Despite the growing popularity of urban agriculture, many city farms continue to face the challenge of insecure land tenure and overly restrictive public policies. Some researchers and policy makers have identified the need for an updated framework for the movement that would support urban farmers as they navigate land use, zoning, and property tax regulations. Community land trusts (CLTs) are contributing to this structure, providing a locally controlled approach to land use that fosters community activism and engagement while responding to evolving market conditions and neighborhood needs.

The State of Urban Agriculture

“Urban agriculture” refers to both commercial and noncommercial activities, within or near a city center, that produce food and non-food items to serve an urban area (Mougeot 2000). While city farms and community gardens are often the public face of urban agriculture, small-scale backyard growing spaces and edible landscapes also yield a significant portion of production.

Urban agriculture has afforded communities diverse environmental, economic, and social benefits, including improved nutrition, heightened food security, ecological restoration, the creation of open spaces, and opportunities for education and job skills training (Bellows, Brown, and Smit 2004; Kaufman and Bailkey 2000; Smit, Ratta, and Nasr 1996). City farming also has the unique ability to bring together diverse populations, build social capital, and promote empowerment through community building (Staeheli et al. 2002). In legacy cities—older industrial centers that have suffered from sustained job and population losses and ensuing financial, social, and political changes—urban agriculture has been extensively used as both an interim and a permanent development tool to strengthen social cohesion and catalyze progress in disinvested neighborhoods. The process of repurposing vacant and abandoned lots into growing spaces can be a relatively quick and inexpensive strategy that yields highly visible impacts and improves public safety.

Given these wide-ranging benefits, urban agriculture has enjoyed a renaissance as a social movement. In recent years, some cities and local governments have updated public policies to make them more supportive of urban agricultural practices. The movement is not without its challenges, however, including environmental safety concerns and insecure land tenure (Brown et al. 2002). Land insecurity in particular is frequently cited as the greatest barrier to the implementation and sustainability of city farming (Lawson 2004; Yuen 2012). A 1998 national survey of more than 6,000 urban agriculture sites found that 99.9 percent of gardeners saw land tenure as both a challenge and a vital element to the future success of the movement (ACGA 1998).

In these instances, land insecurity occurs when the cost of market-rate land exceeds the income generated from agricultural activities. Ultimately, the hidden hand of the market presses for the allocation of land according to its highest and best use. Due to this dominant conceptualization, planners and policy makers have historically viewed urban agriculture as an interim measure to keep a site active until higher and better uses can be developed. Scholars note, however, that urban agriculture sites can produce many positive spillover effects related to public health and community wellness, and these benefits are difficult to monetize (Schmelzkopf 1995). Traditional exchange valuations of land rarely reflect a community garden’s contributions to healthy food education and the physical wellness of residents. This disconnect between social worth and market values has been the impetus for both public and private interventions.

Local governments typically respond by purchasing tracts of urban agricultural land, effectively insulating them from speculative market forces while also holding them off the tax rolls. While this public sector approach has been critical, it sometimes fails to provide long-term security, especially when administrative changes in local governments lead to shifts in priorities and strategies, as when New York Mayor Rudy Giuliani proposed to auction off 850 community gardens across the city in 1999. Therefore, researchers have focused on the need for alternative strategies that can complement public sector efforts to support the security of land for urban agriculture.

CLTs as a Framework for Urban Agriculture

A CLT is a nonprofit, community-based corporation with a place-based membership, a democratically elected board, and a charitable commitment to the use and stewardship of land on behalf of the local population. CLTs typically retain permanent ownership of land and lease it to individuals or organizations that own the improvements upon the land, such as residences, commercial buildings, and agricultural or recreational facilities. The CLT model offers a way to retain ownership of land stewarded by and for the community, so that the highest or best use of property can remain community-defined, community-controlled, and adaptable to changing conditions.

Although CLTs have focused on the development and stewardship of affordable housing in recent decades, the movement originated in response to agricultural land issues in rural Georgia during the 1960s. Even earlier agricultural influences included the kibbutzim in Israel, the Gramdan villages in India, and the Garden Cities of Ebenezer Howard (Davis 2010). The strength of the CLT model lies in its ability to balance local land control and long-term, stewarded development that addresses changing community needs. Thus, CLTs are well positioned to tackle a diversity of land uses through comprehensive development strategies. Legacy cities may be especially ripe for CLT engagement, as the widespread availability of vacant land has spawned a flourishing urban agriculture movement, but with less emphasis on long-term land security.

Our research found that CLTs have supported urban agriculture projects in three distinct ways: by securing access to agricultural land, providing programmatic support, and engaging directly in food production.

Box 1: 2012 Survey of U.S. CLTs

In the fall of 2012, the National Community Land Trust Network (NCLTN), in partnership with the Lincoln Institute of Land Policy, commissioned a study of urban agricultural and commercial projects conducted by U.S. CLTs (Rosenberg and Yuen 2012). The inquiry examined the role of CLTs in implementing nonresidential projects and assessed the benefits and challenges of such ventures. Researchers distributed a web-based survey to the 224 organizations in the NCLTN database; 56 CLTs (25 percent) completed the questionnaire, and 37 CLTs reported agriculture activities. Twelve CLTs were selected for in-depth data collection, which captured a diversity of projects with varying levels of success in different locations. A case study approach was used for data collection, which included gathering organizational documents and secondary sources as well as interviewing CLT staff. The final working paper is supported by an additional project directory resource that highlights the projects and organizations in the study (Yuen and Rosenberg 2012).

This article draws on that research to examine the benefits, challenges, and considerations for urban agriculture activities by CLTs. It also explores how such interventions can support comprehensive community development efforts, particularly in legacy cities.

Securing Access to Agricultural Land

The core competencies of CLTs best lend themselves to the task of securing growing space. A central mission of CLTs is to secure land for community development opportunities. To carry out this role, CLTs have utilized diverse tenure arrangements, including fee-simple ownership, ground leases, easements, and deed restrictions (table 1). These arrangements are not mutually exclusive; organizations can employ multiple techniques to secure land both within and across agricultural projects.

Fee-Simple Ownership

Fee-simple ownership allows a CLT to hold the greatest number of sticks in the bundle of ownership rights and provides a high level of land security, as long as it meets all mortgage payments and tax obligations. For example, Dudley Neighbors Incorporated (DNI), a CLT in Roxbury, Massachusetts, redeveloped the contaminated site of a former auto garage into the 10,000-square-foot Dudley Greenhouse, which functions both as a commercial farm and a community growing space. DNI secured the land through fee-simple ownership and leases the greenhouse structure at a nominal charge to a food-based nonprofit that handles all agricultural programming and maintenance. Harry Smith, Director of Sustainability and Economic Development at DNI, notes, “Growing food is a whole different thing, and we are not looking to take that role.”

Ground Leases

While fee-simple ownership is an uncomplicated, highly secure tool, it is often prohibitively expensive for CLTs to purchase urban land outright for food production. Given this challenge, some CLTs have utilized ground leases to secure growing land. The Southside CLT (SCLT), for instance, has a 10-year ground lease with the State of Rhode Island on a 20-acre farm in Cranston. In turn, the Southside CLT manages the farm as the master tenant and subleases plots to seven start-up farmers at nominal rates. The affordability and security of the ground lease creates opportunities for young farmers to incubate new businesses and participate in the local food system. A strong ground lease, with rigorous standards for performance and conditions for renewal, can provide comparable or greater security than fee-simple ownership. However, longer-term ground leases can be challenging to draft and implement, especially when the title-holding entity desires long-term flexibility.

Conservation Easements

CLTs have also secured access to land through conservation easements, or voluntary restrictions that permanently limit the uses of the land. Most commonly, the CLT holds an easement donated by a private owner. The private owner retains title and can even sell the grounds to another party without compromising land security, as the conservation easement ensures long-term access to the agricultural space. Easements can also reduce the management burden on the titleholder, as the recipient of the easement often provides land stewardship services as part of the exchange. This strategy can financially benefit titleholders, who receive local and federal tax benefits for donating conservation easements. While easements can effectively sustain access to growing space, the relatively high legal cost may be expensive, especially for smaller tracts.

Deed Restrictions

Deed restrictions can effectively place limitations on the uses of land and are often tied to specific funding sources. While a deed restriction can ensure that land is reserved for a specific use, it does not necessarily offer secure tenure for a specific grower or farmer. Further, deed restrictions are effective only when all parties and external agents choose to enforce the contract. Each tenure arrangement has relative strengths and weaknesses and is best utilized when tailored to a project-specific context. In Wisconsin, for instance, the Madison Area CLT was required to grant a deed restriction to the City of Madison as a condition for funding the Troy Gardens mixed-use development site. A deed restriction was placed over a portion of the site, limiting uses to agricultural and conservation projects. The CLT’s failure to abide by the terms of the deed restriction, however, would trigger immediate repayment of all subsidy funds provided by the city.

Programmatic Support

As the task of securing agricultural land can be very challenging, it may not be a suitable undertaking for every organization or community. Some CLTs have supported urban agricultural efforts through other means, such as program management, technical assistance, and other agricultural services. In Georgia, for example, the Athens Land Trust is a dual-mission housing and open space land trust that has engaged in urban agriculture exclusively through program assistance. Athens Land Trust chose to take on this role because of the high holding costs associated with property taxation policies in Georgia, which assesses CLT land at the unrestricted market value. The Athens Land Trust partners with public- and private-sector landowners to provide support for local agricultural projects. For instance, the Athens Land Trust staff worked with the Hill Chapel Baptist Church congregation to design a community garden on church-owned land and provided support services, such as testing and tilling of the soil, organizing workdays, and providing plant materials and instructional gardening workshops.

Agricultural Production

Finally, some CLTs have participated in agricultural production, directly and actively farming land. For example, the Southside CLT operates a three-quarter-acre commercial farm in Providence, Rhode Island, growing greens and selling produce directly to local restaurants. Many CLTs support agricultural production indirectly as well, by providing residential properties where the residents themselves grow food in backyard gardens. Hence, many CLTs have unknowingly supported urban agriculture for years, simply by offering affordable and secure access to tillable land in cities. Some groups, such as DNI, specifically design larger home ownership lots to enable opportunities for backyard urban gardening. Harry Smith of DNI explained, “As we did our community planning, people were very clear that they wanted to see open spaces and attention paid to the residents’ quality of life. We are trying to build [agriculture] into the housing itself.” In this way, the scope of CLT agricultural production can also include innovative design features, such as edible landscapes, food forests, and other permaculture concepts that are intentionally and systematically incorporated into a development plan.

Benefits of CLT-Supported Urban Agriculture

Ultimately, the study found mutual benefits between urban agriculture and CLTs. City farms enhance the value of CLTs by helping organizations expand their development vision to include a more comprehensive set of neighborhood needs and priorities. All communities have a variety of needs beyond affordable housing, and agricultural projects can create linkages to other key issues, including food security, health education, vacant land remediation, and neighborhood safety. Agricultural projects can even be seen as neighborhood amenities, potentially increasing demand for nearby CLT properties or residences in the conventional market. For example, the Church Community Housing Corporation (CCHC) developed the Sandywoods Farm project in Tiverton, Rhode Island, to include a mix of residential, agricultural, and arts-related programming. The CCHC initially marketed the development solely as an arts community, but prospective residents expressed strong interest in the community garden and in farmland preservation. Consequently, CCHC rebranded the project as an “art and agriculture” development. Brigid Ryan, senior project manager of CCHC, explained, “The agriculture has taken off much more than we ever thought it would. The garden is actually drawing some people [to the rental housing units]. They never thought their kids would be able to grow their own food.”

Beneficial connections between agriculture and housing were also present at DNI’s Dudley Greenhouse. Harry Smith of DNI notes, “The project certainly helps the marketability of our homes. People are not just getting a house, they are getting a community, and it’s based on fresh, locally grown food.”

Challenges for CLT-Supported Urban Agriculture

Despite the benefits, CLTs implementing agricultural projects still face many challenges. In particular, financial profitability continues to be a major struggle across the entire urban agriculture sector, as revenues generated from produce sales are relatively modest, even in commercial operations. The Southside CLT covers only 8 percent of its operating expenses through commercial produce sales to local restaurants. Additional revenue sources, such as membership fees and seedling sales, bring the CLT’s earned income to only 20 percent of its expenses. CLTs continue to rely heavily on grant funding to make up the difference.

A second potential challenge is that some projects require a high level of agricultural knowledge and may test the capacity and experience of CLT staff. Even Athens Land Trust, which has staff experienced in agricultural land preservation and growing techniques, acknowledged the initial difficulties in learning the nuances of local zoning codes related to commercial agriculture. As a result, some of the CLT’s pipeline projects were delayed until workable zoning solutions could be found. The risk is compounded for commercial agricultural projects that require significant understanding of processing and distribution systems and local market conditions. At Sandywoods Farm, for example, the CCHC initially planned to use preserved farmland for livestock and cattle grazing, only to discover that the sole Rhode Island butchering facility had closed. The nearest facility was across the state line in Massachusetts, making it prohibitively expensive to process meat. Brigid Ryan, senior project manager at CCHC, noted, “When you end up having to learn these specialty niches, it becomes so important to find partners who know what they are talking about.” Given the challenges and potential pitfalls, CLTs need to consider the following issues to improve the feasibility and sustainability of agricultural projects.

Community Engagement

As community-based organizations, CLTs should always be driven by neighborhood needs and concerns. However, strong community planning processes are particularly vital to the success of urban agriculture, where CLTs often rely on local residents and partners to carry out agricultural production. Harry Smith of DNI emphasizes this point: “I would say the work of a CLT is not just to manage the properties and get more land into the trust, but to really engage the community in what they want besides housing—whether that’s commercial operations, or a greenhouse, or agricultural land.” Further, CLT engagement around agricultural projects can catalyze broader community organizing efforts and help residents push for more supportive public policies.

Organizational Assessment

CLTs can support nonresidential projects in a variety of ways, and organizations should systematically assess internal capacities as well as local stakeholders who could serve as potential partners on projects. In this way, CLTs can develop complementary collaborations and build on existing assets and capacities in the community. A CLT that lacks growing experience can support urban agriculture in alternate ways to better align with local partners, by securing land, helping to develop urban agriculture zoning codes, or serving as a fiscal agent for grant funding.

Managing Risk

CLTs should minimize their financial risk in agricultural projects, especially given the modest revenues and future uncertainties associated with food-related grant funding. In response, some CLTs have front-loaded anticipated capital expenses owing to agriculture projects. Similarly, CLTs can manage risk exposure by avoiding debt financing on agricultural projects. Several CLTs have found debt service to be extremely challenging, given the modest revenues from produce sales and the nominal lease fees that CLTs typically charge for agricultural land. For instance, DNI was able to acquire land and construct the Dudley Greenhouse without incurring long-term debt, while its local property tax–exempt status allowed for minimal holding costs. The resulting low-risk financial structure became critically important when DNI was unable to secure its initial greenhouse tenant. Even though the greenhouse was subsequently vacant for nearly five years, DNI was well positioned to absorb the unexpected vacancy loss.

Conclusion

While the urban agriculture movement has gained much momentum in recent years, it still needs coherent, long-term strategies to protect growing spaces against speculative market forces. The fundamental relationship between land and community is at stake. Within the urban agriculture movement, land insecurity highlights the pressing need for a reconceptualization of land as a finite, shared resource that should be held in stewardship to meet the requirements of present and future communities. Further, the notion of the highest and best use needs to be expanded to include nonfinancial outcomes and avenues for substantive community engagement. CLTs are ideally suited to tackle these critical issues and, in doing so, can help community development processes become more inclusive, equitable, and responsive to changing local conditions.

About the Author

Jeffrey Yuen, M.S., is a CLT researcher, practitioner, and enthusiast who serves on the board of the Essex Community Land Trust. He works as the Impact Assessment Manager at New Jersey Community Capital, in New Brunswick, New Jersey.

Resources

ACGA (American Community Gardening Association). 1998. National Community Gardening Survey: 1996. http://www.communitygarden.org/docs/learn/cgsurvey96part1.pdf

Bellows, A., K. Brown, and J. Smit. 2004. “Health Benefits of Urban Agriculture.” Community Food Security Coalition’s North American Initiative on Urban Agriculture. http://community-wealth.org/content/health-benefits-urban-agriculture

Brown, K., M. Bailkey, A. Meares-Cohen, J. Nasr, and P. Mann (eds.). 2002. “Urban Agriculture and Community Food Security in the United States: Farming from the City Center to the Urban Fringe.” Urban Agriculture Committee of the Community Food Security Coalition.

Davis, J. E. 2010. “Origins and Evolution of the Community Land Trust in the United States.” In The Community Land Trust Reader, edited by J. E. Davis, 3–47. Cambridge, MA: Lincoln Institute of Land Policy.

Kaufman, J., and M. Bailkey. 2000. “Farming Inside Cities: Entrepreneurial Urban Agriculture in the United States.” Working paper. Cambridge, MA: Lincoln Institute of Land Policy.

Lawson, L. 2004. “The Planner in the Garden: A Historical View of the Relationship of Planning to Community Garden Programs.” Journal of Planning History 3(2): 151–176.

Mougeot, L. 2000. “Urban Agriculture: Definition, Presence, Potentials and Risks.” In Growing Cities, Growing Food, Urban Agriculture on the Policy Agenda, edited by N. Bakker, M. Dubbeling, S. Guendel, U. Sabel Koschella, and H. de Zeeuw. DSE, Feldafing.

Rosenberg, G., and J. Yuen. 2012. “Beyond Housing: Urban Agriculture and Commercial Development by Community Land Trusts.” Working paper. Cambridge, MA: Lincoln Institute of Land Policy.

Schmelzkopf, K. 1995. “Urban Community Gardens as Contested Space.” Geographical Review 85(3): 364–381.

Smit, J., A. Ratta, and J. Nasr. 1996. Urban Agriculture: Food, Jobs and Sustainable Cities. New York: United Nations Development Programme. http://jacsmit.com/book.html

Staeheli, L., D. Mitchell, and K. Gibson. 2002. “Conflicting Rights to the City in New York’s Community Gardens.” Geojournal 58(2–3): 197–205.

Yuen, J. 2012. “Hybrid Vigor: An Analysis of Land Tenure Arrangements in Addressing Land Security for Urban Community Gardens.” Masters’ Thesis, Columbia University. http://academiccommons.columbia.edu/catalog/ac:147036

Yuen, J., and G. Rosenberg. 2012. National Community Land Trust Network. Non-Residential Project Directory. National Community Land Trust Network http://www.cltnetwork.org/doc_library/FINAL%20Non-residential%20project%20directory%204-26-13.pdf

When one looks at fiscally distressed cities, it is easy to conclude that insolvency is simply a product of ineffective management, a lack of financial discipline, or the incompetence or corruption of local government. However, several important countervailing facts are worth considering: fiscal insolvency of municipalities today is often the artifact of bad planning decisions made decades ago; many events that led to local fiscal insolvency, including bad planning decisions, were beyond the control of municipalities; and the delicate dance of matching irregular revenues against unpredictable expenditures challenges even the best-run municipalities.

Many planning decisions that catalyzed the decline of Detroit and other Rust Belt cities were made at higher levels of government. For example, construction of federal interstate highways in the 1950s often ran slipshod over local plans and preferences and greased the skids of urban exodus for families, enterprises, and wealth—motivated by the tax advantages of jumping municipal borders. The city of Detroit lost some 60 percent of its population and much of its industry and commerce between 1950 and 2000, while the population of the metropolitan area remained fairly stable. Tax bases and populations of nearby municipalities grew substantially while Detroit’s evaporated during that half-century.

Similarly, policies at state and federal levels imposed unpredictable and often unmanageable spending requirements on local governments. Over decades, localities were buffeted by revisions in revenue-sharing formulae of higher-level governments or unfunded mandates. The Clean Water Act, for example, established a much-needed regulatory framework that has cleaned up waterways and protected citizen health since 1972. It also imposed draconian financial demands on local governments, saddling them with the costs of expensive water systems upgrades to meet ever more stringent standards, and the seemingly impossible challenge of separating storm water and wastewater in commingled underground systems built a century ago.

As municipalities internalize the message that poor financial performance is a local problem, they often take remedial actions that inflict more serious damage on their economic and social futures. One of the underreported aspects of the unfolding tragedy in Ferguson, Missouri, is the extent to which the violence and recrimination there is rooted in fiscal challenges. Ferguson, like many jurisdictions in St. Louis County, chose to supplement insufficient local revenues with traffic fines that were harshly enforced. Many similar jurisdictions derived 30 percent or more of their general revenues from enforcement of traffic violations. It is best left to the courts and the Justice Department to determine whether the pattern and practice of enforcement in Ferguson was discriminatory. But there is a separate issue involving the conflation of public safety and revenue generation, which can lead to perverse outcomes.

St. Louis County is not unique in its creative use of local courts as a revenue generator; it is pattern and practice in municipalities across the United States and other continents. In a 2006 study of North Carolina counties by the St. Louis Federal Reserve Bank, humorously named Red Ink in the Rear View, the authors found that a 10 percent decrease in annual revenues led to a 6.4 percent increase in traffic citations. Interestingly, there was no reversion to fewer citations when revenues rose. In one astounding case, the town of Waldo, Florida, derived half of its general revenues from traffic fines. New York City netted $624 million in general revenues in 2008 using aggressively priced and enforced parking violations. On the international front, the BBC and The Guardian accused London’s Hammersmith and Fulham Council of using traffic courts as a major revenue source in 2013.

Another dangerous way that municipalities shore up finances is through the sale of tax liens to investors. Although this practice attracts needed revenue, conveying powerful tax liens leads to unintended consequences that are difficult to manage. The dominance of tax liens over all other liens gives extraordinary power to those exercising foreclosure. Savvy investors who pay a small share of outstanding arrearages to purchase liens can acquire properties at pennies on the dollar of actual value. These new owners manage their holdings to maximize return, which often runs counter to public interest when it promotes naked speculation on vacated properties or accelerated neighborhood decline through widespread absentee ownership.

Municipalities make desperate choices like these to improve fiscal status in part because of popular opposition to property taxes, the dominant source of local revenue. Any municipality that considers raising property taxes to cover obligations faces the prospect of local tax revolts or increased pressure to relieve residents and businesses of tax burdens. In this issue, Adam Langley analyzes the property tax credits and homestead exemptions that provide individual relief from this unpopular tax, but further constrict local public budgets (p. 24). Constraints imposed by property tax limitations often lead to more reckless measures to make ends meet.

Perhaps there are other approaches available to municipalities to restore fiscal health. In Detroit, an unprecedented partnership among the public, private, and civic sectors supported a participatory planning exercise called Detroit Future City. More than 100,000 residents contributed to the design of this extraordinary land use and economic redevelopment strategy. John Gallagher reports on early implementation of projects that are intended to bring this community vision to reality in the Motor City and turn around decades of decline (p. 14).

Municipalities in developing countries confront a different set of fiscal challenges. In many countries, as national governments devolve responsibility for supplying public goods and services to localities, municipalities must invent new local public finance systems; most see property taxation as a promising revenue option. However, effective property tax systems are built on foundations such as land registries and value assessment tools. The difficulty of building these systems is magnified in cities with expansive informal settlements, where residents and their homesteads are not officially registered or recognized. Ryan Dubé reports on some of the challenges of establishing and maintaining a property registration system in Lima, Peru, where an upgraded system has not delivered on hypothetical benefits proposed by theorists (p. 6).

The challenges of attaining and sustaining municipal fiscal health are manifold and complex but not insuperable. During the 1960s and 1970s, today’s hottest American urban economies also struggled with population flight, urban blight, and insurmountable fiscal challenges: the cities in or near bankruptcy then were Boston; New York; Washington, DC; Seattle; and San Francisco. Their renaissance might have had less to do with their intrinsic greatness than the work of larger forces at higher levels of geography. This is not to cast aspersions on our great coastal cities; it is simply to make the larger point that municipal insolvency is a structural problem, not necessarily a product of any particular deficiency in local leadership.

Sound planning and effective public management lay at the heart of municipal fiscal health. A sound fiscal stance is required to finance public investment in projects that build a prosperous and sustainable local economy. A robust local economy grows a tax base that throws off revenues, which local governments need to pay for the public goods and services that support a good quality of life. But chronic and unpredictable variability of both local revenues and expenditures requires effective planning to survive inevitable bumps in the road.

In October, I named redevelopment—the effective reuse of previously developed land—a millennial challenge. Managing and sustaining the fiscal health of local governments is another such challenge. We need a better understanding of the theory and practice of planning, taxation, and valuation that can guide municipalities’ efforts to pursue this elusive goal. The Lincoln Institute of Land Policy is uniquely poised to inform such efforts. In this issue, we’ve touched on a few topics that relate to municipal fiscal health; this millennial challenge will remain a major focus of our work here at the Institute.

“Being a migrant worker for 13 years, I have longed to own a home and live a normal family life here in Shenzhen,” said Mr. Wang, a former farmer from Sichuan Province who now earns 3,100 yuan (US$500) per month in the manufacturing sector of this sprawling city in South China. Wang recently purchased what is known as “small property rights” (SPR) housing—an illegal but widespread type of residential development built by villagers on their collectively owned land in peri-urban areas and urban villages, rural settlements surrounded by modern development in many Chinese cities. While no official statistics are available, the number of SPR units is estimated at 70 million—perhaps one-quarter of all housing units in urban China (Shen and Tu 2014). “Small property rights housing fulfills my need,” continued Mr. Wang. “It’s affordable. It is the best choice for me,” he says.

Sold primarily to individuals without local household registration, or hukou (box 1), SPR housing violates China’s Land Administration Law, which stipulates that only the state, represented by municipal governments, has the power to convert rural land into urban use. Unlike buyers of legally built homes, buyers of SPR housing do not receive a property rights certificate from the housing administration agency of the municipal government; they sign only a property purchase contract with the village committee. Because Chinese laymen often see the state as the “big” institution, housing units purchased from village committees are popularly called “small” property rights housing.

Box 1: China’s Hukou System

China is phasing out its household registration system called hukou, which dates to the 1950s. Hukou identifies a citizen as a resident of a particular locality and entitles the hukou holder to the social security, public schools, affordable housing, and other public services provided by their district, township, or village. Many urban public services are available only to urban hukou holders. Because most migrant workers hold rural hukou, they are ineligible for many public services in the cities where they work and live. Moreover, they have to return to their registered places of residence to apply for marriage certificates, passports, personal ID card renewals, and other documents—a requirement that comes at significant cost and inconvenience.

The widespread development of SPR housing raises a number of legal, political, social, and economic concerns that have prompted academic study and heated public policy debates (Shen and Tu 2014; Sun and Ho 2015). Why has SPR housing emerged in China where administrative control is generally considered tight? What drove the village committees to develop SPR housing in violation of the Land Administration Law? Do SPR housing buyers worry about their tenure security? Why has the government so far tolerated SPR housing ownership? To find answers, one has to look at a number of factors contributing to the rise of SPR housing, including China’s land management system, municipal finance, and public attitudes toward laws and regulations.

The Rise of Small Property Rights Housing

The pace of China’s urbanization is unprecedented. Between 1978 when economic reform began and 2014, the urban population more than quadrupled from 173 million to 749 million, with average annual growth of 16 million. In official counts, the urban population includes residents with hukou and, in recent years, migrants who stay in a city for more than six months. Amid such explosive growth, the government’s institutional capacity to manage urbanization has often lagged behind, at best barely responding to emerging issues.

“The informal development of SPR housing is regarded as an extra-legal practice and a type of spontaneous urbanization,” wrote Dr. Liu Shouying, a senior researcher with the Development Research Center of the State Council, in his newly published book, Land Issues in the Transitional China (Liu 2014).

“There is no law explicitly addressing the emerging issues of SPR housing,” said Peking University Professor Zhou Qiren, a well-known property rights scholar in China (Zhou 2014).

Legal and Economic Factors

Under China’s dual land management system, urban land is owned by the state, and rural land is collectively owned by the villages (figure 1). There is no private ownership. Only the state has the legal power to expropriate rural land and convert it to urban use. Villages have no land development rights. Compensation to villages for expropriated rural land is based on the land’s agricultural production value rather than its higher market value.

When the state expropriates rural land for urban use, it allocates it to residential and commercial uses through concessions to real estate developers, who pay a fee for land use rights. This system allows municipal governments to expropriate rural land for industrial and urban development at low costs, and to generate handsome revenues from land concessions.

The municipal governments’ ability to expand the urban land supply is heavily limited, however, by China’s strict farmland preservation requirements. Under this policy, 1.8 billion mu (equivalent to 1.2 million sq. km) of high-quality agricultural land nationwide must be reserved for food security. The Ministry of Land and Resources annually approves the amount of urban land for each city, and the municipal government then allocates this supply to various purposes, leaving a small fraction (usually around 30 percent) for residential development. Given the limited supply of residential land in the major cities, prices are bid up very high.

By contrast, most cities offer industrial land to manufacturing firms at very low and subsidized prices in order to compete for investment and employment. They expect these firms to yield jobs, economic growth, and tax revenues for the municipality, and then for those new jobs to generate increased demand for housing and services—in turn creating more jobs, economic growth, and tax revenues. As a result, the price for residential land is up to 15 times higher than the price of industrial land (figure 2).

Over the last few years, concession fees from commercial and residential land were typically as high as 40 to 60 percent of municipal tax revenues. With these revenues, municipal governments not only subsidize industrial land, but also fund public investment in infrastructure and other services. Because farmers’ compensation was only a tiny fraction of the value created from the state-monopolized development rights, they were keen to find ways to share in these revenues, setting the stage for SPR housing.

There are three types of rural land in China: one is used for agriculture, one is used for construction, and the third is unused. SPR housing units are usually built on rural construction land, which allows for villagers’ residential plots and public facilities. While strict enforcement of the national farmland preservation policy generally prevents conversion of agricultural land into construction land, villages are not explicitly prohibited from using construction land for village industries, restaurants, hotels, warehouses, rental plants, and rental housing. Indeed, property rental businesses have existed in rural areas for many years. For example, rural households living in urban villages and at the rapidly growing urban fringe have built multi-story housing on their residential plots and rented the units to migrant workers.

When urban housing prices started to soar in the mid-2000s, the villages saw opportunities to make handsome profits from building and selling homes. Each year from 2006 to 2014, house prices climbed about 20 percent in Beijing, 18 percent in Shanghai, 17 percent in Shenzhen, and 11 percent in Chengdu (PLC-HLCRE 2014). The rapidly rising prices of residential land drove part of these increases.

Demand for home ownership in China remains strong, thanks to the growing urban population, rising household incomes, high savings rates among urban households, and lack of alternative household investments. And SPR housing units are much less expensive than comparable formal housing units in the same location. Indeed, their prices are typically 40 percent to 60 percent cheaper, because villages do not pay land concession fees as the urban real estate developers do, and the administrative costs of providing SPR housing are also lower. Thus, SPR units became the rational housing choice for many migrant households, and even for some urban households with hukou in their city of residence.

Social and Cultural Factors

The village committees understood that building and selling SPR housing violated the Land Administration Law and the associated local land regulations, but the lure of profits drove them to test the legal limits. And once a few villages started selling SPR housing, others were quick to follow. The central government responded by issuing a series of administrative circulars calling for a halt, but took little action due to the lack of legally effective and socially acceptable measures to put an end to the practice.

Meanwhile, given the lack of legal protections, one might ask why SPR housing buyers do not opt for rental housing. The answer is that the rental market in urban China is poorly regulated, and contract enforcement is weak. Tenants often face the risk of unexpected rent hikes and premature termination of leases. In addition, participation in the affordable housing programs run by the municipal governments is not an option for most migrant workers because they do not have local urban hukou.

At the same time, Chinese households strongly prefer home ownership for a number of social and cultural reasons. Most households consider a stable home essential to their lives. As Dr. Sun Yet Sen (1866–1925) famously said: “Every household ought to have a home.” The Chinese word for “family” (jia) is literally the same as the word for “home,” both in written form and speech. Most Chinese think that an ideal home is a secure place for the family, and the most secure home is a self-owned one. One SPR housing buyer in Shenzhen said, “With my newly purchased SPR housing unit, I don’t have to worry about being forced out of the rented unit any more, and I could make my own place a real home.”

Because healthcare and educational opportunities are better in cities than in rural areas, many migrant workers purchase SPR housing units so that their families can take advantage of these services. And for young men, buying SPR housing units is a way to improve their chances in the highly competitive marriage market, where men outnumber women by 34 million, according to the National Bureau of Statistics. Moreover, herding behavior—where everyone wants to do what everyone else does—is a significant factor, and the housing purchases of some buyers heavily influence the purchase decisions of others.

As some newspaper interviews and Internet surveys reveal, buyers generally do not worry about being prosecuted for living in SPR housing. They do not believe that the government would attempt to enforce the law on millions of citizens. There is a popular saying in the Chinese legal enforcement tradition: fa bu ze zhong (the law does not punish everyone). If many people violate a law or a regulation in China, people often consider the law itself flawed.

Indeed, over the history of economic reform in China, there are celebrated cases in which mass violation of a law drove change, resulting in legalization of formerly prohibited activities. Based on this history, many SPR housing buyers expressed confidence that the government would not evict them from their homes. This confidence is evident from the fact that SPR housing owners often spend a substantial amount of their incomes, savings, or borrowed money on home improvements such as interior decoration and furnishings.

Many SPR housing owners feel that they are already a large enough group to defy any government actions that penalize them. Eviction is highly unlikely, given that the Chinese government’s top priority is maintaining social stability. One SPR housing owner in Beijing said, “I am sure that the government will not evict us from our homes. If it happens, where should we live? In front of the municipal hall?”

A Major Challenge to Government

Enforcing the law against SPR housing development on millions of households would indeed be politically unwise. Doing so would likely trigger social unrest—the last thing the government wants to see. However, amending the law is not easy, and for some time the central government seemed unable to come up with a land management system suitable for an urbanized China. Without a clear solution, the central government thus tended to tolerate SPR housing.

Local governments, however, were more uncomfortable with the growing numbers of SPR housing units because they reduced demand for government-supplied residential land and therefore revenues from land concessions. But again, the fear of social unrest left most local governments with nothing to do but repeat the central government’s rhetoric about its illegality. Government tolerance also reflects the fact that SPR housing developments afford shelter for many lower- and middle-income groups that the government and the market have been unable to provide. In the public debate, the argument for SPR housing is that it serves an important social function by housing the large number of migrant workers essential to China’s rapid urban economic growth.

Perhaps the bigger concern for government is the impacts of SPR housing development on real estate markets, municipal finance, and future urban forms. As it is, the formal urban housing market is already in over-supply. Additional provision of SPR housing units would further weaken formal market demand and increase bank credit risk. Moreover, China’s city planning efforts do not cover rural land outside designated planning areas. The spread of SPR housing in these areas would therefore lead to undesirable urban development patterns.

Recommended Reforms

In recognition of the root causes of SPR housing development, the Third Plenary Session of the Communist Party of China’s 18th Central Committee issued a document in November 2013 spelling out directions for a set of reforms directly related to land, hukou, and municipal finance.

On land: Integrate the urban and rural construction land markets. Allow the sale, leasing, and shareholding of rural, collectively owned construction land under the premise that it conforms to planning. . . . Reduce land expropriation that does not promote public welfare.

On hukou: Accelerate the reform of the hukou system to help farmers become urban residents. . . . Efforts should be made to make basic urban public services (such as affordable housing and the social safety net) available to all permanent residents in cities, including rural residents who have migrated to cities.

On municipal finance: Improve the taxation system and expand the local tax base by gradually raising the share of direct taxation (mainly the personal income tax and property tax). . . . Accelerate property tax legislation.

These reform efforts aim to dismantle the dual system of land management, allowing villages to share in the benefits of land development and raising the transaction costs of land expropriation. The hukou system will be phased out gradually, starting in the smaller cities. While detailed actions on these two reform fronts are now being worked out or tested in pilot programs, municipal finance reform remains a major concern. If the scope of land concessions is reduced and the hukou system is dismantled, cities will see significant reductions in land sales revenues and increases in public expenditures for providing services to migrant workers and their families.

While residential property taxes are expected to become a new source of municipal revenues, this change will not occur immediately. Indeed, the central government is currently drafting the property tax law, and it may be at least two years before its passage by the National People’s Congress. Since it will also take a few years for cities to establish assessment systems, residential property taxation will not support municipal budgets for some time. Nevertheless, there is hope that this new round of policy reform will properly address the critical issue of SPR housing.

Li Sun is a postdoctoral researcher at Delft University of Technology, Netherlands, and an affiliated researcher with Peking University–Lincoln Institute Center for Urban Development and Land Policy.

Zhi Liu is senior fellow and director of the Lincoln Institute’s China Program, as well as director of the Peking University–Lincoln Institute Center for Urban Development and Land Policy.

References

Liu, Shouying. 2014. Land Issues in the Transitional China. Beijing: China Development Press.

Liu, Zhi, and Jinke Wang. 2014. “An Analysis of China’s Urbanization, Land and Housing Problems.” In Annual Report on the Development of China’s New Urbanization, Li Wei, Song Min, and Shen Tiyan, eds. Beijing: Social Sciences Academic Press (China).

PLC-HLCRE. 2014. “Report on the China Quality-Controlled Urban Housing Price Indices (CQCHPI).” Beijing: Peking University–Lincoln Institute Center for Urban Development and Land Policy (PLC) and Hang Lung Center for Real Estate (HLCRE), Tsinghua University.

Shen, Xiaofang, and Fan Tu. 2014. “Dealing with ‘Small Property Rights’ in China’s Land Market Development: What Can China Learn from Its Past Reforms and the World Experience?” Working paper. Cambridge, Massachusetts: Lincoln Institute of Land Policy.

Sun, Li, and Peter Ho. 2015. “An Emerging Phenomenon of Informal Settlement in China: Small Property Rights Housing in Urban Villages and Peri-urban Areas.” Paper presented at the Annual World Bank Conference on Land and Poverty (March 23–27).

Zhou, Qiren. 2014. “The Reform Should Not Be Self-limited” (in Chinese). http://heschina.org/archives/3211.html