Below, Mike Bird shares five key insights from his new book, The Land Trap: A New History of the World’s Oldest Asset.
Mike is the Wall Street editor at The Economist. He also cohosts the financial podcast Money Talks. Previously, he was a financial columnist and market reporter at The Wall Street Journal.
What’s the big idea?
Land is the hidden engine behind wealth, power, and political conflict. Scarce, immovable, and enduring, it can make fortunes, fuel economic booms, spark financial crises, and entrench inequality—all depending on how societies manage and value it.
1. Land is the most valuable and most important asset in the world.
If you go back to pre-industrial history, land was mostly good for what was grown on it or what could be mined out of it. That is no longer true. Agriculture usually accounts for just a tiny fraction of a modern country’s economy. But land still matters because of the rise of productive and dynamic cities where space is at a premium.
One estimate by the McKinsey Global Institute pins the total value of land at about 35 percent of the $520 trillion in real wealth on Earth. That category includes the entirety of physical and intangible assets in the world—every physical building, all intellectual property, things like that.
Even though land receives less attention than many other assets—while financial analysts track stocks and bonds and newspapers cover the biggest companies—its importance remains immense. It’s easy to get the impression that buildings or other physical structures are the most valuable aspects of real estate, but in fact, land itself surpasses these in overall value. This is especially true in less financially developed countries or places where space is particularly scarce.
2. Land does not work like other assets.
Land is starkly different to other assets, both financial and real. Firstly, we can’t easily make more of it. The amount of land we are working with as a species (in most places) is basically the same as it was a thousand years ago. People can create more of most other goods and assets when demand for them goes up. With land, that is basically impossible except in some narrow examples of land reclamation. This is why land is an asset of haves and have nots. Once somebody owns the valuable land, somebody else can’t have it.
“This is why land is an asset of haves and have nots.”
The second key difference is that land is immobile. People, machinery, commodities, and capital can all move to follow economic activity and opportunity—whether to a new city, country, or business—but land cannot. Land can’t be moved from where it’s cheap to where it’s expensive. You can’t move land from Montana to New York. Huge location-based price differences result, primarily based on the economic activity happening near that land rather than the quality or attributes of the land itself.
The third key difference is that, unlike most assets, land doesn’t decay or depreciate in accounting terms. Once you own it, its value doesn’t naturally erode over time. A family or company can prosper just by holding land in the right location for a very long time. That’s not true with most other assets, where maintaining or growing value requires effort, investment, and innovation. Land in the right place will appreciate on its own, independent of any action by its owners.
3. Land can be an amazing way of making and creating money.
It’s not just the value of the land itself that makes it so important, but how it can be used in finance. In the early days of North American colonization, colonists were hugely rich in land and poor in everything else. There were persistent shortages of many things, perhaps most of all cash. Benjamin Franklin, and many who preceded him, realized that land could be used as the backing for loans. At a large enough scale, those loans (with land as collateral) could bring into existence entirely new currencies.
“Benjamin Franklin, and many who preceded him, realized that land could be used as the backing for loans.”
Over the past century, banks around the world have increasingly become mortgage machines, moving away from the business of lending they once focused on. This shift has made both banks and the broader economy more exposed to land prices and their fluctuations. It’s therefore no huge surprise that major financial crises often have a land-based component.
This pattern is one of the most useful and interesting insights in financial history: governments and private financiers repeatedly stumble upon this pattern independently. It happened in East Asia in the 19th century when the British Empire used land sales to fund colonies like Hong Kong and Singapore. Later, in the 1980s and 1990s, it happened again in China after Deng Xiaoping’s reform movement. Land sales had become a major source for financing government activities, especially at a local level. While this helped supercharge Chinese economic growth, it also resulted in some of the severe financial distortions and crises the country has experienced—such as extraordinarily high house prices and high household debt today. The financial power behind land is immense.
4. Land is a huge source of political conflict.
At the end of the 19th century, almost anyone in the Western world could have told you that land was about to be the source of the biggest political conflict in history. In particular, a political entrepreneur named Henry George had become an international celebrity based on his argument that land monopolies were plaguing the then-booming economy because they were causing more poverty despite rapid technological progress. He advocated for a steep land value tax on the entire value of the land and its associated income as the solution.
This argument gained enormous popularity around the world, but conflict over land wealth recurs. It came up again during the land reform movements in the mid-20th century, when dozens of new countries became independent and were throwing off old structures of power. It also comes up today in the form of poisonous housing politics in the Western world, where a huge amount of wealth inequality comes down to differences in land ownership.
“The financial power behind land is immense.”
In America, people’s outcomes are in large part based on the luck of where they might live. When America’s home ownership rates were climbing rapidly in the 1950s, there was not much difference between house prices in most of urban America. House prices in Detroit and New York were similar, but the gap now is enormous. It’s been a huge windfall for people who bought in the right place, though there’s not much merit involved in that decision.
5. The way land is treated can make or break a country.
The misuse of land in finance can be a showstopper for an entire country’s growth model. The best example of this is Japan’s economic boom between the 1950s and the 1980s, which was brought to a complete halt due to the country’s terrible land speculation mistakes. Companies borrowed enormous sums against land and, especially in the second half of the 1980s, land prices exploded—far outpacing the growth of the broader economy. At one point, the land beneath Tokyo’s Imperial Palace was estimated to be worth more than all the land in California.
When the government and Bank of Japan deliberately tried to deflate this bubble to reduce inequities, it triggered a financial slump that lasted a decade and, in some ways, one from which Japan never fully recovered. There is a huge lesson here for other countries, particularly China, where shifts in land prices can have serious consequences—either entrenching inequality and creating wealth dependent on luck and windfalls, or risking a financial and fiscal crisis if the bubble bursts.
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