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for a stated period of time has enormous value. There is a very active market for leases giving the
right to use specific plots of land for specific periods of time (99 years). If the land is said to have
no value, the lease that determines who gets to use and improve it certainly does have value. The
confusion is not whether God-given land has a price, but rather that the infrastructure built by
governments, and the decisions whereby people decide where to live, or to build stores and factories,
are what give value to location. And a desirable location will invariably have value, both from natural,
God-given attributes such as climate, and from factors that stem from human actions, such as building
cities, roads, and ports.
The study proposes that ground rent for agricultural land should be based on the potential
annual economic output per hectare of land which is managed in an optimum manner. The leaseholder
should pay a fair portion of the expected gross margins as a yearly ground rent to the state; it goes
on to suggest that 20 percent would be that fair portion (Hammar 1990, p. 7).
It would appear from the study that the state ought to act like a normal landlord, charging
something similar to (though a bit lower than) the going market rental prices for rural land. Around
the world, agricultural land in settled farming areas tends to rent for somewhere between a third and
a half of the gross value of output. However, out of that the landlord often pays part—sometimes as
much as half—of the cost of purchased inputs like fertilizer, seed, and machine services. This is
almost always the case when the rent is stated as half of the harvest, the landlord usually pays half
of the cost of purchased inputs other than labor. On the other hand, when the rent is paid in cash, at
planting time, it tends to be less—often around a third of the normal harvest in the area, and the
landlord seldom helps with buying inputs.
For urban rental properties, the rent charged to occupy a flat tends to be closer to 10 to 20
percent of the capital value of the land and buildings. The urban landlord also has expenses to cover,
but few of them are related to the land under the building; almost all refer to maintenance of the
building, and collection of the rent. Thus, if a separate figure is needed to represent a normal return
on investment in the land under a building, it is customary to estimate first the market value of the
land, and then regard the rent attributable to the land as basically a return on a financial investment
with relatively little risk or cost—perhaps comparable to the return to an insured certificate of deposit
at a major bank.
The financial markets in Zambia are far from perfect, particularly because of recent inflation.
Even government securities have paid returns as high as 100 percent a year in kwacha, but this cannot
be regarded as normal. Adjusted for expected inflation, the real rate of return on capital in safe
investments in other countries tends to be on the order of 4 to 6 percent a year, and this would be a
reasonable standard to apply in Zambia—but with an effective provision so that actual ground rents
would rise from year to year according to the actual rate of inflation.
2. Implementation: urban areas
The Hammar report further suggests that residential stands be charged an economic ground
rent based on the optimum permitted use of the property, which is defined by zoning. It estimates that
the "land value portion" of the total value of the property would be estimated between 10 percent of
the total value of the land plus improvements (for poor quality housing) to 40 percent (for the best
quality housing). After estimating the land value portion, the report suggests that the state, as landlord,
could reasonably charge 5 percent of that amount per year for a normal residential stand.