Final answer:
The increase in real estate value due to no effort by the owner is called an unearned increment. It occurs due to external factors like economic growth or nearby community improvements, and it is distinct from active efforts like rehabilitation or hands-on investment strategies.
Step-by-step explanation:
An increase in value of real estate due to no effort on the part of the owner is known as a unearned increment. This term refers to the increase in land value resulting from external factors such as economic growth, societal changes, or community improvements like the construction of parks, libraries, or infrastructure improvements. Unlike skillful manipulation, which implies active engagement by the owner to raise property value, or rehabilitation, where the owner renovates the property to increase its market value, an unearned increment occurs passively. Therefore, the correct answer to the given question is 'unearned increment'.
The concept of rational expectations suggests that real estate prices will adjust immediately based on the anticipation of future events, such as neighborhood improvements. This is because prospective buyers are willing to pay a premium today for the expected future benefits, even if those changes will occur in the future.