Oil Wealth feeds Higher Land Prices

Karl FitzgeraldCommentaryLeave a Comment

Moscow property market soars, driven by oil wealth states:

As prices slump in the United States and elsewhere, Russia is wrapping up a year of an extraordinary, oil-driven real estate boom. Moscow, for instance, now ranks as the fourth-most-expensive city in the world for office space, trailing only London, Tokyo and Hong Kong, according to some surveys.

Over in oil rich Venezuela, where $13.9billion in health and education funding is having little effect on living standards, inflation hit 29% over the last year to April. The article similarly states:

And rents in upper-middle-class neighborhoods of Caracas have soared to New York levels — as much as $4,000 a month for a two-bedroom flat.

Rent seekers are using an understanding of economic forces to invest in markets where oil wealth is creating greater buying capacity amongst the public. If health and eduction are cheaper in Venezuela, the law of rent sees the benefits automatically feed into land prices. If Moscow has an oil elite, their spending habits flow through to land prices. The Real Estate Investment Trusts are circling such markets, leading us closer to a neo-feudal society.

The only way forward is for the government to capture some of the economic rent via a holding charge on land. Move taxes off incomes and profits and onto resources, thus curbing the hoarding of essential resources like land and oil. The resulting lower land prices will assist small business and employment, whilst cheaper food prices (due to the reduction in indirect taxes) bring smiles to consumers. If only they discussed this at King Abdullah’s Oil Summit over the weekend!

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