recouped under SVT and Section 49 of the 2000 Planning Act.

The second major source of funding is that allocated under the Water Services investment in the NDP, a total 4.7 billion. 89 million investment was planned in the 2009 budget although final figures were reduced. To illustrate, small Wastewater Plants for six Villages in North and South Tipperary cost 10.80m (1.9 million each on average).

1.9 million will easily cover the costs of a combined agricultural and human waste-processing anaerobic digester with combined heat and power energy generation and nutrient recovery to ensure the agricultural input quality for a rural village. The private sector will be willing partners in such a facility, thereby making these funds work for other communities.

Opportunities for Proximity 2.0 in Ireland

  • The Environmental Pillar is now recognised as a ‘Social Partner’ at national level. Social Partners have to be included in ‘partnership structures’ at every level and every Leader Company (32) has to have an environmental representative, as do City and County Development Boards. So for the first time, environmental activists have a voice at local government level.
  • Many of these representatives have taken their places on these boards. I am on the County Westmeath Special Policy Committee for Environment and Water Services and I have put an item on the agenda to reconsider Westmeath’s existing specification and procurement of wastewater-treatment systems. Others will follow.
  • Site Value Taxation is now contained in the Programme for Government thanks to policy-development work by the environmental network Smart Taxes, which is led by Feasta. As the time of going to press, the network had been invited to discuss implementation issues with the Department of Finance. Those who follow Irish governance will know that this is a big advance.

Obstacles to Proximity 2.0 in Ireland:

  • The myth of an historic model for single houses and the under-valuation of the rural village still persist today as remote “one-off” houses are still being granted planning permission and built despite the downturn, even by self-proclaimed environmentalists.
  • There’s no easy way to capture the land value created by new energy and waste facilities to help fund investment until SVT is implemented and it has many enemies. Worse, even SVT political friends underestimate its vital underpinning of the economics of sustainability as it can be a difficult concept to explain.
  • Outdated drainage and wastewater building regulations and planning practices that stifle any innovation. On the positive side, these are under revision not least because of budget constraints.
  • Outdated electricity grid and cost/reward structure. The new ‘Refit Tariff’ for bio-energy is an advance, but more is needed especially commitment to the distributed and embedded energy model by government and a Cap /Tax and Share of carbon allowances.
  • The Limited Liability Partnerships legal structure needed for Equity Partnerships is not yet available under Irish Company Law.
  • Specialist, siloed scientific, technical and professional education and practice is a persistent obstacle to proximity 2.0 and one that is difficult to solve in the short term but keeping our young qualified graduates from emigrating would be a good start.

Conclusion

As I have shown, there are numerous tangible benefits that come from applying the Proximity Principle 2.0, not least greater energy and food security in the long term, and in the short term — rural jobs in waste treatment and energy generation. The kind of synergy that comes from placing different services and uses in proximity to each other in rural settlements is a matchless opportunity to rapidly build circuit breakers at the mid or community scale to halt complete systemic collapse. Proximity Principle 2.0 really is a case of the whole being greater than the sum of its parts, always allowing that the different parts are close enough to interact. There’s no sleight-of-hand involved; it is simply good integrated design using best-practice technical knowledge.

The payment for these manifold benefits is the abandonment of a desire for isolated living in the countryside — a settlement pattern that was never native to us anyway.

Endnotes

  1. The Natural Step is a non-profit organisation founded in Sweden in1989 by a scientist,
    Karl-Henrik Robèrt, which promotes a systematic, principle-based definition of sustainability. See http://www.naturalstep.org/
  2. Natural Capitalism: Creating the Next Industrial Revolution, by Paul Hawken, Amory Lovins, and L. Hunter Lovins, Little Brown and Company, 1999.

Why Pittsburgh real estate never crashes: the tax reform that stabilised a city’s economy

Dan Sullivan

Pittsburgh and Cleveland have adopted diametrically opposed strategies, with dramatically different results. In Pittsburgh, foreclosure rates are low despite the downturn, home prices are climbing slightly and construction rates are increasing. Cleveland, meanwhile, is struggling to stem a complete collapse of its housing market. The difference lies in the fact that Pittsburgh has had a site-value tax, which steadies the market, and Cleveland has not.

130 miles apart, Pittsburgh and Cleveland are similar cities in many ways. Pittsburgh lies at the junction of three major rivers and Cleveland on a natural harbour on Lake Erie. These navigable waters connected them to coal and iron ore mines and made them industrial hubs but the decline of steelmaking and related industries has left them as the two largest “rust belt” cities. At the beginning of the last century, Cleveland was the nation’s fifth largest city and Pittsburgh was eighth, and Cleveland was the third largest corporate headquarters (behind New York and Chicago) until it fell in rank to Pittsburgh. Both have seen their populations decline with migrations to the suburbs and to the south and west of the United States. Both now have fewer than half the residents they had during their peak years.

Cleveland has never fully recovered from the collapse of “big steel,” while Pittsburgh rebounded easily. This was because Ohio never gave Cleveland the option of having a land tax similar to that in Pittsburgh, and as a result, it relied less on real estate taxes for raising revenue. Its lack of a land tax means that its property prices tend to be higher than in Pittsburgh and purchasers consequently have to borrow more. In 2005, Cleveland had an affordability index [median house price divided by median household income] of 3.61 compared to 2.44 in Pittsburgh. Although 3.61 was not high by national standards, it was the highest of any northeastern industrial city.

In 2008, just after the housing bubble broke, Cleveland led the nation in mortgage foreclosures per capita while Pittsburgh’s foreclosure rate remained exceptionally low. Since then, the foreclosure rates in Las Vegas and many Californian cities, none of which collect significant real estate taxes, have passed Cleveland’s foreclosure rate. However, on September 15, 2010, The Pittsburgh Post-Gazette reported that while at the end of the second quarter of 2010, 21.5% of America’s single-family homes had underwater mortgages (the American term for negative equity), only 5.6% did in Pittsburgh. As a result Pittsburgh was top of a list of the ten markets with the lowest underwater mortgage figures. [37]

How land value tax prevents speculation

Land value taxes discourage the bidding up of land prices and it is cheap land coupled with lower taxes on productivity that attracts productive investors to Pittsburgh. During the boom decades, land-taxing cities like Pittsburgh could not offer the speculative gains that California did but now they not only offer lower land prices and lower productivity taxes, but, importantly in these volatile times, they also offer land prices that are unlikely to fall in the future simply because they never became inflated in the first place.

This came about because investors are not just interested in the return to their investment but in the after-tax return. If land is increasing in value by 9%, and there is a 1% tax on land values, the net return is 8%. However, a 5% tax on land values cuts the net return to only 4%. Similarly, if the return to a productive investment such as a building is 9% and the taxes on productivity are only 1%, the net return is 8%. If the productivity taxes take 5%, they reduce the return to only 4%. If an investor has the choice of putting all his money into building a small number of houses or into buying up a much larger number of vacant lots, he will choose whichever course of action yields the highest after-tax return. That is, he will choose to build in a land-tax economy and choose to buy up land in a productivity-tax economy.

Pittsburgh has not always done so well during recessions as it is doing today. It suffered badly in the real-estate crashes up to and including the 1906 depression but its property market has been remarkably stable ever since and is continuing to attract investors despite the present recession. This transformation is linked to a series of economic reforms adopted between 1906 and 1913. Before 1906, Pittsburgh gave special tax breaks to large landholders under “agricultural” and “rural” classifications. During Pittsburgh’s reform era, the city not only eliminated those breaks but also changed its property tax to fall more heavily on land and more lightly on improvements. Productive land use became less costly while idle speculation became unprofitable. As a result, city real-estate prices did not crash during hard times because they hadn’t inflated during boom times.

America’s early depressions were sometimes as severe as the Great Depression, which was “great” partly in the sense that it was global, just as World War I was originally called The Great War because it was global. (In fact, far more Americans lost their lives in the Civil War than in both “great wars” combined.) America’s most severe panic was probably in 1837, which closed more than 40% of the banks [1] and wreaked havoc on the economy.

According to historian Stefan Lorant, “The panics of 1819, 1837 and 1857 hit the city [Pittsburgh] with particular severity. Business slackened and factories closed; and workingmen and merchants alike felt the impact of the hardships.”[2] Lorant notes that the depressions of 1873, 1884 and 1893 were also severe in Pittsburgh. He quotes The Growth of the American Republic, by professors Morrison and Commager:

Prices and wages hit rock-bottom and there seemed to be no market for anything. Half a million laborers struck against conditions which they thought intolerable, and most of the strikes were dismal failures. Ragged and hungry bands of unemployed swarmed the countryside, the fires from their hobo camps flickering a message of warning and despair to the affrighted townsfolk.[3]

In 1894, “Coxey’s Army” of unemployed began its march on Washington, D.C., from western Ohio, with members having arrived by train from as far as Texas. Their ranks nearly doubled when they passed through Pittsburgh and Homestead.

The Russell Sage Foundation’s famous Pittsburgh Survey of 1910 showed how severe the poverty was here. “One third of all who die in Pittsburgh… die under five years of age. One fourth… die under one year of age.”[4]

Fighting land monopoly and speculation

Until recently, Americans had always opposed the kind of land monopoly that had oppressed Europe. The Articles of Confederation called for even the federal government to be funded from a tax on the value of privately held land. [5]

The minor parties that formed the Republican Party also formed the roots of the progressive movement. They regarded land monopoly as a second form of slavery, and opposed both forms vigorously. The Free Soil Party advocated “the free grant to actual settlers,” as opposed to selling large tracts of land to privileged elites. [6]

Abraham Lincoln had gained his reputation defending homesteaders against “land sharks” who would file counter-claims and demand payment to drop the challenges. In 1843, Lincoln wrote:

“An individual, or company, or enterprise requiring land should hold no more than is required for their home and sustenance, and never more than they have in actual use in the prudent management of their legitimate business, and this much should not be permitted when it creates an exclusive monopoly. All that is not so used should be held for the free use of every family to make homesteads, and to hold them as long as they are so occupied….

The idle talk of foolish men, that is so common now, will find its way against it, with whatever force it may possess, and as strongly promoted and carried on as it can be by land monopolists, grasping landlords, and the titled and untitled senseless enemies of mankind everywhere.” [7]

After the Civil War, progressives witnessed the closing of the frontier and saw land speculators out-bidding those who wanted to put the land to use during the boom years, fueled by the expansion of bank credit that contracted during recessions. Besides monetary and banking reform, progressives advocated real-estate taxes, particularly on land, to make such speculation unprofitable. [8]

The Pittsburgh battle for reform

Although land speculation was a problem everywhere, it was particularly bad in Pittsburgh, which had been carved up for the benefit of officers in the Revolutionary War. Speculators and large estates in the city got special “farmland” and “rural” tax rates at the expense of urban properties. The price of land, and the taxes on urban real estate, became so high that workers lived in tiny houses on tiny lots. [9]

Henry W. Oliver, president of the Pittsburgh Common Council, complained in an 1872 speech of “the great landholders and speculators, and the great estates which have been like a nightmare on the progress of the city for the last thirty years.”[10]

The same Pittsburgh Survey that exposed Pittsburgh’s poverty showed that this classification system had “enabled big real estate holdings to get out from under the full share of their local responsibilities.”[11] Corrupt assessment practices also shifted taxes off of speculators. However, that government was swept away after perhaps the largest municipal scandal in American history resulted in 41 indictments against city councilmen, bankers and industrialists.

In 1911, the reform government abolished special tax breaks for large estates [12] and abolished the taxation of machinery. [13]

In January 1912, the Pittsburgh Civic Commission, headed by H. D. W. English and H. J. Heinz, reported that land prices were extraordinarily high in Pittsburgh at that time, second only to those in New York City. “Industries will be slow to locate in Pittsburgh if rents or prices of land are higher than in other cities,” the report stated.

It also noted that a few individuals and families had owned large tracts and that some owners, by making ground leases or by improving to a very small extent, had received sufficient income to enable them to hold their land for increases in value due to the city’s rapid growth.

A few individuals have been enabled by circumstances to place and hold land prices at a figure which prevents the profitable use of the land by others. Can this paralyzing grip on Pittsburgh’s growth be broken? We recommend twice as heavy a tax on land values as on building values as the remedy. This means to place a penalty on holding vacant or inadequately improved land and to offer special inducements and premiums for improving land. [14]

Mayor Magee endorsed the measure on learning that Vancouver, British Columbia, had enjoyed considerable success after replacing their building tax with a land value tax (LVT). [15] Supporters got a state law introduced for second-class cities (Pittsburgh and Scranton) requiring those cities to adopt the Civic Commission’s proposal, with a phase-in spread over ten years.

Even the Pittsburgh Real Estate Board (now known as the Association of Realtors) had joined with the Single Tax Club of Pittsburgh, the Civic Commission, the Pittsburgh Board of Trade, the Civic Club of Allegheny County and other organizations in support of the bill. The Pittsburgh Dispatch wrote: “The realty board endorsed the act and recommended its passage and is anxious to have the Governor approve it.” They sent a delegation to Harrisburg to urge passage of the bill. [16]

It passed in the House by a vote of 113 to 5 and in the Senate by a vote of 40 to 0. [17] A repeal campaign was launched by the largest landowners, including agents of the Schenley estate, the biggest of all. Some opponents of the graded tax said that “unimproved landowners are the poorest of property owners” and that the graded tax was disturbing to the economic and financial situation in Pittsburgh and that it would bring depression and hard times.[18] Former Mayor Magee traveled to Harrisburg to defend the bill. He said the opposing delegation from Pittsburgh didn’t represent the small property owner but the large interests of the city. “They come here weeping and wailing,” said Magee, “and you would think the small property owner would be wiped out of existence. They tell you it is a terrible experiment.”[19]

The Pittsburgh Press also defended the law, stating:

The law is working to the complete satisfaction of everybody except a few real estate speculators who hope to hold idle land until its value is greatly increased by improvements erected on surrounding territory. Everybody endeavoring to gain a big profit in this parasitical manner is naturally opposed to the law and to the principle which it represents; it is nevertheless endorsed by and is clearly in the interest of the vast majority of the public.[20]

The repeal bill passed both houses, but was vetoed by Governor Brumbaugh, who said:

This repealer is opposed by the largest group of protestants that have been heard on any bill…. It is advocated by those in charge of the fiscal policy of one of the two cities concerned. Inasmuch as there is such a conflict of opinion, and inasmuch as the law has scarcely yet been tried, it is well to allow it to operate until a commanding judgment decrees its fate. To disturb it now, when a preponderance of opinion favors it, is unwise.”[21]

Pittsburgh’s experience with land value tax

Land prices only rose 14% in Pittsburgh during the 12 years after the graded tax was adopted in 1913, while they boomed in the rest of the nation. [22] Real-estate interests complained that LVT was robbing Pittsburgh landowners of gains enjoyed elsewhere. However, Mayor Magee saw these gains as speculative, and stood by his actions. He noted in 1924:

I am principally interested in two things regarding taxation: the progress of the graded tax law and the problem of assessments for public works. Both concern the unearned increment, the profit of land owner who becomes rich through growth of the community without effort on his own part. I am frankly opposed to him…. [H]e is a parasite on the body politic.”[23]

Magee was proved correct. National land prices peaked in 1925 and plummeted with the Great Depression, except in Pittsburgh. Despite the great flood of 1936, Pittsburgh’s land prices fell only 11% between 1930 and 1940, compared to 58% in Detroit, 50% in Los Angeles, 46% in Cleveland, 28% in Boston, 27% in New Orleans, 26% in Cincinnati, 25% in Milwaukee and 21% in New York. Land prices in Pittsburgh even fell less than in Washington, D.C., where the New Deal was booming. [24]

Of course, times were still tough in Pittsburgh, especially for those who depended on steel or other industries tied to the global economy. Still, Pittsburgh was spared the added problem of a real-estate crash because its graded tax had discouraged speculators from bidding up land prices during the previous boom.

After World War II, other industrial cities got hammered once again, but even though Pittsburgh had been the world’s number-one supplier of armor plate during the war, it enjoyed a renaissance that was the subject of at least 26 national and international news articles. [25]

The most amazing aspect of Pittsburgh’s renaissance is that it had a construction boom without a real-estate price boom. In 1960, when real estate went into another recession, Pittsburgh continued building.

During that recession, House & Home, the construction industry’s leading trade journal, recommended that other cities prevent land bubbles by doing what Pittsburgh was doing — taxing land values more heavily than building values. It quoted Pennsylvania governor and former Pittsburgh mayor David L. Lawrence as saying: “There is no doubt in my mind that the graded tax law has been a good thing for the city of Pittsburgh. It has discouraged the holding of vacant land for speculation and provides an incentive for building improvements.”[26]

Over the years, Pittsburgh adopted other taxes that eroded the effect of LVT on speculation. In December 1978, however, Pittsburgh council president William J. Coyne rejected the mayor’s call for increased wage taxes and convinced council to nearly double the LVT. The next year Pittsburgh raised the LVT to five times the building tax rate, and two years after that raised it again. These were also Pittsburgh’s last overall tax increases for twelve years.

Another spectacular surge in construction followed as owners of underused land became more willing to sell. The only eminent domain controversy involved land acquisition for the PPG complex the year before LVT increases went into effect.[27]

1978 was also the year that California passed Proposition 13, which sharply curtailed real-estate taxes in that state. From that point on, cities in California got smaller shares of their revenue from property taxes than cities in any other state. While Pittsburgh enjoyed steady land prices in the midst of a building boom, California was consumed by a land-speculation frenzy. Foreign interests acquired more California land within the first 18 months after Proposition 13’s passage than they had accumulated in the entire history of that state.[28]

Most foreign land acquisition was by Japanese concerns. How did they get enough US dollars to buy up California land? Early in 1980, US Steel chairman David Roderick accused Japan of “dumping” cars on the US market, noting that Toyotas sold for 17% less in the US than in Japan.[29] Japan had already been increasing exports to the US for some time, but lightly taxed California land made American dollars even more attractive to Japanese land speculators.

In 1979, Pittsburgh’s largest employer, the Jones & Laughlin steel mill, shut down. Even this didn’t prevent Pittsburgh from enjoying the biggest construction surge in its history. The real-estate editor of Fortune credited the LVT with playing a major role in Pittsburgh’s “second renaissance.”[30]

Councilman Coyne was elected to Congress in 1982. In 1983, council president Ben Woods convinced council to reduce taxes on buildings and make up the shortfall from higher taxes on land values, even though there was no need for more revenue.

However, Pittsburgh and its school district also levied an aggregate 4% wage tax, and research requested by mayor Masloff indicated that this tax was driving renters and potential home buyers out of the city at an alarming rate. In 1988, Masloff determined that the city had a surplus, and reduced the wage tax by five-eighths of one percent.

In 1989 she proposed to lower the wage tax by another 0.5 % and make up the revenue with a conventional property tax increase of 10 mils (1 percent) on both land and buildings. Council president Jack Wagner proposed to put the entire increase on land values instead. A storm of protest raged at the public tax hearing against increasing overall property taxes, but most testimony with regard to Wagner’s LVT alternative was in favor of it. In a compromise with the mayor, Wagner’s council increased the tax on land value by 33 mils and on buildings by 5 mils. Pittsburgh’s real-estate values and construction levels remained steady during the recession of 1990.

As Pittsburgh’s economy continued to grow and land values remained stable, California’s land prices rapidly rose and its economy became strained. California’s housing affordability index (median house price divided by median income) had been only 10% higher than the national average when Proposition 13 passed. By 2005, it was three times the national average. 23 of the nation’s least affordable cities were in California. The median house price in San Francisco rose to 12.8 times the median income. Even dusty, miserable Bakersfield, the most affordable city in California, had an affordability index of 5.6. Pittsburgh’s index was 2.44, among the lowest of any northeastern industrial city.[31]

Once again, the real-estate collapse missed Pittsburgh because LVT prevented the bidding up of Pittsburgh’s land prices during the national boom decades of the ’80s and ’90s. In 2008, with the nation’s construction industry coming to a near standstill, the business agent of Pittsburgh’s Carpenter’s Union announced that they were looking for 250 additional carpenters and apprentices to fill the increased demand Pittsburgh was enjoying. Meanwhile, California, which had curtailed real-estate taxes at the behest of those who said that those taxes were “forcing people out of their homes,” led the nation in housing foreclosures.

Undoing the graded tax

Support for taxing land values more than buildings remained so strong in the City of Pittsburgh that efforts to repeal the policy consistently failed.[32] many years, the chief city assessor was also the head of the Henry George Foundation of America, which championed LVT throughout North America [33]

In 1942, however, responsibility to assess land values was shifted to the county, where opposition to LVT was stronger and support weaker.[34] A provision of Pennsylvania law was added to the second-class county code requiring Allegheny County to assess the value of land and improvements separately. Although the law reflects preferred assessment practices anyhow, it was put in place to protect the city’s LVT.

County assessors gradually came to ignore land values, keeping those the city assessor had put in place and putting subsequent changes onto building values whenever possible. 1980 assessments were a fairly accurate reflection of 1950 land values.

This meant that land values became relatively over-assessed in declining neighborhoods and under-assessed in advancing neighborhoods. However, the city’s shifts to LVT in the 1980s were followed by substantial land-assessment reductions in Shadyside, the trendiest neighborhood in the city, and smaller reductions in Oakland and Squirrel Hill, the city’s two most prosperous and politically prominent neighborhoods after Shadyside. This marks the point when county assessors crossed the line from neglect to overt malfeasance. Even so, home owners in the poorest neighborhoods still saved under LVT, and many in the richest neighborhoods paid more. Middle-income neighbourhoods saved the most.

However, opponents of LVT dominated the county board of assessors. They hired a private assessment firm, Sabre Systems, which assessed land values with such a terrible lack of uniformity that the city was forced to abandon the tax in 2001. Sabre Systems assessed lots with buildings on them six to ten times as high as identical, adjacent vacant lots. They did this only in Pittsburgh, even though there were three smaller cities in the county, Clairton, Duquesne and McKeesport, that also relied on LVT.

Wildly erratic land-value assessments forced Pittsburgh City Council to abandon LVT in 2001. The increased cost to home owners was partly offset by special exemptions, but this was done at the expense of renters and business properties, who have had to pay higher taxes into a shrinking budget. Many council members blamed the assessments and said the tax change was temporary. Only one council member blamed the LVT itself.

After losing a long series of court cases and appeals, the county is today finally addressing assessment irregularities under court order. The city controller and several city council members have expressed interest in returning to LVT if realistic land assessments are made because, if Pittsburgh is to be protected from the next recession, it must end these abuses and reinstate LVT before the next boom era.

Pittsburgh is not alone

Every one of the 19 land-taxing cities in Pennsylvania enjoyed a construction surge after shifting to LVT, even though their nearest neighbors continued to decline. Clairton, Altoona and Aliquippa have shifted farther than any other cities toward a pure LVT, and are enjoying unrivaled economic vitality. LVT has also been far more extensively employed in Canada, Australia, New Zealand, Denmark and other countries, with similar success. Those who dispute the effects of LVT and suggest that Pittsburgh is prospering for other reasons have not put forward an answer as to why virtually all land-taxing cities in the world out-perform their neighbors.

Even states that rely heavily on conventional property taxes (with equal rates on land and buildings) have done far better than states that have curtailed property taxes.

Claims that Pittsburgh is prospering because of its efforts to become a “green” city do not explain how Pittsburgh held its land values during the Great Depression, when it was the dirtiest, smokiest, most polluted city in the nation, nor why Pittsburgh land values failed to inflate as it cleaned itself up during what were boom years for other cities, nor why the much greener cities of Portland and Seattle have suffered serious economic setbacks.

Claims that Pittsburgh was saved by its economic development projects try to gloss over the many disastrous projects, where one subsidy after another went to businesses that opened, sucked out the subsidies and then failed, or to over-subsidized corporate businesses that drove out competing, fully-taxed smaller businesses in a process known as “economic cannibalism.” Those who suggest that the new casino helped the economy have to admit that the city with the highest foreclosure rate in the U.S. is Las Vegas, the casino capital of the nation.

If anything good can be attributed to our changing policies, it is that the changes were either thwarted or came too late to do the damage done in other cities. Pittsburgh fought unsuccessfully to get a “commuter” wage tax like the 2% tax in Cleveland or the roughly 4% tax in Philadelphia. However, those cities’ commuter taxes drove out businesses even faster than residency taxes drive out residents. Some suburbs of Cleveland even made a science of stealing businesses by charging the tax on workers and then rebating half of it back to the employers. Meanwhile, Philadelphia’s flight of businesses has been so bad that even the Philadelphia Association of Realtors has advocated shifting from wage tax to LVT.

What will become of Pittsburgh?

If Pittsburgh can either force the county to assess land properly or retake control of its own assessments, it will once again be able to boast the most recession-proof real estate in the nation. However, if it does not do so before the next real-estate price boom, it will not be able to prevent the next crash either. This is because LVT prevents booms and preventing the booms is the only way to prevent busts.

Lessons for environmentalists

Extending LVT to air, water and non-renewable resources

Some pollutants are so noxious that they must be banned outright, but most must merely be reduced. The principle that the earth is a commons applies to air, water and non-renewable resources. A pollution tax on emissions begins with the premise that everyone has an equal right to enjoy the air and water, and that those who use the air and water to hold their pollutants owe rent to the rest of use, whose enjoyment of that air and water is diminished. Thus, while a local LVT might not prevent factory pig farms, local taxes on water pollution certainly would.

The difference between land and non-renewable resources is that the latter are consumed, while land is merely held. Therefore, non renewables cannot be rented. Still, the principle that resources are part of the commons means that it is proper for the community to decide how quickly or slowly it wants those resources to be consumed, and to set royalty charges accordingly.

Cap and trade and the Enclosure Acts

Cap and Trade, on the other hand, is based on the idea that those who have been polluting all along have somehow earned a “property right” to continue polluting, and that those who want to pollute, even if they produce more and pollute less, must purchase “pollution rights” from the entrenched polluters.

It is put forward as a liberal environmentalist idea, but it has its origins in the “pollution tax credit” schemes of Ronald Reagan and Margaret Thatcher. It is a very dangerous approach, as it not only rewards past polluters, but enables them to punish cleaner, greener competitors.

For example, a company that can produce electricity with half the emissions must first purchase pollution credits from the established polluters. If the established polluters don’t want to sell, or want to charge enough to make the greener alternative unprofitable, their Cap and Trade privileges actually hinder the transition to greener technology.

The burden of Cap and Trade falls on ordinary people for the benefit of the privileged. It is analogous to the Enclosure Acts of England and other countries, where, “for the sake of game,” ordinary people were prohibited from hunting or disturbing wilderness land, while nobles were allowed even more latitude to run roughshod over the environment.

There are various sound alternatives to Cap and Trade, from pollution taxes to Cap and Share, in which every citizen gets pollution tax credits to sell to the polluters. The differences between these proposals are minor, and the best alternative is probably the one that is simplest to administer. The essential feature is that polluters must pay the community to pollute, rather than greener industries paying dirtier industries to pollute less.

LVT vs. rural building restrictions

Many environmentalists think of sprawl as building in rural areas, and try to fight sprawl with restrictions that hamper the economy. Supporters of LVT see the demand for rural land as caused by the failure to build compact development in urban and inner suburban areas. Rural land is prized by developers for one reason only: it is less expensive to buy than urban and suburban land. A tax on the value of land draws that development inward and reduces the demand for rural and agricultural land. Removing land speculation as an obstacle to urban development has a positive effect on the economy, compared to imposing restrictions on rural land. The notion that “good environmentalism is good economics” is true with regard to LVT. It is hard to make a case that it is good with regard to building restrictions and the bureaucracy that inevitably accompanies them.

Problems with exemptions

Some environmentalists argue for exemptions for land owners who hold their land as farmland or in a “clean and green” state. Those who hold “clean and green” land are invariably wealthy, for who else can afford to hold large tracts of land out of use? Often, land is held back where demand is high, forcing development to “leap frog” over that land into more rural areas. As the editors of House & Home noted half a century ago,

Suburban sprawl is what makes homebuyers drive past miles of unused or underused countryside to get home to their tiny 60’ x 120’ lots. (Open fields, cow pastures, private golf links, and millionaire estates are fine, but it is much better to drive out five miles beyond your home to enjoy seeing them when you want to than to have to drive five miles past their “No Trespassing” signs when all you want is to get home.)

House & Home thinks “development easements” are the worst idea yet. They just aggravate and perpetuate the sprawl by using tax money to keep golf links, orchards, and cow pastures where houses should be built, and push homebuilding out beyond to where the golf links, etc., should be. Green belts should be planned for maximum, not minimum, public use and enjoyment of the land. The 1,200 acre Field estate will make a fine state park, but as a fenced-in private property it was little or no good to anybody except the owners.[35]

Many who first hear about LVT fear that it will lead to “overdevelopment” of land, with no green space or human scale. However, Pittsburgh is reputed to have more trees than any other city in the U.S. While this is partly due to the city’s hilly terrain, it is also due to very large city parks, many of which were sold or donated to Pittsburgh by its largest land owners.

Municipal parks are an appropriate way to maintain green space; that is, space that is maintained for the benefit of all should be under the control of democratic institutions. In contrast, open land has often been held by private interests that enjoyed tax breaks while waiting for land values to “ripen,” and was then sold at a profit. Meanwhile, development leap-frogged over that land.

“Special farmland assessments” whereby land is assessed at its farm value instead of its market value, are similarly flawed. In genuine farming areas, the farm value is the market value. Farmland assessments mostly protect farms within or adjacent to the suburbs, and force the suburbs to leap-frog into farming areas.

“Smart growth” development zones and density zoning

Development zones, often based on the Portland model, are artificial attempts to offset the effects of automobile-based sprawl. They impose incentives for developing within the zone and penalties for developing outside the zone. However, where land is inadequately taxed, the price of land inside the zone will simply rise until it swallows the value of the incentives, and the price of land outside the zone will fall until it offsets the cost of the penalties.

The problem is further aggravated by density limits within the smart-growth area. Laws that prohibit high-rise buildings in low-rise zones, low-rise apartments in townhouse zones, and townhouses in zones for free-standing houses with minimum lot sizes, prevent development from occurring within the zone, both by preventing the developer from doing more with less land, and by keeping land prices high within the smart-growth zones. Abolishing density limits within urban areas is a lot smarter than imposing arbitrary smart-growth zones.

These smart-growth zones assume that development should occur within a large circle, but a look at development patterns prior to the automobile reveal that this was rarely the case. Rather, development was dominated by small, self-contained towns, connected to urban hubs by rivers, rail lines, or even roads. However, the roads were lightly traveled, as people tended to work and shop in the same small towns where they lived, and buy a substantial share of their foodstuffs from local farmers.

The bottom line is that it doesn’t matter how far a new development is from the center city. What matters is how far the people in the development will travel from their homes to the places where they routinely work and shop. This is impossible to manage via zoning laws, but substantial taxes on pollution and resource consumption will give people an incentive to arrange their lives accordingly, while substantial LVTs would make it easier for them to do so. Meanwhile, taxes on their own productivity could be reduced.

Alternative energy subsidies

Alternative energy subsidies take money from ordinary taxpayers, including those who have arranged their lives to consume very little energy and give it to people who consume energy, merely because they consume “less.” Thus the person who bundles up and lives in a cold house subsidizes high-efficiency furnaces, and the person who mostly gets around by walking and bicycling subsidizes electric and hybrid vehicles for those who cling to the automotive lifestyle. Replacing productivity taxes with LVTs and resource consumption taxes still gives the owner of the high-efficiency furnace and the electric car an advantage over the person with a dirty furnace and a gas-hog car, but it also gives the sweater-wearing walkers and cyclists an advantage over all energy wasters.

The same is true of public transit, which is extended via subsidies into sprawling suburbs where it just doesn’t work. Taxing land values and eliminating zoning creates the kind of environment where transit can compete with very little subsidy. What subsidies transit needs can come from the land-value increases that transit creates.

Ecological economics

The bottom line is that ecology and economics come from the same root and mean almost the same thing, the former from “study of the house” and the latter from “management of the house.” However, it is not enough for environmentalists to insist that good ecology is good economics, for the corollary is that bad economics makes for bad ecology.

Environmentalists naturally rankle at economics, which has been a tool for maximizing wealth from the time when kings sought to out-produce rival nations to modern times when corporate monopolies seek to out-produce rival corporations. That obsession has caused economics to become increasing divorced not only from environmentalism, but also from principles of justice and even from rationality.

Still, disdain for economics on the part of environmentalists perpetuates that logical disconnect. Fortunately, environmentalists do not have to wade through neoclassical econobabble. Rather, if they start with the same key premises that classical liberal economists and philosophers started with, the solutions become clear. Those premises are:

  1. that the Earth is a commons and that the rent of land belongs to the whole people,
  2. that the right to the Earth is a usufruct right, not a right to leave it in worse condition than one found it in, and
  3. that what a human being produces is entirely his own, so long as he has compensated the community for what he has taken from them or foisted on them.

Following these principals, one no longer has to argue whether global warming is apocalyptic or merely detrimental. The one form of energy that is wasted when it is not consumed is human energy. So long as human energy is taxed, following these principes make it obvious, even to global warming deniers, that taxes on non-renewable energy should replace taxes on human energy. So long as human beings sit in forced idleness, it becomes obvious that keeping non-renewables out of use is preferable to keeping human beings out of use.

The limits of resource consumption were not an issue in Thomas Jefferson’s day. Yet Jefferson recognized that forced idleness was caused by monopolization of the earth. Observing wretched poverty in France, he wrote:

Whenever there are in any country uncultivated lands and unemployed poor, it is clear that the laws of property have been so far extended as to violate natural right. The earth is given as a common stock for man to labor and live on. [36]

The global warming issue has been polarized into a battle between what may be called the alarmist camp and the denier camp, to the detriment of all. Stepping back from this battle, environmentalists can “cut the Gordian Knot” by realizing that it is not necessary for others to agree with their analysis of the problem, but only for others to agree with their solutions.

Shifting taxes off labour and legitimate (labour-produced) capital by placing as much of the tax burden as practible on land, natural resource extraction and pollution is a proposal that many in the “denier” camp can support.

Endnotes

  1. http://en.wikipedia.org/wiki/Panic_of_1837
  2. Lorant, Stefan, Pittsburgh, The Story of an American City, 1999 edition, p. 101
  3. ibid, p. 196
  4. Ibid. p. 287, citing Homestead chapter of The Pittsburgh Survey.
  5. Articles of Confederation, Article VIII, “All charges of war, and all other expenses that shall be incurred for the common defense or general welfare, and allowed by the United States in Congress assembled, shall be defrayed out of a common treasury, which shall be supplied by the several States in proportion to the value of all land within each State, granted or surveyed for any person… http://www.usconstitution.net/articles.html#Article8
  6. Article 14, Free Soil Party Platform of 1848. http://www.angelfire.com/indie/ourcampaigns/1848.html
  7. Letter from Lincoln to Martin S. Morris, Springfield, March 26, 1843, included in Basler, Collected Works of Abraham Lincoln
  8. Terence Powderly, head of the Knights of Labor, wrote that, if not for banking privilege, there would be no need for labor unions. The KoL listed one of its purposes as “To prevail upon governments to establish a purely national circulating medium, based upon the faith and resources of the nation, and issued directly to the people, without the intervention of any system of banking corporations, which money shall be a legal tender in payment of all debts, public or private..”
    -Thirty Years of Labor, chapter 9, “The Circulating Medium.”
    Powderly also wrote, “The demand of the order of Knights of Labor is, ‘that all lands now held for speculative purposes be taxed to their full value.’ The great difficulty is to ascertain to what extent lands are now held for the purpose of speculation…. If the Knights demanded that ‘all lands held by parties, other than the government, shall bear an equal proportion of the taxation required for the maintenance of the government, and unimproved lands shall be assessed at the same rate as the nearest improved land,’ they would come nearer to the establishment of a just rate of taxation, and whether lands were held for speculation or not, they would not escape their just proportion of taxation. -ibid, chapter 8, “Land, Telegraphy and Railroads.”
    http://savingcommunities.org/docs/powderly.terence/
    See also, George, Henry,
    Progress and Poverty, Book V, Chapter 1, “The primary cause of recurring paroxysms of industrial depressions.”
    http://www.schalkenbach.org/library/george.henry/pp051.html
  9. Some of these tiny-house neighborhoods survive today, most notably in the bottoms of Lawrenceville.
  10. Henry Oliver Evans, Iron Pioneer, Henry W. Oliver, New York, Dutton, 1942, pp. 65-6.
  11. Civic Frontage: The Pittsburgh Survey, “The Disproportion of Taxation in Pittsburgh,” pp. 156-213; 455-68.
  12. Pennsylvania Laws, 1911, p. 273, approved by Governor John K. Tener, May 11, 1911.
  13. ibid, pp. 287-88, approved, May 12, 1911.
  14. Pittsburgh Civic Commission, Civic Bulletin, January, 1912; also An Act to Promote Pittsburgh’s Progress, published by Pittsburgh Civic Commission in 1913.
  15. “But before finally committing himself to the plan, he [Mayor Magee] sent a special investigator, Thomas C. McMahon, a member of the board of assessors, to visit municipalities in western Canada where similar tax systems had been in operation and were attracting favorable attention. The City of Vancouver had entirely exempted buildings from taxation by gradual steps over a period of fifteen years. That community was enjoying a remarkable building boom, conditions were very prosperous, and the city was receiving ample revenue under its new tax plan.
    “Mayor L. D. Taylor of Vancouver came to Pittsburgh about this time to address the Oakland Board of Trade and gave a first-hand report which was decidedly in favor of shifting the tax burden from improvements to land values. Mayor Magee then gave his endorsement to the proposed law and ever thereafter was a consistent supporter of the graded tax plan, bringing to its support many of those who were closely associated with him in political life.”
    -Williams, Percy, The Pittsburgh Graded Tax Plan, Its History and Experience, citing Robert M. Haig, The Exemption of Improvements from Taxation in Canada and the United States, 1915, pp. 170-1 (a report prepared for the Committee on Taxation of the City of New York).
    http://savingcommunities.org/docs/williams.percy/gradedtax.html#g128
  16. Pittsburgh Dispatch, May 6, 1913, headed “Real Estate Board Committee Goes to Confer with Governor”
  17. Pennsylvania Legislative Journal, 1913, Vol. 2, pp. 1635-36, 2453
  18. Pittsburgh Post, April 28, 1915
  19. op.cit., Williams, Percy
    http://savingcommunities.org/docs/williams.percy/gradedtax.html#g139
  20. “Graded Tax Repealer Jolted,” Pittsburgh Press, May 18, 1915
  21. Pittsburgh Press, June 10, 1915, p. 1.
  22. op. cit., Williams, Percy, appendix, table 2, “Assessed Valuation – Land and Buildings – City of Pittsburgh” http://savingcommunities.org/docs/williams.percy/gradedtaxtables.html#table2
  23. ibid, http://savingcommunities.org/docs/williams.percy/gradedtax.html#f128
  24. ibid, http://savingcommunities.org/docs/williams.percy/gradedtax.html#f159
  25. Saturday Evening Post, August 3, 1946; June 9, 1956; Commonwealth, September, 1947; Pittsburgh Bulletin Index, January, 1948; Business Week, March 12, 1949; June 21, 1952; April 2, 1955; Greater Pittsburgh, April, 1949; National Geographic, July, 1949; Time, October 3, 1949; Architectural Forum, November, 1949; The American City, July, 1950; Town and Country, August, 1950; Harper’s, January, 1951; August, 1956; The Atlantic Monthly, May, 1951; Fortune, June, 1952; The Spectator (London), December 19, 1952; Real Estate, March, 1953 ; January, 1960; Collier’s, May 30, 1953; USA, Tomorrow, October, 1954; National Municipal Review, March, 1955; Reader’s Digest, May, 1955; Liberty Magazine, February, 1956; Life, May 14, 1956; Look, January 8, 1957; The Nation, February 8, 1958; Holiday, March, 1959; Engineering News-Record, November 19, 1959; Esquire, September, 1960; Newsweek, October 24, 1960
  26. House & Home, August, 1960, Time-Life Inc., p. 139
  27. “Plan in Pittsburgh on Building Fought; Merchants Oppose Taking of Their Property for Downtown PPG Industries “Headquarters Protest from Diocese,” New York Times, June 3, 1979, page 51
  28. California Department of Agriculture. (Further citation needed.)
  29. “Steel exec thinks Japan ‘dumping’ cars in America,” The Bulletin, Bend, (Deschuttes County), Oregon, Feb. 5, 1980, p. 24.
  30. “Pittsburgh raised its tax rate on land from 4.95% to 9.85% of assessed valuation in 1979, while leaving the rate on buildings at 2.475%. New construction, measured by the dollar value of building permits issued, rose 14% as compared with the 1977-78 average. In 1980 the city widened the differential still more, to a tax rate of 12.55% on land vs. the .475% building rate, a ratio of 5.07 to 1. … Construction in 1980 leaped 212% above the 1977-78 average, reflecting ground-breaking for a new crop of office skyscrapers that is giving the city its so-called second renaissance (the first came in the 1950s with the redevelopment of the Golden Triangle). The adoption in 1980 of three-year tax exemptions on all new buildings – but not the land – also boosted construction. In 1981 construction peaked at nearly six times the 1977-78 rate. “Some of the dozen new office towers that have gone up in Pittsburgh would have been built with or without tax concessions; downtown office space had been growing scarce. But the widening differential between the taxes on buildings and land undoubtedly helped. It cut the annual bill for owners of some skyscrapers by more than $500,000 a year when compared with conventional 1-to-1-ratio taxation.” – Breckenfeld, Gurney, “Higher Taxes that Promote Development,” Fortune, August 8, 1983, pp 68-71
    http://localtax.com/fortune/hightax.html
  31. Buffalo is the only large northeastern industrial city with a lower affordability rank, but Buffalo is notoriously slum-ridden. “Housing Affordability Rank of 243 US cities with populations of over 100,000.” http://savingcommunities.org/issues/taxes/property/affordabilityrank.html
  32. A study by the Pennsylvania Economy League (Weir and Peters, 1986) alleged that a consensus of experts claimed land value tax did not aid development and hurt home owners in poor neighborhoods. However, this study was so tortuously contrived and so easily refuted that city council ignored it and continued shifting the tax burden to land values. Statements from development experts who had contradicted the PEL’s desired conclusions were either twisted or ignored by the researchers. For example, former director of economic development Ed DeLuca had said land value tax did encourage development, but thought that further shifts would be necessary to have a sufficient effect. They claimed there was a consensus that the tax had no effect and that further shifts would also have no effect. Donald Stone, professor of economic development at Carnegie-Mellon University’s School of Urban and Public Affairs said that interviewers responded to his positive comments about land value tax by changing the subject. Also, a check of the poor neighborhoods cited in the PEL study showed that most properties paying more were absentee-owned, and that owner occupants actually saved in those neighborhoods. A subsequent study by city finance director Ben Hayllar suffered from exactly the same failure to distinguish owner-occupied from absentee-owned properties. Owner-occupied properties in Hayllar’s own sample also saved in poor districts where he alleged land value tax was punitive.
  33. Percy Williams was executive secretary of the Pittsburgh Real Estate Board from 1918 to 1921. A Democrat, Williams was appointed to the board of assessors by Mayor Magee, a Republican, in 1922. The first Democrat mayor Appointed him Chief City Assessor in 1934, where he remained until the county took over assessing in 1942. He had been Secretary and a trustee of the Henry George Foundation since it was chartered in 1926 until his passing in 1978. http://savingcommunities.org/docs/williams.percy/gradedtax.html
  34. Almost all of the testimony against land value tax in the city’s public hearings came from non-city residents within the county, particularly from the affluent Mount Lebanon Township. These suburban residents either owned city real estate or represented organizations of real estate interests. In contrast, most civic leaders and ordinary voters in the suburbs do not live in the four cities that have taxed land values (Pittsburgh, McKeesport, Duquesne and Clairton) and are oblivious to the issue.
  35. House & Home, Time-Life, Inc., August, 1960, page 115
  36. “Property and Natural Right,” Letter to James Madison, Sr. from Fontainebleau, France, Oct. 28, 1785
  37. http://www.post-gazette.com/pg/10258/1087527-28.stm?cmpid=business.xml#ixzz0zomHgS8m

Featured image: A map of Pittsburgh, Pennsylvania with its neighborhoods labeled.
Author: Tom Murphy VII
Source: http://en.wikipedia.org/wiki/File:Pittsburgh_Pennsylvania_neighborhoods.svg