Value Capture Reconsidered: What if L.A. was Actually Building Too Little?
Should cities only allow new housing on the condition that the developers of that housing deliver public benefits in return? This idea is often called “value capture”, and is used to justify — among other things — various forms of inclusionary zoning. I argue in this essay that value capture is conceptually and logically flawed. It rests on the idea that new housing is not by itself a public benefit, and on the assumption that not building housing is socially harmless. Most of all, it inverts one of the most important insights in urban economics and urban public finance: that value rests primarily in land, and that development is an important way to share and redistribute land value. Value capture mechanisms that are triggered by development tacitly punish landowners who share land value, and tacitly reward owners who withhold it. The fair and efficient approach to value capture involves taxing land, not development, and encouraging rather than discouraging the production of new homes. Contemporary value capture, in contrast, provides a veneer of redistribution but serves primarily to protect most urban wealth from redistribution.