That there is social conflict over property rights is clear to anyone with even passing attention to the national media.

We hear a lot about communities these days, and as individuals we likely belong to or live in several communities that may have shared values. In communities where peoples’ values and interests are not necessarily shared, however, interactions and decision making may be more complicated.

Working within the land trust network, many of us have been acculturated to consider natural communities to the exclusion of our human surroundings. To be most effective, however, we must deal with the complete range of communities and all their human and ecological complexities.

En vista de que, en los Estados Unidos, existen más de 25.000 gobiernos municipales involucrados en el análisis y aprobación de cambios propuestos en referencia a la zonificación, planificación y desarrollo de propiedades, la cantidad de decisiones sobre el uso del suelo que se toma a nivel municipal por año probablemente ronda los millones. Si bien la gran mayoría de estas resoluciones siguen el curso normal, los cambios en el uso del suelo y la zonificación que resultan más complejos y conflictivos con frecuencia implican conflictos amargos y duraderos. El exceso de derechos de desarrollo en la región intermontañosa del oeste de los Estados Unidos (página 4) es un ejemplo de este problema tan complicado sobre el uso del suelo.

Los conflictos sobre el uso del suelo y el desarrollo inmobiliario están clasificados entre los tipos más comunes de desacuerdos civiles en los Estados Unidos y, por lo general, involucran a muchas partes, propiedades e intereses. Estos conflictos generan costos para todas las partes directamente implicadas, así como también para el público en general. Sin embargo, una larga experiencia en la resolución de conflictos sobre el uso del suelo indica que los cambios en el proceso de toma de decisiones sobre el uso del suelo pueden producir mejores resultados a un costo menor.

Los gobiernos municipales por lo general tienen una junta encargada de tomar las decisiones referentes a los cambios en el uso del suelo, para lo cual emplean un proceso de cuatro pasos. En primer lugar, la parte que desea obtener un cambio o permiso para desarrollar una propiedad debe presentar una solicitud ante dicha junta. En segundo lugar, la junta analiza la solicitud y puede requerir al solicitante respuestas adicionales o modificaciones. En tercer lugar, se da la oportunidad al público para que realice comentarios, lo que puede derivar en un diálogo más entre la junta y el solicitante, así como en nuevas modificaciones a la solicitud. Finalmente, la junta emite su decisión. Este proceso funciona bien en la mayoría de las solicitudes que se procesan con una celeridad razonable. No obstante, la junta invierte la mayor parte de su tiempo en aquellos casos, una minoría, que involucran muchos intereses y numerosos derechos que pueden superponerse o ser contradictorios o imprecisos.

El proceso típico de cuatro pasos se centra en la adjudicación de derechos; así, cuando se trata de pocas cuestiones simples y los derechos se encuentran bien definidos en relación con las propiedades en cuestión, este método funciona bien. Sin embargo, en los casos más complejos, resulta más prometedor utilizar un enfoque más amplio centrado en el beneficio mutuo de todas las partes involucradas. El enfoque de beneficio mutuo resulta más productivo cuando se dan las siguientes condiciones: existen muchas partes interesadas; la junta que toma las decisiones posee algún nivel de discreción en la decisión en particular; el impacto de la decisión es de largo plazo y largo alcance; y es probable que todo resultado que no sea colaborativo finalmente sea apelado por una o más de las partes interesadas. El enfoque de beneficio mutuo no debe considerarse como una alternativa al proceso normal de los cuatro pasos, sino como una ampliación del mismo, básicamente, mediante la suma de pasos adicionales o la ampliación de los pasos existentes en el proceso estándar.

La clave para utilizar con éxito el enfoque de beneficio mutuo es lograr descubrir los intereses subyacentes de las partes interesadas, es decir, de aquellos intereses situados tras la posición adoptada públicamente, y, luego, desarrollar nuevas opciones o soluciones que den respuesta a dichos intereses. La situación ideal se da cuando este paso tiene lugar en las primeras etapas del proceso cuando las posiciones de las partes interesadas todavía son flexibles.

Este proceso de investigación y detección es un elemento de la primera etapa del enfoque de beneficio mutuo, la cual implica identificar a las partes interesadas, escuchar atentamente sus motivos de preocupación y tomar como base sus intereses. En el proceso habitual de cuatro pasos, estas actividades probablemente tendrían lugar en una fase previa a la solicitud, en la que se considerarían los conceptos de desarrollo y diseño antes de formular las propuestas definitivas. La segunda etapa del enfoque de beneficio mutuo consiste en diseñar un proceso de colaboración que involucre a todas las partes interesadas y ofrezca oportunidades para que dichas partes compartan información y aprendan unas de otras. La tercera etapa consiste en promover un diálogo exitoso entre las partes interesadas, por lo general mediante la intermediación de un buen facilitador que logre generar relaciones y confianza entre las partes involucradas. La etapa final consiste en implementar los acuerdos que se hayan logrado, garantizando que las soluciones propuestas incluyan los acuerdos que se hayan alcanzado entre los participantes, a la vez que cumplen con los requisitos que establezca la junta encargada de tomar las decisiones.

El nuevo libro publicado por el Instituto Lincoln, Land in Conflict (Suelo en conflicto), escrito por Sean Nolon, Ona Ferguson y Pat Field, que contiene una descripción más detallada del enfoque de beneficio mutuo, junto con estudios de casos informativos. Está disponible tanto en formato impreso como electrónico.

Growing the International Land Conservation Network

Laura Johnson is an attorney and lifelong conservationist with more than 30 years of experience in nonprofit management. She is currently director of the new International Land Conservation Network (ILCN), a visiting fellow at the Lincoln Institute of Land Policy, and chair of the Land Trust Alliance board of directors.

Laura was the president of Mass Audubon from 1999 to 2012. Prior, she worked for 16 years at The Nature Conservancy as a lawyer, Massachusetts state director, and vice president of the northeast region.

Laura received a B.A. in history from Harvard University and a J.D. from New York University Law School. From 2013 to 2014, she was a Bullard Fellow at the Harvard Forest, Harvard University, where she completed a study on private land conservation efforts around the world.

LAND LINES: Your program, the International Land Conservation Network (ILCN), is new this year, but it has some antecedents at the Lincoln Institute. Can you tell us about that history?

LAURA JOHNSON: There are some wonderful connections between the new network and the Lincoln Institute’s past support of the innovative, capacity-building effort devoted to conservation that eventually became the Land Trust Alliance.

In the early 1980s, Kingsbury Browne, a prominent Boston lawyer, decided to take some time away from his law firm, and he used a sabbatical at the Lincoln Institute to explore the needs and opportunities of private land trusts in the United States. Up until that point, there was no nationwide effort to seek out the best examples of land protection activities, to share those ideas and best practices, or even to keep track of what was happening in land conservation around the country. Kingsbury Browne’s study led him, along with several other land trust leaders at the time, to start a new organization called the Land Trust Exchange, which connected the country’s small but growing conservation community through a newsletter and some basic research and training activities. The Lincoln Institute played a crucial role in helping to launch the Exchange, which grew over the years and changed its name to become the Washington, DC–based Land Trust Alliance. There were fewer than 400 U.S. land trusts in 1982 when the Exchange got started; now the Land Trust Alliance serves 1,200 land trusts all over the United States. The Exchange started out with a modest newsletter in the 1980s; now the Alliance provides an online learning center, a full conservation and risk management curriculum, and more than 100 webinars and 300 workshops that served close to 2,000 people in 2014.

LL: Throughout most of your career, you have been deeply engaged in U.S.-based land conservation work. What attracted you to expand your efforts on an international scale?

LJ: When I stepped down from the presidency of Mass Audubon two years ago, I began talking with Jim Levitt, a fellow at the Lincoln Institute, the director of the Program on Conservation Innovation at the Harvard Forest, and a former Mass Audubon board member. It was initially his idea that I explore how conservationists outside the United States were using and adapting conservation tools that had been developed over the years here. Jim had become very involved in private conservation efforts in Chile, and there was an opportunity to strengthen the very new movement there by sharing U.S.-based measures such as conservation easements. At about the same time, Peter Stein received the Kingsbury Browne fellowship and award from the Land Trust Alliance and the Lincoln Institute, which allowed him to explore the breadth of worldwide conservation organizations as well. Through our different projects, Jim, Peter, and I came to the similar conclusion that many people around the globe shared a strong interest in connecting to each other and to U.S. conservationists. This desire for a community of practice seemed like a remarkable opportunity to help build capacity for privately protecting land.

LL: Why is this role the right challenge at the right time for you?

LJ: I have had the incredible good fortune to work with some great organizations and wonderfully talented people. As a young lawyer just starting out at The Nature Conservancy in the 1980s, I was able to grow professionally at a pivotal time for conservation in the United States. Looking at the historic trend lines, the U.S. land conservation movement took off then, and it was very exciting to be a part of that growth. Then when I went to Mass Audubon in 1999, I was able to run the nation’s largest independent state Audubon organization, which provided leadership not just with land conservation, but with environmental education and public policy as well. Now, I have the honor of serving on the board of the Land Trust Alliance, which does such remarkable work here in the United States to enable effective land and resource protection. Along the way, my legal training was certainly useful, but I have also learned a tremendous amount about what makes organizations successful and likely to have a positive impact. I feel very fortunate to have this background and set of experiences, and I want to bring it to bear on the issues facing the international land conservation community.

LL: You’ve mentioned capacity building and creating successful organizations a few times. Can you comment on what that means in the context of land conservation?

LJ: Land conservation organizations need all the elements of any sound nonprofit organization—a clear mission, a compelling vision and strategy, disciplined planning and clear goals, sufficient financial resources, and great people. But working on land protection requires a very long-term outlook. To start with, a land trust needs to have the knowledge and resources to assess what land should be protected—whether the mission is to conserve natural resources or scenic, cultural, or historic values—and what legal and financial tools are best suited to achieving a good outcome. Then it can take years of working with a landowner to get to a point where everyone is ready to agree on a deal. Land trusts need to have people with the training, knowledge, and experience to carry out transactions that are legally, financially, and ethically sound. Once land is protected by a trust, that organization is making a commitment to manage the land it owns or has restrictions on forever. Museums are a good analogy, but instead of Rembrandts and Picassos, land conservation organizations are stewards of invaluable living resources, and the land and water we all depend on to survive.

LL: Why is private land conservation particularly important now? Why do we need an international network?

LJ: We are at a critical juncture as the pressures of climate change, land conversion, and shrinking government resources are making it more challenging than ever to protect land and water for the public benefit. Therefore the mission statement of the new International Land Conservation Network emphasizes connecting organizations and people around the world that are accelerating voluntary private action that protects and stewards land and water resources. Our premise is that building capacity and empowering voluntary private land conservation will strengthen the global land conservation movement and lead to more long-lasting and effective resource protection.

Support for better coordination of international private land conservation is emerging from many sources. For example, the International Union for the Conservation of Nature (IUCN) considered the role of private land conservation in the context of global efforts at its November 2014 World Parks Congress held in Sydney, Australia. The Futures of Privately Protected Areas, an IUCN-commissioned report released at that conference, provided a number of recommendations, such as developing relevant training and improving knowledge sharing and information, which are certainly important goals for the new network. We expect to work in collaboration with partners such as the IUCN, and with the existing regional or countrywide networks that are already in existence. And of course we have the very powerful example of the Land Trust Alliance and what it has been able to accomplish over 30 years to build the capacity of land trusts in the United States.

LL: What will you try to accomplish in the first year to address these needs?

LJ: We’ve had to get ourselves organized and deal with basic issues such as our name, visual identity, mission statement, goals, and governance structure. We will be designing and launching a website to serve as the essential repository of case studies, research, best practices, events, and conferences. Eventually, we want to have a continuum of learning available on the website through tools like webinars that address a range of subjects, from legal instruments to organizational best practices. We also want to carry out a census of existing networks and active organizations, to start building a baseline of knowledge about private land protection that will help measure progress over time.

LL: What are the greatest challenges to starting the network?

LJ: There are many. Money is a big one, of course. We’ve received a generous start-up grant from the Packard Foundation, and we have great support from the Lincoln Institute. But we are working hard to identify additional sources of funding, in order to grow the network and increase its impact. And of course we are still proving that the network will provide useful, important, and actionable information and training to meet a tremendous variety of needs within the international land conservation community. We know that we can’t do everything, so we must be strategic and choose activities that will have impact. The global scale also presents a host of cultural and logistical challenges, requiring us to navigate different legal systems, languages, customs, and, last but not least, time zones.

On the positive side, we already have a very committed group of land conservation practitioners who came together at our organizing meeting in September 2014 and enthusiastically signed on to be the “sweat equity”—to provide the network with knowledge, expertise, experience, and wise counsel. It’s already very clear to me that this is a wonderful group of colleagues who are doing interesting and important work around the globe. It will be an adventure—and I know I’ll learn a lot—to grow this new network together.

Editor’s note: This article summarizes a recent Lincoln lecture by Dean Gerald Korngold of the Case Western Reserve University School of Law. He outlined the current status of the law on nonpossessory rights in property and discussed its future direction.

Everyday life presents many examples of agreements that divide the rights to possession of property. A typical lease allows the tenant a period of possession in exchange for payment of rent, and joint ownership arrangements provide a means of sharing or dividing possession. But, nonpossessory interests are equally important because they provide a mechanism for private land use regulation. Some examples are condominium owners’ rights in their building’s common areas, storekeepers’ agreements with the operator of the shopping center in which they are located, and gated communities’ covenants to restrict access. None of these convey possession, but all affect daily living and business arrangements. The widespread adoption of public zoning restrictions over the past century has by no means diminished the role of private land use agreements, and may even have enhanced it by making limitations on a possessor’s rights of use a familiar and accepted aspect of property ownership.

An agreement concerning the use of property could, of course, take the form of a simple contract, whether between neighbors, store owners and a mall operator, or condominium residents and their homeowners’ association. But such a contract would not necessarily survive a sale, inheritance or other transfer of ownership of the property in question. A generation later, a court might well refuse to enforce an agreement where neither the person violating its provisions nor the person seeking to uphold them were parties to the original contract. For this reason, long-term durability requires that private land use restrictions take the form of a conveyance of a property interest, rather than a contract.

The New Restatement of Property

Part of the complexity of nonpossessory rights stems from the numerous and often ambiguous distinctions among them in the common law. They fall within four traditional categories:

• An easement is a nonpossessory right in the land of another.
• A profit allows the holder to enter on land that he or she does not possess and remove resources from it, as by mining coal or harvesting timber.
• Covenants, including both real covenants and equitable servitudes, are promises between owners of neighboring land, differing only in the remedy available in the event the promise is broken.
• An equitable servitude can be specifically enforced by ordering action to be taken and the promise kept; breach of a real covenant would only result in monetary damages.

It is clear even from this cursory description that a given interest might be assigned to more than one category. For example, an agreement between neighbors not to construct commercial buildings on their properties might be characterized as an easement, an equitable servitude, or a real covenant, and each result would carry different legal consequences.

Traditionally, courts were most favorably disposed toward easements, and were much less likely to enforce real covenants and equitable servitudes. Over time two distinct categories of property law developed to address similar issues in these different contexts. In 2000 the American Law Institute, an organization of practitioners, jurists and scholars concerned with legal reform, took a major step in attempting to simplify and rationalize the law of nonpossessory interests. Its Restatement (Third) of the Law of Property adopted a single unified approach and a new category, termed “servitudes,” encompassing all earlier classifications. Restatements have no binding legal effect, but they often influence both legislatures considering changes to the law and courts charged with its interpretation.

Policy Arguments: Pro and Con

Judicial decisions concerning nonpossessory interests often give weight to larger issues of public policy in determining whether to enforce these agreements. Four major policy considerations often support enforcement: the moral obligation accompanying a promise; interests of economic efficiency; respect for freedom of choice; and a desire to promote certainty in business agreements.

Moral Obligation. This issue reflects a sense of fairness in enforcing a promise and applies both to the original parties to the agreement and to their successors in ownership. When restrictions that are intended to affect future purchasers (i.e., restrictions that “run with the land”) are recorded at public registries and available for inspection, failure to enforce these agreements will produce an unwarranted windfall for the parties who breach them. The original owners who entered the agreement did so voluntarily and in anticipation of some benefit. Later purchasers presumably made their own bargains in light of these agreements. A buyer of restricted property will generally pay less for it than he or she would if a more profitable use were permitted. Thus the new owner would receive an unfair benefit if the lower purchase price were followed by a release from the obligation to adhere to the restrictions.

Efficiency and Freedom of Choice. Nonpossessory agreements promote efficiency by greatly expanding the range of possible property interests that may be transferred. Consider the case of an owner seeking to insure that there is no intrusive construction on a neighboring lot in the future. Absent the availability of a nonpossessory interest, the owner’s only recourse would be to purchase the entire neighboring lot, even if outright ownership was not desired and in fact precluded other nonobjectionable use by a different party. The ability to acquire only part of the bundle of rights constituting the property allows flexibility that can benefit all affected parties. In this way efficiency concerns are closely related to those favoring freedom of choice. The value our society places on individual autonomy leads to a presumption in favor of voluntary private arrangements concerning land ownership. This is especially important when the subject matter concerns one’s home, as do many land use agreements.

Certainty. Enforcement of private agreements also promotes the certainty and stability necessary for long-term planning and investment. By contrast, a zoning ordinance may be varied in individual instances or altered in response to political pressure. This is one important incentive for private agreements to restrict land use, even when such limitations are already part of the local zoning code.

These concerns, however, are balanced by other policy considerations that may argue against enforcement of a servitude. Perhaps the most significant is the centuries-old common-law distrust of restrictions on future land use, development and sale. Recognizing that we have no special power to predict the social and economic concerns of future generations, courts have traditionally limited the extent to which contemporary agreements may bind later owners. In fact, the term “mortmain,” referring to property held without the power of sale, literally refers to the “dead hand” of past restrictions. From this perspective, policy considerations favoring efficiency, flexibility and personal choice can militate against as well as in favor of enforcement of restrictions in specific cases.

In some instances, this concern centers on restraints on alienation, or provisions that make the land more difficult to sell. However, the very flexibility fostered by the introduction of a market for new partial property interests will often obviate this objection. A prospective owner who wishes to buy property free and clear of a longstanding servitude can often accomplish this by a two-part transaction: purchasing the encumbered property at the lower price it currently commands on the market and simultaneously paying the holder of the servitude the amount needed to release it. Thus, a purchaser of property limited by private agreement to residential use could build a retail structure there (assuming it were permitted by local zoning ordinances) if he or she were able to negotiate with the neighbor a termination of the agreement prohibiting such construction. The lifting of a “cloud on title” of this type is extremely common, as in the case of a new owner who negotiates with a current tenant over payment for early termination of a lease.

New Models for Judicial Decisions

Given the effort of the Restatement to release some of the “dead hand” of common law classification, and given the enormous proliferation of commercial, condominium, homeowner and conservation restrictions in recent years, what new criteria should courts apply in determining whether to enforce a specific agreement?

One frequently discussed criterion concerns subject matter: should certain categories of restrictions be suspect because they may infringe on special rights, such as the right to individual expression and free speech? Should a homeowners’ association be able to bar the display of flags and political posters from its members’ premises? One real-life dispute pitted the governing board of a cooperative on the East Side of Manhattan against a unit owner who refused to cease sponsoring baptisms in the apartment’s swimming pool. (The owner argued that often the ceremonies involved college football players, who were too large to fit in a bathtub.) Note that these disputes do not involve the First Amendment, which only prohibits governmental restrictions on speech and religion, not voluntary private agreements. Restrictions also increasingly address architectural and aesthetic issues, which combine concerns for common amenities with problems of limiting personal expression and individual freedom.

Instead of allowing the subject matter to determine the outcome of these cases, an alternate approach would enforce only those covenants that regulate external behavior, not those that seek to limit personal status or activities within a private residence. This would permit restrictions on outside flags and posters, but not prohibitions on unmarried couples living together or the conduct of church services within a home (including baptisms in the bathtub). Of course, it would permit restrictions on the external effects of such arrangements, such as garbage, traffic, parking and noise. Similarly, it would generally support architectural limitations on landscape and external building elements, for these have important “spillover” effects on other residents.

The new Restatement of the Law of Property does not attempt to formulate this approach into a formal rule. However, it does recommend that general considerations of public policy guide courts in determining whether to enforce a specific servitude, and it notes the need for special concern in addressing issues of personal autonomy.

The Special Case of Conservation Easements

Conservation easements are currently one of the most significant and fastest-growing types of servitudes. They convey to a conservation organization or governmental unit the right to enforce a limitation on development of privately owned property, illustrating the great potential of nonpossessory interests. Often families who are the most committed to the preservation of their land and have a strong sense of its value as open space are the least interested in selling the property to a charity or to the government. The conservation easement permits protection against development while the land remains in private ownership. The organization holding the easement does not have the responsibilities of ownership, and some portion of the property value remains on the tax rolls. The net expenditure, even when the easement must be purchased, is less than the cost of the entire parcel. It is easy to see why conservation easements have become tremendously popular land preservation tools.

At the same time, some of the public policy concerns that argue against enforcement of other servitudes can be operative here as well. In particular, unease over long-term restrictions on land use is magnified in this case because federal income tax law allows a deduction for the gift of an easement only if it operates in perpetuity. Perpetuity is a long time, and appropriate land use may change dramatically in the future. Conservation easements are also “in gross,” meaning that they can be held by organizations that are not neighboring property owners. The original limitation of covenants to nearby owners reflected a concern that distant parties might be uninterested in or uninformed about local issues, with no necessary stake in promoting efficient land use and economic development. They could also be difficult to locate if needed to release a covenant or servitude. Finally, there are troubling antidemocratic aspects of a system that permits private parties to impose perpetual land use restrictions without public oversight.

These concerns are not grounds for recommending wholesale changes to the law of conservation easements, such as a restriction to type of ownership or a uniform limitation on duration. These requirements would be too rigid a response, particularly when more time is needed to understand how well-founded such misgivings might be. Individual decisions informed by experience, rather than expansive rulemaking on the basis of abstract reasoning, is the greatest strength of our common-law heritage. This approach permits courts to intervene selectively in the rare cases where the public interest may not support specific enforcement of an easement. This is already a familiar response in, for example, the law of nuisance, where individual awards may be limited to monetary damages alone. State attorneys general may also be able to exercise increased oversight and represent the public interest more actively as conservation easements come into ever-broader use.

Conclusion

Nonpossessory interests in property are as widespread as rights of way and as familiar as the covenants in a homeowners’ association agreement. The enormous usefulness of these servitudes makes efforts to modernize and rationalize their application critically important. At the same time, because their influence is felt in numerous facets of everyday life, judicial analysis of their legal effects provides a context within which to consider bedrock issues of public policy.

Joan Youngman is senior fellow and chairman of the Lincoln Institute’s Department of Valuation and Taxation and an attorney who writes on legal aspects of property taxation policy and practice. She has developed and teaches numerous Institute courses on conservation easements, land valuation techniques and the interaction of property taxation and public finance.

Una versión más actualizada de este artículo está disponible como parte del capítulo 2 del libro Perspectivas urbanas: Temas críticos en políticas de suelo de América Latina.

Académicos y profesionales involucrados en la regularización de asentamientos en sectores de bajos ingresos en Latinoamérica compartieron sus experiencias en un foro patrocinado por el Instituto Lincoln en marzo de 1998. La ciudad de Medellín, Colombia y su oficina de regularización, PRIMED (Programa Integrado para el Mejoramiento de Barrios Deficientes en Medellín) sirvieron de anfitriones. Entre los participantes se incluyeron representantes de PRIMED, empleados oficiales de la ciudad de Medellín y observadores de instituciones multilaterales, tales como el Banco Interamericano de Desarrollo (BID), el Banco Mundial, USAID y la Fundación GTZ de Alemania.

Doce ponencias principales informaron sobre los casos de estudio más significativos de ocho países: Brasil, Colombia, Costa Rica, Ecuador, El Salvador, México, Perú y Venezuela. El foro resultó ser una reunión excepcional cuyas conclusiones, resumidas más adelante, probablemente tendrán importantes repercusiones en las políticas de Latinoamérica.

Perspectivas Comparativas de Regularización

Diversos puntos de vista sobre regularización aparecen ilustrados por los trabajos de cada país. Los dos enfoques principales son la regularización jurídica (por ejemplo: procedimientos de legalización de títulos de la tierra a fin de convertir la propiedad “de hecho” en propiedad jurídica, en Perú, Ecuador y México) y la regularización física (urbanización), incluyendo la expansión de servicios de infraestructura en asentamientos irregulares (Colombia, Venezuela, Brasil y otros países). Un tercer enfoque, en el cual se ha hecho énfasis sólo recientemente, establece como prioridad la integración social y cívica de los asentamientos de población de bajos ingresos dentro de la estructura urbana a través de una serie de medidas.

Aunque en la mayor parte de los países se presentan elementos de estos tres tipos de regularización, generalmente cada país se orienta más en una dirección que en otra. En México, los tres enfoques se utilizan simultáneamente. En la mayoría de los otros países, el énfasis depende de la fuerza relativa de los actores, las organizaciones y las políticas por una parte, y de la forma en que el problema de regularización es concebido (“construido”) por las autoridades federales y locales, por otra.

La Regularización Jurídica: Programas de Adjudicación de Títulos de Propiedad

La regularización de títulos de propiedad se ha convertido en práctica similarmente aceptada por gobiernos, agencias internacionales y organizaciones no gubernamentales. De hecho, la pregunta “¿por qué regularizar?” que se planteó al comienzo del foro pareció tomar a todos de sorpresa. Sin embargo, esta pregunta nos dirige al fondo de la cuestión sobre quienes definen los problemas relacionados con la tenencia de la tierra y quiénes establecen las políticas a favor de su regularización. La mayoría de los programas de títulos examinados en los casos de estudio resultaron largos y costosos; además, una vez puestos en práctica, sirvieron de poco para afectar significativamente el nivel de seguridad o para suministrar servicios en forma sistemática a los asentamientos.

Figura 1

Argumentos Comunes a Favor de la Regularización de la Tierra

• Provee seguridad contra el desalojo.
• Provee incentivos de estímulo a la inversión en mejoras y consolidación de la vivienda.
• Facilita y provee la introducción de servicios tales como electricidad y agua.
• Genera acceso al crédito utilizando la vivienda como garantía.
• Incorpora los residentes al sector de ciudadanos propietarios y al proceso democrático.
• Integra los asentamientos y la propiedad a la base jurídica y fiscal de la ciudad.

En lo que concierne a los sectores pobres de la población, sin embargo, varios de los argumentos a favor de la regularización aparentan ser falsos. Los hogares establecidos generalmente tienen seguridad de hecho y pocas veces consideran la necesidad de un título legal completo como una prioridad, sino más bien como una necesidad asociada con el sistema de valores de la clase media. Es más, una vez que los asentamientos están bien establecidos, las mejoras y la consolidación de la vivienda ocurren en una proporción estrechamente asociada con la disponibilidad de recursos, no con la seguridad del título de propiedad. En relación con la introducción de servicios, la mayoría de los proveedores siguen sus propias reglas internas para definir el tiempo y los procedimientos; pocas veces el título legal es un criterio importante.

Por lo demás, a las familias de bajos ingresos no les gusta endeudarse y no les resulta fácil el incorporarse a los sistemas formales de crédito, aun cuando las organizaciones no gubernamentales y los gobiernos tienden a inclinarse hacia la asistencia por medio de microcréditos. En suma, da la impresión de que cuando los grupos de bajos ingresos desean la regularización de la propiedad es porque el Estado quiere que lo deseen y, consecuentemente, contribuye a construir la demanda correspondiente.

Se podría concebir la regularización de la propiedad como un fin en sí misma tanto como un medio hacia un fin. La regularización como “fin” aparece claramente ilustrada en el caso de Lima, donde el acceso a la tierra y a los programas de adjudicación de títulos de propiedad sustituyen a una política sistemática de vivienda. El ciclo más reciente de adjudicación de títulos (desde 1996) incluye también la retitularización de terrenos anteriormente regularizados, como un campo de patrocinio político destinado a beneficiar al gobierno central a cuentas de los líderes políticos ciudadanos. Una situación similar prevalecía en México con las agencias de regularización múltiplex creadas durante los años ’70. En ambos países la dedicación a la regularización de la tenencia de la tierra aparece claramente señalada por programas activos, que generalmente procesan un alto número de títulos cada año a bajo costo.

En otras partes, la regularización puede ser también un “fin”, pero de importancia secundaria. En Colombia, Brasil, El Salvador y Ecuador, por ejemplo, la adjudicación de títulos constituye solamente una pequeña parte del conjunto de la regularización física. Aún así, la ausencia de propiedad legal y la necesidad de regularización pueden ser utilizadas hacia buenos fines políticos al regular el suministro y el orden de la provisión de infraestructura.

La regularización de títulos como medio hacia un fin se encuentra ampliamente fomentada por las agencias internacionales como parte del Nuevo Programa de Gerencia Urbana del Banco Mundial. México constituye un buen ejemplo del proceso, en donde la adjudicación de títulos de propiedad de la tierra es un requisito previo para la gestión de la tierra urbana, la planificación y la administración pública. La regularización incorpora a la población dentro del sistema del registro de tierras, la base de recaudación de impuestos, los controles de planificación, los permisos de construcción, las tasas de consumo, y la recuperación del costo de servicios e infraestructura. La regularización se convierte en un medio para el sustento y manejo urbanos; esta, más que ninguna otra razón, explica su amplia adopción y aceptación actual.

Un factor notable en varios de los casos estudiados fue la aparente renuencia a regularizar tierras privadas a no ser que la iniciativa tuviera el apoyo del dueño original. Como resultado, los asentamientos con mayores posibilidades de ser regularizados son aquéllos ubicados en tierras públicas o tierras cuya propiedad nunca ha sido cuestionada. Con la excepción de México, los gobiernos se han mostrado renuentes a expropiar tierras con fines de interés social. Varios países tienen un sistema de derechos de ocupación de la tierra que permiten la transferencia de la propiedad después de un cierto número de años de uso comprobado y apropiado. En Brasil, este sistema de usucapión ha sido ampliado recientemente a fin de permitir la transferencia de títulos de terrenos urbanos de propiedad privada menores de 250 m2 que hayan sido ocupados continuamente durante cinco años.

Factores de los programas de regularización jurídica:

• Alcance de la demanda residencial y prioridad del título de propiedad: La alta prioridad para la adjudicación de títulos aparece solamente cuando hay una alta inseguridad asociada con la tenencia ilegal de terrenos (Costa Rica), o donde el Estado promueve la asociación de la inseguridad con la falta de título (México).
• Procedimientos y administración de los programas de adjudicación de títulos: Los ejemplos varían de prácticas de bajo costo, eficientes y rápidas (Perú y México) a procesos ineficientes e interminables. La mayoría de los casos analizados cayeron dentro de la última categoría (Brasil y Colombia especialmente), en gran parte porque el campo de la regularización no es una alta prioridad.
• La naturaleza y el funcionamiento de las oficinas del catastro y el registro de la propiedad: Casi todos los casos estudiados señalaron grandes defectos en el registro de tierras y las instituciones de avalúo de la tierra. Incluso donde existen arreglos institucionales satisfactorios, las relaciones y la comunicación entre las dos oficinas resultaron ser invariablemente pobres.
• La forma y el “peso” de los títulos de propiedad de la tierra: El poder y la importancia de los títulos varían desde títulos “duros”, tales como títulos registrados y títulos completos de propiedad que sólo podrían ser impugnados a través de procedimientos legales de expropiación o embargo; hasta títulos “blandos”, los cuales representan poco más que certificados de posesión, registros de ocupación o contratos de compra. Entre ambos extremos, y paralelos a la dimensión legal, se encuentran los títulos establecidos por la costumbre y los derechos de propiedad sociales, tales como derechos de uso, derechos comunes, usos y costumbres, etc. Estos últimos sólo tienen fuerza en la medida en que son apoyados por el Estado.

La Regularización Física: Urbanización y Provisión de Infraestructura

El segundo campo principal de regularización registrado en muchos de los casos de estudio del foro estuvo enfocado en el proceso de regularización física de distintas formas de asentamientos irregulares. En Medellín, por ejemplo, se estima que aproximadamente el 12% de la población total vive en barrios de crecimiento rápido construidos frecuentemente sobre laderas empinadas, igual que en barrios similares en las laderas de Río o Caracas. Existen indudables problemas y peligros en estas áreas; sin embargo, la mayoría de los participantes en el foro que visitaron los asentamientos de PRIMED se mostraron más entusiasmados por su nivel y grado de consolidación que los propios oficiales locales. (La discusión no se extendió a las intervenciones y mejoras en alojamientos pobres del centro de la ciudad: conventillos, vecindades, cortiVos).

Es imposible describir adecuadamente todos los programas innovadores presentados en el foro, pero uno de los casos de mayor éxito es el programa Favela/Bairro, del municipio de Río de Janeiro. Este proyecto se basó en la estrecha colaboración con los residentes locales para abrir las calles de sus favelas al acceso vehicular y la instalación de servicios. No obstante, es importante reconocer que el éxito del proyecto ha tenido costos considerables: el gasto total entre 1994 y 1997 fue de 300 millones de dólares, suministrados en gran parte por el BID. Esto plantea serias interrogantes acerca de la capacidad de réplica de este tipo de programas.

Factores de los programas de regularización física:

• Instrumentos legales: En muchos casos no se requieren instrumentos legales para llevar a cabo proyectos de regularización urbana e intervención pública. Es más, la expropiación por motivos de interés público no resulta atractiva para la mayoría de las autoridades locales. La creación de zonas especiales de interés social (ZEIS y PREZEIS en Brasil) es un mecanismo de ayuda a los barrios que introduce una mayor flexibilidad de intervención fuera de las normas y códigos locales. Muchos otros instrumentos legales han resultado ser más bien débiles, especialmente aquellos con amplio grado de discreción en su aplicación (la Ley Novena de Colombia, por ejemplo).
• Los costos de regularización y el desplazamiento de la población: La intervención física origina costos adicionales asociados con la instalación y el consumo de servicios, y puede también acarrear contribuciones más altas de impuestos. Para poder cubrir estos costos, las familias se ven obligadas a ahorrar en otros gastos (por ejemplo, demorando el ritmo de consolidación de la vivienda), o a buscar formas de obtener rentas, tales como alquilar o compartir terrenos o viviendas. Inevitablemente, algunos decidirán o se verán obligados a vender e irse. Poco se sabe sobre los niveles de desplazamiento, pero por lo general los propietarios de bajos ingresos permanecen en el mismo asentamiento; la estabilidad de la población, y no su movilidad, suele ser la norma.
• Los mecanismos financieros para la regularización: Varios de los más notables y exitosos proyectos dependieron del financiamiento externo, y muchos proyectos aparentan acarrear subsidios explícitos e implícitos. Para que los proyectos puedan ser replicados se requieren métodos de financiamiento más ágiles, tales como recursos fiscales (impuestos a la tierra y las propiedades, como en México) o tarifas a los usuarios (como en Medellín, por ejemplo). Otro mecanismo captura los impuestos sobre las ganancias de capital a partir de mejoras a la propiedad (plusvalías y tasas de valorización, como en Colombia) pero generalmente no se aplica a las viviendas de bajos ingresos.
• Responsabilidades administrativas y gubernamentales de la regularización: Casi sin excepción, la tendencia general ha estado dirigida hacia la descentralización, con una disminución del poder a nivel del gobierno central y un fortalecimiento al nivel municipal. El papel de los estados, departamentos o provincias se ha debilitado en alto grado. Esta tendencia implica que una responsabilidad creciente de regularización recae sobre las autoridades urbanas, y a su vez plantea otros problemas importantes: la capacidad institucional, el aprendizaje y la diseminación de las mejores prácticas, el desarrollo de la capacidad y la responsabilidad fiscales, la continuidad de los programas a través de distintas administraciones, la coordinación e implementación de programas en jurisdicciones metropolitanas (donde las ciudades se administran por más de una municipalidad), y el papel de las organizaciones no gubernamentales que no han sido electas.
• La participación popular (del público) en la regularización: Aunque la participación popular en los proyectos de desarrollo de barrios es ampliamente aceptada y deseada, con frecuencia no existe o es meramente nominal (Ecuador). En otros países, ha manifestado ser un proceso genuino y muy intenso (Costa Rica y Brasil). La participación popular involucra a los residentes de manera instrumental en la implementación de proyectos y ofrece oportunidades para reconocer los llamados sistemas plurales (paralelos) de justicia (Venezuela), las leyes consuetudinarias, los usos y costumbres (México), etc.
• La regularización y los derechos del ciudadano: El creciente reconocimiento de los derechos del ciudadano se hizo aparente en muchos de los casos estudiados. Dichos derechos incluyen el derecho a la vivienda (en México, aunque no se cumple), el derecho al acceso a la vivienda (Perú y El Salvador), y el derecho a beneficios de infraestructura y urbanización. Asimismo, es importante reconocer que los derechos del ciudadano también traen consigo “deberes del ciudadano”, particularmente en lo que se refiere al pago de impuestos y al consumo.

La Regularización como Medio de Integración Social

Durante las deliberaciones del foro se hizo aparente que un objetivo cada vez más explícito de la regularización es el de alcanzar la integración social a través de la incorporación de la población de bajos ingresos a la mayoría social y a la estructura urbana. Esto se manifiesta con mayor frecuencia en referencia al “rescate” de la población de bajos ingresos y de otros grupos marginales y su incorporación a la ciudadanía urbana. Este ha sido uno de los objetivos primordiales del programa favela/bairro en Brasil, el cual, al menos en parte, estuvo orientado a romper los círculos de delincuentes juveniles y tráfico de drogas, y a rescatar a la población local de su influencia.

Un problema potencial de este enfoque reside en que los conceptos de “buen ciudadano” y “mayoría social” son construcciones sociales que frecuentemente están cargadas de valores y que pueden derivarse a partir de una cierta clase social o un grupo dominante del poder. La regularización con motivos de alcanzar la integración dentro de un amplio marco de oportunidades sociales tales como la educación pública y los servicios de salud es una cosa; la regularización a fin de lograr la convergencia social y la conformidad es otra. Sin embargo, la investigación y la literatura sobre este campo continúan siendo incipientes, y la noción completa de ciudadanía con sus correspondientes derechos y responsabilidades forma parte de una agenda todavía poco considerada.

Conclusión

Este foro internacional hizo énfasis en la necesidad de estar conscientes de las distintas razones subyacentes a la regularización física y jurídica en cada país, y de tomar en cuenta que estas razones se encuentran estrechamente relacionadas con los procesos políticos y de planificación. Para que la regularización funcione bien, debe haber un compromiso político genuino tal que todos los departamentos y oficiales que intervengan lo hagan con la mayor integración, cooperación y autorización. También se necesita pensar creativamente sobre sistemas alternativos, sistemas “paralelos” de propiedad, y sobre oportunidades para la real participación del público en la toma de decisiones en todas las etapas del proceso de regularización.

El compromiso y el sustento financieros también son temas importantes. A menos que la regularización vaya acompañada por la recuperación del costo a largo y mediano plazo a través de impuestos, tasas al usuario y avalúos diferidos, los programas continuarán dependiendo mayormente del financiamiento externo y de subsidios, lo cual limita severamente la extensión y la escala de su aplicación.

La interesante última sesión del foro permitió a los participantes reflexionar sobre las futuras direcciones de investigación y análisis de políticas de regularización del mercado de la tierra. Cinco áreas importantes emergieron de esta discusión. Primero, se reconoció la necesidad de identificar a los diversos actores y grupos de intereses involucrados en la promoción del desarrollo de tierras irregulares o ilegales, para empezar, y de hacer explícitas las diferencias entre invasiones de tierras, subdivisiones de propietarios, subdivisiones de empresas y otras acciones semejantes. Se planteó que la irregularidad es generada por varios actores y grupos de intereses con fines de lucro, y no únicamente el resultado de un proceso disfuncional de urbanización.

Segundo, se discutió la necesidad de alejarse del pensamiento dualista y romper con la definición del concepto del mercado de la tierra en términos de la ciudad formal e informal, la ciudad paralela, o los barrios normales y deficientes, todos los cuales implican que los sectores pobres se encuentran atrapados en un mercado separado. En realidad, hay un mercado único de la tierra que está segmentado, no separado, a lo largo de una continuidad en términos de acceso y capacidad de adquisición.

Tercero, se necesita afrontar el problema de la capacidad de réplica financiera de experiencias exitosas y las formas posibles de obtener financiamiento a través de subsidios internos, plusvalías, tasas de valorización, gastos de impuestos, tasas progresivas de consumo, y otros mecanismos. Cuarto, necesitamos hacernos menos los ciegos ante las diferencias de género. Es importante que pensemos con más imaginación al definir las prioridades de regularización para cada género, y que exploremos esquemas innovadores de programas de títulos que respondan a la necesidad de satisfacer los derechos específicos a la vivienda y al domicilio de la mujer.

Finalmente, necesitamos ser mucho más precisos en nuestra terminología y, más importante aún, reconocer que hay una “construcción social” imbuida en el lenguaje. Los términos adoptados por cada sociedad revelan la forma en que esa sociedad ve y diagnostica la vivienda y los problemas sociales relacionados con ella. La terminología puede conducir a soluciones políticas punitivas o condescendientes, e incluso “criminalizar” a sectores locales de la población. Gran parte de las diferencias y variaciones entre los distintos casos de estudio se derivan de la forma en que cada sociedad construye su percepción del problema de la vivienda y la manera en que esta visión es transmitida a la gente: a través de la terminología, a través de las leyes, los procedimientos y las políticas, y a través de la organización administrativa y burocrática del Estado mismo.

Peter M. Ward es profesor de sociología y asuntos públicos de la Universidad de Texas en Austin, y miembro asociado de la facultad del Instituto Lincoln. Entre sus numerosos libros se incluye una “Metodología para el análisis del mercado de la tierra y la vivienda”, editada conjuntamente con Gareth Jones y publicada por el Instituto Lincoln en 1994.

Una versión más actualizada de este artículo está disponible como parte del capítulo 4 del libro Perspectivas urbanas: Temas críticos en políticas de suelo de América Latina.

La recuperación de plusvalías es un concepto que tiene mayor aceptación día a día y cuyo propósito es recuperar, parcial o totalmente, para el beneficio público, los incrementos en el valor de bienes raíces provenientes de aquellas inversiones o acciones que emergen de la comunidad más que del sector privado. Sin embargo, sobre la base de la experiencia que tiene el Instituto Lincoln en el patrocinio de muchos programas educativos y de investigación relacionados con las políticas de recuperación de plusvalías en América Latina, está claro que el concepto también despierta bastante controversia.

Este artículo aborda algunos de los temas polémicos y constantes que han involucrado a los participantes en un continuo debate sobre la recuperación de plusvalías, que va desde las preocupaciones básicas, tales como la comprensión adecuada de los fundamentos legales para los derechos en bienes raíces, hasta las cuestiones políticas de mayor envergadura que surgen de nuevos o mayores gravámenes sobre los bienes raíces. Asimismo, hay aspectos técnicos involucrados, tales como la distinción entre los incrementos en el valor de los bienes raíces (o plusvalías) que se atribuyen a inversiones públicas específicas o la toma de decisiones a partir de fuentes o factores más generales que influyen en el mercado inmobiliario, así como los desafíos pragmáticos que surgen de la selección de los instrumentos adecuados para las circunstancias apropiadas en el momento justo.

Para comprender mejor el concepto de recuperación de plusvalías, no basta con recurrir solamente a los argumentos técnicos o a la opinión de especialistas o peritos. De igual manera, tampoco se puede desestimar la cuestión meramente con fundamentos políticos atribuyendo los obstáculos principales a la implementación de políticas sobre la recuperación de plusvalías a grupos de interés con una posición privilegiada. Más bien, una parte considerable de la “discrepancia inexplicable” en la aplicación de la recuperación de plusvalías parece deberse a falta de información o a un concepto erróneo por parte de los actores fundamentales del debate.

La Figura 1 resume 10 problemas contenciosos de la recuperación de plusvalías; los puntos 1, 2 y 3 se comentan brevemente a continuación.

Gravámenes Injustos para Personas de Escasos Recursos

Aunque en América Latina está disminuyendo el apoyo a los subsidios directos o subvenciones para personas de escasos recursos, muchos siguen sosteniendo que estas personas no deben pagar los servicios municipales, o deben ser exonerados del pago de impuestos y demás gravámenes sobre su propiedad, tal como lo estipulan varias políticas y leyes más progresistas sobre la recuperación de plusvalías.

Uno de los argumentos más comunes a favor de exceptuar a las personas de escasos recursos de dichos gravámenes genera un dilema entre generaciones: dado que los ciudadanos con mayor poder adquisitivo han disfrutado durante muchos años de los servicios municipales en forma gratuita, ¿por qué los menos privilegiados deben pagar ahora los servicios que necesitan y merecen? Otro argumento se centra en la idea de que la mayoría de los incrementos sobre bienes raíces en áreas humildes de hecho han sido generados por los mismos pobres, mediante la aportación de mano de obra propia o proyectos particulares para tener acceso a los servicios básicos en su área, y no mediante la intervención pública. Algunos reconocen que los programas de mejoramiento urbano simplemente conducen a los asentamientos humildes a la primera etapa del proceso de urbanización, lo cual constituye sólo un requisito mínimo indispensable para participar en los mercados inmobiliarios comunes. Otros creen que hasta un instrumento de recuperación de plusvalías socialmente neutral puede producir un resultado regresivo, lo que entonces perpetuaría la diferencia entre ricos y pobres en el contexto de acceso injusto a las instalaciones y servicios urbanos, como es el caso en la mayoría de las ciudades de América Latina (Furtado 2000).

En el otro extremo están aquellos que piensan que los pagos por recuperación de plusvalías forman parte de los reclamos que hace el sector de escasos recursos por una ciudadanía de pleno derecho, que incluya el derecho de exigirle al gobierno que le preste atención. Son muchos los ejemplos de sectores menos privilegiados que han estado verdaderamente dispuestos a pagar por los servicios recibidos (tales como sistemas de suministro de agua, alumbrado público y control de inundaciones), dado que el costo de no tener acceso a los mismos es mayor que el pago por tenerlos. Esto fue lo que ocurrió en Lima, Perú, a principios de los años noventa, en donde más de 30 comunidades humildes participaron en un programa de servicios públicos que incluía el pago del costo de los servicios suministrados.

Un argumento más teórico y tal vez menos intuitivo considera el efecto de capitalización de todo gravamen en los precios de los bienes raíces. Dicho efecto es la reducción (o incremento) del precio actual de los bienes raíces en el mercado debido a la suma capitalizada o descontada de los costos (o beneficios) que afecta las ganancias previstas que las propiedades podrían generar en el futuro. En la medida en que los gravámenes sobre la recuperación de plusvalías para áreas regularizadas o mejoradas (reclasificadas) se incluyan en las expectativas relacionadas con los futuros impuestos sobre tierras sin servicios compradas a parceladores ilegales o piratas, se tendería a capitalizar dichos gravámenes en el precio que los compradores estarían dispuestos a pagar o el que el parcelador pudo cobrar (Smolka 2003). Si bien los pobres al final terminarían pagando el mismo monto, el dinero sería destinado al tesoro público local en vez de al bolsillo del parcelador.

Incidentemente, una opinión muy común pero errónea sostiene que dichos gravámenes (recuperación de plusvalías o impuesto inmobiliario) son inflacionarios o incrementan el precio de los bienes raíces en el mercado. Si bien el efecto de capitalización es complicado, la mayoría de las personas podrán comprender el ejemplo en el que se comparan dos departamentos que, en otras circunstancias, serían idénticos: el que está ubicado en un edificio con gastos comunes más altos tendría un alquiler más bajo en el mercado que el departamento con gastos comunes más bajos. El mismo razonamiento puede aplicarse para explicar por qué no existe la doble tributación entre la recuperación de plusvalías y el impuesto inmobiliario. El incremento significativo sobre el valor de los bienes raíces que resulta de una intervención pública se acumula o se agrega al precio mínimo observado en el mercado actual, que ya es un neto del efecto capitalizado de todo beneficio o pago futuro previsto, incluido el impuesto inmobiliario.

Derechos Adquiridos Cuando Cambia el Uso del Inmueble

A pesar de que pocos argumentarían que las expectativas son un factor crucial en la determinación de los precios de los inmuebles, se considera ampliamente injusto si la compensación de precio se ubica por debajo de los precios del mercado actual. Esta idea está comenzando a cambiar, tal como se refleja en la legislación reciente. Por ejemplo, la Ley 338 de 1997 en Colombia permite la adquisición pública de bienes raíces a precios justos del mercado, pero sin incluir el incremento del valor del inmueble resultante de inversiones públicas previas o de cambios en los usos normativos de la tierra (ver el artículo de Maldonado y Smolka, página 15). El mismo principio se establece en el nuevo Estatuto Municipal de Brasil (Ley 10.257 de 2001) cuando la expropiación de la tierra se usa como sanción contra un propietario que no cumple con los usos sociales de la tierra. Muchos abogados están de acuerdo en que las expectativas no crean derechos; por lo tanto, las expectativas no materializadas no deberían ser compensadas. La preocupación social acerca de la adquisición pública de bienes raíces que llevó a la postergación del nuevo megaproyecto propuesto para el aeropuerto de la Ciudad de México ilustra vívidamente este problema.

Es difícil para el típico propietario, que en buena fe compró una parcela de tierra con la expectativa de usar su potencial de desarrollo, entender por qué no debería ser compensado por la pérdida de esa tierra al precio vigente del mercado o al menos al precio de adquisición, aunque los derechos de desarrollo no hayan sido ejercidos. Sin embargo, a menudo el resultado depende del grado en que la nueva política haya sido efectivamente implementada. En la práctica, los precios reflejan las expectativas relacionadas con el cumplimiento (usualmente insatisfactorio) de la legislación existente, incluidas las discrepancias legales o lagunas impositivas en el contexto normativo y fiscal correspondiente. Éste ha sido el caso en la mayoría de las decisiones de la corte referidas a la justa compensación en los procesos de adquisición pública de bienes raíces y en las demandas de los propietarios (o de promotores inmobiliarios) sobre quienes los administradores locales imponen gravámenes de plusvalía. Un argumento más pragmático es que los derechos pueden en efecto estar restringidos por una nueva legislación o normativa de zonificación, siempre y cuando esté acompañada por reglas de transición adecuadas para proteger los derechos de aquellos que tenían demandas legítimas previas. Otros defienden el proceso de transición como un paso indispensable para permitir que el mercado absorba gradualmente tales cambios.

Los economistas luchan para transmitir la importancia de las expectativas al determinar la estructura de los precios actuales observados de los bienes raíces. La manera en que el futuro afecta los precios actuales de los inmuebles es de hecho más difícil de expresar al público en general que la noción de que los precios actuales reflejan derechos, como se hacía en propiedades comparables en el pasado. En América Latina las expectativas asociadas con los usos de la tierra no siempre están relacionadas con los códigos de zonificación o edificación, sino más bien con la especulación inmobiliaria. Sería de interés señalar que mientras la especulación en América Latina está asociada con la retención a largo plazo de los bienes raíces, en América del Norte, en cambio, está más asociada con la rapidez en la compra y venta de las propiedades. El fenómeno de la retención del inmueble para su desarrollo futuro, con la consiguiente apropiación privada de la plusvalía en los valores de los bienes raíces, ha obstaculizado el planeamiento y el desarrollo urbano desde que las ciudades comenzaron a expandirse rápidamente hace varias décadas.

Compensación Asimétrica para las Minusvalías

El debate acerca de la recuperación de plusvalías (es decir, recuperar los incrementos en el valor de los bienes raíces, las ganancias o las plusvalías) hace surgir inevitablemente esta pregunta: ¿qué pasa con las minusvalías? La percepción corriente es que los gobiernos están más ansiosos por aprobar la legislación para recuperar las plusvalías que por brindar protección legal a los ciudadanos contra expropiaciones o compensaciones arbitrarias en los casos de pérdidas igualmente predecibles (minusvalías). El informe de América Latina ha demostrado, sin embargo, que el balance entre las plusvalías recuperadas y las minusvalías pagadas es claramente negativo. La suma pagada en compensación a los propietarios sobrepasa en mucho a las ganancias pequeñas y esporádicas que el sector público ha logrado recuperar de los beneficios directos que genera para las propiedades privadas.

Todos los alquileres, y precios de los bienes raíces en este sentido, no son en esencia más que plusvalías acumuladas, o incrementos en el valor de los bienes raíces, a lo largo del tiempo, lo que hace eco del argumento de Henry George para la confiscación total de los alquileres inmobiliarios. Así, las minusvalías alegadas son consideradas incidentales y sólo parte de un valor con respecto al cual los derechos individuales no son (o no deberían ser) absolutos. El debate acerca de esta asimetría con lleva directamente a la definición correcta de las minusvalías y a la manera en que son entendidas estas pérdidas, lo cual hace surgir la cuestión de los derechos de desarrollo. Mientras que algunos desean restringir la compensación por las mejoras en la tierra y en los inmuebles que el propietario podría perder, otros argumentan que los derechos de desarrollo son un atributo inherente e incuestionable de los bienes raíces.

En la práctica no es fácil justificar estos argumentos. Lo que puede ser válido para la totalidad no lo es necesariamente para cada parte, ya que los propietarios individuales consideran como una pérdida en el valor de los bienes raíces cuando, por ejemplo, una autopista amurallada pasa a través de su terreno o un viaducto bloquea la vista y produce ruido y contaminación. El ciudadano promedio no se convence fácilmente con los argumentos antedichos. El reclamo por un tratamiento equitativo y simétrico es social y culturalmente demasiado delicado como para ser ignorado.

La transferencia de los derechos de desarrollo (TDD) –un instrumento concebido originalmente para compensar las minusvalías provenientes de ordenanzas históricas, arquitectónicas, culturales y de protección del medio ambiente para las plusvalías de otro sector– ahora se ha ampliado para mitigar otros reclamos legítimos de compensación de minusvalías. Algunos argumentan que la compensación ordinaria para las minusvalías es una garantía, lo que hace así más fácil aceptar pagos por pérdidas. Según el principio de la equidad, las decisiones de planeamiento, incluidos los esquemas de zonificación, están reconocidas como potencialmente injustas con respecto a la distribución de los valores en los mercados inmobiliarios. Por más ingenioso que pueda parecer el instrumento de la TDD, no permite aclarar las cuestiones en juego. Por el contrario, acentúa el debate, pues reconoce el derecho de que las minusvalías sean compensadas a la vez que sanciona el derecho de los individuos a las plusvalías, por lo que replantea la cuestión de las apropiaciones privadas de los valores comunitarios.

Comentarios Finales

El complejo debate sobre las políticas e instrumentos de recuperación de plusvalías en América Latina indica que queda mucho por investigar y aprender. Si bien la cuestión no tiene necesariamente una única respuesta, los argumentos presentados aquí demuestran que una parte significativa de la resistencia a tales ideas puede ser atribuida a prejuicios y falta de información. A pesar de que las posiciones mantenidas por los diferentes grupos no son tan claras ni tan coherentes como sería de esperar, las percepciones y las actitudes sí cambian, como lo demuestra el artículo adjunto.

Martim O. Smolka es Senior Fellow y Director del Programa del Instituto Lincoln para América Latina y el Caribe. Fernanda Furtado es Fellow del Instituto y profesora del Departamento de Urbanismo de la Universidad Fluminense Federal en Niteroi, Brasil.

After spending more than a decade on restructuring central-provincial fiscal relations, the Chinese government is advancing its efforts to reform local public finance. In 2003 the central government issued a directive to ameliorate the real property tax system in China. To fulfill this mandate, tax authorities are reviewing international property taxation experiences, sending officials overseas to study pertinent models and inviting foreign experts to China for consultation. Yet comparable cases from which the government can draw relevant lessons for tailor-making a Chinese property tax system are few. The danger is that when public officials are under pressure to move the reform forward, they may be tempted to adopt concepts that do not match the country’s conditions.

One recent proposal that may develop into such a scenario is to establish an ad valorem property tax system in which leasehold land would be taxed as if it were freehold. This article explains what the Chinese government’s current proposal entails, why it may not be consistent with existing land tenure arrangements and, more tentatively, how the establishment of a land rent system could mediate potential contradictions of taxing land that is not private property.

China’s Property Tax Reform Proposal

The Chinese property tax system currently has as many as nine property taxes, depending on the definitions (see Hong 2003; 2004). The central government has proposed to consolidate three of these taxes into a single levy to simplify the existing tax structure. One of them is the Township and Urban Land Use Tax (LUT), which all land users (except foreign entities, government and nonprofit agencies, and agricultural industries) are required to pay. To collect this tax, local governments divide their jurisdictions into different taxing zones according to population size or land use. Land in different zones is taxed at an array of tax rates preset by the central government, ranging from 0.2 to 10 yuan per square meter (1 yuan = US$0.122). Some Chinese officials have admitted that the tax rates for the LUT have been set too low; hence its collections have little impact on local revenue. The government plans to eradicate this tax.

The other two taxes, the Building (or House) Tax and Urban Real Estate Tax (URET), will also be subject to reform. While the Building Tax is imposed on income-generating properties held by Chinese nationals, the URET is levied on all real estate owned by foreign entities and overseas Chinese. Both are ad valorem taxes whose bases can be the discount original purchasing cost, assessed capital value or gross annual rental value of the property.

When the assessed capital value (or the purchasing cost for the Building Tax) is used as the basis for tax assessment, the tax rate is 1.2 percent for the Building Tax and 1.5 percent for the URET. If an estimated rental value is used instead, the tax rates for the Building Tax and URET will be 12 and 15 percent, respectively. In some locales, like Beijing, if actual rental value is available because individual property owners rent their dwellings to another party at the market rate, the Building Tax rate will be 4 percent of gross rental income of the property. In view of this discrepancy in taxing local- and foreign-owned real estate, the government would replace these two levies with a single property tax as part of the upcoming reform.

The proposed new property tax would be imposed on both land and buildings at a uniform rate. The tax base would encompass all properties, domestic and foreign, located in rural as well as urban areas. As some public officials argue, a standardized property tax could have at least three advantages. First, the new property tax system may ease tax administration. Instead of administering the collection of the LUT, Building Tax and URET separately, local tax bureaus will be able to concentrate their effort on just one tax.

Second, the new property tax would be a value-based tax, which allows the government to capture future land value increments if property reappraisal can be done regularly. Third, one key purpose for creating the new property tax is to convert selected real estate development charges into a unified tax. Many scholars argue that some local governments might have abused the current system of user charges, thereby making payments for public services unduly cumbersome.

Collecting these charges through the new property tax may lower the transaction costs of doing business. As well-intentioned as the proposal may sound, policy designers might have underestimated the importance of one fundamental matter: the integration of the new property tax system with the current land tenure arrangements.

Property Taxation and Public Leaseholds

As specified in the Chinese Constitution, urban land is owned by the state and rural land is owned by collectives. Local governments, empowered by the state, can assign land use rights to users through a set of leasing arrangements. Lease terms are 40 years for commercial land, 50 years for industrial land and 70 years for residential land. If a local government wants to lease an urban land site to a private entity, it must be assigned through a bidding process. The winning bidder must pay the total set of leasing fees (including a “conveyance fee,” expropriation costs if land is acquired from the collective, and various land allocation charges) in a lump sum and immediately to obtain the land use rights.

The payment of the market-determined conveyance fee allows the lessee to transfer or rent the land use rights to another party and to use them as collateral. In the past, land rights were allocated mainly to private entities through negotiation, but this method failed to collect proper fees due to personal connections or corruption and it was suspended by the central government in 2002.

Users of land assigned administratively to public agencies or state-owned enterprises are not required to pay the conveyance fee, but must compensate the state for any allocation costs. The assignment of the land rights has no term limit. According to the law, if a state-owned enterprise wants to transfer its land rights to a private entity for commercial purposes, it must pay the conveyance fee to the state before doing so. For the transfer of rural land into urban uses or to nonmembers of the collective, the state will first expropriate the land from the collective with compensation and then lease the use rights to interested users for the payment of the conveyance fee and other leasing charges.

Owing to a long bureaucratic process and high transaction fees, many users have transferred their land rights to other parties without going through the proper procedure and registration. As such informal exchanges have gained in popularity, the official land leasing record is no longer reliable. Hence, any future attempt to identify the actual landholders, delineate their land rights, and estimate the leasehold value for tax purposes would no doubt be a difficult task.

The design of the new property tax system must take these unique land tenure arrangements into consideration. Aside from the extensive informality involved in land transaction and possession—a topic that is beyond the scope of this article—the most basic question is: How can the government convince lessees to pay property tax on lands that they do not own?

Certainly not all property tax systems are based on the premise that property owners should be taxpayers; occupiers are sometimes liable for tax payment. In some countries, such as Australia, the Netherlands and United Kingdom, taxes paid by occupiers are referred to as rates, a council tax or a user tax to avoid any confusion. Despite the different names, the calculation of these levies is still based on either the capital or rental value of the property, which is the same approach as for the property tax.

More fundamentally, since the supply of land is fixed, the landowner (the state government in the case of China) would bear the ultimate tax burden even if land users paid the property tax directly to the government. This is because the new tax would dampen the demand for land use rights and in turn reduce the fees that local governments could receive from leasing public land.

Because the Chinese government is both the landowner and property tax collector, lessees who leased land in the past and paid the entire leasehold value without anticipating the additional property tax burden would wonder why they should pay more land tax to the government. Thus it is essential to have a rationale for taxing leasehold land, so as to convince lessees to comply with their property tax obligation.

One way to analyze the matter is to treat property rights as a bundle of rights, which includes the right to own, use, develop, transfer, bequest and benefit from land. This bundle also comprises the right to exclude others from enjoying these privileges.

Viewing the Chinese land tenure arrangements through this lens, the government holds the ownership of land and leases other attributes of the bundle of land rights to private entities. So long as the privileges and obligations of holding the leased land rights are fully delineated and recognized, both legally and by the society, there is no reason why leasehold rights cannot be regarded as private property of the lessees for a specific period of time as stipulated in the lease.

In 1988 the Chinese National People’s Congress amended the Constitution to acknowledge the transferability of the right to use land. Further amendments are needed to explicitly recognize leaseholds as private property and empower the state to establish special legislation for the enforcement and protection of leasehold rights. In this way, the implicit contradiction in imposing property tax on leased public land would be clarified and resolved.

One technical issue remains, however: valuation of leasehold rights for tax purposes. Since the new property tax will be value-based, assessors will face the challenges of estimating the leasehold value of land independently, based on market data that normally reflect a combined value of land and all improvements. Most property valuation methods presume that land is freehold, and that developed real estate markets are present. Neither of these assumptions can be applied to China. Although there are practices that separate land and building values for tax purposes, the divisions are generally based on crude assumptions. How can assessors modify the existing (or invent new) valuation techniques to accommodate these special Chinese conditions?

More important, leasehold value is highly sensitive to the lease term and conditions, both of which can vary significantly from one case to another. At this moment, time-tested mass appraisal techniques for assessing large numbers of leasehold sites do not exist. Do these issues imply that property assessment for tax purposes under the Chinese leasehold system requires a case-by-case approach? If so, do local governments have the capability to carry out such detailed property appraisals for the collection of the new property tax? The Chinese government must find ways to deal with these practical matters if it decides to tax leasehold rights as private property.

It is also extremely important to educate would-be taxpayers and public officials about the distinctions between freehold and leasehold systems. Lessees must recognize that they possess only the leased land rights that are not designed to last in perpetuity. If the rights and obligations of both the state and lessees are not clearly delineated, taxing leasehold rights as if they were freehold could complicate the implementation of future land and tax policy. For example, in Canberra, Australia, and Israel, lessees are requested to pay the entire leasehold value up front, and thereafter they pay an annual property tax (or rates in Australia) for leasing public land. Lease terms in both cases are long and renewable—99 years in Canberra and 49 years in Israel with four automatically renewable terms totaling 196 years.

This method of collecting leasehold charges and taxes is tantamount to the payment system for land in countries where land is freehold. Due to this similarity, lessees have developed the perception that land is privately owned (Hong and Bourassa 2003). This view, albeit legally a fiction, has engendered the expectation that any government’s attempt to exercise its rights as the landowner to retake land for public uses or to demand additional payments from lessees for enlarging or extending land use rights would constitute an infringement on private property.

This expectation has added conflict to government efforts to redistribute land and land value between private landholders and the state on behalf of the public. As Neutze (2003) argued, had the Canberra government provided enough public education about its leasehold system, it would have spared the Australian capital from many intractable disputes over land ownership.

The Chinese government has no immediate plan to give fee simple deeds to private landholders. Thus, if local governments continue to collect all leasehold charges up front and then levy the new property tax on both land and buildings, they may be at risk of creating the same mistaken expectations, that is, that land is privately owned. This may put the government and lessees at odds with each other when there is a later need to reallocate land from private to public uses. Designing a real property tax that will not add more complications to the already unsettling land tenure system is a critical task that policy makers should not overlook.

Land tenure reform is a long, controversial process, however, and the Chinese government would be ill-advised to delay the implementation of the new property tax system until land reform is completed. What the government needs is a transition system in which property tax reform can proceed as planned without interfering with its endeavors to restructure land ownership. Establishing a land rent system seems to be an option.

Land Rent System

Under a land rent system, leasehold charges would be paid in the form of an annual land rent, not a one-time leasing fee. Local land bureaus could continue to assign land use rights by public auction, but the bidding would be to determine the amount of annual land rent. Similarly for lands that were assigned to state agencies administratively, users would pay their conveyance fee for transferring land rights to other private parties in annual installments, which would be equivalent to the yearly rental payments. The land rent system has pros and cons (see Hong 2004 for a detailed discussion); four important advantages are discussed here.

First, collecting a land rent is the most straightforward way to characterize the landowner-tenant relationships between the state and lessees. More important, requesting lessees to make their rental payments annually would serve as a constant reminder of their leasehold relationships with the state.

Second, if leasehold charges were paid in annual installments, local officials would no longer be able to generate a large amount of cash instantly to cover short-term fiscal shortfalls. This in turn may lower their incentive to lease land rapidly—a major malady of the current land leasing system.

Third, research using the input-output (I/O) technique and the 1997 I/O Table of China found that collecting land rent could facilitate the transition to the new property tax system (Hong 2004). Had the central government required all land users to pay an annual land rent in 1997, rental income would have added 29.8 billion yuan (US$3.6 billion) to the government treasury, representing a 2.9 percent increase in total tax revenue (see Table 1). This revenue increase would represent a net gain over estimated tax revenue losses under the proposed property tax reform.

The land rent system, however, may generate a cash flow problem for local governments. When leasing fees are deferred and paid by lessees in annual installments, fewer funds would be immediately available for local governments to cover public expenditures. To resolve this problem, local jurisdictions may borrow money from the central government or other financial intermediaries, using perhaps the future land rent collections as collateral. Loans would then be repaid in annual installments by funds gathered from yearly rental payments made by lessees.

Had the government decided to keep the total tax revenue approximately the same, it could have set the new property tax rate at 4 percent, which is the same as the Building Tax rate for personal dwellings rented at market prices, and then discounted the land rent by as much as 47 percent (see Table 1). With a reasonable tax rate and a substantial reduction on rental payment, taxpayers would be less resistant to the reform.

Table 1 also shows several possible combinations of rent level and property tax rate to produce a revenue-neutral shift. If the government were to increase the new property tax rate to deepen the tax reform, it could lower the rent level to avoid antagonizing taxpayers. This approach would provide local governments with an array of options to adopt the new property tax system in stages and at a pace that suits their economies.

Fourth, the proposed land rent system could keep future tenure choices open. If the sociopolitical sentiment of the country favors public leaseholds, local governments could continue to levy the land rent and property tax at the ratio that matches local needs. Subsequent adjustments to the rent-tax ratio could also be made when new circumstances arise.

If central authorities, in response to popular demand, were to grant fee simple deeds to all lessees, it could order local governments to phase out the collection of land rent and raise the new property tax rate accordingly. As shown in Table 1, directing the reform toward either path would not create adverse effects on local government budgets.

This analysis shows that choices available to the Chinese government are not limited to privatizing land ownership and relying solely on real property taxation to recoup land value. Undeniably, the Chinese government may eventually choose to do just that because it is indeed an option, but there are many other possibilities as well. Why, then, should the government make such a decision now, when there may be other viable alternatives that can keep all options open? Recognizing that there are many choices could unleash the creative powers of policy makers and scholars to imagine a unique Chinese system to capture land value.

References

Director General of State Statistics Bureau. 1999. Input-output table of China, 1997. Beijing: China Statistical Press.

Hong, Yu-Hung. 2003. The last straw: reforming local property tax in the People’s Republic of China. Working paper. Cambridge, MA: Lincoln Institute of Land Policy.

_____. 2004. Assessing property tax reform in China. Report for the David C. Lincoln Fellowship Program. Cambridge, MA: Lincoln Institute of Land Policy.

_____ and Steven C. Bourassa. 2003. Why public leasehold? Issues and concepts. In Leasing public land: Policy debates and international experiences, Steven C. Bourassa and Yu-Hung Hong, eds., Cambridge, MA: Lincoln Institute of Land Policy.

Neutze, Max. 2003. Leasing of publicly owned land in Canberra, Australia. In Leasing public land: Policy debates and international experiences, Steven C. Bourassa and Yu-Hung Hong, eds. Cambridge, MA: Lincoln Institute of Land Policy.

Yu-Hung Hong is a fellow of the Lincoln Institute of Land Policy. This article reports on selected preliminary results of his research funded by the David C. Lincoln Fellowship in Land Value Taxation.

The annual rate of urbanization in China has increased rapidly from 17.9 percent in 1978 to 39.1 percent in 2002, accompanied by rural-to-urban migration on a massive scale. More than 70 million rural migrants were working and living in urban areas at the end of 2000.

This influx of population has created a unique urban form—villages within cities, also referred to as “urbanizing villages” or ChengZhongCun in Chinese. For example, in the city of Shenzhen, with an official population of around 9 million in 2000, approximately 2.15 million inhabitants lived in 241 urbanizing villages with a land area of almost 44 square kilometers. In the city of Guangzhou, with a population of more than 8 million, there were 277 urbanizing villages with approximately one million inhabitants in 2000.

At the end of 2009, the United States faced an economic disaster of major proportions, with trillions of dollars of asset value lost, more than 16 million people unemployed, and four consecutive quarters of rapidly falling GDP. These events were the direct and indirect result of extreme volatility in the value of residential property that had served as collateral for the nation’s huge stock of home mortgages.

Between 2000 and 2005, the value of residential land and buildings increased from about $14 trillion to $24 trillion. About half of this increase reflected new construction, and half was due to rising land values, primarily on the coasts (Case 2007). But in late 2006 prices began to decline, and by mid-2009 they had fallen roughly 30 percent.

Measuring House Price Appreciation and Depreciation

The S&P/Case-Shiller repeat sales home price indexes were developed 25 years ago to track changes in the market value of existing homes. Based on observed values of properties that changed hands more than once, the indexes were proposed as an alternative to the prevailing measure of home price appreciation or depreciation, which was the median price of homes sold in a city or region. A simple median price will move up or down over time with changes in the mix of properties that sell, as well as with changes in the price or value of houses. This can cause the median price to shift even if no appreciation or depreciation occurs, particularly when new, higher-valued properties are part of the sales base.

In the repeat sales methodology we collect all available data on home sales and then determine if the same house has been sold in the past 20 years or so. Each pair of sales provides information on appreciation or depreciation. We then eliminate sales where the property has been changed significantly, or the sale was not arm’s length, such as purchases by a financial institution or sales where the buyer and seller have the same name.

Finally, we reduce the weight assigned to paired sales that are far apart in time, in part because there is a greater chance that those properties have undergone physical changes. We also eliminate paired sales that are less than six months apart, because they may represent purely speculative activity. We publish only results that are supported by strong statistical tests of confidence.

Home Prices: 1990–2010

Between 1975 and 2006 no measure of home prices showed a national decline. The S&P/Case-Shiller and OFHEO (Office of Federal Housing Enterprise Oversight) national house price indexes both show a continuous rise, accelerating around the year 2000 and peaking between 2006 and 2007 (figures 1a and 1b). However, Case and Shiller (2003) found that in 43 states the ratio of house prices to income remained low and constant between 1985 and 2002, even as house prices rose, suggesting that it was changes in per capita income that explained the increase in home values.

Figure 2 shows the ratio of home price to per capita income for 17 of the more volatile metropolitan areas between the first quarters of 1987 and 2009. After 2000, this ratio began to increase in virtually all of these metropolitan areas, with steep acceleration after 2002. The data suggest four distinct submarkets. The first consists of Las Vegas, Miami, and Phoenix, with a virtually constant price/income ratio until 2000, followed by a rapid increase in 2003 and 2004.

The California submarket was even more explosive. San Diego doubled its ratio from below 8 to above 16, with San Francisco and Los Angeles close behind. New York and Boston, in the third group, experienced accelerating ratios, but they were not as dramatic as those in the first two subgroups. In the Midwestern cities of Chicago, Charlotte, Portland, and Minneapolis, the increases were much lower than those observed on the coasts.

Figure 3 shows the volatility of home prices in the same 17 metropolitan areas based on sales in the lower third tier of sales prices. The number of these sales tripled in Miami, Los Angeles, Washington, DC, San Diego, and Las Vegas. In September 2005, Boston saw a price drop that later spread to every metropolitan area in the country.

Table 1 shows the S&P/Case-Shiller Index through September 2009, when prices began to stabilize and then rise. The bottom two lines show composite indexes for two sub-samples of the 20 available metropolitan areas. Both have fallen nearly 30 percent since the summer of 2006.

How Did It Happen?

Needless to say, a credit expansion of this magnitude had a major impact on the housing market. As noted earlier, between 2000 and 2006 prices in the bottom tier of the market increased the most—by 241 percent in Miami, 249 percent in Los Angeles, and 200 percent in Washington, DC, Las Vegas, and San Diego. The S&P/Case-Shiller composite indexes more than doubled, and the national index increased by nearly 90 percent.

At the end of 2005 and into 2006, the housing market began to soften. Interest rates rose, and the 30-year mortgage interest rate was back to 6.6 percent by the last half of 2006. Gluts of speculative building slowed markets in Florida, Arizona, and Nevada. Homes in California and in the Northeast had become very expensive relative to incomes, and the manufacturing base of the Midwest fell into recession. As expectations turned gloomy in 2006, 16 of the 20 S&P/Case-Shiller metropolitan areas showed price declines, and by 2007 all were declining. This had never happened before.

Then inventories of houses for sale began to increase. In the past, when markets rose too quickly, prices were slow to change and adjustment was orderly. With house prices falling nationally, and with the bulk of the newly written mortgage debt carrying high loan-to-value ratios, mortgage default rates rose sharply.

Underwriting standards changed over this period as well. Statistical models of default and foreclosure seemed to “explain” defaults as a function of borrower and loan characteristics. These models were used by all market participants, sometimes even without their knowledge. The most widely known underwriting tools were Loan Prospector and Desktop Underwriter, developed by Fannie Mae and Freddie Mac respectively. Their low cost and ease of operation made them the industry standard. As these models spread throughout the market, mortgage lenders and insurers that did not accept their results garnered little new business. The rating agencies also fell victim to the same statistical methods, which suggested a very low likelihood of rapidly rising defaults.

The stated goal of the new model of underwriting was to transform a patchwork risk-allocation process into a more efficient and accurate pricing system. But this proved to be not only difficult, but ultimately impossible. Analysts seeking to predict the likelihood of default had little choice but to look to the past: at what rate did mortgages with the same characteristics fail in the past?

But past experience dealt with a 30-year period of rising prices in which the collateral was in most cases sufficient to cover claims. Thus, outside of a few regional downturns, no experience provided data that could accurately measure the impact of falling house prices on delinquency, default, and foreclosure.

The historic housing boom of 2000–2005, together with the change in underwriting standards and credit market operations, made the period of 2000–2008 one of the truly important economic episodes of the last century. Its legacy is a flood of bad mortgages with millions of homes headed for foreclosure.

The Government Has Played a Big Role

One additional factor clearly played a role in all of this: the federal government’s strong efforts to promote home ownership for rich and poor alike. In 1977 Congress passed the Community Reinvestment Act (CRA) and the Home Mortgage Disclosure Act (HMDA), designed to increase bank lending to low-income and minority households. Even today, banks have a CRA exam every year to determine whether they are meeting the credit needs of their entire CRA area, which in almost all cases includes low-income neighborhoods that in previous years might have been rejected (“redlined”) for loans or insurance.

These programs reflect a belief that the nation has an interest in promoting home ownership as the American Dream, which is thought by many to lead to meritorious behavior. A homeowner is considered likely to be a better citizen, and more involved in local affairs. Home ownership was also thought to be a way of building wealth for low-income households, part of the social safety net (Case and Marynchenko 2002).

Home ownership was encouraged in a variety of ways. The federal subsidy in the income tax treatment of home ownership (the mortgage interest deduction, the capital gains exclusion, the property tax deduction, and the nontaxation of imputed rent on owner-occupied housing) amounts to about $140 billion annually. The Government Sponsored Enterprises (GSEs) including Fannie Mae, Freddie Mac, the Government National Mortgage Association (Ginny Mae), and the Federal Housing Administration (FHA) were all set up to channel capital into home mortgages.

The national housing boom had its roots in unprecedented events that unfolded in U.S. financial markets beginning in 2000. The rapid decline of high tech industries, the stock market collapse in 2000 and 2001, the slow level of technology investment resulting from Y2K, and finally, of course, the events of 9/11 led to a relaxed monetary policy as the Federal Reserve continually reduced interest rates in an attempt to stimulate the economy and prevent recession. In January 2001 the Fed cut the federal funds rate (the interest rate banks charge one another for the use of federal funds) from 6.5 percent to 6 percent, and by the end of 2002 had reduced the rate 11 times, to 1.75 percent.

When the easing of credit began, the 30-year fixed rate for a conventional mortgage was 7.17 percent, down slightly from the 8.3 percent average rate over the first nine months of 2000. By the time the federal funds rate fell to 1.75 percent in the fourth quarter of 2002, the conventional fixed mortgage rate was 6.39 percent. The federal funds rate continued its downward trend until it hit 1 percent in July 2003 and remained there for over a year. By that time, the conventional 30-year fixed-rate mortgage carried an interest rate of 4.6 percent. This easing of credit was the result of a massive injection of liquidity. The dramatic drop in interest rates reduced returns on many investments, placing pressure on yields around the world.

The expansionary monetary policy pursued during this short period reduced the cost of buying a home by almost a third. If its purpose had been to stimulate the mortgage and housing markets, the policy certainly worked, as lower interest rates reduced mortgage costs. Housing production and sales of existing homes boomed. In October 2001 there were about 1.52 million housing starts annually. By the end of 2003 housing starts had increased by a third, to well over 2 million.

Existing home sales were 5.2 million annually at the beginning of 2001 and 6.5 million by the third quarter of 2003. By 2005 they reached 7 million and stayed at about 6 million until 2007. There is little doubt that the housing market kept the economy out of recession through the turbulent early years of the decade.

Figure 4 shows the explosion in home sales and mortgage volume at the end of 2002 and into 2003. Low interest rates stimulated demand for refinancing, and between the fourth quarters of 2002 and 2003, $5.5 trillion in mortgages were originated, and $3.7 trillion were paid off. Over five quarters, the total value of new mortgages was about the same as the entire stock of mortgage debt outstanding in 2001. Seventy-five percent of the new mortgages were written for refinancings rather than purchases of new homes.

By bundling large numbers of mortgages into securities, Wall Street could offer an investment vehicle that combined the implicit government guarantees of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) with a history of very low default rates. As a result, much of the liquidity that drove the economic expansion was channeled directly into mortgages.

In June 2003, mortgage rates began to rise, moving from 4.60 percent to 5.97 percent by August. The third quarter of 2003 saw the highest volume of refinancings, with originations of $942 billion. The refinancing boom ended with the rise in interest rates, dropping 56 percent in the fourth quarter.

During this expansion of credit, the mortgage industry became highly profitable, collecting fees of about 2.5 percent of the $4 trillion in total originations in 2003 alone—over $100 billion. Greenspan and Kennedy (2008) estimate that fees for refinancings and home equity loans in 2004 reached $200 billion. With default and foreclosure rates low and housing prices high, lenders competed vigorously for the business of homebuyers.

Mortgages for home purchases doubled from $239 billion in 2004 to $478 billion in 2005. Much of this business was directed at low-income neighborhoods and sub-prime borrowers. Between 2002 and 2006, the market originated $14.4 trillion in mortgages, retired $10.3 trillion in debt, and increased the stock of outstanding mortgage debt to $10.3 trillion from $6.2 trillion.

This not-so-subtle pressure from the Congress was clearly accepted by Fannie Mae and Freddie Mac as the price they needed to pay to maintain the implicit guarantee of their debt, which they enjoyed as a result of their government franchises. There can be no precise division of responsibility between the GSEs and the private sector in expanding the housing bubble.

Several factors played a role in the ultimate collapse: the competitive battle for market share waged by Wall Street investment banks, the private securities markets, and some highly leveraged specialty firms; the high credit ratings that were distributed by the rating agencies; and the fact that default and foreclosure rates remained low. In fact, it took a partnership between public legislation, governmental regulation, private market exuberance, and an extreme increase in liquidity to bring the markets down.

Where Do We Go From Here?

By late 2009, housing markets seemed to be approaching a bottom with prices stabilizing, but many forecasts anticipate declines extending well into 2010. If that were to happen, numerous mortgages written in 2008 and 2009 would not be fully secured and could turn unprofitable.

A prolonged period of falling prices would prevent a significant increase in housing construction. Despite record low interest rates, housing starts have been in uncharted territory for more than a year, having fallen below levels seen in prior downturns. The last four recessions began with large declines in housing starts. At the end of 2008, starts were down from a peak of 2.27 million in 2006 to around 500,000, where they stayed for more than a year, well below the typical bottom of one million starts per year. This represents a decline of approximately $600 billion in aggregate demand.

Two market-clearing processes are currently underway in the housing market, operating side by side, often neighborhood by neighborhood, within metropolitan areas. First, there is the traditional search for a new equilibrium. Inventories remain high as risk-averse sellers seek to avoid sharp price reductions. Sellers without access to liquid capital can actually be among the most reluctant to sell, because they cannot afford to incur high transactions costs. Homeowners do not like to sell at a loss, and may postpone sales in hope of a rising market. This type of market-clearing process is slow and usually results in a long and costly period of quantity adjustment with relatively little change in sale prices.

Second, banks, loan servicers, and other market participants are left holding properties because of defaults and foreclosures. These houses are typically sold at auction, often at very low prices. In every past regional decline these two processes worked together to clear the market. The final result will be the product of a battle between them.

At the end of 2009, homes were selling at a rate of about 6 million per year, 5.5 million existing and 500,000 new homes, including between 1 and 1.5 million sales at foreclosure auctions. The bad news is that new properties are entering the foreclosure process faster than older cases are being resolved, suggesting that the portion of all sales accomplished through the auction process is likely to grow.

But a number of facts suggest that the current bottom could hold and eventually turn upward. First, prices have fallen substantially. In Boston, they have been falling for some time, and in California they are down over 50 percent. Eventually, when prices get low enough, people will start buying again. Furthermore, interest rates are remaining at all-time low levels, with the conventional 30-year fixed-mortgage rate below 5 percent.

In short, all housing market indicators are improving. Pending home sales, existing home sales, new home sales, and housing starts were all up during 2009; and prices actually stopped falling. The OFHEO price index and the S&P/Case-Shiller indexes for 18 of the 20 cities analyzed were up for several months in a row. New home inventories fell to 251,000 (7.4 months of inventory) in September, after having fallen for 13 consecutive prior months.

California represents about 25 percent of all the land value in the United States, and events there have major implications for the rest of the country. The good news is that for the last three months, the indexes for San Francisco, San Diego, and Los Angeles have led the nation in price appreciation. The California Association of Realtors reports substantial increases in home sales volumes except in the Central Valley.

It is important to remember that it takes only a relatively small number of buyers to move the market. Our measures of home values are based on observed sales, but only 5 to 7 percent of the total housing stock changes hands annually. Even with an unemployment rate near 10 percent, homebuyers continue to be very optimistic, and now there may be enough of them to change the market’s direction.

But, we are by no means out of the woods. Unemployment remains very high and jobs are still being lost. In addition, the foreclosure pipeline is moving very slowly, and foreclosures are spreading from the sub-prime market to the presumably more secure A-, Alt A, and prime loans. If the jobs picture does not brighten, and the market does not speed up the process of resolving foreclosures, the housing market could face a long period of stagnation and even a return to falling prices.

References

Case, Karl E. 1986. The Market for Single-family Homes in Boston. New England Economic Review May/June: 38–48.

———. 2007. The Value of Land in the United States: 1975–2005. In Land Policies and Their Outcomes, ed. Gregory K. Ingram and Yu-Hung Hong, 127–147. Cambridge, MA: Lincoln Institute of Land Policy.

Case, Karl E., and Maryna Marynchenko. 2002. Home Appreciation in Low and Moderate Income Markets. in Low Income Homeownership: Examining the Unexamined Goal, ed. Nicolas Retsinas and Eric Belsky. Washington, DC: Brookings Institution Press.

Case, Karl E., and Robert J. Shiller. 1987. Prices of Single-family Homes since 1970. New England Economic Review September/October: 45–56.

———. 1989. The Efficiency of the Market for Single-family Homes. The American Economic Review 79(1): 125–137.

———.2003. Is There a Bubble in the Housing Market? Brookings Papers on Economic Activity. Washington, DC: Brookings Institution. September 5.

Greenspan, Alan, and James Kennedy. 2008. Sources and Uses of Equity Extracted from Homes. Federal Reserve Board, Finance and Economics Discussion Working Paper Series 2007-20, October. http://www.federalreserve.gov/PUBS/feds/2007/200720/200720pap.pdf

About the Author

Karl E. “Chip” Case is the Katharine Coman and A. Barton Hepburn Professor of Economics at Wellesley College in Massachusetts. With Robert J. Shiller he developed the S&P/Case-Shiller Home Price Indices. Case is a former member of the Lincoln Institute of Land Policy board of directors.