In real estate, betterment is the increased value of real property from causes other than investment made by the property owner. It is, therefore, usually referred to as unearned increment or windfall gain. When, for instance, a property is rezoned for higher-value uses, or nearby public improvements raise the value of a piece of private land, a property owner is "bettered" due to the actions of others. Because of this, capturing the value of betterment for the public through taxation or other means is a common policy approach. Betterment in terms of property rights and the residual value model Property rights and residual value A property rights holder has a residual claim to income generated in the space over which they have exclusionary rights (“pay to use this space or I’ll exclude you from it”). But these rights are a limited Bundle of rights. They evolve as the law evolves, including zoning and planning law. The value of private property rights is primarily determined by how much revenue can be generated above costs (excluding property rights costs) on a site at a particular location; that value of property rights value is residual value, just like in other assets like shares in company ownership, which are a claim on residual income. Whichever use of a site generates the largest residual income is its highest and best use. The value of private property rights is affected by market conditions, location-specific features, fixed improvements, and the nature or extent of the property right. Investing in new fixed improvements, like buildings and earthworks, can add to the value of property because they remove a cost to gaining revenue (remember, property value is revenue minus costs needed to earn that revenue at that location). Their value becomes “attached” to the property as they cannot be separated physically or legally from the property right to a location. However, the value of private property rights can also increase due to external factors rather than due to investments made by the property rights owners. This is betterment. For example, when the law changes the nature or extent of property rights, such as rezoning to provide additional development rights to property owners, this provides value to the property owner. Where betterment comes from The below image shows how betterment arises conceptually, and also how a tax on betterment transfers this value that would otherwise accrue to private property owners