This section is largely based on an article in the out-of-copyright Encyclopædia Britannica Eleventh Edition, which was produced in 1911. (January 2011)
In real estate, betterment (making better) is the increased value given to real property by causes for which a tenant or the public, but not the owner, is responsible; it is thus of the nature of unearned increment. When, for instance, some public improvement results in raising the value of a piece of private land, and the owner is thereby bettered through no merit of his own, he gains by the betterment, and many economists and politicians have sought to arrange, by taxation or otherwise, that the increased value shall come into the pocket of the public rather than into the owner's. A betterment tax would be assessed in order to divert from the owner of the property the profit thus accruing unearned to him. The whole problem is one of the incidence of taxation and the question of land values, and various applications of the principle of betterment have been tried in the United States and in England, raising considerable controversy from time to time.
Germany managed to prevent a real-estate bubble when all others have experienced it thanks to its 10 years at length and 50% at valuation real-estate betterment tax: the German Betterment-Tax Law. Speculators are the main driver of real-estate bubbles. They borrow fiat money from the banks and invest it whenever they think the market can still go up. There's no effective limitation on how much money they can borrow or on how much the banks can lend them. This is a clear example of how prices are detached from actual need for the underlying asset. Speculators typically invest when the market is low, thus holding down the speculators for the entire duration of the economic cycle, of at typically 10 years, forces them to pay interest on that money throughout that period and further during the following up-cycle i.e. at least 15 years altogether. This impediment keeps the real-estate market stable at affordable prices.