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Surplus Productivity

A principle relating to the net income remaining after all expenses necessary to the operation have been paid and the capital invested in improvements has been satisfied. This remaining net income is imputable to the land and tends to fix the value of the property. As a result, the land is valuable according to the surplus productivity imputable to it.

In the operation of an income producing property, three levels of return are necessary, while the fourth (the land) can command only the residual income with no fixed or necessary rate of return. These four levels are called the factors in production and must be satisfied in order of labour, coordination, capital, and land. Surplus attributable to land largely determines its value and with well-developed real estate, the land should yield a reasonable return, based on its current realistic value.