My understanding from the episode is that the plan was never for the public lands to grow in value. The private lands were given away or sold as incentives, and the owners could choose to capitalize off them immediately (e.g. as soon as the railroad reached nearby) or hold onto them for profit.

I wonder if they really have all that much value now. Barring any particularly lucrative natural resources, if one publically owned square is surrounded by private owners, who have the right to restrict travel, then that kind of heavily limits the market, doesn't it? And by that, presumably the price is limited as well.