First houses in Grand Rapids, Mich. Located on river hank.
The dependence of value in land on economic rent is clearly seen in the origin of any city, utility in land arising when the first buildings are erected, but not value in land, as is evidenced by the fact that the first settlers are commonly allowed to build their houses wherever they please and enclose whatever land they need, as occurred in New York and many other cities. As a city grows, more remote and hence inferior locations must be utilized and the difference in desirability between the two grades produces economic rent in locations of the first grade, but not in those of the second. As land of a still more remote and inferior grade comes into use, ground rent is forced still higher in land of the first grade, arises in land of the second grade, but not in the third grade, and so on. Any utility may compete for any location within a city and all land goes to the highest bidder, but owing to the limited suitability of certain areas for certain purposes, some land has but one utility. Whatever competition there is here, will be among those of the same class of utilization. Where, owing to increase or decrease of various utilizations, their area and location change, competition among -different classes of utilization arises. Practically all land within a city earns some economic rent, though it may be small, the final contrast being with the city's rentless and hence, strictly speaking, valueless circumference. The prices at which land on the outskirts of a city is held may represent either the cost of platting and opening streets, or more frequently the discounting of future hopes, the chief factor lowering values being the extent of competing land due to the fact that area increases as the square of the distance from any given point.
Ft. Wayne, 1794. Site chosen at intersection of small rivers (also of Indian trails).
An apparent exception to the law of no value in the site when a city starts, occurs where a city is speculatively undertaken and the lots sell at high prices in advance of utility. The difference between price and value is usually demonstrated before many years, the invariable reaction carrying the prices of lots as far below their value as they were formerly above it. Thus lots in Columbus, Ohio, which sold in 1812 at $200 to $300. sold in 1820 at $7 to $20, and more recently there are the collapses in the early history of the speculatively started towns of West Superior, Wis., Tacoma, Wash., Wichita., Kan., and Sioux City, Ia. The attempt to force economic rent into city land seems to be uniformly unsuccessful, history showing that cities grow and are not made, and that human beings cannot be uprooted and moved in large numbers and immediately adjust themselves to the different opportunities of a new environment.
Why are ground rents paid for some locations and not for others? In general terms the difference in desirability is based on the social service which they render, or conversely, the sacrifice which they save. The land which is most convenient is first utilized, and that which is less convenient is made of service in accordance with its diminishing facilities. Since convenience means economy in time and effort, the value in any piece of land will represent the cost saved or the pleasure obtained by its use, as compared with the use of land worth nothing, multiplied by the number and economic quality of the people for whom the saving is made. Thus the value of all urban land ranges from that which least serves the smallest number of people of the lowest economic quality, up to that which best serves the largest number of people of the highest economic quality.