The Methodology of Real Estate Appraisal: Land-Residual or Building-Residual, and their Social Implications

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NYU Real Estate Institute's Round Table Discussion of Land- and Building-Price Indices A meeting was held at New York University’s Real Estate Institute on October 25 to discuss the virtues and pitfalls of constructing a land-price index to distinguish between land and building values. The Institute’s Associate Dean Ken Patton had invited Michael Hudson and the Robert Schalkenbach Foundation to assemble an economic team to discuss the pros and cons of the Georgist position regarding land-values with the Institute’s faculty and real estate industry representatives. The discussion was moderated by Schalkenbach’s Executive Director, Christopher Williams. Prior to the meeting, Dr. Hudson, President of the Institute for the Study of Long-term Economic Trends (ISLET) had circulated a discussion paper spelling out the statistical ...

The Land-Residual vs. Building-Residual: Methods of Real Estate Valuation

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Some Prefatory Remarks to the N.Y.U. Real Estate Institute discussion, Oct. 25, 2001 Economic theory focuses on labor and capital, yet the largest category of tangible assets is not industrial plant and machinery earning profits, but real estate, and its primary objective is to make capital gains. Most new entries into the Forbes or Fortune lists of the richest men consist of real estate billionaires, or similar individuals coming from the fuels and minerals industries or natural monopolies. Those who have not simply inherited long-standing family fortunes have gained their wealth by borrowing money to buy assets that have soared in value. The Federal Reserve Board publishes an annual balance sheet of the economy’s assets and liabilities showing real estate to comprise ...

The Mathematical Economics of Compound Rates of Interest: A Four-Thousand Year Overview Part II

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2. Why Economies Develop Debt Crises: The Mathematics of Compound Interest The past century’s economic schoolbooks have described a universe running down from entropy. Production is assumed to be plagued by diminishing returns, so that each additional unit of input produces less and less output. Even if technology were recognized to raise the productivity of labor, capital and land over time, neoclassical models hold that each additional unit of consumption or wealth yields diminishing psychological utility. Not only will economies grow less rapidly, they will feel poorer. Large parts of the population in many countries are indeed becoming poorer and forced into debt, but the pessimistic assumptions cited above make no reference to debt. Their seeming independence from finance – and from ...

Where Did All the Land Go?

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- The Fed’s New Balance Sheet Calculations A Critique of Land Value Statistics The most comprehensive official statistics on nationwide real estate values are those published by the Federal Reserve Board (FRB) in its annual “Balance Sheets of the American Economy.” As part of its Z.1 statistical release the FRB compiles annual balance sheets of seven sectors which, taken together, make up the U.S. economy. These are the B-series tables near the end of the quarterly flow of funds reports. (The “B” stands for “Balance sheets.”) The Fed’s purpose of compiling these balance sheets is to track changes in the net worth of seven sectors: households, non-profit institutions, farms, non-financial non-corporate business, non-financial corporate business, and financial institutions. These estimates include the market ...

How to Lie with Real Estate Statistics

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The Illusion that Makes Land Values Look Negative - How Land-Value Gains are Mis-attributed to Capital Dr Hudson is President of the Institute for the Study of Long-term Economic Trends, New York. He has specialised in national income accounting, the balance of payments and flow of funds analysis for leading Wall Street finance houses. A former economics professor at the New School’s Graduate Faculty, he is the author or editor of over ten books on these topics, economic history and the history of economic thought. Land prices are rising in nearly every economy. This worldwide rise reflects primarily the lending of excess savings to mortgage borrowers. The upshot has been that rising land prices find their counterpart in a mushrooming real estate debt. ...

The Economics of Reality: How Finance Dominates Production and Rents Overshadow Profits

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The Economics of the Future Wagner's Music of the Future - his "total art work" - sought to integrate music and drama (along with art, dance and poetry). In a similarly broad way, the economics of the future will integrate finance and production, thereby restoring the lost link (as drama had been lost to most operatic music in Wagner's day). Therefore, the economics of the future will pick up the thread where it was broken off in the 1870s. While many social sciences extended themselves to include physical science, technology and history, academic economics underwent its Great Narrowing. In an epoch of unparalleled social transformations, economics became marginalist rather than dealing with structural change. As politics was becoming radical, marginalism and its ...