The Mutually Reinforcing Dynamic Between Land Ownership and Wealth Inequality

Wealth inequality and housing affordability have become major economic issues in the United States over recent decades. Because homeownership constitutes a major proportion of wealth for many households, market dynamics have substantial impacts on inequality. Much current literature on land’s effect on wealth inequality is contained within broader discussions of capital, overlooking nuances of land, such as its fixed supply and profitability through economic rents.

This paper analyzes the role of housing and land since 1970 in driving wealth inequality in the United States and whether separating land from other forms of capital leads to more effective inequality-reducing policy. Results suggest that concentration of real estate among top wealth percentiles has significantly contributed to wealth inequality, particularly through rising land and housing prices. Land financialization has contributed to real estate prices outpacing the broader economy, increasingly preventing less wealthy households from participating in the housing market. This creates a self-reinforcing cycle in which asset-poor households are forced to rent, reinforcing wealth inequality and their inability to purchase property.

The paper closes by arguing that a land tax more specifically addresses the unique features of land and reduces financial incentives of speculative behavior and land financialization. The paper contributes to the existing literature by providing a framework that analyzes land as a distinct economic asset, separate from capital, given its fixed supply, capacity to generate economic rents, and critical role in housing. This distinction provides a framework for evaluating policies and taxes targeting the real estate market to mitigate rising inequality.