Virtual land value and digital real estate economics.
As I’m starting this new company LandMinis3 to offer blockchain real estate investments, I’ve been tempted to strengthen my knowledge of land income mechanics, and how it could be best adapted to the emerging digital real estate market. One recurring question I’ve been asked by brokers and investors on the sideline of my presentation on metaverse real estate in October 2022, was “How could we appraise virtual land value?”.
In this article, I’m providing elements of answers, based on the analogy with physical land valuation. Aside of my professional experience as a real estate developer, my source of learning as been the book La rente foncière, les théories et leur évolution depuis 1650 by Jean-Louis Guigou. Published in 1982, this book (950 pages) is still THE reference on land revenues in France. I don’t think that it has been translated into English even though it covers all the economics theories on the topic since it emerged 400 years ago. 40 texts about land revenues since 1650 by major economists such as Ricardo, Marx, Say, Valras, Proudhon, and Stuart Mill.
As for our concern, I’ll skip most historical and political considerations to be straight to the point of adapting the land income models to virtual land ownership and digital real estate.
PLAN:
1. Land value depends on revenues.
- Three distinct revenues: income, profit, and salary.
- The roles to play in a metaverse economy.
- Distributed ownership at the core
2. Land value depends on location.
- Land revenues and the transportation costs
- Land revenues and the competition for land use
- Land revenues and the economical environment
3. The specificities of urban areas.
- Land revenues depend on the retailing capacity
- Land revenues from the housing production
4. Land socialization and taxation
- Tax on gains in land value
- Decentralizing land ownership
Introduction
A historical fact to keep in mind is that the real estate demand constantly grew throughout human history as the planet’s demography has always been increasing, while the offer is naturally limited (we can’t produce more land than the planet earth has to offer). Another major takeaway from history is rather counter-intuitive: the socialist authors aren’t the hardest opponents to land ownership. Instead, they often considered ownership as a good way to redistribute wealth to farmers, small business owners, and families. On the contrary, liberal capitalists have been hard opponents of this source of passive income, considering that capital should work to produce value. For those two reasons, the regulation of land ownership issues isn’t always rational, and framing it at the families’ scale seems to be the most consensual approach. Even the large percentage of real estate that is not family-owned is managed by organizations in a family-owned fashion.
Rental revenues can be easily defined: it’s the owner’s income from the tenant’s expense to get a right to use an asset. But this statement says nothing about the nature, nor the origin of the rent. To these questions, the economists’ points of view can be roughly divided into two categories:
- For the classics, like Ricardo and Marx, the land is a natural resource. Its value origins in the rare availability, furthermore considering the heterogeneity of land properties. The most productive lands are the rarest and the most demanded, they generate the highest revenues, and thus the highest passive income.
- For the neo-classics, like Say and Allais, the land is an ordinary good with regular productive properties. The land can be exploited as any capital which generates profit for an owner. They consider the land owner active in managing its source of revenues, and wealth generation a regular work.
Those two perspectives are usually considered together and there’s a wide range of intermediary positions which all consist in giving more or less weight to one or the other point of view.
There is a direct relationship between the yearly rentability of land and its price of sale. While the valuation of a property should be equal to the use value, it’s often traded at a much higher price on the market. In fact, the systematic gap that’s constantly increasing between the use value and the trade value intertwines with hardly controllable behaviors such as speculation, retention of assets, over-valuation, and diversion of investments from productive assets into real estate. The distribution of real estate revenues also questions: shall it go to the owner or to the tenant? Who’s really creating value by exploiting the underlying asset? When the owner and the operator are the same people, is it justified that they benefit from an added value on their capital which comes from external social factors such as public investment into facilities or economic factors at scale? What should be a fair share of public taxation on the inflation of real estate values? How much a state should feel concerned about land socialization, meaning shared ownership with its people? All answers would depend on times, societies, and civilizations.
As we have almost no experience with managing virtual lands and the potential unlimitedness of the real estate of virtual worlds, we’ll take a look at all that’s been experienced along the history of physical lands and try to build a plan that makes the most sense to our unique problem.
1. Land value depends on revenues.
Three distinct revenues: income, profit, and salary.
Adam Smith (1723 — 1790) and Robert Malthus (1766 — 1834) are the firsts to conceptualize land revenues between the late 18th and early 19th centuries when it slowly emerges from the natural and religious fatalism which pre-existed.
Smith announces the industrial revolution in Great Britain and nests his land revenue theory into a larger one on the price of goods. Published in 1776, he states that each good has a natural price, composed of three elements: an income, a profit, and a salary. Those three elements are supposed to come back to three different social classes: the owner, the operator exploiting the owner’s capital, and the worker who’s paid by the operator for his work on the owner’s capital. The operator is a crucial intermediary between the worker and the owner since it’s the one allowing the reproducibility of the specific model of exploitation which is generating revenues. Thus the workers’ salary and the operators’ profit are irreducible, while the owners’ income is adjustable, and has no control over the land availability, a natural and indestructible asset.
The incapacity of the owner to change the availability of land was true for physical land in an agricultural economy but is not valid in the context of virtual lands in a metaverse economy. Indeed, we’re speaking of potentially unlimited virtual land generation, as long as it will generate revenues, it will be demanded on the market.
In an agricultural economy, the owner’s income is a residual leftover after having paid the worker and the operator. Workers are usually paid a fixed and predictable salary. Operators are negotiating a rent with the owner that’s unchanging for the term of the lease. Consequently, the prices of goods depend on salaries and on the costs of exploitation, while the owner’s income depends on the prices of goods. Thus the owner’s income can’t be analyzed otherwise than through the price for a monopoly: the more the goods produced on its lands are worthy, the highest the income of the owner. The more the goods produced on its lands are rare, the highest the income of the owner. Thus owners in the physical world are encouraged to grow monopolies to have control over the price of goods. In a web3 economy, where all monopolies are expected to be skipped away, how could we master or predict the income of the owners? Considering that web3 aims to build a decentralized internet, owned by its users, all big assets should be distributed into fractions of ownership over multiple owners. But this does not help in evaluating owners' income. And we will need an answer at least to engage users in digital ownership. What’s the benefit to expect from becoming an owner of a piece of a metaverse?
The roles to play in a metaverse economy
In a traditional economy, three different roles emerged due to historical, political, and economical reasons. Are we able to write a different scenario for virtual societies in a metaverse? Can we confidently consider that multi-tasking will be the rule in the decentralized web and that workers will be their own operators and owners? The experience of web2 makes it hardly believable as solopreneurs experience the complexity of doing it all by themselves, and web3 won’t self-organize in a better way. We will need to write down the smart contracts on incentives models that will lead web3 users into adopting the most profitable behavior for society at scale.
Using Smith’s grid of analysis of the agricultural economy with the worker, the operator (farmer), and the owner, we can consider three categories of people who would benefit differently from the virtual land economy:
- The workers are the developers, artists, and designers that will be paid to create virtual goods and services for the metaverse users, including creating a house or a shop, designing clothing and other personalizable features on avatars, and broadly all that can be engaged in making the user’s virtual experience in a metaverse. They will eventually pay owners to access hardware and software which can be considered their working tools. They will sell their work to operators capable to spread it to a mass audience of metaverse customers. Some will be the owners of their own shops like craftworkers in the real world and benefit from word-of-mouth communication in niche markets, but most will delegate their sales to dedicated intermediaries and focus on their creative activities. They will maybe rent a virtual showroom, or participate in popup markets, but won’t have time to spend in a constant virtual presence online and instead sell their work B2B to operators.
- The operators are the companies and business owners who will invest in an online presence in the virtual world. This means renting but most probably buying virtual lands on which to build houses and shops to advertise goods and services they’ll be selling to metaverse users. On the one hand, they will pay workers to design and create new products for them, on the other hand, they will pay the metaverse owners to provide them with virtual worlds in which to make a profit out of sales. As the price for a virtual pair of shoes, or house or cafe terrasse designed by a worker will soon become quite stable and predictable, the operators will frame their profits, thus investment capacity, depending on the negotiation with metaverse providers.
- The owners in this context are the infrastructure providers investing in servers, wires, hardware, and software, hosting virtual worlds for users, workers, and operators to access it. They will be the landlords of these new worlds, investing big amounts of money before selling fractions of investments or licensing access to it. Their income will depend on customer engagement at first pace and the fame attached to the newness of a metaverse experience, and later on the rarity of the virtual worlds. In a competitive context, when the market will be matured, their income will depend on their capacity to attract customers, through a user-friendly design, a powerful computation allowing fluent navigation, and the quality of the virtual experiences available in their metaverses. The main difference with natural land is that the virtual ones could potentially be grown on-demand infinitely. This would theoretically result in constant competition between game changers, however, we’ve seen with the GAFAM in web2, that once the development phase is done, there are no more ways for new competitors to challenge the settled ones. That’s where the monopolies come from.
As much as we don’t want to reproduce the same monopolistic ownership of web2 in web3, there are some unavoidable costs and lengths of return on investments that aren’t affordable by anyone. Splitting the property into multiple small owners is a possibility, but we have no idea if a massive amount of people want to play an owner's role in the metaverse. Neither that future owners will be able to collectively organize and make good decisions for their metaverses not to collapse. Suppose DAOs of users would be the most ethical way to own metaverses instead of big companies, this brings to the table all the problems like governance rules, user engagement, traction, etc.
Distributed ownership at the core
One of the main reasons to decentralize land ownership in future metaverses is to avoid building a web3 economy that would depend on monopolistic actors like the web2 one. Malthus published an essay on land revenues in 1815 in which he considers the annual income of the owners at the core of its theory. This will dominate the political economy of Great Britain in the early 19th century when the legal framework for land revenues radically dissociates the rights of ownership and the rights of exploitation.
- The owners are “freeholders”. They benefit from a persistent right of ownership of the lands, transferred from one generation to another. They never intervene in land exploitation.
- The operators (farmers in the agricultural economy) are “leaseholders”. They own the exploitation, thus the rights of land use. For three generations or more, they can transfer these rights to their descendants. This strong security conceded to operators encourage investments in productive infrastructures.
- The tenants are simple users with an ordinary short-term rental title.
This organizational framework can be seen as a system of grants on lands, which had many benefits in Great Britain in the 19th century. It avoided a social revolution like the French had in 1789 resulting in a progressive dismantling of land properties and a random distribution of it. It resulted in three clearly distinct social classes each of them having its own role to play in the economy. It eased the investments in productive assets and stimulated the theorists to bring an in-depth analysis of land revenues.
Whatever the repartition rate between workers and operators, no matter if the owners perceive an income or not, the valuation of land revenues is directly set on its productive capacity, and the owner’s income is defined as the remainder after all the salaries and exploitation charges, including the revenues from the capital engaged, have been paid. In an agricultural economy, the valuation of land was made on the ground fertility, in a metaverse economy, virtual lands would be valued to their capacity to sell virtual goods and experiences to customers. Suppose a land in capacity to produce a quantity of agricultural product exceeding by 1, 2, 3, 4, or 5 the minimum production able to pay the worker's salary and the operator’s capital invested, the power of this land to generate an owner’s income will be of 1, 2, 3, 4, or 5. This will directly influence the price of land ownership. In an agricultural economy, no monopoly, no increase or decrease in demand for ownership could significantly change this relative power attached to the land by nature, and the value of land is regulated by its productive power. While the productive power of land is attached randomly by nature, Malthus lists four factors able to increase the owner’s income:
- the accumulation of capital resulting in operators having to cut their profits down to challenge the excess of competitors,
- the growth of population and a shortcut of workers’ salaries due to the need for work,
- the improvement of productive yield through better engineering or value extraction technology,
- the increase in the prices of the products.
The positive side attached to a great owner’s income is that the more one owner makes money, the more one can develop the production, increase the yield, accumulate capital, and conquer new markets to bring more jobs to workers and opportunities for operators. That’s the positive side of monopolies: a single owner or a coalition of owners can artificially control the price of goods on the market in order to self-support its income.
In a metaverse, the power of the land to produce income won’t come from the natural ground fertility but from the retailing capacity to sell exclusive goods and experiences to users. This will highly depend on workers' creation and the operators’ design of good quality to match the market demand at all times. The capacity of an owner to control its income will come from regular updates on the computation technology to allow the best streaming to more users or the exclusive astonishing content that will generate more expenses from customers. A coalition of owners seems counter-intuitive in a global user-owned economy but would make sense within a members club, that’s already a popular community-owned model for the metaverse. Like there are real-world condominiums with different levels of affordability and services attached, members' clubs will master their prices and levels of services to the buying power of their community of owners.
2. Land value depends on location
The land value depends on a capacity to generate revenues, which in the physical world was closely related to a location in space. Indeed valuing lands means answering the following three questions:
- How to define the position of some land in space?
- How to calculate the relationship between revenues and land location?
- How to calculate the relationship between revenues and activities’ location?
The two first questions are directly linked to a positional annuity. The third one isn’t directly linked to it, but will be interpreted through it, to give sense to micro-space economies such as urban or suburban areas, where the nature of activities is directly influenced toward its potential revenues.
Von Thünen (1783–1850) is famous for having created the spatial economy, considering the location in space of demands and offers. Later economists like Marshall (1842–1924) and Alonso (1933–1999) evolved this concept such as the position can be analyzed through three main aspects:
- the relationship between land revenues and the cost of transportation.
- the relationship between land revenues and the competition for land use.
- the relationship between land revenues and the economical environment.
Land revenues and transportation costs
Von Thunen stated in 1826 that the land value was depending on its position in relation to the marketplace, usually at the center of traditional cities. The distance between the land and the marketplace influences transportation costs and access to trading opportunities, which explains the land revenue through its position in space. The more the land is close to the marketplace, the best revenues, though the higher value. The best-located lands collect an excess of revenues which is equal to the saving on transportation. The counterparty of this perspective is that the distance to the marketplace fixes the price of goods, which needs to be high enough to cover the transportation costs on top of the production costs. When there are multiple marketplaces in an urban area, the value of land is balanced towards its distance to all accessible marketplaces. Accordingly, Von Thunen defines the owner’s income as the excess of revenue collected by central lands compared to peripheral ones. This definition assumes that:
- the price of goods is the same for all, thus one land value is based on the difference in revenues compared to another land.
- the analysis of revenues considers the total value of the production.
- revenues are calculated from the remainder after payment of production and transportation costs.
- the owner and the operator are separated, and the owner’s income is the annual rent of the land, while the operator is the one paying the rent and the transportation costs.
In Von Thunen’s perspective, the owner’s benefit is opposed to the benefit of all the others. Population growth will increase the price of goods due to an augmentation in demand, and the increase in the number of lands to cultivate to feed the people will increase the transportation costs of production. In such a scenario, the land owner is the only beneficiary while the population of consumers, the worker, and the operator have to support higher prices due to higher transportation costs.
Do physical location and related constraints like transportation costs would make sense in a virtual world where the users could theoretically teleport their avatars on demand? At first sight, NO: the value of a virtual land has nothing to do with transportation costs, thus the location is space neither. But looking at the recent news in the short metaverse history, it seems like there are at least two spatial phenomena to take into consideration to value a virtual land: the proximity of the land to a famous neighbor (like Snoop Dogg) or some shops (all luxury brands in the commercial plaza), or popular space (party venues for example). One breaking news last year was someone spending almost $500.000 to be the neighbor of Snoop Dogg on the metaverse. If we look at the selling prices on a map of the Decentraland, it’s very interesting to notice that the cheapest and the most expansive plots of land are facing the same segregation as physical cities while they don’t merge with each other but tend to aggregate by categories of prices. Another spatial phenomenon influencing land prices in a metaverse is the proximity with some landscape features such as a lake or a park, which would make your house more pleasant, or the proximity to some virtual infrastructure like a road (for a car seller for example)… actually all that’s applicable to physical real estate prices seems valid in virtual cities. If this tendency remains in the future, we can already predict that the virtual worlds will reproduce the same spatial oppositions of the physical world: urban VS suburban, cities VS countryside, wealthy areas VS poor areas, and developed metaverses VS developing ones.
Land revenues and the competition for land use
The competition for land use is intertwined with land rarity. As much as lands with similar attributes are available, there is no competition to use them. As soon as some combination of land attributes becomes rare to find, particularly the location in space, it results in competition between operators to use it. While the owners look for maximization of their income, the land users compete against each other to get the use of the most profitable land.
This theory proposed by Alonso assumes that all activities are attracted by the city center. The land is considered an economic good that’s attractive because of its use potential. It’s demanded by users and offered by owners. Alonso considers more user profiles than the traditional ones seen before:
- a household willing to locate in an urban area with the best potential use,
- an industrial looking for the maximum profit,
- a farmer looking for the most revenue.
Thus localization from the city center isn’t the only criterion to make a choice of settlement: the price of the land, the size of the land, the profit level for the industrial, the convenience for the household, and the price of agricultural goods for the farmer. Indeed, when a household arrives in town, it asks: “What size to rent, at which price, and at which distance from the city center?” Alonso considers that the city center is where the household can find goods, services, and a job. Thus the trick for the owner is to find the best combination of these three criteria which maximizes the global convenience of the land considering the budget constraint of the household. The industrial’s profit depends on the distance to the central market where to find customers and the size of land needed for optimized production. The farmer has the same simplified model where the revenues depend on transportation costs. The use of the land will depend on which user can offer the best income to the owner. At the city scale, some areas will be more convenient for one or another user, and all of them will find their location. By extension, we can consider that the urban landscape is drawn based on the owner's income and the negotiation of the price offered by potential users. The land revenue becomes the price of the land plus the overbid that can afford one or another challenger in land use. This is the genesis of speculation on real estate and inflation in prices. Alonso concludes that the positional annuity isn’t depending on transportation costs but on the price that a challenger can afford to get the use of the land.
Considering the blooming state of the metaverse real estate, and its theoretical unlimitedness, the rarity of land isn’t a matter of concern right now. However, the segregation by virtual land prices observed on the map of Decentraland allows the assumption that the landscape of virtual cities will be determined by the buying power of future users. Depending on the underlying business models for this or that use of metaverse real estate, some locations in the city will be more convenient than others, and because “crowds attract crowds” we might observe the formation of clusters by types of use quite early in the settlement of virtual cities. With time, virtual spaces in a metaverse will generate more or fewer revenues according to their level of development. The more owners and operators will invest money in creating beautiful landscapes with creative features, the more it will attract wealthy customers.
Land revenues and the economical environment
Marshall proposes another definition of land location that is not only the distance from a central point in the city but rather a balance between the spatial features in an economical environment. He adds consistency to the relationships between land income, positional annuity, revenue, and profit, by considering an uninterrupted continuum including the natural properties of the land, the technical improvement of value extraction, and the excess profit made by capital investment. To understand Marshall’s analysis of land revenues, it’s necessary to bring a temporal perspective and consider different lengths of terms: short, medium, and long terms, but also continuity and discontinuity between periods of time.
According to Marshall, time explains space and land value. Land revenues are linked to the temporalities of :
- the natural properties which are very long-term,
- the external economies influenced by the environment which can change in the long term,
- the added revenues due to an improvement of value extraction technics in the middle term,
- the profit in the short term.
Suppose all revenues come from an excess of production. In that case, all excess of production can be considered revenues from middle and long-term factors of influence, uncontrollable by humans. Most land revenues are composed of annuities lied on external factors and a better adaptation between the offer and the demand. This means that the price of a product and the quantities to produce are depending on the offer and the demand. The price covers the production costs and the product loss, and all other factors increasing revenues are the result, instead of the cause, of the price of sale. In short, land revenues aren’t isolated but depend on wider environmental economics. In particular, land revenues depend on the global progress of society. And the localization in space determines whether or not a company can benefit from external economies, without having to necessarily spend investments to make an excess profit out of it.
The profitability of surrounding factors increasing land revenues explains urban densities and the difference between cities and the countryside. The first is similar to the latter at a higher intensity level. Marshall is even going further by proving that only the lower floors of a building are paying rent, while the upper floors are adding profit to the operator when the income of the landowner is already covered. In the interest of the owners, Marshall proposes to limit the building height, such as an operator willing to increase the size of its production will have to occupy a larger size of land and pay a bigger rent instead of adding floors to its building.
We can imagine that some virtual cities will become more attractive due to their level of development, their population creativity, or their capacity to bring the most astonishing experiences to users. By analogy with Marshal’s theory, the income collected by an owner in such a metaverse can’t be isolated in an individual effort but instead needs to be considered as a global environmental context. On another note, I haven’t heard about regulation in the use of space in a metaverse, but I can assume that there must be some limitation of building height or at least a proportion between the height and the land surface for simple aesthetic reasons. Probably a land owner will be restricted to a certain amount of users, to avoid someone collecting all the streaming power that would lack others. I can also imagine a nasty owner willing to benefit from larger spaces with a smaller rent which would hook up users from one metaverse to another, to bring them to a bigger showroom in a virtual world of cheaper rent, from a small storefront in the most expansive universe. This is probably too early for having this kind of trick but I am assuming that this will come to the discussion at some point.
3. The specificities of urban areas.
The consideration of the economical environment in the valuation of lands has been pursued by the neo-classic authors of the 20th century, who will definitely think of land values in terms of global economic balance. For them, all goods and services traded on the markets are generating prices that tend to a stable equilibrium, due first to the competition between producers and their interdependencies, second to an optimal allocation of production factors. Thus land revenues are simplified to a price of rent useful to the production, and temporary excess of income for an owner will rapidly be wiped out by the competition. In urban areas, customers are spread across space and their moves are limited. The land revenues will depend on the use that’s being made depending on the needs of the population. Different use has been studied by different authors:
- Land revenues depend on the retailing capacity
- Land revenues from the housing production
- Land revenues are being disintegrated
Land revenues depend on the retailing capacity
Edward Chamberlin (1899 — 1967) was one of the first to question the hypotheses of full competition between economic agents. He analyzed in particular the phenomenon of increasing differentiation between products to explain how commercial urban land revenues can be assimilated into monopolies. He does not consider housing nor industrial use in his theory but differentiates revenues of retail products from agricultural products. According to Chamberlin, all land can equally generate the same maximum revenue since there is no natural fertility of the soil engaged. Consequently, there is no rarity of the “best” lands for purely commercial businesses. While the agricultural land gives more or fewer revenues if it is closer or farther from the selling market, the urban land hosts its own market on itself, and its revenue depends on its size and nature. An urban land revenue will scale up or down according to the land’s retailing capacity, and the convenience of the retail store results in a differentiation of the product within space. Because the buyers can’t move freely, each product in a specific location will be adapted to this specific group of customers. And because the seller of each location has a uniquely personified product to match the expectations of a specific group of customers, it is considered a monopoly on this specific product. Consequently, the operator will pay full price to the owner for not being replaced by one competitor luring the same monopoly position.
The usual analysis of land revenues can’t be applied in a city because no one pays land to reduce transportation costs, but instead to afford a certain volume of sales. The retailing capacity is the metric to value the revenue coming from the monopoly to sell specific goods in a specific location. The unequal distribution of densities in urban spaces is adding more variation in the retailing potential of some land, which depends on the number of potential buyers in the neighborhood. The nature of the crowd will also influence the profitability of land, as retail prices and the nature of products will be adjusted to their buying power and wealth. In all locations, the land will tend to be used to its maximal retailing capacity.
In a physical world, sellers and buyers are spread across space, and what makes the more profitable areas are their capacity to sell bigger volumes of products. Accordingly, urban densities influence the value of the land. In a metaverse, the computation power will influence the capacity to host more or fewer users at the same time. Suppose a popular music band giving a virtual show in a metaverse. Too many users live streaming the show would crash the servers. To maintain the best experience for the users, virtual venues will be limited to a maximum number of customers at the same time. Same for a specific sale like a black Friday in the virtual store of a popular brand. An overcrowded space could result in conflicts between users and a decrease in the experience quality. Therefore there are limitations in the retailing capacity of virtual lands. If metaverse buyers are supposed to move freely from one virtual space to another, unlike in the physical world, the member’s clubs are secluded spaces reserved for some privileged members. It is a perfect use case for a virtual monopoly, which will have the opportunity to differentiate its products to its specific profiles of users, and would have the advantage of controlling the attendance to virtual shows more easily. But the practice is showing that user experience still needs to be addressed. For example, we’ve heard six months ago that the land sales of the Bored Ape Yacht Club were such a mess with all buyers waiting in queue to record their land purchase on the blockchain that it resulted in many crashes and an increase of 25% of prices due to gas fees.
Land revenues from the housing production
Alain Lipietz (1947 — ) studied land revenues as a political fact instead of an economic one. In his thesis published in 1974, he considers land value as a price drawn by land ownership in the process of a capitalistic production of housing units. To support this perspective, he drops the idea of a yearly annuity in exchange for any technic or economic attributes but instead defines land prices as exclusively social and dependent on the capitalistic model of production. In his theory, the space is modeled by dominant classes, which need to allocate the workers and the productive infrastructure, including agricultural production, here and there. This supposedly result in segregated spaces: wealthy residential areas on one side and proletarian housing on another side. Factories, offices, houses, landlords, engineers, and workers, will be attributed their spaces in the urban area, which will at the same time order the distribution of land revenues to the social class of the owners. The boundaries of each space are set by a combination of physical infrastructures (roads, buildings…) and administrative rules. As a result, all cities tend to be organized similarly: department stores and offices in the center, industrial facilities in the surrounding of it, and housing units are moved from the center to the peripheral due to the development of cars. In short, urban spaces are classified accordingly to the most convenient use for the capital, and this tendency is seen as increased in new cities or new politics of urban planning applied to older cities. For each land, Lipietz raises the question “which capitalist activity needs it?”. He answers: in the countryside the agriculture, in the urban areas, the production of houses and buildings. The activities developed in the buildings will depend on the importance of their location, and the only priority overpassing the need for housing units is the one for special tertiary and commercial use.
Lipietz establishes a clear difference between agricultural and urban lands since the first generate yearly revenues in the long term while the second generates a single sale once in decades. Thus the latter can’t be considered an income but a final transaction, whose price reveals the relationship between the land owner, and the operator (the real estate developer). The price of the land transacted from the operator to the owner is a share of the future profit against the right to dispose of the land. This is not considered a regular buy and sell, but the price for a privilege that the operator affords in the speculation on future profit. The author goes to the conclusion that the value of land does not exist until it is sought by the real estate developer as a means to its ends, driven by the capitalistic migration of populations looking for a housing solution in urban areas, nearby commercial or industrial facilities providing them a job.
All virtual lands in a metaverse would be urban by nature, I don’t see any reason to create virtual rural lands as goods will be created virtually from scratch. The perspective of urban land revenues depending on the housing production in capitalistic societies justifies the creation of taxation on the added value that we will discuss in the later paragraph. If art NFTs have registered huge benefits for an owner at the resale, I haven’t read anything yet about the re-sale of virtual lands, but I can assume that as long as new lands would be available on the market, there won’t be crazy overbid for older ones. Except of course when the fame comes in, a popular influencer buying its virtual house would have more chance to get a higher price out of it. Another consideration to get in mind is that decentralized ownership itself would moderate ultra-liberalism and the infinite growth in power of a little few. I can imagine that as metaverse will multiply we’ll observe the emergence of “alternative” ones, proposing a more radical approach of ownership, community-oriented societies, adopting socialist rules on capital distribution.
4. Land Socialization and taxation
Tax on gains in land value
We’re back in time, as Stuart Mill (1806–1873) proposed already in 1848 a taxation on the gains in land value to balance the increase of such revenues. As he says, the only reason why the owners are getting revenues from their land is that it is a need for many to use it and it can’t be done without their consent. But the fundamental principle of property is to give every individual the capacity to own what they produced from their work and to store up accumulated savings. Yet this isn’t the case with such gains in land value. Any revenue that tends to grow constantly without any effort from the owners, could be taxed by the state with respect to the principles of private property. The state would collect some or all of the growth in wealth as if it belonged to no one, in order to redistribute to society the gains in value that result from society progress. Because landowners might have paid a price to earn some land in the prediction that it won’t be taxed in the future, retroactive rules wouldn’t be fair. But what’s the hurt if the state decides that all further land ownership will be applied taxation on the added value at the re-sale? This could even be stated for current ownership: an evaluation of all lands of the country will be made on time T and the sale of any land will see gains on value at times T+1 or T+2 taxed. Taxation on gains in value could even be fair to owners since the state will assure them that the current value of their properties won’t be taxed in the future. In short Stuart Mill defines taxation on added land revenues not much like a tax but more like a debit of what has never been owned by anyone. When the owner invests some capital to increase land production, it will generate added profits that aren’t subject to taxation. The contrary would result in owners stopping their investing in property improvement and have a negative effect on society. The author is also opposed to the nationalization of lands. Stuart Mill worries that giving the monopoly of land ownership to the state would result in public servants setting up the price of rent arbitrarily and have negative effects on society at scale.
The combination of land taxation and the opposition to land nationalization is interesting for the matter of metaverse from various angles. As we said previously one of the major aims of web3 is to avoid the failure of web2 in terms of decentralization. While a few private companies own the most of nowadays infrastructure of the internet, many see them as the mega states of our times. While Facebook announced in 2021 to invest a massive amount of money in its metaverse, most public opinions consider it bad news more than a good one. In fact, too many individuals, businesses, and public services are nowadays either depending on or facing a negative impact of the social media platform which gained so much influence on our societies in such a short period of time. What about other metaverses creating virtual worlds for consumers? Is Decentraland so decentralized as it suggests? When some private company creates some good, it deserves the profit on capital investment, but these companies are playing a different role by having a monopoly on almost all available virtual lands available on the market. Buying some land on their metaverse is doable at a price mix of buyers’ bids and arbitrarily fixed value. To some extent, they could be seen as the states that Stuart Mill was opposed to. When they earn money from their work, no one will ever question it, but when they make increased benefits from the status quo of the unique owner of a trendy product, some might want to tax them in a special way. Again it’s quite early to have clear feedback on what’s happening in this blooming virtual ecosystem but it’s good to have in mind when you’ll buy some land in a metaverse that you might be taxed sometimes at the re-sale. So all investors and potential whales, don’t speculate too much on further benefits.
Decentralizing land ownership?
The socialization of lands is another solution to the bad sides of centralized ownership that is different but not incompatible with taxation. It consists in sharing land ownership across the population. As for Philippe Lamour (1903–1992), the definition of ownership should consider not only the right to own but also the social function exerted by ownership. Edgard Pisani (1918 — 2016) brings up other arguments: in terms of environmental sustainability, humans need a relationship with the land they live on, and this relationship can be threatened by predatory owners. On another note, the lucrativeness of land ownership redirects the savings of the people into sleeping speculative assets instead of investing in productive infrastructure. Pisani proposed in his book “Land utopia” published in 1977 a global decentralized ledger on land ownership. (Ed. It sounds pretty close to a blockchain solution, doesn’t it?) The land ledger should list each location, size, description of activities and buildings, and the identity of the owner for all plots of land owned on the national territory. The data on land will be available in two formats: one file per land, and one file per registered owner, listing all its properties. The ledger would support the activities of land registry offices spread across the country, with the mission to collect information on local lands and make it available to any user from any office. The offices will also be in charge of managing public properties, acquiring unoccupied lands, transacting public buys and sales, and stocking lands for further public use. Their activities will be funded by land taxation. The mission of the offices would be to control the centralization of land ownership and redistribute to households the opportunities for becoming an owner. Indeed, house ownership is considered a priority right with social utility serving the common good: no state could expect from its population that it invests its savings in productive assets if it can’t guarantee them the freedom of owning their houses. And that’s why societies should theoretically tend to an inevitable process of growing socialization of lands, following the population growth in metaverses’ demography.
Transparency is the second big promise of web3, and all metaverse that will be backed up by a public blockchain will share land ownership descriptions with all internet users. The result will be pretty close to the global decentralized land ledger theorized by Pisani in 1977, with the main advantage of being feasible in a pervasive computational era. If metaverses drive to the future they are promoted to, more and more people will join and thus share its ownership. The management of the transition of a single centralized owner (the original holder of metaverse lands) to a diversified population of individual owners will depend on the underlying rules written in smart contracts. Before becoming an owner of any virtual land, you should take an attentive look at what’s written in the code, and the white paper, to avoid any surprises after some years. This long-term vision would be a good reason to purchase your virtual property in the one or the other metaverse, and a comparative description of the underlying rules of ownership and rights delegated to owners would be of great value.
