Land price increases reduce capital formation

Consumption out of national income flows is backed by production, but any consumption out of a price increase is dissaving. Consumption out of land price gains is especially problematic: the land was never accumulated, so the dissaving, which reduces capacity for capital formation, is not matched by any earlier investment.

Consumption due to rising land prices is a contributor to the reduction in capital stock per person.

• Buiter: Housing wealth isn’t wealth
• Lowe: National Wealth, Land Values and Monetary Policy