Liz Wood wanted to buy a house. It was 2006, she had been renting for A decade, and her monthly payments were getting high. She was 43 and steadily employed, earning $34,000 annually plus benefits as a family educator. She didn’t want anything fancy, just a place where she could “gather love and bring stability.” She would stay within her means.

Nonetheless, the math was tricky. Wood lives in Duvall, Washington, a town of roughly 7,500 in the foothills of the Cascade Mountains. Steeped in lush forest, Duvall is about 30 miles from Seattle and a mere eight miles from the City of Redmond, the headquarters for Microsoft. The median income in Duvall is nearly twice that of the state of Washington, and homes in this area are expensive. In 2010, the median value of owner-occupied homes in Duvall was $373,500, compared to $262,100 for the state, according to the U.S. Census Bureau.

With few options, Wood eventually decided on manufactured housing. For $55,000, she purchased a used factory-built home in Duvall Riverside Village, a four-acre community of 25 manufactured homes in the middle of downtown Duvall. “It’s amazing here,” she says. “I live on riverfront property, so when I walk out my door I see water, pine trees, and a walking trail that goes from my house to the next town. I wake up in the morning hearing birds. I know all my neighbors. I’m connected to my community. I’m a block from the police station. I feel safe.”

But it was still difficult. Wood owned her house, but not the land on which it sits. Instead, she rented the plot for $450 a month, plus water and utilities, as did the other residents of Duvall Riverside Village. As a result, Wood and her neighbors remained largely at the mercy of the property owner, their landlord, and forfeited much of the autonomy and security associated with more traditional home ownership models.

Their landlord prohibited garages, leaving residents limited storage options. He charged them $25 a month per additional car or adult beyond those registered at the time of move-in. He charged $5 a month for every pet and required dogs to be leashed at all times. There was a $5 monthly fee for every extra half-cord of firewood, which Wood needed to fuel her stove. Though he employed a groundskeeper, he didn’t install outdoor lights, nor did he maintain the community roads, which were pocked and cracked.

In 2012, Wood and her neighbors received a written notice that the owner was selling the land. Unlike many owners, who prefer to sell their properties to a developer, this landlord was open to selling to residents. He had agreed to host a meeting with the tenants, a real estate broker, and the Northwest Cooperative Development Center, a nonprofit that supports cooperatives. The parties discussed the possibility of establishing a nonprofit, resident-owned cooperative to purchase the property. In doing so, they would conserve the land for manufactured housing, continue living there as a community, and collectively manage it to guarantee a safe, affordable, high-quality experience.

The residents voted to go for it. The landlord had two demands. He wanted fair market value, and he wanted to complete the sale by the end of the year. It was already August. They had five months.

In addition to the collaboration with Northwest Cooperative Development Center, the residents also began working with ROC USA, a New Hampshire–based nonprofit organization that offers residents of manufactured housing communities a mix of technical assistance and affordable financing to purchase their rented land when it becomes available for sale. Between its establishment in 2008 and 2016, ROC USA has successfully facilitated 80 of these transactions nationally and secured more than $175 million in financing for them.

ROC USA works with a network of eight regional affiliates, including the Northwest Cooperative Development Center. In Duvall, the nonprofits worked together with the residents to assess the economics of a possible deal and to confirm that the community was a good fit for resident ownership. Next, the organizations helped the residents to hire a third-party lawyer and establish their cooperative, which would operate as a democracy with residents elected into leadership positions by fellow residents. ROC USA assisted the residents to hire an independent engineer and conduct due diligence of the property; secure financing through ROC USA’s lending subsidiary, ROC USA Capital, to purchase the property and undertake critical repairs; and organize the real estate transfer.

On December 27 of that year, the newly formed cooperative bought the Duvall Riverside Village with $1.3 million in purchase financing from ROC USA Capital, granting Wood and her fellow home owners control over their living arrangements, and permanently preserving 25 affordable homes in a town where such housing stock is scarce.

The residents continue to pay $450 a month to rent the land, but now they vote to determine community rules, and use the rent to make improvements and to pay the community’s mortgage, taxes, and expenses.

“Now, you can have a garage if you want,” explains Wood, who is president of the Duvall residents’ cooperative and a ROC USA board member. “And we spent $35,000 to fix the roads. We don’t have to live in fear anymore, so people are willing to invest in their homes. We have annual meetings to vote in projects. We can lower the monthly rent if we are over-budgeting for things we don’t need. The bottom line is that we are in control of our own destiny.”

Upon completing the sale, ROC USA and the Northwest Cooperative Development Center have continued providing the residents with technical support to ensure smooth operations.

“If they had just lent us the money and said, ‘these are the guidelines, here’s what you need to do, have at it,’ we would have failed,” explains Wood. “But they are an ongoing resource. They help us with tough situations, or when we don’t know how to do something legally. The goal is for us to become independent and to be able to run our community like a business. Pay your bills, and your house can stay where it is. Period. Forever.”

Benefits

Across the United States, more than 18 million Americans live in factory-built homes, which represent 5 percent of the nation’s housing stock in metro areas, and 15 percent in rural communities as of 2015. They range significantly in quality.  Roughly 25 percent of today’s manufactured housing stock is the stereotyped, rickety trailers from the 1960s and early 1970s, produced before the federal government introduced quality controls in 1976. The remaining 75 percent complies with the federal standards and includes charming, energy-efficient homes, indistinguishable to the untrained eye from their site-built counterparts. Though manufactured homes have long been cast aside as a housing choice of last resort, today’s models are robust, efficient, and inviting, with the potential to help alleviate the nation’s shortage of safe, affordable housing.

Modern manufactured homes cost approximately half as much as their site-built counterparts and can be built five times faster, making them a genuinely viable option for low-income consumers. The production process is less wasteful, and models that comply with the federal government’s Energy Star standards offer home owners meaningful energy savings. And they are durable. Whereas manufactured homes built prior to the 1976 regulations were made to be portable, like recreational vehicles, modern models are built with stronger materials and designed to be permanent. Today’s manufactured homes can sit on any foundation that would otherwise accommodate a site-built structure, creating the flexibility to use the housing in a wide range of geographies and environments.

“The manufactured housing stock is a critical component of the nation’s affordable housing,” says George McCarthy, president and CEO of the Lincoln Institute of Land Policy. “It easily outnumbers our subsidized stock two or three times in almost every market.”

Manufactured homes are cheaper to produce than site-built houses because of the manufacturing process. As Andrea Levere, president of the Corporation for Enterprise Development, wrote in the Huffington Post, the “term ‘manufactured housing’ itself has less to do with quality and more to do with the production process, which is a derivative of Ford’s assembly lines. This model allows manufactured homes to be built in a more controlled work environment, translating into predictable costs, increased efficiencies, and reduced waste” (Levere 2013).

In 2013, a new, energy-efficient manufactured home cost $64,000, compared to $324,500 for a new, site-built one, according to the U.S. Census, though the price for the latter includes the land. Even after stripping out the land costs, manufactured homes are still significantly less expensive, averaging $44 per square foot, versus $94 per square foot for site-built homes. And they are unsubsidized, which is a boon given the extremely short supply of subsidized housing compared to demand. Only one in four income-qualified families receives a housing subsidy, according to the Bipartisan Policy Commission, leaving the remaining 75 percent in need of an affordable, unsubsidized alternative. By helping to fill that gap, manufactured housing can relieve some of the demand for subsidized housing that state and federal governments are struggling to supply in the face of shrinking budgets. “The majority of families who live in manufactured housing would qualify for subsidized housing, but instead they choose this less expensive and unsubsidized option,” says McCarthy.

The stock is also very versatile, argues McCarthy, who cites its role in housing people during the immediate aftermath of Hurricane Sandy. “Recovery workers got 17 manufactured homes on the ground in New Jersey within weeks of the hurricane—permanent homes for displaced renters, not the problematic ‘Katrina trailers.’ And they did it before most organizations even had a housing plan. This speaks to the efficiency and nimbleness of building manufactured housing. The production times are about 80 percent shorter than for site-built homes, making them the best housing option for disaster response.”

Nevertheless, manufactured housing often gets a bad rap, due largely to the widespread misperception that today’s models are the same as the earliest generations of mobile homes built prior to the introduction of quality control standards by the U.S. Department of Housing and Urban Development in 1976. Today, there are roughly 2 million of these pre-1976 homes; many are barely hanging together and house the nation’s most vulnerable populations, including the elderly and disabled. Though the pre-1976 stock is virtually unrelated to its present-day counterpart, these older, dilapidated dwellings dominate the general public perception of manufactured homes in the United States.

The housing stock’s reputation is further diminished by the vulnerabilities facing home owners who do not own the land on which they live. Roughly 3 million people live in one of the nation’s 50,000 manufactured housing communities, while another 3 million rent on private property. There are manufactured housing communities in every state in the country. Like Duvall Riverside Village, many of them are on prime real estate, and the landowners routinely receive purchase offers from developers.

Advocates working to improve the manufactured home ownership experience, and to promote the stock’s viability as affordable housing, are focusing on three critical areas of innovation: conserving mobile-home parks; replacing pre-1976 units with modern, energy-efficient homes; and increasing access to affordable financing, which is virtually unavailable for potential buyers in the current market, and is imperative to building equity and preserving a home’s resale value.

Conserving Manufactured Housing Communities

The conversion of Duvall Riverside Village from a privately owned mobile home community to a resident-owned cooperative is not common. For every community available for purchase that is successfully preserved as affordable housing, there are many more that end up sold for redevelopment, displacing residents who may lack good alternatives.

“It’s not as simple as just moving the home,” says Ishbel Dickens, president of the National Manufactured Home Owners Association. “First, there’s the question of whether the home can even be moved. It may be too old or unstable to survive a move. And even if it can be moved, it’s expensive to do so, and very hard to find a space in another community. In most instances, when a park closes, the residents are probably going to lose the home and all their equity in it.  In all likelihood, they will never own a home again. They’ll likely end up on a wait list for subsidized housing, or may even end up homeless.”

To some degree, it’s an accident of history that so many of today’s mobile home parks occupy plots of coveted real estate, says Paul Bradley, president of ROC USA. As he explains it, in the late 1950s and 1960s, Americans began to embrace transportable trailers and campers, in part because of a cultural shift toward outdoor recreation, and in part because post–World War II factories began producing them to utilize excess manufacturing capacity, making them widely available and affordable. As the units grew in popularity, they transitioned from temporary structures to permanent ones, and people began adding makeshift carports and sunrooms. At the time, urban planners accepted the evolution toward permanency. As they saw it, most of the trailers were on land that no one else was using in outer-circle developments. Why not let these campers stay for awhile, until the cities expanded to meet them, at which point the land would be redeveloped?

“These original communities were built with a plan to close them,” says Bradley. “Back then, no one contemplated the full implications of creating a housing stock for which home owners lacked control of the underlying land. No one anticipated that these communities would be full of low- and moderate-income home owners who spent their own money to buy these homes and had few alternatives. And that’s what we are still grappling with today. That lack of control over the land means that home owners live with a deep sense of insecurity and the feeling that it’s irrational to make investments in their properties because they won’t get it back. What’s the implication for home owners who cannot rationally argue for investing in their home? What does that mean for the housing stock? For neighborhoods?”

Short-sighted land use policies are not the only challenge to preserving manufactured housing communities. An equally onerous obstacle is the lack of legal protections afforded to residents. In 34 states and the District of Columbia, the landowner can sell the property without giving residents the opportunity to purchase it. In fact, in most states, the landowner doesn’t have to notify residents that the community is for sale; the landowner can wait until the property has been sold to inform residents of the transaction, suddenly leaving them in a tenuous position. Even the 16 states that require the owner of a manufactured housing community to provide residents advance notice of a sale do not necessarily afford tenants the necessary protections. “In most of the states with advance notice, there are so many limitations on the notice requirements that it is rarely of any use to residents,” says Carolyn Carter, director of advocacy at the National Consumer Law Center.

To better protect residents, advocates support legislative reforms to state laws and tax incentives for landowners who sell to residents. The most effective of these strategies are state laws requiring a landowner to give residents both advance notice of the sale—ideally 60 days—and the opportunity to purchase the property, argues Carter. According to her, six states have laws that “work on the ground and provide effective opportunities for residents to purchase their communities,” including New Hampshire, Massachusetts, Rhode Island, Florida, Vermont, and Delaware. She says Oregon passed promising legislation in January 2015.

“In those states with effective notice and opportunity to purchase laws, resident ownership takes off,” Carter explains. Roughly 46 percent of the 80 communities that ROC USA supports are in either New Hampshire or Massachusetts—two small states with some of the nation’s strongest resident protections. There are 89 additional resident-owned cooperatives in New Hampshire that predate ROC USA’s launch.

To understand the value of strong consumer laws for residents, consider the story of Ryder Woods, a 174-unit mobile home park in Milford, Connecticut, 11 miles south of New Haven, just off a major thoroughfare. Connecticut is one of 19 states that either offer tax incentives or provide residents “some” protections when a community is sold, but also contain “significant gaps,” according to Carter.

In 1998, Ryder Woods’ landowner sold the property to developers. He informed the residents via eviction notices, in violation of state laws requiring him both to give them advance notice of the pending sale and to provide them the right of first refusal to purchase the land. Ryder Woods had an active home owners association, and very quickly they organized protests and petitions and lobbied the state legislature to reverse the sale. Eventually, the local news picked up their story, at which point a Milford-based attorney volunteered her services to help them. As she dug into the case, she realized that the law was on the side of the residents and that the community needed more legal support than she alone could offer. She enlisted help from a friend and fellow attorney—a partner at a prominent, Hartford-based firm—who agreed to take the case pro bono and assigned it a team of attorneys. The case ended up going to trial, eventually making its way to the state’s highest court. Uninterested in the unfolding legal headache, the original buyer resold the property to a second developer.

Four years after the original sale, the courts ruled in favor of the residents. In an unprecedented deal, and as required as part of the settlement, the second developer purchased a new piece of land a mile from the original parcel and completely rebuilt the community there. The developer purchased 174 new mobile homes and sold them to the residents at significantly reduced prices with more favorable mortgage terms than any available in the conventional financing market. He built a community center and a pond, complete with swans. And, as required by their agreement, he provided the residents the opportunity to form a cooperative and buy the land, which they did in 2009 with $5.4 million in purchase financing from ROC USA Capital. They closed on their purchase in the offices of the Hartford firm, which had continued to volunteer its services to the residents through the sale’s completion. Today, there is a Walmart on the land that housed the original Ryder Woods community.

“Sometimes, when we look back, we think it was crazy. We chartered a bus, went to Hartford, spoke to the legislature, and just fought it. We stuck together and won against two big-time, billion-dollar developers,” explains Lynn Nugent, 68, a part-time merchandise associate at Sears, and one of the residents who helped organize the campaign, along with her husband, a retired locksmith. “Now I always say, ‘Somebody else used to own us, and now we own ourselves.’”

Improving Access to Quality, Affordable Manufactured Homes

Unlike the residents of Ryder Woods, many owners of manufactured homes struggle to secure a quality unit with affordable financing. Here again, legislation is a primary culprit. Under federal law, manufactured homes are considered personal property, like a car or a boat, opposed to the real property designation assigned to traditional homes. Consequently, buyers cannot access mortgage loans. Instead, financing is available in the form of personal “chattel” loans. More expensive than mortgage loans, they average an additional 50 to 500 basis points and provide fewer consumer protections. More than 70 percent of purchase loans for manufactured homes are these higher-cost loans, which are considered a proxy for subprime products.  

“This second-tier status is one of the biggest limitations to increasing the stock of permanently affordable manufactured homes,” says McCarthy. “It makes financing the homes more challenging and expensive than it should be, and it diminishes the homes’ wealth-building potential because it reduces effective demand for existing units.”

While the dream fix would be to change federal titling laws, such revisions are not forthcoming. Instead, Next Step, a Kentucky-based nonprofit organization, has established “Manufactured Housing Done Right (MHDR).” This innovative strategy works to make high-quality, affordable manufactured homes—and financing—available to low- and moderate-income consumers through a combination of energy-efficient houses, home buyer education, and affordable financing.

First, Next Step gives low-income buyers access to high-quality manufactured homes. The organization created a portfolio of models that are both robust and affordable. Each Next Step home meets or exceeds Energy Star standards, reducing utility costs for the home owner and shrinking the environmental footprint. According to Next Step, testing has shown these homes to be 30 percent more efficient than a baseline code home and 10 to 15 percent more efficient than a baseline Energy Star home. On average, this results in $1,800 in energy savings each year for every pre-1976 mobile home replacement and $360 each year for every new home placement.

Additionally, Next Step homes are “value engineered to ensure affordability while upholding quality standards.” They are installed on permanent foundations, providing for greater structural support against wind and reducing settling issues. The homes contain high-quality flooring and insulation, which help to increase durability and reduce energy costs. And because water is the number one problem for foundations, Next Step homes contain additional safeguards to protect against moisture.

Improving Access to Sustainable Financing

Next Step also makes sure the home buyers can secure sustainable, affordable financing. “One of the problems facing the industry is that the capital markets don’t participate in a big way,” explains Stacey Epperson, CEO of Next Step. “The secondary market is not there in any meaningful way, so there are very few lenders in this marketplace and very few options for buyers. Our solution is to prepare our borrowers for home ownership, and then bring them good loans.”

Next Step works with a mix of nonprofit and for-profit lenders, vetted by the organization, to provide safe, reasonably priced financing. In return, Next Step reduces the lenders’ risk. The homes are designed to meet the lenders’ requirements, and the home buyers receive comprehensive financial education so that they are equipped to succeed as home buyers. Consequently, Next Step home buyers not only secure a better initial mortgage, but also have the capacity to build equity and obtain a good resale price for the home should they decide to sell it one day.

Importantly, each Next Step home is placed on a permanent foundation in order to qualify the home owner for certain government-backed mortgage programs, which are less expensive than a chattel product. Next Step estimates it has saved its 173 home buyers approximately $16.1 million in interest payments as of 2015.

“Close to 75 percent of all financing for manufactured housing is going out as chattel. But 70 percent of new manufactured homes are going out on private land where, in many cases, the home could be put on a permanent foundation, and the owner could get a mortgage with a lower interest rate and a longer term,” says Epperson.

The MHDR model is innovative in part because it is scalable. Next Step trains and relies on a membership network of nonprofit organizations to implement the model in their respective communities. Next Step sells the homes to members at competitive prices, and then member organizations oversee the process of identifying and educating buyers, assisting them to secure the loan, and managing the installation.

“The way the industry works, there has never really been a way for a nonprofit to buy a manufactured home at wholesale prices. That’s what we’ve engineered, and that’s what makes these homes a lot more affordable than if the nonprofit or home owner tried to buy them on their own,” explains Kevin Clayton, president and CEO of Clayton Homes, one of the nation’s largest producers of manufactured housing, and one of Next Step’s long-time supporters.

“The Next Step program works because it sets people up for success,” says Clayton. “Next Step takes them through home ownership counseling, and supports home owners if they have a hardship down the road. They get to buy the house for a lot less than they otherwise could have, build equity in the home, and have a low monthly loan payment and energy costs.”

Cyndee Curtis, a Next Step home owner, agrees. Curtis was 27, single, and pregnant when she purchased a used, 1971 Fleetwood mobile home for $5,000 in 2001. She put it on the lot she owned just outside the town of Great Falls, Montana.

“I didn’t have money, I didn’t have a degree, and I didn’t have choices,” says Curtis. “The old steel septic tank was a ticking time bomb, with rust holes. The carpet was worn through, the linoleum underneath had burn spots on it, and the ceiling leaked where an addition had been added. Every year, I would buy construction books, go to Home Depot, and ask how to fix that leak. And every year I ended up there by myself, trying to fix it. There was mold on the doorway from that leak, and I had a newborn in there.”

In 2005, Curtis went back to school for two years, obtained her nursing degree, and began working as a licensed practical nurse, earning $28,500 a year. “I figured now I am earning a livable wage and can explore my options,” says the single mother of two. “I wanted something that my kids could grow up in and be proud of, and to make the most of owning the lot I lived on.”

But her credit was poor, and eventually she ended up at NeighborWorks Montana, a nonprofit Next Step Network member that told her about the Next Step program. Over the next two and a half years, Curtis worked with the staff of NeighborWorks Montana to repair her credit. With their assistance, she secured a mortgage and purchased a Next Step home for $102,000, which included not only the house but also the removal, disposal, and replacement of her old septic system.  Because the Next Step home is on a permanent foundation that meets certain qualifications—and because of Curtis’s improved credit history, income, and geography—she qualified for a mortgage from the U.S. Department of Agriculture’s Rural Development program, which was significantly less expensive than the more common chattel products. Additionally, whereas Curtis’s previous mobile home was titled like a car, her Next Step home is deeded like a site-built house. Consequently, a future buyer will also be eligible to apply for a traditional mortgage.

Curtis says her Next Step home has provided her significant energy savings. “I have 400 square feet more now than I had previously. I went from having one bathroom to two. And still both my gas and power bills have been cut by about two-thirds.”

She continues. “My house is a thousand percent better than what I lived in before. If a person goes inside my house, they can’t tell it’s a manufactured home. It has nice doorways, nice walls that are textured. It looks like any new home you would want to live in.”

“Sometimes people think they have to suffer with poor housing conditions. I know how it is, and I want them to know that if you put in some hard work,  you can make a difference for yourself and your family.”

This article originally appeared in July 2015 Land Lines.

Loren Berlin is a writer and communications consultant based in Greater Chicago. She can be reached at loren@lorenberlin.com.

References

Levere, Andrea. 2013. “Hurricane Sandy and the Merits of Manufactured Housing.” Huffington Post. January 8. http://www.huffingtonpost.com/andrea-leverehurricane-sandy-manufactured-housing_b_2426797.html

People who work with me are often surprised by the extent to which my philosophical canon derives from low-budget offbeat films, typically from the 1980s. When in need of wisdom, I frequently turn to the teachings of Repo Man or, for this essay, Terry Gilliam’s allegorical masterpiece Time Bandits. In the movie, a group of public workers are employed by the Supreme Being to fill holes in the time-space continuum left from the haste of creating the universe in seven days: “It was a bit of a botched job, you see.”

Like the Time Bandits, policy makers are often tasked to fill holes—actual potholes in roadways, or more theoretical holes that are the artifacts of dysfunctional private markets, such as the inadequate supply of affordable housing. For example, housing economists in the United States have become quite adept at tracking the size of the hole, which has only become harder to fill since the federal government committed to address it as a national policy priority beginning with the Housing Act of 1949, part of President Harry S. Truman’s Fair Deal.

In his 1949 State of the Union address, President Truman noted that to fill the needs of millions of families with inadequate housing, “Most of the houses we need will have to be built by private enterprise, without public subsidy.” Nearly 70 years later, our collective failure to solve the affordable housing deficit may stem from wrongheaded analysis of the problem, and the conclusion that market-based solutions can be designed to solve the mismatch between the supply of affordable housing and demand for it.

To support this claim, permit me a short departure into market theory. From the now-preferred mathematical approach to economic analysis, a market is simply a system of partial differential equations that is solved by a single price. The equations capture the complex decisions made by consumers and producers of goods—reconciling consumers’ preferences and budgets with producers’ production techniques, capital, and transaction costs—to arrive at a price that clears the market by settling the transactions of all suppliers and consumers willing to trade at that price.

Acclaimed economists Arrow, Debreu, and McKenzie proved the theoretical existence of a single set of prices that can simultaneously solve for the “general equilibrium” of all markets in a national or global economy. One important aspect of this Nobel Prize–winning contribution was the observation that a unique price cleared each market—one market, one price. There was no expectation that a single price could maintain equilibrium in two markets. And this is the fundamental flaw of the housing market—it is actually two markets, not one. Housing markets supply both shelter for local consumption and a globally tradable investment good made possible by broad capital markets that serve global investors. This dual-market status used to pertain to owner-occupied housing, but, with the proliferation of real estate investment trusts, rental markets are now in the same boat.

Markets for consumption goods behave very differently than investment markets, responding to different “fundamentals.” On the supply side, prices for consumption goods are dictated by production costs, while prices in investment markets are dictated by expected returns. On the demand side, such things as tastes and preferences, household incomes, and demographics determine the price of housing as shelter. Investment demand for housing is dictated by factors like liquidity and liquidity preferences of investors, expected returns on alternative investments, or interest rates.

In developed countries, global capital markets and the market for shelter collide locally with little chance of reconciliation. Local households compete with global investors to decide the character and quantity of housing that is produced. In markets that attract global investment, plenty of housing is produced, but shortages of affordable units are acute, and worsen over time. This is because a huge share of new housing is produced to maximize investment return, not to meet the needs of the local population for shelter. For example, there is no shortage of global investment willing to participate in developing $100 million apartments in New York City. But affordable housing, being much harder to finance, is in short supply. And in markets that have been abandoned by global capital, house prices fall below production costs, and surplus housing accumulates and decays. In extreme cases such as Detroit, market order can only be restored by demolishing thousands of abandoned homes and buildings.

Perhaps it is time that we question the conclusion that market-based solutions can address the challenge of sheltering a country’s population. Truman concluded that “By producing too few rental units and too large a proportion of high-priced houses, the building industry is rapidly pricing itself out of the market.” But Truman was thinking about the market for shelter, not investment. Remarkably, the number of housing units in developed countries significantly exceeds the number of households. In 2016, the U.S. Census estimated that there were 135 million units of housing in the country and 118 million households. One in seven housing units was vacant. This over-supply of housing characterizes every metropolitan market in the United States—even markets with extreme shortages of affordable housing. In 2016, 10.3 percent of housing units were vacant in New York, 6.0 percent in the San Francisco Bay area, 8.2 percent in Washington, DC, and a stunning 13.7 percent in Honolulu. The problem is that many households have insufficient incomes to afford the housing that is available.

In the end, rather than fill the holes in the fabric of time and space, the Time Bandits decided to take advantage of them to “get bloody stinking rich.” The bandits sought to capitalize on celestial imperfections, the way global investors seek returns from short-term market dislocations. To illustrate the dangers of such naked speculation in unregulated markets, consider an apocalyptic tale from a very different market. In 1974, heavy rains during planting season in Bangladesh suggested that rice might be in short supply at harvest time, and rice prices started to rise. Savvy commodity speculators realized that there would be a good return on any rice that was held off the market. The actual harvest produced a bumper crop, but the interaction between market expectations and market manipulations by commodity investors produced one of the worst famines of the 20th century—with an estimated 1.5 million famine-related fatalities. The famine did not result from real food shortages. The collision of the market for goods and the market for speculative investment priced rice out of the reach of the local populations, with landless families suffering mortality at three times the rate of families with land.

Perhaps shelter and food are too important to be left to unregulated markets to allocate. Perhaps public policy should focus on protecting a share of the market—and the public—from the ravages of speculation. In this special anthology issue of Land Lines, Loren Berlin describes efforts to preserve affordable housing in the form of manufactured homes and to promote permanent affordability of that stock through the conversion of manufactured housing communities to limited equity cooperatives. Community land trusts and inclusionary housing policies are also effective ways to insulate shelter from speculation, as demonstrated by Lincoln Institute research. After almost seven decades of failed efforts to get private markets to meet populations’ needs for affordable shelter, it might be time to develop, and to export, these other approaches based on a more realistic understanding of the complexity of housing and capital markets.

This article originally appeared in July 2015 Land Lines.

China es uno de los pocos países del mundo que no cobra impuestos a las propiedades residenciales privadas. Luego de que el Partido Comunista estableciera un régimen socialista en 1949, el país adoptó un sistema de propiedad territorial pública y, por lo tanto, no tuvo un mercado inmobiliario hasta la época de la reforma.

Desde la reforma, se observó un boom de ventas inmobiliarias y de la economía en general. Las ciudades de primer nivel, como Shanghái y Beijing, hoy albergan algunas de las propiedades más caras del mundo. Pero los impuestos se aplican solo en el momento de la venta y las transacciones del inmueble, no de forma anual a los propietarios.

Así, puede sorprender el hecho de que China está a la vanguardia en la evolución de la tecnología de tasación, en particular en Shenzhen, la flamante y nueva ciudad del sur que, desde 1982, creció tanto que pasó de ser un pueblito con 50.000 habitantes a una gran metrópolis con 12 millones. El Centro de tasaciones de Shenzhen, un organismo legal municipal fundado para ayudar en el cobro de impuestos sobre ventas y transacciones de bienes inmuebles, ha desarrollado un sistema de tasación de propiedades que podría ser considerado el más avanzado del mundo. Se trata de una extensión lógica del sistema de valuación masiva asistida por computadora (CAMA, por su sigla en inglés), que se desarrolló para computadoras de escritorio hace décadas y para el cual el Instituto Lincoln tuvo una participación fundamental. El Centro de desarrollo urbano y políticas de suelo de la Universidad de Pekín y el Instituto Lincoln (PLC) ayudó a varias ciudades chinas a implementar CAMA para anticiparse a un futuro impuesto inmobiliario. Lo que distingue al sistema de Shenzhen es el uso de tecnología SIG y nuevas técnicas que llevan a CAMA al siguiente nivel.

Hoy, CAMA es un estándar internacional con el cual se pueden tasar zonas metropolitanas enteras desde una computadora de escritorio. Pero es más que nada un sistema bidimensional por naturaleza, mientras que el software de sistema de información geográfica (SIG) puede crear mapas tridimensionales (3D) con eficiencia. El futuro de la tasación de propiedades recae en la vinculación entre las técnicas de CAMA y las herramientas SIG, en un sistema que, naturalmente, se conoce como “GAMA”.

En general, los sistemas de CAMA no son muy emocionantes a nivel visual: tienen muchas tablas de datos y mapas bidimensionales muy detallados. En comparación, GAMA es deslumbrante. El sistema utiliza las herramientas SIG y construye modelos 3D de ciudades enteras, con calles, edificios, propiedades individuales dentro de ellos, características del paisaje, etcétera. Imagine la sensación de un videojuego de mundo abierto. El objetivo es poder valuar todas las propiedades desde una computadora en la oficina de valuaciones.

“Según mi punto de vista, Shenzhen lleva a CAMA a un nivel superior y hace cosas en las tasaciones que nadie más puede hacer”, dijo George W. McCarthy, presidente y director ejecutivo del Instituto Lincoln.

Shenzhen: centro del progreso

En muchos sentidos, el desarrollo del sistema de tasaciones inmobiliarias de Shenzhen es la historia clásica de la China moderna: comenzó muy atrasado, absorbió conocimientos de economías más avanzadas, los adaptó a las necesidades locales y al final llegó a competir con los mejores del mundo. No es de sorprender que esto haya sucedido en Shenzhen, la Zona Económica Especial donde se lanzó el experimento por el cual China dejó de ser una economía rural y se convirtió en una potencia mundial.

En 1979 China trazaba el curso de la nueva reforma y declaró a cuatro ciudades “Zonas Económicas Especiales (ZEE)”, proyectos piloto en los que el gobierno debía experimentar con los mecanismos del mercado. Shenzhen, un pueblo pesquero con apenas 30.000 habitantes, fue una de ellas. Ubicada junto a Hong Kong, que en ese momento era administrada por los ingleses y estaba muy internacionalizada, Shenzhen contaba con la posición perfecta para cumplir con la misión de las ZEE: atraer el negocio de empresas mundiales, acercar inversiones extranjeras directas y otorgar a China las herramientas necesarias para forjar una nación moderna y desarrollada.

Con la gran cantidad de inversiones y las nuevas fábricas, Shenzhen se convirtió en el corazón de la nueva economía del país y en una de las ciudades más avanzadas del mundo. En apenas tres décadas se convirtió en una metrópolis ajetreada, con casi 12 millones de personas. En 2016, el PIB oficial fue de US$ 284.000 millones (RMB 1,88 billones), con un PIB per cápita de US$ 25.790 (RMB 171.013), más del triple del promedio de China. Se la suele llamar el Silicon Valley de China y alberga algunas de las empresas tecnológicas más poderosas del mundo, entre ellas Tencent, el gigante de Internet.

Ya en 2003, el gobierno central comenzó a pensar en introducir un impuesto a la propiedad. Se seleccionaron seis ciudades como experimentos piloto para hacer una valuación masiva. Shenzhen fue una de ellas. Ese mismo año se fundó el Centro de tasación y desarrollo inmobiliario para empezar con la tarea inmensa de tasar toda la ciudad. Al principio, estaban prácticamente solos y avanzaban con lentitud. Les llevó tres años diseñar los precios básicos en 56 barrios para asignar un precio único para toda la zona.

La iniciativa coincidió con la incursión del Instituto Lincoln en China de ese mismo año, cuando comenzó a desarrollar relaciones con organismos gubernamentales y organizar proyectos de investigación sobre temas que variaban entre impuesto a la propiedad y financiación municipal de gestión pública de suelo, y expropiación territorial. McCarthy dijo: “Notamos los cambios a medida que se abría la economía, y pensamos que habría que luchar con todo tipo de desafíos en políticas de suelo”.

En 2007, el Instituto Lincoln y la Universidad de Pekín, la más antigua y prestigiosa del país, se esforzaron por abrir el PLC, un instituto de investigación con empleados de ambas organizaciones. Una de sus primeras tareas fue ayudar al gobierno chino a comprender cómo crear un impuesto inmobiliario que funcionara como sistema de renta pública. El PLC organizó eventos de capacitación para difundir en China los conocimientos internacionales sobre tributos inmobiliarios y valuación masiva asistida por computadora. Invitó a expertos de la Asociación Internacional de Peritos Valuadores, el International Property Tax Institute (IPTI, Instituto internacional de tributos inmobiliarios), el Departamento de Clasificación y Tasación de Hong Kong, ESRI Canadá y otros. Para demostrar mejor el funcionamiento de CAMA, el PLC lanzó un proyecto piloto demostrativo que estableció un sistema de CAMA para el distrito financiero de Beijing. También movilizó a expertos internacionales hacia Shenzhen y Hangzhou, y financió recorridos de estudio para el personal técnico en Estados Unidos, Canadá y Hong Kong. El impacto fue inmenso.

“El PLC traducía la bibliografía profesional sobre la tasación de propiedades, y algunas de esas cosas eran nuevas para nosotros”, cuenta el Dr. Wang Youjie, director del departamento de Valuaciones masivas del centro de Shenzhen. “También nos presentaron a CAMA”.

Dado que pudieron acceder a una gran cantidad de conocimientos desarrollados, se aceleró el progreso en la ciudad. Hacia 2010, el centro había evaluado los precios individuales de unos 170.000 edificios, y en 2011, había hecho evaluaciones básicas en 1,5 millones de propiedades residenciales. “El período de 2010 a 2011, una vez que comprendimos mejor la teoría, fue un punto de inflexión para nosotros”, dice Xia Lei, directora del Centro de tasaciones de Shenzhen.

También fue importante el papel del Instituto Lincoln como vínculo, ya que consiguió que los mejores expertos extranjeros ofrecieran seminarios, capacitaciones prácticas y trabajos de desarrollo. A la fecha, el Instituto Lincoln ha llevado a China más de 20 expertos en impuestos inmobiliarios. Para el centro de tasaciones de Shenzhen, el más conocido fue Michael Lomax.

Lomax trabajó durante 22 años como asesor inmobiliario para British Columbia Assessment, un organismo provincial de tasación de Canadá. Fue uno de los primeros que el Instituto Lincoln llevó a China, en 2007, cuando se unió a una delegación gubernamental. Siguió haciendo viajes a China incluso luego de abandonar British Columbia Assessment, en 2012, para trabajar con ESRO, que se especializa en soluciones SIG.

“Gran parte de mi trabajo en China fue demostrar, transmitir y ayudar a instalar las mejores prácticas del mundo”, dice Lomax, que también enseña valuación masiva en la Universidad de Columbia Británica. Alrededor de 2011 empezó a trabajar más directamente con el centro de Shenzhen, y una empresa de tasaciones lo contrató para la ciudad de Hangzhou, Zhejiang, no muy lejos de Shanghái. Al igual que Shenzhen, Hangzhou es conocida por la industria tecnológica e incluye la sede de Alibaba, el titán del comercio electrónico.

En algunos momentos, la rapidez con la que trabajaban ambas ciudades resultaba impresionante. En uno de sus viajes a Hangzhou, Lomax dedicó un día entero a criticar el sistema de tasaciones armado por el departamento local. A la mañana siguiente, le pidieron que volviera a observarlo. “Sus programadores estuvieron despiertos toda la noche en el hotel para arreglar todos los problemas que había señalado”, dice Lomax, que aún no sale de su asombro. “En occidente esto puede llevar unos seis meses, y ellos lo hicieron en horas”.

El equipo de Shenzhen era igual de impresionante. Según Lomax, llevaron los métodos de evaluación informatizados al siguiente nivel. “Están muy avanzados en lo que es el ajuste de las matemáticas”, destaca. “Shenzhen es mucho mejor que Columbia Británica a la hora de evaluar propiedades de forma dinámica, al paso.

En otras palabras, en Shenzhen había una oportunidad evidente para avanzar con la evolución de GAMA. Wang dice: “Michael fue el que nos dio la idea de introducir GAMA”.

De seguidor a líder

ESRI es una empresa consultora global que se especializa en soluciones SIG y está ayudando a construir modelos GAMA en varios municipios. Están Vancouver, donde trabaja Lomax, el condado de Maricopa, Arizona, donde se encuentra Phoenix, y también Shenzhen. Estos proyectos están en distintas etapas de desarrollo, pero, aun así, el sistema de Shenzhen es impresionante. Ingresar a una demostración del sistema es como habitar en un cuadro dentro de un cuadro, como si uno pudiera mirar dentro de una casa por una ventana y encontrar un “yo virtual”. Pero lo que puede hacer con las tasaciones es todavía más impresionante.

Por supuesto, considera todos los indicadores de un sistema de CAMA tradicional: ubicación, cantidad de habitaciones, metros cuadrados, precios recientes de mercado, etc. También puede estimar el valor de tener cerca una estación de subte o una escuela. La naturaleza tridimensional del sistema exacerba la funcionalidad. Mediante el uso de vectores es posible modelar las ventanas con vistas privilegiadas de todas las unidades de un edificio. Desde el escritorio, el tasador puede determinar si un residente posee una vista panorámica del hermoso parque Lianhuashan, en el centro de Shenzhen (similar a Central Park, pero con palmeras y banianos), o solo la fachada aburrida de un alto edificio vecino. Además, el sistema puede trazar un sol virtual en el cielo y estimar la cantidad de luz solar que recibe un departamento. Además de modelar la luz, también puede modelar sonido , por ejemplo, una unidad en una planta baja frente a una intersección con mucho tráfico está en desventaja en comparación con otra que da a un patio tranquilo.

El sistema considera todos esos factores y sintetiza la tasación final de la propiedad. En total, estos factores pueden llegar a representar una diferencia de valor del 20% entre dos unidades del mismo edificio.

El sistema también se está utilizando para ejecutar mejor los impuestos sobre transacciones de propiedades. En esta prueba más pequeña se evidencia la eficacia de la herramienta: de las millones de propiedades tasadas hasta el momento, solo se realizaron 27.106 apelaciones hasta enero de este año y se tuvieron que recalibrar apenas 282 tasaciones.

El proyecto de tasación de Shenzhen no carece de desafíos. En primera instancia, el mercado es joven, por lo que hay una escasez relativa de datos transaccionales. Además, a veces las transacciones se informan con precios bajos artificiales para evadir impuestos. Por último, el mercado inmobiliario es muy heterogéneo y posee grupos bastante diferentes de tipos de viviendas.

Al momento de implementar un sistema como este, uno de los desafíos más grandes debe ser la cantidad limitada de datos sobre transacciones inmobiliarias. En este sentido, Shenzhen posee una ventaja importante sobre casi cualquier otra ciudad del mundo, en lo que respecta al conocimiento sobre sus propiedades. Todo está recién construido, en particular en el centro de la ciudad, donde el impecable modelo 3D es más impresionante. Esto quiere decir que la información sobre los planos de todos los edificios y pisos existe, está completa y se creó en formatos digitales relativamente fáciles de adaptar al modelo.

El equipo de Shenzhen realizó innovaciones ingeniosas sobre esto con un sistema que llaman enfoque “holístico”. En pocas palabras, primero considera a estos grupos distintos de viviendas como “submercados” separados. Luego establece relaciones entre los submercados y así, pueden estimar los precios en todo el mercado con menos puntos de referencia totales.

El sistema en sí es maravilloso desde el punto de vista técnico, pero también es evidencia de lo avanzada que es la ciudad en conjunto. En muchos sentidos, en un logro que puede darse “solo en Shenzhen”.

Shenzhen también es única en su propio país. Apareció gracias a la mera voluntad política que dio a luz a las Zonas Económicas Especiales y no está bajo la administración directa del gobierno central. Sin embargo, como municipio con nivel de prefectura, disfruta el beneficio de contar con una relación más cercana con el gobierno central que otros municipios de su mismo nivel. El gobierno central otorga más libertades a Shenzhen al momento de probar cosas nuevas.

“En Shenzhen, los organismos gubernamentales como las comisiones municipales de planificación y suelo, o finanzas y tributación cooperan entre sí y se comparten datos”, explica la directora Xia. En el país esto es poco común, por lo que resulta difícil no valorar la importancia de que suceda. Geng Jijin, quien dirigió el centro de tasaciones antes de Xia, en el momento más intenso del desarrollo del modelo, tiene un punto de vista más personal: “Lo importante es ser creativos. Aquí todos venimos de distintas partes de China. La única opción es descifrar cómo llevarnos bien”.

Próximos pasos

La tarea de creación del sistema GAMA para Shenzhen aún no termina. Esto se debe, en parte, a que la ciudad creció de forma tan precipitada que gran parte de los edificios de las últimas localidades anexadas tienen poca documentación. Según la directora Xia, una de las mayores prioridades para los próximos pasos es agregar esas propiedades al sistema. Dada la escala de Shenzhen, es probable que lleve algunos años sortear el desafío.

La implementación del impuesto inmobiliario escapa al alcance del Centro de tasaciones. Wang declaró que se trata de un problema de políticas y el centro no se dedica a eso, y agrega: “Si se aplica la política, Shenzhen está lista para hacerlo”.

Nadie sabe cuándo podría ocurrir esto, dado que los impuestos inmobiliarios tienen semejante sensibilidad política en el país. Si bien hubo dos impuestos piloto en Shanghái y la ciudad de Chongqing, en el sudoeste, fueron muy limitados y se efectuaron más que nada como señal de que dichos impuestos están por llegar. Sin embargo, la presión aumenta. Al no haber un impuesto inmobiliario y dado que disminuyó la renta neta de las ventas de suelo de la que dependen los gobiernos, los presupuestos locales están cada vez más comprometidos.

Mientras tanto, el centro de tasaciones ya está ayudando a difundir conocimientos por fuera de sus límites tan especiales. Se enviaron delegaciones de todo el país para observar el sistema, incluso del otro lado del río, en Hong Kong, y de Taiwán.

Por su parte, McCarthy, presidente del Instituto Lincoln, está listo para encargarse de que los conocimientos y la experiencia lleguen a occidente. En lugares como Boston, donde hay polémica desde hace mucho tiempo sobre las construcciones cerca de Boston Common y las sombras que estas podrían causar, sería útil contar con un sistema que modele el sol.

Es posible que la difusión verdadera del nuevo sistema GAMA sea complicada, y no hay forma de saber cuánto tiempo podría llevar. Pero nada habría podido predecir que una aldea pesquera podría convertirse en una metrópolis en apenas tres décadas.

Tom Nunlist es director editorial de Sinomedia y jefe de redacción de CKGSB Knowledge, en nombre de Cheung Kong Graduate School of Business, de Beijing.

El autor expresa un agradecimiento especial a Carolyn Wang, tasadora masiva del Centro de tasaciones de Shenzhen, quien lo ayudó a gestionar las entrevistas en Shenzhen. Este artículo no se podría haber escrito sin su ayuda experta y su paciencia destacable.

Crédito de la imagen: Shenzhen Assessment Center

Referencias

Chen, Xiangming, y Tomas de’Medici. 2009. “The ‘Instant City’ Coming of Age: China’s Shenzhen Special Economic Zone in Thirty Years.” Serie inaugural de informes de trabajo, N.º 2, primavera de 2009. Hartford, CT: Centro de estudios urbanos y globales de Trinity College.

The Economist. 2012. “Time for a Property Tax: A Way to Stabilise Both China’s Wild Property Market and Its Weak Local Finances.” 4 de febrero. www.economist.com/node/21546014.

Centro municipal de recursos electrónicos gubernamentales de Shenzhen. 2017. “Shenzhen Government Online”. http://english.sz.gov.cn.

Wang, Da Wei David. 2016. Urban Villages in the New China: Case of Shenzhen. Nueva York, NY: Palgrave Macmillan.

Xiao, Cai, Wang Yu y Hu Yuanyuan. 2017. “Overall Govt Debt Risks ‘Under Control.’” China Daily USA, 13 de julio. http://usa.chinadaily.com.cn/epaper/2017-07/13/content_30102302.htm.

China is one of a small number of countries around the world that does not levy property tax on privately owned residential properties. After the Communist Party established a socialist regime in 1949, China adopted a public land ownership system and thereby lacked a real estate market until the reform era.

Since the reform, property sales, along with the economy as whole, have boomed. First-tier cities such as Shanghai and Beijing are now home to some of the world’s most expensive real estate. But taxes are imposed only at the point of property sales and transactions, not annually on ownership.

It may come as a surprise, then, that China is driving the evolution of valuation technology, particularly in Shenzhen—the brand-new southern city that has grown from a small town of 50,000 residents to a major metropolis of 12 million since 1982. The Shenzhen Assessment Center—a municipal statutory agency that was established to assist the collection of taxes on real estate sales and transactions—has developed what is arguably the most advanced property valuation system in the world. It is a logical extension of the computer-assisted mass appraisal (CAMA) system that the Lincoln Institute was instrumental in developing for desktop computers decades ago. The Peking University–Lincoln Institute Center for Urban Development and Land Policy (PLC) has helped several Chinese cities implement CAMA in anticipation of a future property tax. What makes Shenzhen’s system different is that it uses GIS technology and new techniques that elevate CAMA to the next level.

Today, CAMA is an international standard that has made it possible to assess entire metro areas from a desktop computer. But CAMA by nature is mainly a two-dimensional system, whereas modern geographical information system (GIS) software is capable of efficiently rendering three-dimensional (3-D) maps. The future of property assessment lies in marrying CAMA techniques with GIS tools in a system known, naturally, as “GAMA.”

CAMA systems are, broadly speaking, not overly exciting to look at, with lots of data tables and highly detailed two-dimensional maps. GAMA by contrast is dazzling. Using GIS tools, the system constructs 3-D models of entire cities, with streets, buildings, the individual properties within them, landscape features, and so on. Imagine the feel of an open-world video game. The aim is to be able to appraise every property from computers in the assessment office.

“In my view, Shenzhen is dragging CAMA into the next generation, doing things in their valuation that nobody else can do,” says George W. McCarthy, president and CEO of the Lincoln Institute.

Shenzhen: Center of Progress

In many ways, the development of Shenzhen’s property assessment system is the classic story of modern China: starting from far behind, absorbing knowledge from more advanced economies, adapting to local needs, and ultimately coming to rival the best in the world. The fact that it happened in Shenzhen—the Special Economic Zone that launched the experimentation that transformed China from a largely rural economy to a global power—is unsurprising. In 1979, as China was charting the course of its new reform, four cities were declared “Special Economic Zones (SEZs),” pilot projects where the government would experiment with market mechanisms. Shenzhen, a fishing town of just 30,000 people, was one of them. Adjacent to Hong Kong, which was administered at that time by the British and highly internationalized, Shenzhen was in a perfect position to perform the mission of SEZs—attract global companies to trade, bring in foreign direct investment, and obtain for China the tools necessary to forge a modern developed nation.

As investment poured in and factories sprang up, Shenzhen became the beating heart of China’s new economy, and one of the world’s most advanced cities. In just 30-odd years, it grew into a bustling metropolis of nearly 12 million. Its official GDP in 2016 was US$284 billion (RMB 1.88 trillion), with a per capita GDP of US$25,790 (RMB 171,013), more than triple China’s average. Sometimes called China’s Silicon Valley, it is home to some of the world’s most powerful tech companies, including Internet giant Tencent.

As early as 2003, the central government started to consider introducing a property tax. Six cities were selected as pilot experiment cities for mass appraisal of properties. Shenzhen was one of them. Shenzhen’s Center for Assessment and Development of Real Estate was founded that same year to commence the enormous task of citywide valuation. At first, they were more or less on their own and progress was slow. It took three years to designate basic prices in 56 neighborhoods, in order to assign a single price for the whole area.

The initiative coincided with the Lincoln Institute’s foray into China in 2003, when it began developing relationships with government agencies and conducting research projects on topics ranging from property tax and municipal finance to public land management and land expropriation. “We saw the changes as the economy was being opened up, and we figured there would be all sorts of land policy challenges to grapple with,” McCarthy says.

In 2007, the Lincoln Institute and Peking University, China’s oldest and most prestigious university, endeavored to open the PLC, a research institute staffed by both organizations. One of the PLC’s early tasks was to help the Chinese government understand how to create a property tax that works as a system of revenue. The PLC organized training events to disseminate international knowledge of property taxation and computer-assisted mass appraisal to China. The PLC invited experts from the International Association of Assessing Officers, International Property Tax Institute (IPTI), Rating and Valuation Department of Hong Kong, ESRI Canada, and others. To better demonstrate how CAMA worked, the PLC launched a pilot demonstration project that established a CAMA system for the financial district of Beijing. The PLC also mobilized international experts to assist Shenzhen and Hangzhou, and funded study tours for technical personnel, in the United States, Canada, and Hong Kong. The impact was enormous.

“The PLC was translating the professional literature on property valuation, and it was the first time we were encountering some of this stuff,” says Dr. Wang Youjie, head of the Shenzhen center’s mass appraisal department. “They also introduced us to CAMA.”

Aided by access to a developed body of knowledge, progress in Shenzhen rapidly accelerated. By 2010, the center had evaluated prices on a per-building basis for 170,000 buildings, and by 2011 had done basic evaluations for 1.5 million residential properties. “After understanding the theory better, 2010 to 2011 was a breakthrough point for us,” says Xia Lei, director of the Shenzhen Assessment Center.

Also important was the Lincoln Institute’s role as a connector, enlisting top foreign experts to host seminars and perform hands-on training and development work. To date, the Lincoln Institute has mobilized more than 20 property tax experts to China. For the assessment center in Shenzhen, no one was more familiar than Michael Lomax.

For 22 years, Lomax worked as property assessor for British Columbia Assessment, a province-wide assessment office in Canada. He was among the first people the Lincoln Institute brought to China in 2007, when he joined a government delegation. He has continued making trips to China even after leaving British Columbia Assessment in 2012 to take a position with ESRI, which specializes in GIS solutions.

“A lot of my work in China was to illustrate, convey, and help them install worldwide best practices,” says Lomax, who also teaches mass appraisal at the University of British Columbia. Around 2011, he began working more directly with the Shenzhen center and an appraisal firm hired by the city of Hangzhou, Zhejiang, a city not far from Shanghai. Like Shenzhen, Hangzhou is also known for its tech industry, including the headquarters of e-commerce titan Alibaba.

The speed at which these two cities were working was sometimes astonishing. During one trip to Hangzhou, Lomax spent an entire day critiquing the assessment system built by the local department. The next morning, they asked him to look again. “They had their programmers stay up all night at the hotel to fix all the problems I pointed out,” says Lomax, still a bit in awe. “This might take you six months to do in the West, and they did it in hours.”

The team in Shenzhen was equally impressive. According to Lomax, they took the computerized evaluation methods to the next level. “They are really advanced in fine-tuning the mathematics,” he says. “Shenzhen is far better at valuing properties dynamically, on the fly, than British Columbia.”

In other words, there was a clear opportunity in Shenzhen to advance the GAMA evolution. “It was Michael that gave us the idea of doing GAMA,” says Wang.

From Follower to Leader

ESRI, a global consulting firm specializing in GIS solutions, is helping to build GAMA models in several municipalities. There is Vancouver, where Lomax works; Maricopa County, Arizona, which encompasses Phoenix; and also Shenzhen. These projects are in varying stages of development, but the Shenzhen system is impressive nonetheless. Sitting in on a demonstration of the system is like inhabiting a painting inside a painting, as if you might spot your virtual self if you peeked in the right window. But what it can do in terms of assessment is even more impressive.

Of course, it factors in all the indicators accounted for by a traditional CAMA system: location, number of rooms, floor space, recent market prices, and so on. It can also estimate the value of being near a subway station or close to a school. The three-dimensional nature of the system boosts the functionality. Using vectors, it is possible to model the window vantage point of every single unit in a given building. From the desktop, the appraiser can determine if a resident has a sweeping view of beautiful Lianhuashan Park in central Shenzhen (think New York’s Central Park, except with palm and banyan trees), or just the boring façade of a neighboring high-rise. The system can also track a virtual sun across the sky, estimating how much daylight an apartment gets. In addition to modeling light, it can also model sound—a lower-floor unit facing a busy traffic intersection, for instance, is disadvantaged compared to a unit facing a peaceful courtyard.

The system weights all those factors and synthesizes the final valuation of a property. All told, these factors can amount to a 20 percent difference in value between two units in the same building.

The system is also being used to better execute property transaction taxes. Through this smaller trial, the efficacy of the tool is apparent: of the millions of properties valued so far, only 27,106 challenges have been made as of January this year, and of those only 282 assessments had to be readjusted.

The Shenzhen assessment project is not without challenges. First, the market is young, so there is a relative dearth of transaction data. On top of that, transactions are sometimes reported at artificially low prices, to avert transaction taxes. Finally, the housing market is highly heterogeneous, with fairly distinct groups of housing types.

Limited property transaction data can be among the biggest challenges to implementing a system such as this. In this regard, Shenzhen has a distinct advantage over just about any other city in the world in terms of the knowledge of its properties. The whole place is brand new, and this is especially true for the city center where the slick 3-D model is most impressive. That means the data on all the buildings and floor plans is existing, complete, and rendered in digital formats that are, relatively speaking, easy to adapt to the model.

The team in Shenzhen cleverly innovated around this with a system they call the “holistic” approach. Briefly, it treats those distinct groups of housing first as separate “sub-markets.” Then by establishing relationships among those sub-markets, they are better able to estimate prices across the entire market with fewer data points overall.

The system alone is marvelous from a technical standpoint, but it is also a testament to the advanced nature of the city as whole. In numerous ways, it is an “only in Shenzhen” achievement.

Shenzhen is unique in a purely Chinese context as well. Conjured by the pure political willpower that gave life to the Special Economic Zones, Shenzhen is not directly administered by the central government. However, as a prefecture-level municipality, Shenzhen enjoys closer relationship with the central government than other prefecture-level municipalities. The central government grants more freedom to Shenzhen to try new things.

“In Shenzhen, government agencies, such as the municipal commissions of planning and land, and finance and taxation, are cooperating to share data,” says Director Xia. In a country where interdepartmental data sharing is rare, it is difficult to understate how important this is. “The point is to be creative.”

Geng Jijin, who directed the assessment center before Xia, when development of the model was most intense, puts a more personal spin on it: “Everybody here is from different places in China. We have no choice but to figure out how to get along.”

The Road Ahead

The job of creating the GAMA system in Shenzhen is not yet finished. Partly because Shenzhen grew at such a breakneck pace, a significant portion of buildings from the newly annexed localities are rather poorly documented. According to Director Xia, bringing these properties into the system is a top priority going forward. Given the scale of Shenzhen, it will likely take a few years to work through the challenge.

The implementation of a property tax goes beyond the purview of the Shenzhen Assessment Center. It is a policy problem and the center does not make policy, Wang says, adding “If the policy is put forward, Shenzhen is ready for it.”

It is anyone’s guess when that might happen, given the politically sensitive nature of property tax in China. While there have been two pilot taxes in Shanghai and the southwestern city of Chongqing, they have been very limited and undertaken mainly as a signal that property taxes are coming. Pressure is, however, building. In the absence of a property tax, and as the net revenues from land lease sales that local governments rely on have declined, local budgets have become increasingly strained.

In the meantime, the assessment center is already helping to spread knowledge beyond its very special borders. Delegations have been sent from all around China to view the system, including from across the river in Hong Kong and all the way from Taiwan.

Lincoln Institute President McCarthy, for his part, is ready to see knowledge and experience flow west. Places such as Boston, where there has long been controversy over building near Boston Common due to the shadows it would cause, could use a system that models the sun.

Actually spreading the new GAMA system will likely be difficult, and there is no telling how long it might take. But nobody would have predicted that a fishing village could become a metropolis in three decades flat.

Tom Nunlist is editorial director at Sinomedia and managing editor of CKGSB Knowledge, on behalf of Cheung Kong Graduate School of Business in Beijing.

The author extends special thanks to Carolyn Wang, a mass appraiser at the Shenzhen Assessment Center, who helped arrange reporting in Shenzhen. This piece would not have been possible without her expert help and remarkable patience. 

Image Credit: Shenzhen Assessment Center

References

Chen, Xiangming, and Tomas de’Medici. 2009. “The ‘Instant City’ Coming of Age: China’s Shenzhen Special Economic Zone in Thirty Years.” Inaugural Working Paper Series, No. 2, Spring 2009. Hartford, CT: Center for Urban and Global Studies at Trinity College.

The Economist. 2012. “Time for a Property Tax: A Way to Stabilise Both China’s Wild Property Market and Its Weak Local Finances.” February 4. www.economist.com/node/21546014.

Shenzhen Municipal E-Government Resources Center. 2017. “Shenzhen Government Online.” http://english.sz.gov.cn/.

Wang, Da Wei David. 2016. Urban Villages in the New China: Case of Shenzhen. New York, NY: Palgrave Macmillan.

Xiao, Cai, Wang Yu, and Hu Yuanyuan. 2017. “Overall Govt Debt Risks ‘Under Control.’” China Daily USA, July 13. http://usa.chinadaily.com.cn/epaper/2017-07/13/content_30102302.htm.