Real estate has value because of the potential flows of rent that can be obtained. Property taxes fall on both land and improvements. While the taxes on improvements are passed on to the tenant, the taxes on land cannot be, as Adam Smith showed. The rent of land, being a case of a locational monopoly, is always as high as it can be.<p>Thus, taxing land simply reduces the flows of rent that can be kept from controlling a location, and thus reduces the purchase price.<p>This makes it easier for entrepreneurs to acquire land, since the up front costs are lower.