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Hace casi 30 años, Amalia Reátegui y su esposo, Eusebio, empacaron sus pertenencias, reunieron a sus ocho hijos y se mudaron a su nuevo hogar: un polvoriento lote en la árida periferia de Lima, la capital de Perú. Al principio, la vida no fue fácil allí. No disponían de servicios básicos, como agua corriente y electricidad. Las calles no estaban pavimentadas y el transporte público era inexistente. Las escuelas y clínicas sanitarias de calidad se encontraban muy lejos, en los barrios más ricos y establecidos.
Sin embargo, aunque las condiciones eran muy duras, mudarse a San Juan de Lurigancho (uno de los primeros asentamientos informales de Lima) le ofrecía a esta pareja una posibilidad excepcional de convertirse en propietarios, lo que hubiera estado fuera de su alcance en los distritos tradicionales de la ciudad.
Poco a poco, las cosas fueron mejorando. Construyeron una maciza casa de hormigón, consiguieron electricidad y, unos años más tarde, agua corriente y alcantarillado. Llegaron los autobuses e incluso un metro que conecta San Juan de Lurigancho con el resto de la ciudad. Sus hijos lograron realizar estudios terciarios y obtuvieron empleos en hospitales, en el municipio y en la marina.
Para Amalia y Eusebio, igualmente importante fue un papel que le dio el gobierno: el título que reconocía que eran propietarios formales del terreno de 120 metros cuadrados en el que vivían.
Hoy en día, la pareja sigue viviendo en la misma casa color durazno, aunque su hogar –al igual que el barrio– ha experimentado transformaciones a lo largo del tiempo. La casa, que tenía originalmente un solo piso, es ahora un edificio de cuatro pisos que alberga ocho apartamentos de dos dormitorios, uno para cada uno de sus hijos adultos.
Para Amalia, una abuela de 71 años de edad de hablar pausado y cabello negro que le llega al hombro, esto fue siempre parte del plan. “Al principio, cuando construimos la casa”, dice, “siempre pensé que sería para mis hijos. Es mi casa y es para ellos”.
Sin embargo, para sus hijos, que gastaron el equivalente a decenas de miles de dólares en la construcción de los pisos superiores, la situación en la que viven actualmente los deja en un limbo legal, donde la propiedad de sus apartamentos se fundamenta solamente en un acuerdo verbal con sus padres, en lugar de documentos legales.
Volver a la informalidad
Este caso pone de relieve una nueva tendencia que tiene desconcertados a los expertos en desarrollo urbano y derechos de propiedad en Perú. Después de años de pedir títulos legales de propiedad para sus casas, los residentes dejan ahora que sus propiedades queden fuera de la regularización, ya que no utilizan la Superintendencia Nacional de los Registros Públicos (SUNARP) para documentar operaciones inmobiliarias tales como ventas, cambios de titularidad dentro de una familia o la construcción de otros pisos que luego se subdividen en apartamentos. Como resultado de ello, las propiedades vuelven a estar dentro de la categoría de informalidad y el registro público no refleja adecuadamente a los verdaderos propietarios.
Este problema representa un creciente motivo de preocupación para los expertos en políticas, quienes opinan que esta situación podría dar como resultado grandes costos sociales, económicos y legales. Sin un registro legal, pueden surgir rápidamente controversias entre hermanos acerca de la propiedad de un hogar familiar después del fallecimiento de sus padres. Resolver estas controversias puede implicar altos costos legales en los tribunales de Perú, que ya están sobrecargados y funcionan con lentitud. Los propietarios informales no pueden utilizar su propiedad como garantía para solicitar un crédito bancario formal y, si deciden poner la propiedad en el mercado, deben enfrentar un valor de reventa mucho más bajo. Además, existe el riesgo de debilitar la sostenibilidad del programa de títulos de propiedad pionero en Perú, una herramienta popular diseñada para promover el desarrollo económico que más tarde fue emulada en todo el mundo.
Tal como indica Julio Calderón, sociólogo peruano, investigador del Instituto Lincoln y experto en derechos de propiedad: “Los hijos están viviendo ahora la misma situación que vivieron sus padres hace 40 años: nuevamente están en una situación de informalidad. En términos urbanísticos, esto es una bomba de tiempo”.
El surgimiento de los asentamientos informales en Perú
De manera similar a otras capitales latino-americanas, Lima experimentó una explosión demográfica durante la segunda mitad del siglo pasado, a medida que las personas migraban desde todos los puntos del país a esta árida ciudad costera en busca de una vida mejor.
En 1950, en Lima vivían menos de un millón de personas. Para el año 2000, la cantidad de población se había inflado a 7,4 millones, según los datos de la División de Población de las Naciones Unidas. Hoy en día, la capital peruana alberga a más de 9 millones de personas, lo que representa casi un tercio de la población total del país. Los motivos por los que se da esta migración interna en Perú son variados, aunque la causa principal son las dificultades políticas y económicas que experimenta el campo. En la década de 1970, la economía rural se vino a pique después de una fallida reforma agraria llevada a cabo por el general Juan Velasco, un dictador militar de izquierda.
La economía se vio sacudida nuevamente a principios de la década de 1980 durante una de las peores tragedias climatológicas que se hayan registrado ocasionadas por El Niño, que causó terribles inundaciones y un colapso de la industria pesquera. Aproximadamente por esa misma época, los rebeldes de izquierda de Sendero Luminoso iniciaron una violenta insurgencia en las zonas montañosas del sur, lo que forzó a muchos residentes a huir hacia Lima para escapar del sangriento conflicto que dejaría un saldo de cerca de 70.000 vidas.
En Lima, el gobierno no estaba preparado para esta ola migratoria. Los nuevos residentes, sin tener un lugar donde vivir, comenzaron a apropiarse de terrenos vacantes en las afueras de la ciudad, en ocasiones enfrentándose a la policía. Uno de esos desarrollos informales se convirtió luego en San Juan de Lurigancho. Héctor Nicho, un líder comunitario del lugar, recuerda la impotencia de las autoridades ante la marea de personas que ocupaban las tierras con la esperanza de hacerlas suyas.
Nicho, que era sólo un niño cuando participó en la invasión de los terrenos hace unas cuatro décadas, lo relata de esta manera: “El primer día de la invasión hubo 15 ó 20 personas. Al día siguiente, hubo 500. Y al tercer día, 1.500. Éramos cada vez más. No podían detenernos, aun cuando el Estado había enviado a la policía”.
La ocupación de terrenos se produjo en toda la ciudad de Lima, resultando en la creación de distritos como Villa El Salvador (al sur de la ciudad) y San Martín de Porres (al norte). Los ocupantes ilegales eran algunos de los residentes más pobres de la ciudad, que vivían en áreas caracterizadas por la falta de presencia estatal y por una amplia economía informal.
Hacia finales de la década de 1980, la situación no hacía más que empeorar. La economía peruana entró en espiral hasta la hiperinflación. Sendero Luminoso, que había estado confinado a las zonas montañosas rurales, comenzó a invadir Lima rápidamente, amenazando con derrocar al gobierno e instalar un régimen de tipo maoísta.
El programa de títulos de propiedad de de Soto
Por ese entonces, Hernando de Soto, economista peruano, propuso una manera de salir del caos. De Soto sostenía que otorgar títulos legales de propiedad dispararía el desarrollo, ya que permitiría a los pobres obtener ventajas con sus bienes individuales en la economía formal y acceder al crédito. Sin embargo, según de Soto, existían barreras burocráticas complejas y costosas que impedían que esto ocurriera.
“Se dieron cuenta de que uno de los principales obstáculos a la hora de registrar las propiedades en Perú era su propio registro de la propiedad”, explica Ángel Ayala, abogado y experto en registro de la propiedad. “El problema no era la informalidad, sino que el sector formal no te dejaba acceder a él”, añade en referencia a las normas del gobierno para el registro de la propiedad que en ese momento eran complejas y costosas.
Perú abrazó las ideas de de Soto, lo que generó un nuevo marco legal con el fin de brindar títulos de propiedad a personas como los Reátegui, que vivían en asentamientos informales en lugares como San Juan de Lurigancho.
En 1996, el gobierno creó la Comisión de Formalización de la Propiedad Informal (COFOPRI), que dirigiría un programa nacional de otorgamiento de títulos de propiedad urbanos. Además se creó un registro paralelo, el Registro Predial Urbano. Este registro, que se concentró solamente en los asentamientos informales de Lima, recortó los requisitos para el registro de las propiedades, lo que permitió a los propietarios pobres de terrenos obtener títulos en forma rápida y a bajo costo.
Los resultados fueron impresionantes. Según un informe del Instituto Lincoln denominado Regularización de asentamientos informales en América Latina, cuyo autor es el abogado brasileño Edésio Fernandes, el COFOPRI redujo los tiempos necesarios para obtener el título de 7 años a 45 días, disminuyó la cantidad de trámites de 2.007 a 4, y bajó los costos de registro de US$2.156 a una suma casi nula.
Desde su creación, el COFOPRI ha emitido cerca de dos millones de títulos de propiedad, lo que lo convierte en uno de los mayores programas de este tipo en el mundo.
Tal como señala Jorge Ortiz, exempleado de COFOPRI y más tarde director de la SUNARP (el registro tradicional de Perú): “Los empleados del organismo trabajaban 24 horas al día. Verdaderamente se identificaron con lo que estaban haciendo”.
La política sobre títulos de propiedad de de Soto se convirtió en la manera preeminente de abordar el tema de la regularización del suelo en todo el mundo. Recibió elogios de varias organizaciones dedicadas al desarrollo, como el Banco Mundial y el Banco Interamericano de Desarrollo, y de políticos como el expresidente de los Estados Unidos, Bill Clinton. Perú, como país pionero en este programa, se convirtió en un modelo para otros países de América Latina, África y Asia que también estaban luchando contra la informalidad y la pobreza generalizadas.
Casi 20 años después de la creación del COFOPRI, los académicos han identificado varios beneficios sociales y económicos derivados del otorgamiento de títulos de propiedad. Por ejemplo, según muestran los estudios realizados, las familias que tienen un título formal invierten más en sus casas y en la educación de sus hijos. También tienen menos hijos.
Sin embargo, los críticos del programa sostienen que la hipótesis principal de de Soto –que los títulos de propiedad aumentarán el acceso de los pobres al crédito formal– simplemente no se hizo realidad como de Soto imaginó.
Estos críticos también señalan ciertas consecuencias no deseadas que son el resultado de los grandes programas de otorgamiento de títulos de propiedad, tales como la manipulación política y el incentivo que tienen los ocupantes ilegales para seguir invadiendo terrenos y creando nuevos asentamientos informales sin servicios, con la esperanza de que algún día puedan registrar sus propiedades.
Los riesgos de la desregularización
En Perú, uno de los mayores motivos de preocupación es la sostenibilidad de los títulos de propiedad, ya que una cantidad cada vez mayor de propiedades está cayendo en la desregularización. Muchos años después de haber ocupado los terrenos, los propietarios originales están jubilándose o falleciendo. Sus propiedades, que, por lo general, pasan a sus hijos, están volviendo a caer en la informalidad.
Según Fernandes, “Lo que hemos observado es que, a partir de la segunda o tercera operación inmobiliaria, las transacciones ya no se registran. Por diferentes motivos, la gente sencillamente deja de mantener sus propiedades en una condición por completo legal. Por lo tanto, en unos pocos años, volveremos al punto cero en términos de legalidad en el área”.
A menos que se produzca un cambio en las tendencias, los expertos en políticas dicen que el enérgico programa de otorgamiento de títulos de propiedad del gobierno podría desbaratarse, junto con sus beneficios.
Los propietarios informales corren el riesgo de perder el beneficio más básico derivado del título de propiedad: la seguridad de la tenencia y la protección legal contra el desalojo y el fraude. Y también podrían enfrentar otros costos, como gastos legales para resolver diferencias sobre la propiedad.
También existen costos de oportunidad. Los propietarios informales no pueden usar su propiedad para acceder al crédito formal, y además no recibirían una compensación al valor justo de mercado si decidieran vender sus casas.
Los alcances de la desregularización son difíciles de medir. No obstante, según un estudio reciente del Instituto Lincoln llevado a cabo por Oswaldo Molina, economista egresado de Oxford, sólo se ha registrado formalmente un 21 por ciento de las segundas operaciones inmobiliarias sobre propiedades en áreas que hace poco recibieron títulos de propiedad en Perú (Molina 2014).
Según Molina, “cuando comenzó la reforma, no se trataba sólo de una cuestión de otorgar títulos de propiedad a las personas sino de que mantuvieran la formalidad de sus propiedades. Entonces, ¿qué pasó con el 79 por ciento restante? Ahora vamos a tener muchísimas propiedades con títulos, pero a nombre de otras personas”.
Motivos para no registrar las transacciones
Ortiz comenta que, durante su gestión como director de la SUNARP, era muy raro que las personas registraran las segundas transacciones de sus propiedades. Para él, esto ha sido una desilusión.
“Yo creía en el modelo de la década de 1990”, dice Ortiz, que fue director de la SUNARP durante los comienzos del gobierno del presidente Ollanta Humala en 2011. “Ahora, unos 30 años después, veo que puede echarse todo a perder”.
Las causas de la desregularización no son muy claras, aunque los expertos apuntan a problemas culturales y cambios en las políticas públicas como algunos de los motivos más importantes.
En muchos lugares de Perú, existe un gran respeto por las decisiones que los padres transmiten en forma verbal, aun en relación con importantes cuestiones de tipo legal, como el registro de propiedad. En aquellos casos en que el hogar familiar se subdivide, los hijos dependen de sus padres –los propietarios– para firmar la transacción y así poder obtener un título formal.
Según los expertos, muchos padres no tienen problemas de que sus hijos paguen por la subdivisión, pero no consideran la posibilidad de otorgar un título formal, ya que creen que un acuerdo verbal es suficiente para dividir la propiedad. En otros casos, los padres se niegan a otorgar un título por temor a perder el control de sus casas.
“Todavía existe la cultura de respetar la decisión y la palabra de los padres”, dice Jesús Quispe, director de CENCA, un instituto de desarrollo urbano con sede en Lima que trabaja en San Juan Lurigancho. “Muy pocas operaciones quedan plasmadas en el sistema legal. Existe una cultura de la informalidad”.
Ramiro García, director del programa urbano de DESCO, una organización de desarrollo peruana, explica que muchas familias hacen caso omiso del registro público hasta que surge algún problema, como por ejemplo una controversia legal sobre la propiedad del inmueble.
“Es un trámite burocrático, costoso y las familias no lo consideran necesario”, señala García desde su oficina en Villa El Salvador.
Con anterioridad a la explosión demográfica en Lima, las familias que no podían acceder a comprar una casa podían mudarse a las afueras de la ciudad, ocupar un terreno y construir una casa. Hoy en día, ya no existen muchos lotes vacantes. Los que quedan se encuentran al borde de las montañas, terrenos que suelen ser inestables para vivir.
A medida que la disponibilidad de terrenos es cada vez más escasa, la demanda de viviendas se ha mantenido sólida. En consecuencia, la ciudad ha comenzado a expandirse hacia arriba y los edificios de apartamentos están reemplazando a las casas.
Los precios inmobiliarios también se han disparado debido al fuerte crecimiento económico que Perú experimentó durante los últimos diez años. Para las familias jóvenes de clase media-baja, los precios cada vez más altos les hacen cada vez más difícil acceder a una casa propia.
A fin de ayudar a sus hijos, los padres que se asentaron en las afueras de Lima hace unas décadas ahora están agregando dos o tres pisos a sus casas para subdividirlos luego en apartamentos.
En San Juan de Lurigancho, Melly Rosas, una mujer de 53 años que trabaja de secretaria en una iglesia, decidió agregar tres pisos más a su casa cuando vio cómo les costaba a sus hijos casados ahorrar el dinero necesario para comprar una propiedad.
“Al principio, este no era nuestro plan”, dice Rosas, “pero era muy costoso para mis hijos comprar un terreno mientras pagaban un alquiler”.
“Estamos construyendo hacia arriba porque ya no hay más espacio”, agrega Rosas, en referencia a la creciente cantidad de edificios que han aparecido en su barrio.
Rosas y su esposo, Ricardo, no han averiguado cómo otorgarles los títulos de propiedad de los apartamentos a sus hijos, aunque ya lo están evaluando. Según Rosas, “sabemos que tenemos que hacerlo, porque así ellos tendrán menos problemas. Pero por ahora, todo es un acuerdo verbal”.
A una corta distancia en automóvil, en una tranquila calle residencial, Marcelo Núñez, un zapatero de 52 años, vive en una casa espaciosa con techos altos que ayudan a mantenerla fresca en los calurosos veranos de Lima. Anexo a la casa hay un pequeño negocio, donde su esposa vende refrescos y patatas fritas.
Al igual que hicieron sus vecinos, Núñez y su familia construyeron lentamente su casa durante los últimos 30 años, una pared cada vez. Ahora su hija de 28 años está construyendo un segundo piso, adonde irá a vivir con su bebé. El hijo de Núñez, de 25 años, probablemente vivirá en el tercer piso.
Núñez dice que no tiene intenciones de registrar los pisos superiores de su casa, aunque serán propiedad de sus hijos. “Por mi parte, no he pensado hacerlo legalmente, porque somos una familia”, dice Núñez. “Es bastante extraño hacer una subdivisión legal. Por lo general, esto se hace verbalmente”.
No obstante, Núñez coincide con Rosas en que dejar a sus hijos una propiedad sin título formal podría generarles problemas en el futuro. “Si ellos están de acuerdo, yo no tendría problemas en hacerlo legalmente”, dice Núñez.
Sin embargo, los factores culturales no son el único impedimento para registrar las propiedades. Los expertos en políticas señalan que las personas como Rosas y Núñez deberán cumplir varios requisitos regulatorios muy costosos si deciden en algún momento formalizar sus propiedades.
Según los expertos, los obstáculos surgieron debido a la decisión del gobierno de eliminar el Registro Predial Urbano, el registro paralelo creado al fin de acelerar el registro formal de las propiedades en los asentamientos informales de Lima.
En 2004, Perú fusionó el Registro Predial Urbano con la SUNARP, el registro público tradicional, considerado demasiado costoso y burocrático. Los trámites más simples que tenía el Registro Predial Urbano para registrar las segundas y terceras transacciones sobre un inmueble fueron reemplazados por los requisitos más complicados y costosos de la SUNARP.
Los críticos de esta decisión señalan que el gobierno realizó este cambio debido a la presión ejercida por grupos de poder que representaban a los notarios públicos, quienes estaban preocupados ante la posibilidad de perder un lucrativo negocio a causa del Registro Predial Urbano. A diferencia del registro tradicional, el Registro Predial Urbano permitía a los propietarios contratar a cualquier abogado, y no solamente a notarios, para legalizar sus transacciones.
Según Ayala, abogado especializado en títulos de propiedad, “al regresar al antiguo sistema, los costos se quintuplicaron. La gente se negó a hacerlo. El problema no es cultural. Se trata de encontrar la forma de mantener el proceso de obtención de títulos dentro del sistema formal”.
La desregularización en Perú tiene consecuencias de gran alcance para otros países que establecieron sus propios programas de títulos de propiedad siguiendo el modelo peruano.
Sebastián Galiani, de la Universidad de Maryland, y Ernesto Schargrodsky, de la Universidad Torcuato Di Tella (ambos economistas argentinos e investigadores del Instituto Lincoln) observaron que en un suburbio de Buenos Aires donde recientemente se habían otorgado títulos de propiedad, una parte importante de las propiedades estaba cayendo nuevamente en la informalidad. En un estudio de 2013, los autores concluyeron que la desregularización probablemente se debía a que el costo para mantener la formalidad de las propiedades era inaccesible para las personas (Galiani y Schargrodsky 2013).
“Este no es sólo un problema peruano”, dice Molina, el economista que estudió la desregularización en Perú, “sino algo mucho más amplio que se da en toda la región. Es un problema de visión a corto plazo de la reforma”.
Posibles soluciones
Para frenar el aluvión de la desregularización, los expertos en políticas señalan que los gobiernos deben intervenir inmediatamente para impedir que en el futuro se generen programas costosos de otorgamiento de títulos.
Ya se han tomado algunas pequeñas medidas. En 2007, el gobierno promulgó leyes para otorgar fondos a propietarios de bajos recursos con el fin de formalizar las subdivisiones de sus propiedades, un proceso que requiere, en primer lugar, registrar la construcción de la vivienda (el programa de registro en Perú otorgaba a los residentes el título de propiedad del terreno, no de la vivienda que se construía sobre el mismo). Sin embargo, los expertos en registros dicen que el programa de 2007 nunca se implementó de manera completa.
Lo que es más importante, los expertos dicen que el gobierno debería restablecer los trámites simples, como aquellos que se eliminaron cuando el Registro Predial Urbano se fusionó con la SUNARP. Según Molina, “algo concreto que puede hacerse es reconsiderar los mecanismos que se utilizaron anteriormente. El Registro Predial Urbano se creó con el fin de que los pobres pudieran obtener los títulos de propiedad de manera correcta”.
Pero tal vez no sea suficiente hacer cambios sólo en las regulaciones. Muchos expertos insisten en el hecho de que el problema requiere que las autoridades aborden también el tema más amplio de la cultura de la informalidad en Perú. Para ello, según los especialistas, el gobierno debería lanzar una campaña con la finalidad de educar a los residentes sobre la importancia de mantener la formalidad de sus propiedades.
“Este es un problema que debe tratar el gobierno”, dice Gustavo Riofrío, sociólogo e investigador del Instituto Lincoln, quien ha dedicado su carrera a estudiar los derechos de propiedad. “Tenemos una ciudad entera que ha sido construida por personas que enfrentan el mismo problema. Ya no se trata de un problema individual, sino social”.
Los funcionarios de la SUNARP dicen que están trabajando para simplificar los trámites relacionados con las operaciones inmobiliarias sin poner en riesgo la seguridad legal que brinda el sistema actual. Señalan, además, que están trabajando para educar a las personas en a la importancia de utilizar el registro, aunque reconocen que el gobierno “no ha logrado inculcar en la población la importancia de la formalización”.
Hasta que exista una mayor aceptación del sistema regulatorio, algunos abogados opinan que Perú debería establecer la obligatoriedad del registro. A diferencia de muchos otros países, Perú no requiere el registro de las operaciones inmobiliarias, sino que es voluntario.
Como asegura Ortiz: “Debemos educar a las personas para que comprendan que el registro no sólo les brinda seguridad sino que también genera valor. Pero hasta que tengamos una nueva cultura, será necesario modificar el Código Civil para requerir a las personas que registren sus propiedades”.
En el hogar de Amalia y Eusebio, en San Juan de Lurigancho, su hija de 40 años, Emma, está ansiosa por hablar acerca de los títulos de propiedad.
Emma, que vive con su hijo en un apartamento del tercer piso, dice que la subdivisión de la vivienda familiar hasta ahora ha funcionado bastante bien. Los diferentes miembros de la familia respetan el espacio de cada uno, pero siguen reuniéndose los domingos para almorzar. Los hijos también ayudan a sus ancianos padres con algunos gastos, como los alimentos.
No obstante, Emma sabe que es muy importante definir legalmente la titularidad de la propiedad, en particular después de haber visto a otras familias quedar atrapadas en conflictos legales relacionados con sus propiedades. Emma cree que sus padres, a la larga, comenzarán el trámite para otorgar los títulos de propiedad a sus hijos.
“Mi madre y mi padre todavía se sienten bien físicamente. Cuando esto cambie, creo que lo dejarán ir”, dice Emma. “Pero por el momento, todavía lo mantienen todo junto. Para mí, está bien”.
Ryan Dubé es un periodista canadiense que vive en Lima, Perú. Sus artículos han sido publicados en The Wall Street Journal, The Globe & Mail y Latin Trade. También ha trabajado en proyectos para la Unidad de Inteligencia de The Economist.
Referencias
Fernandes, Edésio. 2011. Regularización de asentamientos informales en América Latina. Cambridge, MA: Lincoln Institute of Land Policy. www.lincolninst.edu/pubs/dl/1962_1283_Regularization%20PFR%20Span%20Rev%202012.pdf
Galiani, Sebastián y Ernesto Schargrodsky. 2013. “Land De-Regularization”. Documento de trabajo. www.utdt.edu/ver_contenido.php?id_contenido=2674&id_item_menu=4526
Molina, Oswaldo. 2014. “Loss of Plot Formality through Unregistered Transactions: Evidence from a Natural Experiment in Peru”. Documento de trabajo. Cambridge, MA: Lincoln Institute of Land Policy. www.lincolninst.edu/pubs/2447_Loss-of-plot-formality-through-unregistered-transactions
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Liz Wood wanted to buy a house. It was 2006, she had been renting for A decade, and her monthly payments were getting high. She was 43 and steadily employed, earning $34,000 annually plus benefits as a family educator. She didn’t want anything fancy, just a place where she could “gather love and bring stability.” She would stay within her means.
Nonetheless, the math was tricky. Wood lives in Duvall, Washington, a town of roughly 7,500 in the foothills of the Cascade Mountains. Steeped in lush forest, Duvall is about 30 miles from Seattle and a mere eight miles from the City of Redmond, the headquarters for Microsoft. The median income in Duvall is nearly twice that of the state of Washington, and homes in this area are expensive. In 2010, the median value of owner-occupied homes in Duvall was $373,500, compared to $262,100 for the state, according to the U.S. Census Bureau.
With few options, Wood eventually decided on a used factory-built home (also known as manufactured housing) for $55,000 in Duvall Riverside Village, a four-acre community of 25 manufactured homes in the middle of downtown Duvall. “It’s amazing here,” she says. “I live on riverfront property, so when I walk out my door I see water, pine trees, and a walking trail that goes from my house to the next town. I wake up in the morning hearing birds. I know all my neighbors; I’m connected to my community. I’m a block from the police station. I feel safe.”
But it was still difficult. Wood owned her house, but not the land on which it sits. Instead, she rented the plot for $450 a month, plus water and utilities, as did the other residents of Duvall Riverside Village. As a result, Wood and her neighbors remained largely at the mercy of the property owner, their landlord, and forfeited much of the autonomy and security associated with more traditional home ownership models.
Their landlord prohibited garages, leaving residents limited storage options. He charged them $25 a month per additional car or adult beyond those registered at the time of move-in. He charged $5 a month for every pet and required dogs to be leashed at all times. There was a $5 monthly fee for every extra half-cord of firewood, which Wood needed to fuel her stove. Though he employed a groundskeeper, he didn’t install outdoor lights, nor did he maintain the community roads, which were pocked and cracked.
In 2012, Wood and her neighbors received a written notice that the owner was selling the land. Unlike many owners, who prefer to sell their properties to a developer, this landlord was open to selling to residents. He had agreed to host a meeting between the tenants, a real estate broker, and the Northwest Cooperative Development Center, a nonprofit that supports cooperatives. The parties discussed the possibility of establishing a nonprofit, resident-owned cooperative to purchase the property. In doing so, they would conserve the land for manufactured housing, continue living there as a community, and collectively manage it to guarantee a safe, affordable, high-quality experience.
The residents voted to go for it. The landlord had two demands. He wanted fair market value, and he wanted to complete the sale by the end of the year. It was already August. They had five months.
In addition to the collaboration with Northwest Cooperative Development Center, the residents also began working with ROC USA, a New Hampshire–based nonprofit organization that offers residents of manufactured housing communities a mix of technical assistance and affordable financing to purchase their rented land when it becomes available for sale. Since its establishment in 2008, ROC USA has successfully facilitated 80 of these transactions nationally and secured more than $175 million in financing for them.
ROC USA works with a network of eight regional affiliates, including the Northwest Cooperative Development Center. In Duvall, the nonprofits worked together with the residents to assess the economics of a possible deal and to confirm that the community was a good fit for resident ownership. Next, the organizations helped the residents to hire a third-party lawyer and establish their cooperative, which would operate as a democracy with residents elected into leadership positions by fellow residents. ROC USA assisted the residents to hire an independent engineer and conduct due diligence of the property; secure financing through ROC USA’s lending subsidiary, ROC USA Capital, to purchase the property and undertake critical repairs; and organize the real estate transfer.
On December 27 of that year, the newly formed cooperative bought the Duvall Riverside Village with $1.3 million in purchase financing from ROC USA Capital, granting Wood and her fellow home owners control over their living arrangements, and permanently preserving 25 affordable homes in a town where such housing stock is scarce.
The residents continue to pay $450 a month to rent the land, but now they vote to determine community rules, and use the rent to make improvements and to pay the community’s mortgage, taxes, and expenses.
“Now, you can have a garage if you want,” explains Wood, who is president of the Duvall residents’ cooperative and a ROC USA board member. “And we spent $35,000 to fix the roads. We don’t have to live in fear anymore, so people are willing to invest in their homes. We have annual meetings to vote in projects. We can lower the monthly rent if we are over-budgeting for things we don’t need. The bottom line is that we are in control of our own destiny.”
Upon completing the sale, ROC USA and the Northwest Cooperative Development Center have continued providing the residents with technical support to ensure smooth operations.
“If they had just lent us the money and said, ‘these are the guidelines, here’s what you need to do, have at it,’ we would have failed,” explains Wood. “But they are an ongoing resource. They help us with tough situations, or when we don’t know how to do something legally. The goal is for us to become independent and to be able to run our community like a business. Pay your bills, and your house can stay where it is. Period. Forever.”
Benefits
Across the United States, more than 18 million Americans live in factory-built homes, which represent 5 percent of the nation’s housing stock in metro areas, and 15 percent in rural communities. They range significantly in quality. Roughly 25 percent of today’s manufactured housing stock is the stereotyped, rickety trailers of the 1960s and early 1970s, produced before the federal government introduced quality controls in 1976. The remaining 75 percent complies with the federal standards, and includes charming, energy-efficient homes, indistinguishable to the untrained eye from their site-built counterparts. Though manufactured homes have long been cast aside as a housing choice of last resort, today’s models are robust, efficient, and inviting, with the potential to help alleviate the nation’s shortage of safe, affordable housing.
Modern manufactured homes cost approximately half as much as their site-built counterparts and can be built five times faster, making them a genuinely viable option for low-income consumers. The production process is less wasteful, and models that comply with the federal government’s Energy Star standards offer home owners meaningful energy savings. And they are durable. Whereas manufactured homes built prior to the 1976 regulations were made to be portable, like recreational vehicles, modern models are built with stronger materials and designed to be permanent. Today’s manufactured homes can sit on any foundation that would otherwise accommodate a site-built structure, creating the flexibility to use the housing in a wide range of geographies and environments.
“The manufactured housing stock is a critical component of the nation’s affordable housing,” says George McCarthy, president and CEO of the Lincoln Institute of Land Policy. “It easily outnumbers our subsidized stock two or three times in almost every market.”
Manufactured homes are cheaper to produce than site-built houses because of the manufacturing process. As Andrea Levere, president of the Corporation for Enterprise Development, writes in the Huffington Post, the “term ‘manufactured housing’ itself has less to do with quality and more to do with the production process, which is a derivative of Ford’s assembly lines. This model allows manufactured homes to be built in a more controlled work environment, translating into predictable costs, increased efficiencies, and reduced waste” (Levere 2013).
In 2013, a new, energy-efficient manufactured home cost $64,000, compared to $324,500 for a new, site-built one, according to the U.S. Census, though the price for the latter includes the land. Even after stripping out the land costs, manufactured homes are still significantly less expensive, averaging $44 per square foot, versus $94 per square foot for site-built homes. And they are unsubsidized, which is a boon given the extremely short supply of subsidized housing compared to demand. Currently, only one in four income-qualified families receives a housing subsidy according to the Bipartisan Policy Commission, leaving the remaining 75 percent in need of an affordable, unsubsidized alternative. By helping to fill that gap, manufactured housing can relieve some of the demand for subsidized housing that state and federal governments are struggling to supply in the face of shrinking budgets. “The majority of families who live in manufactured housing would qualify for subsidized housing, but instead they choose this less expensive and unsubsidized option,” says McCarthy.
The stock is also very versatile, argues McCarthy, who cites its role in housing people during the immediate aftermath of Hurricane Sandy. “Recovery workers got 17 manufactured homes on the ground in New Jersey within weeks of the hurricane—permanent homes for displaced renters, not the problematic ‘Katrina trailers.’ And they did it before most organizations even had a housing plan. This speaks to the efficiency and nimbleness of building manufactured housing. The production times are about 80 percent shorter than for site-built homes, making them the best housing option for disaster response.”
Nevertheless, manufactured housing often gets a bad rap, due largely to the widespread misperception that today’s models are the same as the earliest generations of mobile homes built prior to the introduction of quality control standards by the U.S. Department of Housing and Urban Development in 1976. Today, there are roughly 2 million of these pre-1976 homes; many are barely hanging together and house the nation’s most vulnerable populations, including the elderly and disabled. Though the pre-1976 stock is virtually unrelated to its present-day counterpart, these older, dilapidated dwellings dominate the general public perception of manufactured homes in the United States.
The housing stock’s reputation is further diminished by the vulnerabilities facing home owners who do not own the land on which they live. Roughly 3 million people live in one of the nation’s 50,000 manufactured housing communities, while another 3 million rent on private property. There are manufactured housing communities in every state in the country. Like Duvall Riverside Village, many of them are on prime real estate, and the landowners routinely receive purchase offers from developers.
Advocates working to improve the manufactured home ownership experience, and to promote the stock’s viability as affordable housing, are focusing on three critical areas of innovation: conserving mobile-home parks; replacing pre-1976 units with modern, energy-efficient homes; and increasing access to affordable financing for potential buyers, which is virtually unavailable in the current market and is imperative to building equity and preserving a home’s resale value.
Conserving Manufactured Housing Communities
The conversion of Duvall Riverside Village from a privately owned mobile home community to a resident-owned cooperative is not common. For every community available for purchase that is successfully preserved as affordable housing, there are many more that end up sold for redevelopment, displacing residents who may lack good alternatives.
“It’s not as simple as just moving the home,” says Ishbel Dickens, president of the National Manufactured Home Owners Association. “First, there’s the question of whether the home can even be moved. It may be too old or unstable to survive a move. And even if it can be moved, it’s expensive to do so, and very hard to find a space in another community. In most instances, when a park closes, the residents are probably going to lose the home and all their equity in it. In all likelihood, they will never own a home again. They’ll likely end up on a wait list for subsidized housing, or may even end up homeless.”
To some degree, it’s an accident of history that so many of today’s mobile home parks occupy plots of coveted real estate, says Paul Bradley, president of ROC USA. As he explains it, in the late 1950s and 1960s, Americans began to embrace transportable trailers and campers, in part because of a cultural shift toward outdoor recreation, and in part because post–World War II factories began producing them to utilize excess manufacturing capacity, making them widely available and affordable. As the units grew in popularity, they transitioned from temporary structures to permanent ones, and people began adding makeshift carports and sunrooms. At the time, urban planners accepted the evolution toward permanency. As they saw it, most of the trailers were on land that no one else was using in outer-circle developments. Why not let these campers stay for awhile, until the cities expanded to meet them, at which point the land would be redeveloped?
“These original communities were built with a plan to close them,” says Bradley. “Back then, no one contemplated the full implications of creating a housing stock for which home owners lacked control of the underlying land. No one anticipated that these communities would be full of low- and moderate-income home owners who spent their own money to buy these homes and had few alternatives. And that’s what we are still grappling with today. That lack of control of the land means that home owners live with a deep sense of insecurity and the feeling that it’s irrational to make investments in their properties because they won’t get it back. What’s the implication for home owners who cannot rationally argue for investing in their home? What does that mean for the housing stock? For neighborhoods?”
Short-sighted land use policies are not the only challenge to preserving manufactured housing communities. An equally onerous obstacle is the lack of legal protections afforded to residents. In 34 states and the District of Columbia, the landowner can sell the property without giving residents the opportunity to purchase it. In fact, in most states, the landowner doesn’t have to notify residents that the community is for sale; the landowner can wait until the property has been sold to inform residents of the transaction, suddenly leaving them in a tenuous position. Even the 16 states that require the owner of a manufactured housing community to provide residents advance notice of a sale do not necessarily afford tenants the necessary protections. “In most of the states with advance notice, there are so many limitations on the notice requirements that it is rarely of any use to residents,” says Carolyn Carter, director of advocacy at the National Consumer Law Center.
To better protect residents, advocates support legislative reforms to state laws and tax incentives for landowners who sell to residents. The most effective of these strategies are state laws requiring a landowner to give residents both advance notice of the sale—ideally 60 days—and the opportunity to purchase the property, argues Carter. According to her, there are six states with laws that “work on the ground and provide effective opportunities for residents to purchase their communities,” including New Hampshire, Massachusetts, Rhode Island, Florida, Vermont, and Delaware. She says Oregon passed promising legislation in January 2015.
“In those states with effective notice and opportunity to purchase laws, resident ownership takes off,” Carter explains. Roughly 46 percent of the 80 communities that ROC USA supports are in either New Hampshire or Massachusetts—two small states with some of the nation’s strongest resident protections. There are an additional 89 resident-owned cooperatives in New Hampshire that predate ROC USA’s launch.
To understand the value of strong consumer laws for residents, consider the story of Ryder Woods, a 174-unit mobile home park in Milford, Connecticut, 11 miles south of New Haven, just off a major thoroughfare. Connecticut is one of 19 states that either offer tax incentives or provide residents “some” protections when a community is sold, but also contain “significant gaps,” according to Carter.
In 1998, Ryder Woods’ landowner sold the property to developers. He informed the residents via eviction notices, in violation of state laws requiring him both to give them advance notice of the pending sale and to provide them the right of first refusal to purchase the land. Ryder Woods had an active home owners association, and very quickly they organized protests and petitions and lobbied the state legislature to reverse the sale. Eventually, the local news picked up their story, at which point a Milford-based attorney volunteered her services to help them. As she dug into the case, she realized that the law was on the side of the residents and that the community needed more legal support than she alone could offer. She enlisted help from a friend and fellow attorney—a partner at a prominent, Hartford-based firm—who agreed to take the case pro bono and assigned it a team of attorneys. The case ended up going to trial, eventually making its way to the state’s highest court. Uninterested in the unfolding legal headache, the original buyer resold the property to a second developer.
Four years after the original sale, the courts ruled in favor of the residents. In an unprecedented deal, and as required as part of the settlement, the second developer purchased a new piece of land a mile from the original parcel and completely rebuilt the community there. The developer purchased 174 new mobile homes and sold them to the residents at significantly reduced prices with more favorable mortgage terms than any available in the conventional financing market. He built a community center and a pond, complete with swans. And, as required by their agreement, he provided the residents the opportunity to form a cooperative and buy the land, which they did in 2009 with $5.4 million in purchase financing from ROC USA Capital. They closed on their purchase in the offices of the Hartford firm, which had continued to volunteer its services to the residents through the sale’s completion. Today, there is a Walmart on the land that housed the original Ryder Woods community.
“Sometimes, when we look back, we think it was crazy. We chartered a bus, went to Hartford, spoke to the legislature, and just fought it. We stuck together and won against two big-time, billion-dollar developers,” explains Lynn Nugent, 68, a part-time merchandise associate at Sears, and one of the residents who helped organize the campaign, along with her husband, a retired locksmith. “Now I always say, ‘Somebody else used to own us, and now we own ourselves.’”
Improving Access to Quality, Affordable Manufactured Homes
Unlike the residents of Ryder Woods, many owners of manufactured homes struggle to secure a quality unit with affordable financing. Here again, legislation is a primary culprit. Under federal law, manufactured homes are considered personal property, like a car or a boat, opposed to the real property designation assigned to traditional homes. Consequently, buyers cannot access mortgage loans. Instead, financing is available in the form of personal “chattel” loans. More expensive than mortgage loans, they average an additional 50 to 500 basis points and provide fewer consumer protections. More than 70 percent of purchase loans for manufactured homes are these higher-cost loans, which are considered a proxy for subprime products.
“This second-tier status is one of the biggest limitations to increasing the stock of permanently affordable manufactured homes,” says McCarthy. “It makes financing the homes more challenging and expensive than it should be, and it diminishes the homes’ wealth-building potential because it reduces effective demand for existing units.”
While the dream fix would be to change federal titling laws, such revisions are not forthcoming. Instead, Next Step, a Kentucky-based nonprofit organization, has established “Manufactured Housing Done Right (MHDR).” This innovative strategy works to make high-quality, affordable manufactured homes—and financing—available to low- and moderate-income consumers through a combination of energy-efficient homes, home buyer education, and affordable financing. Here’s how it works.
First, Next Step gives low-income buyers access to high-quality manufactured homes. The organization created a portfolio of models that are both robust and affordable. Each Next Step home meets or exceeds Energy Star standards, reducing utility costs for the home owner and shrinking the environmental footprint. According to Next Step, testing has shown these homes to be 30 percent more efficient than a baseline code home and 10 to 15 percent more efficient than a baseline Energy Star home. On average, this results in $1,800 in energy savings each year for every pre-1976 mobile home replacement and $360 each year for every new home placement.
Additionally, Next Step homes are “value engineered to ensure affordability while upholding quality standards.” They are installed on permanent foundations, providing for greater structural support against wind and reducing settling issues. The homes contain high-quality flooring and insulation, which helps to increase durability and reduce energy costs. And because water is the number one problem for foundations, Next Step homes contain additional safeguards to protect against moisture.
Improving Access to Sustainable Financing
Next Step also makes sure the home buyers can secure sustainable, affordable financing. “One of the problems facing the industry is that the capital markets don’t participate in a big way,” explains Stacey Epperson, CEO of Next Step. “The secondary market is not there in any meaningful way, so there are very few lenders in this marketplace and very few options for buyers. Our solution is to prepare our borrowers for home ownership, and then bring them good loans.”
Next Step works with a mix of nonprofit and for-profit lenders, vetted by the organization, to provide safe, reasonably priced financing. In return, Next Step reduces the lenders’ risk. The homes are designed to meet the lenders’ requirements, and the home buyers receive comprehensive financial education so that they are equipped to succeed as home buyers. Consequently, Next Step home buyers not only secure a better initial mortgage, but also have the capacity to build equity and obtain a good resale price for the home should they decide to sell it one day.
Importantly, each Next Step home is placed on a permanent foundation in order to qualify the home owner for certain government-backed mortgage programs, which are less expensive than a chattel product. Next Step estimates it has saved its 173 home buyers approximately $16.1 million in interest payments.
“Right now, close to 75 percent of all financing for manufactured housing is going out as chattel. But 70 percent of new manufactured homes are going out on private land where, in many cases, the home could be put on a permanent foundation, and the owner could get a mortgage with a lower interest rate and a longer term,” says Epperson.
The MHDR model is innovative in part because it is scalable. Next Step trains and relies on a membership network of nonprofit organizations to implement the model in their respective communities. Next Step sells the homes to members at competitive prices, and then member organizations oversee the process of identifying and educating buyers, assisting them to secure the loan, and managing the installation.
“The way the industry works, there has never really been a way for a nonprofit to buy a manufactured home at wholesale prices. That’s what we’ve engineered, and that’s what makes these homes a lot more affordable than if the nonprofit or home owner tried to buy them on their own,” explains Kevin Clayton, president and CEO of Clayton Homes, one of the nation’s largest producers of manufactured housing, and one of Next Step’s long-time supporters.
“The Next Step program works because it sets people up for success,” says Clayton. “Next Step takes them through home ownership counseling, and supports home owners if they have a hardship down the road. They get to buy the house for a lot less than they otherwise could have, build equity in the home, and have a low monthly loan payment and energy costs.”
Cyndee Curtis, a Next Step home owner, agrees. Curtis was 27, single, and pregnant when she purchased a used, 1971 Fleetwood mobile home for $5,000 in 2001. She put it on the lot she owned just outside the town of Great Falls, Montana.
“I didn’t have money, I didn’t have a degree, and I didn’t have choices,” says Curtis. “The old steel septic tank was a ticking time bomb, with rust holes. The carpet was worn through, the linoleum underneath had burn spots on it, and the ceiling leaked where an addition had been added. Every year, I would buy construction books, go to Home Depot, and ask how to fix that leak. And every year I ended up there by myself, trying to fix it. There was mold on the doorway from that leak, and I had a newborn in there.”
In 2005, Curtis went back to school for two years, obtained her nursing degree, and began working as a licensed practical nurse, earning $28,500 a year. “I figured now I am earning a livable wage and can explore my options,” says the single mother of two. “I wanted something that my kids could grow up in and be proud of, and to make the most of owning the lot I lived on.”
But her credit was poor, and eventually she ended up at NeighborWorks Montana, a nonprofit Next Step Network member that told her about the Next Step program. Over the next two and a half years, Curtis worked with the staff of NeighborWorks Montana to repair her credit. With their assistance, she secured a mortgage and purchased a Next Step home for $102,000, which included not only the house but also the removal, disposal, and replacement of her old septic system. Because the Next Step home is on a permanent foundation that meets certain qualifications—and because of Curtis’s improved credit history, income, and geography—she qualified for a mortgage from the U.S. Department of Agriculture’s Rural Development program, which was significantly less expensive than the more common chattel products. Additionally, whereas Curtis’s previous mobile home was titled like a car, her Next Step home is deeded like a site-built house. Consequently, a future buyer will also be eligible to apply for a traditional mortgage.
Curtis says her Next Step home has provided her significant energy savings. “I have 400 square feet more now than I had previously. I went from having one bathroom to two. And still both my gas and power bills have been cut by about two-thirds.”
She continues. “My house is a thousand percent better than what I lived in before. If a person goes inside my house, they can’t tell it’s a manufactured home. It has nice doorways, nice walls that are textured. It looks like any new home you would want to live in.”
“Sometimes people think they have to suffer with poor housing conditions. I know how it is, and I want them to know that if you put in some hard work, you can make a difference for yourself and your family.”
Loren Berlin is a writer and communications consultant based in Greater Chicago.
References
Levere, Andrea. 2013. “Hurricane Sandy and the Merits of Manufactured Housing.” Huffington Post. January 8. http://www.huffingtonpost.com/andrea-levere/hurricane-sandy-manufactured-housing_b_2426797.html
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A TDR Parable: It’s simple. You just go to the farmer whose land you’re trying to preserve and tell him that he can’t develop his land because it is a “sending area” for your new Transfer of Developments Rights (TDR) program. At first, he’s a bit upset. But as town planner you assure him that everything is OK because you’ve found a developer who will pay him for the development potential of his property in order to build a block of new houses on small lots in the quaint village center nearby. Everybody wins! It’s easy, isn’t it?
Well, not really. The farmer has been offered a lot more money by another developer who wants to build the kind of low-density gated community that professional refugees from the city really want. The farmer decides to sue you and the town, claiming that by depriving him of the right to develop his land there has been a “taking.” Also, the villagers have decided that their community is dense enough and they would like you to find a different “receiving area.”
Meanwhile, the original developer has figured out that he can use his development rights to build a new strip mall on a greenfield site outside of town. This was a site you had hoped he would not use, although you had to include it as a receiving area in order to be sure the farmer’s development rights had somewhere to go.
This parable is clearly an oversimplification, but it illustrates many of the challenges that TDR programs face. The allure of the TDR model is its seemingly simple ability to accomplish in one transaction two complementary goals: open space preservation and compact, centered development. However, the promise of TDR has been stalled by a variety of political, economic and administrative obstacles.
The Lincoln Institute and Regional Plan Association (RPA) cosponsored a two-day conference in October 1997 to explore the potential and the limitations of using TDR programs. While the conference addressed a number of legal and planning issues, one of the central questions asked by the group was, “How can TDR programs be used to influence settlement patterns, not only to protect open space, but also to promote compact development?”
A presentation of research by the American Farmland Trust revealed that the use of TDR has expanded tremendously, and many programs are considered successful even though the overall picture is ambiguous. The list of success stories is still dominated by such well-known programs as Montgomery County, Maryland (1980) and the New Jersey Pinelands (1981). A number of more recent programs showing early potential are the Long Island Central Pine Barrens, New York (1995), Bucks County, Pennsylvania (1994) and Dade County, Florida, where TDRs are helping to preserve more than 100,000 acres of everglades ecosystems outside of the Everglades National Park.
Obstacles and Opportunities
Regardless of how many programs may be considered successful, the conference revealed that there are still many obstacles to establishing a working TDR program. Among them are:
Impacts on Receiving Areas
The first half of the TDR equation (agreement on the resource to be protected) is generally not difficult. However, the second half (agreement on where the transferred development is to go and how it should be configured) has been extremely problematic.
Conference participants acknowledged that while the goal of transferring density away from preservation areas and into growth areas was being accomplished by a number of TDR programs, the programs have not been effective in influencing the design and character of development in the receiving areas. Local municipalities are, or at least should be, obligated to identify sites for increased density, but the use of that density may not be constrained beyond the existing town zoning bylaws. The unfortunate result is that the increased density is as likely to be used for a suburban strip development as for compact, centered development, thus creating localized sprawl within the receiving area.
In the case of the Long Island Pine Barrens, some towns intentionally spread out their receiving areas to avoid the political fallout of higher-density development. When the TDR program was being developed, the Pine Barrens Commission was working on design guidelines meant to promote compact town planning. However, this layer of complexity and restriction was too burdensome to be incorporated into each of the local town plans.
While there is broad agreement that controlling the character of development in receiving areas is a desirable idea, it also raises a number of questions. First, the administrating agency may not be able to deal with the additional complexity that design controls would bring. Second, the market for new development in the receiving areas may not be strong enough to support the additional burden of cluster design. The need to guarantee a market for the transfer rights also works against the creation of controls that would concentrate development. An advantageous ratio of receiving areas to sending areas (as high as 2.5:1) tends to create large receiving areas.
Conference participants from around the country also confirmed what they perceive as a knee-jerk reaction against higher density. Despite the influences of New Urbanism and neo-traditional planning, the general public and the marketplace do not value centered development. Residents of fast-growing communities might be more receptive to clustered residential designs if they could understand what different types of development would look like by reviewing three-dimensional representations in drawings and models.
Land use attorney Charles Siemon suggested that many town planners seem to want compact, centered development, but are not willing to acknowledge that it can be more expensive to private developers. Perhaps another approach, one that is outside of the TDR marketplace, is needed, such as a fund that buys the development rights and agrees to sell them to developers at a discount if they build in town centers. Lexington, Kentucky, is experimenting with this kind of arrangement.
Evaluating TDR
How do you measure the success of a TDR program? By the amount of open space preserved? The number of acres kept in farming? The number of transactions? The quality of development in the receiving areas? And, over what time period? Charles Siemon suggested that a TDR program might be considered a success even if no transactions take place. How? Because, in the context of a larger land use plan, the TDR program can make a preservation program more palatable by providing the landowner with additional options.
It became clear during the conference that the perceived success or failure of TDR programs was colored by excessive expectations. The notion that a TDR program would, by itself, protect open space, preserve activities such as farming, help create appealing village centers, and do all of this simply by offering a mechanism for moving development around is simply not realistic. Some participants asked, “Why should a TDR program be expected to accomplish more than any other single land use tool, such as zoning?”
This question reflected the most fundamental conclusion of the conference: TDR programs work only when they are part of a larger, long-term land use plan that has the commitment and political will of the community behind it. This commitment to the larger goals of the plan and to the particular resource being protected is the real answer to legal and other challenges. A comprehensive plan is more likely to accommodate multiple avenues of relief for landowners who feel unfairly treated. TDR programs that are created within the context of a comprehensive plan are much more likely to be tailored to the specific political, economic and geographic circumstances of their location. Finally, in terms of creating balanced and centered development, it is within a land use plan that the design guidelines and other controls that result in the best town planning principles may reside.
Robert Lane is director of the Regional Design Program at the Regional Plan Association in New York.
Notes:
1. James Tripp and Daniel J. Dudek, “Institutional Guidelines for Designing Successful Transferable Rights Programs,” Yale Journal on Regulation (Summer 1989).
2. In the summer of 1997, the U.S. Supreme Court heard Suitum v Tahoe, a challenge to a TDR program. Although some of the justices took the opportunity to talk about various legal dimensions of TDR, the case did not address the fundamental legality of TDR. Instead, it focused on the “ripeness issue.” Did Mrs. Suitum have to try to sell her rights through the program before challenging its legitimacy? The Court ruled that she did not. The conference participants felt that in the short term the case may create pressure for TDR programs to assign real dollar values to the rights or credits that are being transferred. This is consistent with the finding that a TDR bank, capable of assigning such values, can play an important role in the success of a TDR program.
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The proliferation of informal and illegal forms of access to urban land and housing has been one of the main consequences of the processes of social exclusion and spatial segregation that have characterized intensive urban growth in developing countries. Given the absence of adequate housing policies and the failure of the land market to offer sufficient, suitable and accessible housing options, millions of urban poor have to create their own shelter, either by invading private or public land or by buying land illegally and constructing their own housing. This phenomenon has attracted the attention of many researchers, policy makers and others worried about the grave socioeconomic, environmental and political implications for the urban poor and society at large.
Peruvian economist Hernando de Soto is one of the most influential contemporary ideologues addressing this complex issue. His ideas and proposals regarding large-scale regularization programs, most recently presented in his book, The Mystery of Capital, have received extensive media coverage and have raised the level of public debate. His influence can be measured by the fact that an increasing number of countries and cities, in Latin America and elsewhere, have introduced regularization policies based on his ideas, and these programs have already had a significant impact on international and institutional approaches to property reform and good governance. In many countries, politicians who were never particularly interested in urban development concerns have now become vigorous defenders of de Soto’s ideas. Why?
A Review of Urban Settlement Trends
Before addressing de Soto’s work directly, a brief summary of the current situation is in order. In Latin America, the urbanization process has been especially significant: 380 million people, some 75 percent of the total population, lived in urban areas in 2000, making it the most urbanized region in the world. While the globalization of urban land markets has intensified in Latin America, the region has also seen poverty escalate. It is estimated that between 40 and 80 percent of the population lives illegally because they can neither afford nor gain legal access to land near employment centers. As a result, illegal tenure arrangements have become the main form of urban land development.
The violent evictions and forced removals of the 1970s have been gradually replaced by a relative tolerance of illegal occupations, culminating in some cases with the official recognition of such settlements. Responding to growing social mobilization, public administrators and policy makers in several countries have struggled to formulate regularization programs aimed at both upgrading informal areas and recognizing the land and housing rights of the dwellers, thus legalizing their status.
Most land tenure regularization programs have been structured around two intertwined objectives: to recognize security of tenure and to promote the sociospatial integration of informal communities within the broader urban structure and society. The definition of what constitutes security of tenure has varied in both theory and practice. The UN Global Campaign for Securing Tenure for the Urban Poor, for example, seeks to protect dwellers against eviction and achieve other basic objectives, such as contributing to sustainable livelihoods; improving access to basic services; securing urban citizenship; producing certainty and incentives for investment; mobilizing disparate communities; and empowering women.
Generally speaking, regularization programs in Latin America have been more successful in upgrading settlements through public investments in urban infrastructure and service provision than in legalization programs. The definition of the nature of the rights to be attributed to dwellers has varied greatly, ranging from titles (such as freehold and leasehold) to contracts (such as social rent and other rental mechanisms) and precarious administrative permits (such as temporary licenses and certificates of occupancy). Experiences based on the transfer of individual freehold titles have been largely unsuccessful, given the many existing legal, technical and financial obstacles.
de Soto’s Contributions to the Debate
Although he has claimed that he initiated the debate, de Soto instead has made an undeniably important contribution to a long-standing discussion of the need to confront the phenomenon of urban informality and illegality through public policies aimed at legalizing informal settlements and other extralegal economic activities. Since the 1970s, this debate increasingly has involved planners and policy makers, but de Soto has repackaged the discussion and, to some extent, contributed to widening its scope and reach.
What makes de Soto’s ideas so appealing is that, perhaps better than anyone else, he has been able to emphasize the economic dimension and implications of urban illegality. Most of the academic research, social mobilization and policy-making on the matter of informal settlements and land regularization have been supported by a combination of humanitarian, ethical, religious, sociopolitical and environmental arguments. de Soto’s approach, on the other hand, has stressed the significant impact that comprehensive regularization programs could have on the overall urban economy by linking the growing informal extralegal economy into the formal economy. Moreover, he has argued that such public policies can be instrumental in reducing social poverty.
In his view, small informal businesses and precarious shanty homes are essentially economic assets, “dead capital,” that should be revived by the official legal system and turned into liquid capital so people could gain access to formal credit, invest in their homes and businesses, and thus reinvigorate the economy as a whole. He has estimated the amount of dead capital in the developing world at about US$9.3 trillion, a staggering figure that has drawn the attention of many influential politicians, land developers, government officials and financial organizations (Bourbeau 2001). His argument has been summarized as follows:
“Most of the poor already possess the assets they need to make a success of capitalism…But they hold these resources in defective forms…They lack the process to represent their property and create capital…They have houses, but not titles…. It is the representation of assets in legal property documents that gives them the power to create surplus value” (Mammen 2001).
In his first book, The Other Path, de Soto advocated the formalization of informal settlements. In his new book, The Mystery of Capital, he has taken this argument one step further, advocating that property ownership is the reason “why capitalism triumphs in the West and fails everywhere else,” which is also the subtitle of the book. de Soto offers a three-part argument:
The recognition of property ownership in de Soto’s proposal is important because it would entail access to credit and finance. He argues that European countries and the U.S. improved their property systems, allowing economic actors to discover and realize the potential of their assets and thus to be in a position to produce the kind of noninflationary money necessary to finance and generate production. Following that logic, national and international organizations have proposed, and even imposed, the full legalization of businesses and the unqualified recognition of individual freehold titles for urban dwellers in some informal settlements as the “radical” way to transform decaying urban economies.
Critiques of de Soto’s Assumptions
Appealing as his ideas are, there are many flaws in de Soto’s arguments. Now that the dust raised by the initial media attention to his book has started to settle down, the debate has become increasingly critical. Such an appraisal is especially important because the regularization programs inspired by his ideas have had a significant impact on the daily lives of millions of people.
To begin with, there has been increasing criticism of de Soto’s methodological approach that led to the highly unlikely estimated figure of existing dead capital. Some analysts have pointed out that his grasp of the role and social construction of individual property ownership in European and U.S. economic history is not entirely correct (Payne 2001). Others have criticized de Soto for oversimplifying, if not totally misunderstanding, the complex dynamics of both informal and formal urban land markets (Bourbeau 2001). I have stressed the specific, perhaps unique, role of land ownership in developing countries, especially in Latin America, where historically the combination of weak capital markets, highly inflationary economies and deficient social security systems has turned land value appreciation into a fundamental capitalization mechanism, thus generating a culture of speculation that has long supported a heritage of patrimonialism and political clientilism. This process has, in its turn, deeply affected the conditions of access to urban land and housing and the spatial distribution of public equipment and services, as well as generating urban illegality.
Another related critical argument is that de Soto has failed to recognize that the poor, despite their poverty, have already amassed assets through access to credit, albeit not from formal institutions. In fact, de Soto has failed to provide evidence that banks and other official financial and credit institutions would be prepared to give systematic credit to the poor, even though there is historical evidence to the contrary. For example, in de Soto’s country of Peru very few people have been able to access official credit following a massive regularization program (Riofrio 1998; Calderon 2001). Moreover, existing research in Colombia and other Latin American countries has indicated that the poor would not even be interested or willing to obtain official credit, given the socioeconomic and fiscal implications of this process (Gilbert 2001). Recent studies also have questioned the urban and socioeconomic sustainability of settlements in Mexico, Peru, El Salvador and elsewhere that have been legalized by programs inspired by de Soto’s ideas (Duhau 2001; Kagawa 2001; Zeledon 2001). Such programs have focused exclusively, and artificially, on the formal legalization of informal settlements and have not included adequate upgrading and other socioeconomic programs, thus failing to promote any sociospatial integration.
From my perspective as a legal scholar, I see three main flaws in de Soto’s argument. First, while discussing the importance of legalizing informal settlements, he has failed to question the very nature of the legal system that has generated urban illegality in the first place. I believe that the discussion of laws and legal institutions has to be supported by a critical understanding of the nature of the law-making process, the conditions for law enforcement, and the dynamics of the process of social construction of urban illegality. In particular, I have argued that the legal treatment of property rights should be taken out of the narrow, individualistic context of civil law so the matter can be interpreted from the socially oriented criteria of redefined public urban law (Fernandes 2001).
In this context, far from being radical, de Soto’s argument is a very conservative one. His work has failed to qualify the discussion on property rights, and he seems to assume that there is a universal, a-historical, “natural” legal definition of such rights. However, in Latin American countries and elsewhere in the developing world, the state has treated differently the different forms of property rights (financial, industrial, intellectual, etc.) and the social relations around them, allowing for varying degrees of state intervention in the domain of economic property relations. It is only for a very specific form of property rights, land and real estate, that the state has failed to affirm the notion of the social function of property versus the dominant individualistic approach given to such rights by anachronistic civil legislation (Fernandes 1999). The historical and political factors that have allowed classical legal liberalism to survive in Latin America have to be addressed before any comprehensive legal reform, such as that proposed by de Soto, can be implemented. The intimate though dialectically contradictory relationship between legality and illegality cannot be ignored (Fernandes and Varley 1998). Such a critical approach to law would certainly serve to dismiss de Soto’s claim that formal, unqualified individual ownership can be used against crime and terrorism.
A second flaw is that research in many developing countries has indicated that, given a combination of certain social, political and institutional conditions, residents in informal settlements can share an effective perception of security of tenure, have access to informal (and sometimes formal) credit and public services, and invest in housing improvement, even without having legal titles (Payne et al. forthcoming).
Third, and more important, existing research has shown that while the recognition of individual freehold titles can promote individual security of legal tenure it does not necessarily entail sociospatial integration. Unless titling is undertaken within the context of a broader set of public policies that address urban, politico-institutional and socioeconomic conditions, legalization programs may actually aggravate the processes of exclusion and segregation. As a result, the original beneficiaries of the programs might not be able to remain on the legalized land, although that should be the ultimate objective of regularization programs, especially on public land.
Moreover, regularization programs have had little impact on social poverty, in part because the traditional banking and financial mechanisms have not embraced them, as de Soto has claimed. The root of the problem runs deeper because regularization programs have a remedial nature. They can only have a more direct impact on urban poverty if they are part of a broader set of preventive public policies aimed at promoting overall urban reform and supported by socioeconomic policies aimed at generating job opportunities and income. There is a fundamental role for the market economy in this process, but it also requires systematic intergovernmental relations, public-private partnerships, and above all renewed social mobilization. Furthermore, de Soto has failed to consider the essential gender and environmental implications of land legalization.
To prevent the production of these perverse effects, we must identify and understand the factors that have contributed to the phenomenon of urban illegality. These include not only the combination of land markets and political systems but also the elitist and exclusionary legal systems still prevailing in Latin America. To legalize the illegal requires the introduction of innovative legal-political strategies to promote the articulation of individual land tenure with the recognition of social housing rights compatible with keeping dwellers in their existing settlements. Housing rights cannot be reduced to individual property rights.
New tenure policies need to integrate four main factors: legal instruments that create effective rights; socially oriented urban planning laws; political-institutional agencies and mechanisms for democratic urban management; and inclusionary macro-socioeconomic policies. The search for innovative legal-political solutions also includes the incorporation of a long-neglected gender dimension and a clear attempt to minimize the impacts such policies have on the land market. The benefits of public investment should be captured by the urban poor, not by traditional and new private land developers, as has happened frequently in settlements regularized according to de Soto’s proposals.
In conclusion, I would argue that regularization programs should be group specific, taking into account the local historical, cultural and political contexts as well as the existing forms of tenure arrangements, both legal and customary and formal and informal. Public administrators and lawmakers should refuse the pressure to homogenize land and property laws. Individual property ownership will always be an attractive option that should be considered, but there are many other legal-political alternatives.
Hernando de Soto is absolutely right when he questions the legitimacy of exclusionary legal systems. However, while he has uncritically assumed that legitimacy would result from the widespread recognition of individual ownership, other research has proved that this is not necessarily the case. He is generally right when he says that lawyers lack an understanding of the economic process. However, many observers believe that his own understanding of the economic process may be deeply flawed, and that he could also learn a thing or two about the legal process.
Edesio Fernandes is an attorney, urban planner and lecturer in the Development Planning Unit of University College London. He is also coordinator of IRGLUS-International Research Group on Law and Urban Space. This article is based in part on his ongoing research and a lecture he presented at the Lincoln Institute in October 2001.
References
Bourbeau, Heather. 2001. Property wrongs: How weak ideas gain strong appeal in the world of development economics. Foreign Policy (November/December):78-79.
Calderon Cockburn, Julio A. 2001. Comparative analysis of the benefited and non-benefited population by the national formalization plan, in Has the well-being of the population improved?: A balance of the main social policies and programs. Lima: National Institute of Statistics and Information (INEI): 65-92.
Duhau, Emilio. 2001. Impacts of regularization programs: Notes on the Mexican experience. Paper presented at the Lincoln Institute workshop on Informal Land Markets: Land Tenure Regularization and Urban Upgrading Programs (October).
de Soto, Hernando. 1986. The Other Path. London: I.B. Tauris & Co Ltd.
_____. 2001. The Mystery of Capital. London: Bantam Press.
Fernandes, Edesio. 1999. Redefining property rights in the age of liberalization and privatization. Land Lines (November) 11(6):4-5.
_____. 2001. Law and the production of urban illegality. Land Lines (May) 13 (3):1-4.
Fernandes, Edesio and Ann Varley, eds. 1998. Illegal Cities: Law and Urban Change in Developing Countries. London: Zed.
Gilbert, Alan. 2001. On the mystery of capital and the myths of Hernando de Soto: What difference does legal title make? Paper presented at the N-AERUS Workshop in Leuven, Belgium (June).
Kagawa, Ayako. 2001. Policy effects and tenure security perceptions of Peruvian urban land tenure regularization policy in the 1990s. Paper presented at the N-AERUS Workshop in Leuven, Belgium (June).
Mammen, David. 2001. Roundtable discussion for the International Division of the American Planning Association. Interplan (June):2-9.
Payne, Geoffrey. 2001. The mystery of capital: Why capitalism triumphs in the west and fails everywhere else. Habitat Debate (September) 7 (3):23.
Payne, Geoffrey, et al. Forthcoming 2002. Land, Rights and Innovations: Secure Land for the Urban Poor. London: International Technology Development Group (ITDG).
Riofrio, Gustavo. 1998. Why have families mortgaged so little? Paper presented at the Lincoln Institute workshop on Comparative Policy Perspectives on Urban Land Market Reform in Latin America, Southern Africa and Eastern Europe (July).
Zeledon, Aida. 2001. De facto and legal regularization programs in El Salvador. Paper presented at the Lincoln Institute workshop on Informal Land Markets: Land Tenure Regularization and Urban Upgrading Programs (October).
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High land costs are an obstacle to developing and securing affordable housing for lower-income families. One way to address this issue is to purchase a house without the land, and a community land trust is one mechanism that allows this arrangement. This article reports on a roundtable attended by researchers, policy analysts, technical assistance providers, funders, and community land trust staff members to discuss the community land trust model and related research needs.
The community land trust model is an extremely attractive mechanism for maintaining and expanding the stock of affordable housing. Currently there are approximately 160 community land trusts operating in every region of the country. These community land trusts are nonprofit, community-based organizations whose mission is to provide affordable housing in perpetuity by owning land and leasing it to those who live in houses built on that land. In the classic community land trust model, membership is comprised of those who live in the leased housing (leaseholders); those who live in the targeted area (community members); and local representatives from government, funding agencies and the nonprofit sector (public interest) (Burlington Associates 2003).
A lease within a community land trust also includes a resale formula intended to balance the interests of present homeowners with the long-term goals of the community land trust—balancing the interest of homeowners and the interest of the community land trust to provide affordable housing for future homeowners.
This article addresses some of the questions surrounding the community land trust model;
This article also examine the Sawmill Community Land Trust, located near downtown Albuquerque, New Mexico. In partnership with the City of Albuquerque, Sawmill Community Land Trust’s has created a permanent stock of affordable housing in the neighborhood with housing units as well as a plaza, park, community center, commercial space and open space connected with trails. The plan calls for expanding the Sawmill Community Land Trust model to other neighborhoods to ensure a permanent stock of affordable housing and a mixed-income community for the long term.
For many households experiencing lagging wages or underemployment, the purchase and financing of a house is increasingly difficult. High land costs are another obstacle to developing and securing affordable housing for lower-income families in some markets. One way to address this second issue is to purchase a house without the land, and a community land trust (CLT) is one mechanism that allows this arrangement. This article reports on a roundtable attended by approximately 25 researchers, policy analysts, technical assistance providers, funders and CLT staff members to discuss the CLT model and related research needs. The December 2004 program was sponsored by the Lincoln Institute in partnership with the Institute for Community Economics (ICE), based in Springfield, Massachusetts.
What are community land trusts and How Do They Function?
The community land trust model has evolved in the United States over the last 40 years (ICE 1991). Currently there are approximately 160 CLTs operating in every region of the country and in 38 out of the 50 states and the District of Columbia. These CLTs are nonprofit, community-based organizations whose mission is to provide affordable housing in perpetuity by owning land and leasing it to those who live in houses built on that land. Complementing their status as nonprofit corporations, as defined in the U.S. tax code, and their formal rights and responsibilities codified in the ground lease, CLTs are governed by a board of directors with membership from the community. In the classic CLT model, membership is comprised of adults who live in the leased housing (leaseholders); adults who live in the targeted area (community members); and local representatives from government, funding agencies and the nonprofit sector (public interest) (Burlington Associates 2003).
The community land trust and the homeowner agree to a long-term ground lease agreement (typically 99 years) that spells out the rights and responsibilities of both parties. Among the homeowner’s rights are the rights to privacy, the exclusive use of the property, and the right to bequeath the property and the lease. The CLT has the right to purchase the house when and if the owner wants to sell.
The community land trust’s abiding interest, as the landowner, as the party with the option to purchase the improvement, and as a community-based organization, is to maintain a stake in the relationship long after the original house purchase and lease signing. For example, if buildings become deteriorated, the CLT can force repairs; if the homeowners are at risk for default the CLT can and does act to forestall the default.
The ground lease also includes a resale formula intended to balance the interests of present homeowners with the long-term goals of the community land trust. The intent of affordability in perpetuity is in conflict with the desire of most owner-occupants in the U.S. to reap real estate gains. Thus, the resale formula is designed to balance the interest of individual homeowners to benefit from the use of their home as a real estate investment and the interest of the CLT to provide affordable housing for future homeowners.
Research Agenda
The community land trust model is an extremely attractive mechanism for maintaining and expanding the stock of affordable housing. While the stories one hears from and about CLTs are encouraging and inspiring, little research exists regarding their effectiveness. Furthermore, despite their many attractive attributes, CLTs are neither well known nor extensively used in the U.S. During roundtable discussions, the participants exchanged perspectives and identified six clusters of questions that would constitute a short-term CLT research agenda to help inform future action.
Do community land trusts provide long-term affordable housing?
The separation of ownership of land and buildings is the mechanism by which long-term affordability is achieved. Much of the value in structures comes from their functionality, the materials used and the level of maintenance. These are the contributions of the builder and owner. Much of the value in land comes from its location with respect to natural elements, urban services such as transportation and public schools, and disamenities such as solid waste dumps or prisons. Many of the factors that contribute to land value increases are due to the economic expansion that occurs in metropolitan areas. In strong markets the pace of value increases in land exceeds that of structures. Thus, if the land is excluded from the price of housing, affordability ought to be assured over time. Research is needed to evaluate the effectiveness of the CLT tool in providing long-term housing affordability and to evaluate CLTs as compared to other affordable housing programs.
Do community land trusts contribute to individual asset building?
community land trust housing provides residents with shelter, security of tenure, access to credit and access to urban services, among other benefits. However, individual real estate profits are limited by the design of the resale formula, which varies among CLTs. Outcomes also will vary with real estate cycles in particular cities and regions. A second question, then, has to do with the degree to which the limitation on real estate profits limits individual asset building. It is possible, for example, that the security of tenure and the predictability in housing costs provided by the CLT allow individuals to pursue other, non-real estate strategies for asset accumulation.
How effective are public and nonprofit sector funds when used to produce community land trust housing?
In most cases, community land trust housing requires subsidies for the purchase of land and/or house construction. Grants typically come from government sources or private foundations. One of the premises of the CLT model is that these subsidies are recycled later to reclaim the value of the subsidies and to benefit future homebuyers. Public subsidies are no longer needed when a CLT house is sold under the resale formula. However, it is not known how efficient subsidies are when used to develop CLT housing and how the subsidy capture mechanisms work.
Do community land trusts provide access to urban services and/or regional opportunities for leaseholders?
Quality of housing in the U.S. is closely related to residential location. However, location influences more than simply house quality; it also affects the existence and quality of job opportunities and urban services such as access to transportation, health care, libraries and public schools, all of which have direct and indirect effects on quality of life and life chances.
Researchers looking at regional policy solutions are particularly interested in whether and how community land trusts influence this access to urban services. Economists use the term “spatial mismatch” to refer to the imbalance between the location of many employment opportunities in the suburbs and the location of unemployed jobseekers in the city centers. Many participants at the roundtable were interested in exploring the degree to which CLTs facilitate bridging this mismatch because of their specific location within a region, their connections to other organizations in the neighborhood and region, or employment and training programs offered to support CLT residents.
Do community land trusts contribute to community building?
Community land trusts are unique among U.S. community-based organizations in that their concerns are geographically focused and include economic relationships, the governance structure of the organization, and the provision of direct services. In some communities CLTs are connected to other organizations serving the same community or the same constituency. Much of the literature on neighborhood development and revitalization focuses on the importance of “social capital” to people and their community. Do CLTs contribute to this connective tissue of neighborhoods? How and why? Some CLTs operate across a number of communities and thus have a more regional focus. This difference among CLTs will lead us to consider questions of scale and community definition.
Why have some community land trusts excelled and others failed?
There is great variation in community land trusts across the country. The largest, Burlington Community Land Trust in Vermont, has 370 single-family homes and condominiums and 270 rental apartment leases; other CLTs may have just a handful of units available for lease. Some CLTs have been able to grow significantly while others have not, and some have ceased peration altogether. There are many possible reasons for this variation in success, including staff resources and skills; differences in mission; financing arrangements; ability to receive donations of land; and the strength or weakness of the local land and housing market.
Future Activities Regarding community land trusts
The Lincoln Institute is interested in community land trusts because they provide a window that encourages a deeper understanding of the significant role that land plays in social and economic development and the mechanisms by which it occurs. The roundtable participants hope that investigation into this research agenda would accomplish a number of objectives.
First, new research would spread knowledge of community land trusts to practitioners in fields ranging from urban development to housing policy, neighborhood planning, community organizing, regional sustainability and equity. Second, among policy analysts this research will improve our understanding of the strengths and weaknesses of the CLT model and the contexts in which it is most useful and successful. For CLT members, leaseholders, staff and board members, the findings will provide an understanding of their locally based work within a national context. For funders and lenders the investigations will provide an empirical base from which to make future funding decisions.
This work will be conducted by the Lincoln Institute, the Institute for Community Economics, representatives of organizations who attended the roundtable and others who become engaged in these issues. For example, the National Housing Institute already has begun a study of shared equity home ownership. We expect that documenting, investigating and analyzing the history of CLTs and individual experiences will provide a better understanding of the role of land in housing affordability.
Sawmill Community Land Trust
Sawmill Community Land Trust (SCLT) is located near downtown Albuquerque, New Mexico, adjacent to Historic Old Town, which has become a leading tourist attraction. Gentrification has increased the housing prices in the Sawmill neighborhood, and vacant industrial land has increased from $1.05 per square foot in 1996 to its current high of $4.10 per square foot. A home that sold for $26,500 in 1981 cost $125,000 in 2000 and $175,000 in 2004. From 2000 to 2004, real increases in a single-family home (land and housing) in the neighborhood increased by 31 percent.
Founded in 1996, SCLT evolved from existing community organizations that had been working for years to protect the character of the ethnically diverse Sawmill community and address environmental and pollution problems caused by a particleboard factory on the site. SCLT’s main focus has been to create a permanent stock of affordable housing in the neighborhood.
In partnership with the City of Albuquerque, which acquired the 27-acre former industrial site, SCLT developed plans for 196 housing units of various types (live-work lofts, single-family detached houses, townhouses, duplexes, senior apartments and condos) as well as a plaza, park, community center, commercial space and open space connected with trails. All of the 26 homes built in the first phase of development have been sold, and construction of a second housing phase will begin soon. SCLT has led a cooperative effort to develop a metropolitan redevelopment plan for the surrounding 510-acre Sawmill/Wells Park area. The plan calls for expanding the SCLT model to other neighborhoods to ensure a permanent stock of affordable housing and a mixed-income community for the long term.
Rosalind Greenstein is senior fellow and co-chair of the Lincoln Institute’s Department of Planning and Development. Yesim Sungu-Eryilmaz is a research assistant in the Lincoln Institute’s Department of Planning and Development.
References
Burlington Associates in Community Development, LLC. 2003. Key features of the “classic” community land trust. Burlington, VT: Burlington Associates.
Institute for Community Economics (ICE) 1991. The community land trust legal manual. Springfield, MA: ICE.
Resources
Burlington Community Land Trust
Fannie Mae Corporation (search for the link to CLTs)
Institute for Community Economics (ICE)
Policy Link. See Equitable Development Toolkit and link to CLT case studies.
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In 1921, a loquacious, part-time public servant named Benton MacKaye proposed, in the Journal of the American Institute of Architects, the creation of an “Appalachian Trail,” an effort that he saw as “a project in regional planning” (MacKaye 1921). His vision evolved over several decades until, under the leadership of a lawyer named Myron Avery, the nonprofit Appalachian Trail Conference helped to bring into being a continuous system of locally, state and federally owned lands, managed cooperatively by a collection of volunteers, nonprofit organization employees and National Park Service personnel (Bristow 1998). The A.T., as the trail is often called, today stretches from Springer Mountain in Georgia to Mt. Katahdin in Maine, and the idea of extending the trail into Canada has been discussed repeatedly.
The initiative first proposed by MacKaye more than 80 years ago has proved to be a landmark in conservation innovation, characterized by: novelty in its design and implementation; lasting significance to landscape planners around the world; measurable effectiveness in trail upkeep and monitoring, achieved through collaborative efforts along the trail’s 2,100-mile length; transferability to other projects, such as the Pacific Crest Trail; and an ability to endure as a symbol of what can be accomplished, across ownerships and political boundaries, to achieve conservation-oriented purposes—primarily recreational purposes in the case of the A.T.
Despite the example provided by the Appalachian Trail and similar initiatives, regional planning generally fell out of favor during the last half of the twentieth century. While greenways, trail systems, water resource management districts and habitat conservation areas have appeared on the North American landscape from time to time, broadly defined efforts to form cross-sectoral, cross-boundary districts for the achievement of conservation objectives are not standard practice today in the United States and Canada.
However, prodded in part by the insight of biodiversity scientists that large, unfragmented corridors will be necessary for the long-term survival of some species living in the wild, enthusiasm among land conservation professionals for “landscape-scale” initiatives has reemerged in recent years. Accordingly, those concerned with such widely varying purposes as biodiversity conservation, the future of working farms and forests, the protection of water resources, the provision of outdoor recreational opportunities, and economic development linked to both natural and cultural amenities have shown a renewed interest in conservation initiatives of relatively large scale and comprehensive scope. At gatherings of conservation volunteers and professionals, such as the annual Land Trust Alliance Rally, multiple, well-attended sessions are devoted to the consideration of landscape-scale initiatives and planning techniques.
With this fresh interest in regional land and biodiversity conservation efforts in mind, the Lincoln Institute, with the support of the U.S. National Park Service Conservation Study Institute (NPS CSI), the Golden Gate National Parks Conservancy (GGNPC) and the Quebec-Labrador Foundation (QLF), invited more than two dozen senior executives of public, nonprofit, academic and private sector organizations to the Presidio of San Francisco for a two-day conference in June 2003. The purposes of the meeting were to: advance our emerging understanding of what, in concept, landscape-scale initiatives are, and why they may be necessary; better understand how such concepts are (or are not) being realized in the field; and identify which innovations and advances appear necessary to more fully realize such large and comprehensive initiatives.
The Necessity of Landscape-scale Initiatives
The broad concept of a landscape-scale conservation initiative, as framed by the conference steering committee, includes three basic ideas: (1) such initiatives should encompass some regional system of interconnected properties; (2) such efforts are in some way organized to achieve one or several specific conservation objectivescooperate or collaborate in some concrete fashion to achieve those objectives. Several individuals at the conference thoughtfully articulated the necessity for landscape-scale initiatives. Chip Collins explained that conservationists who were once focused on success in “conserving individual tracts of land” now see many of the efforts launched over the past 50 years as “piecemeal and incomplete, often failing to comprehensively address the inputs that affect ecosystems and their component parts.”
Ted Smith, in explaining why the Kendall Foundation has made philanthropic investments in landscape-scale initiatives, noted: “Ample evidence convinces us that land fragmentation is a threat to most species…. We are seeking to promote reconnections along, [for example], a large stretch of the Rockies at a scale that reflects the needs of keystone species…. Because fragmented land ownership works against nature, we are funding conservation strategies that embrace approaches to integrating the management of public and private lands. Not surprisingly, private lands often hold the greatest biological wealth and represent key corridors for wildlife movement.”
While present-day discussions of landscape-scale initiatives may sometimes start with biodiversity concerns, they frequently go well beyond that focus. Nora Mitchell stated: “To protect remaining wild lands and sustain working landscapes, many conservation efforts today operate at the landscape scale. To be successful at this large scale, these efforts must integrate ecological, cultural and recreational values with economic and community development. As a result, the practice of landscape-scale conservation is complex and challenging… It requires working across political and ecosystem boundaries, adopts an interdisciplinary perspective, and involves the collaboration of many organizations.”
It is important to note that landscape-scale efforts may be directed not only toward relatively undeveloped and rural landscapes, but also to urban environments, reflecting, as Reed Holderman pointed out, “the diversity of relationships that exist between people and land.” In urban settings, the purpose may be as much about providing essential ecosystem services (for example, flood control and water purification) or recreational opportunities as they are about protecting wildlife habitat.
In short, landscape-scale conservation initiatives call upon our limited human capacities to understand and manage complex systems, as we are challenged to steward natural and built physical systems over long periods of time. Douglas Wheeler, former California Secretary of Resources, reminded the group that we are also challenged to build enduring “institutional ecosystems” that will sustain focus on achieving key conservation objectives across decades and the tenures of multiple political administrations.
Implementation of Landscape-scale Concepts
Participants had several opportunities to consider the effectiveness of landscape-scale conservation initiatives in practice, through both pre-conference field trips and case studies examined during the meeting. Field trips included visits to rural and urban protected landscapes in the San Francisco metropolitan area that help to comprise the region’s assemblage of “green matrix” sites. Subsequent case study discussions focused on the San Francisco Bay area; the Yellowstone to Yukon (Y2Y) Initiative stretching from the state of Wyoming to the Yukon Territory; and a recent effort to encourage sustainable agricultural practices into the Cerrado region of Brazil. Given the relatively recent reemergence of interest in landscape-scale regional conservation efforts, their inherent complexity, and the range of possible conservation objectives that they might entail, it was not surprising that many of the initiatives we considered were seen more as “works in progress” than as successfully completed projects.
San Francisco Bay
Within the patchwork of protected landscapes distributed across the San Francisco Bay region, the most prominent property is the Golden Gate National Recreation Area (GGNRA), a regional-scale National Park Service unit first established in 1972. It now stretches from the Santa Cruz Mountains in the south, to prime parkland on both sides of the Golden Gate Bridge, to the Marin Headlands and northward. Billed as “the largest urban parkland in the world,” the GGNRA, at 75,500 acres (more than 30,500 hectares), offers such gems as Crissy Field, a breathtakingly beautiful bayside tidal marsh and educational center located within the Presidio of San Francisco on a former military airstrip.
Brian O’Neill and Greg Moore relayed the story behind the establishment of the 30-year-old GGNRA and the recently completed Crissy Field Center. Their story is a model case history of how, working together with the help of funding from both the federal government and private philanthropic sources, their organizations have brought to life a highly valuable recreational, educational and ecological resource for Bay-area citizens. In addition to enticing visitors, ranging from local school children to great blue herons and peregrine falcons, to make repeated visits to the site, the public, private and nonprofit partners at the Crissy Field site have recently linked food service operations at the park with the noted agricultural resources of the region. Visitors to the Crissy Field Café and Bookstore today can dine on some of the best organic produce grown in the Bay area, helping to build important ties between the area’s spectacular scenic amenities and its working farms.
Lands protected by the federal government within the GGNRA are complemented by extensive protected landholdings in the area that are owned by other governmental units, including: the State of California and various county and local governments; the academic sector, including the University of California and Stanford University; the nonprofit sector, including the Peninsula Open Space Trust (POST) and the Marin Agricultural Land Trust (MALT); and the private sector, including agricultural lands under conservation easements held by both public and nonprofit entities.
While the region’s array of protected landscapes is indeed impressive in scale and distribution, enduring coordination among the managers of these lands, for the purpose of achieving specific conservation objectives, is often lacking. For example, the manager of a local nonprofit land trust was asked if strong bonds around achieving biodiversity conservation or water quality objectives linked the management of agricultural properties protected by land trusts with the lands protected by federal agencies. His answer was instructive: “Actually, the relationship between local, state and federal conservation organizations is not always smooth. There are some threads that are starting to tie one piece of the quilt to another, but they are only threads today.” He explained that what may look like some sort of coordinated picture on a map really was built “from the grassroots up,” starting with a variety of “piecemeal efforts”; any “regional vision” emerged later.
Bay area conservationists at the conference took in stride the idea that a regional vision regarding the achievement of management objectives was still being worked out. Greg Moore noted that he and his colleagues are in some ways just now refocusing on stewardship challenges, but he offered a hopeful perspective: “Each era of success generates a new generation of ambition.” Audrey Rust pointed out that it can be a struggle just to get public and private funders to focus on stewardship issues, particularly when they are inundated with land protection funding requests. But both Moore and Rust agreed that, over the next several decades, focusing substantial resources on the achievement of stewardship objectives is a job that needs greater attention. Bob McIntosh concurred, noting that similar challenges face conservationists active on the eastern seaboard.
Yellowstone to Yukon (Y2Y)
Progress toward the realization of a continuous, well-stewarded corridor of protected lands in the Y2Y region is at an even more formative stage. Ted Smith described Y2Y as a “bottom-up” effort that has biodiversity conservation at its center. Among other objectives, Y2Y seeks to establish core areas and connecting corridors that will sustain healthy populations of grizzly and black bears along a long spine of mountains that crosses the U.S.-Canadian border.
The Y2Y Initiative website (www.y2y.net) offers a brief overview of the effort. The community of interest that has gathered around the Y2Y idea has grown over the past decade to include more than “340 organizations, institutions, foundations and conservation-minded individuals” that have “recognized the value of working together to restore and maintain the unique natural heritage of the Yellowstone to Yukon region and the quality of life it offers.”
The community has played a key role in achieving numerous visible and important conservation projects. For example, Y2Y member organizations, including the Canadian Parks and Wilderness Society (CPAWS), helped lead the successful effort to establish in northern British Columbia the Muskwa-Kechika Management Area (M-KMA), a nearly 16 million acre (6.4 million hectare) district; about 25 percent of the M-KMA is designated as parkland, with the remainder included in special management zones where certain resource development activities will be allowed. While the establishment of the M-KMA is a significant success for the conservation community, its ongoing management has proven to be a real challenge. George Smith explained: “In the M-KMA, progress has been made and problems solved; some industry is occurring while the wilderness remains essentially intact. Yet, much of the integrated management system has not been created, causing line-agency power struggles and inefficiencies.”
South of the U.S.-Canadian border, the conservation community is working hard to expand on the gains made over the past two decades to conserve both public and private lands for the public benefit along the Y2Y corridor. The Trust for Public Land, for example, was successful in 2002 and 2003 in helping to protect the Taylor Fork drainage in Montana, filling in some of the checkerboard pattern of land ownership in the Gallatin National Forest. However, with various property rights groups spearheading organized opposition to both public and private land conservation efforts, the realization of landscape-scale initiatives is far from assured in the Rocky Mountain region. Many years of concerted effort lie ahead if the gaps are to be spanned between the disparate protected landscapes appearing on regional maps. Dan Sayre commented that to achieve ambitious goals, the conservation community will have to be extraordinarily persistent in making its case that careful land stewardship is in the interest of local communities, is in our national interest, and is part of a tradition with deep roots in American history.
Innovations to Advance New Initiatives
Recognizing that the concept of landscape-scale conservation is still in some respects nascent, the assembled conservationists offered a number of ideas regarding innovations that may advance its development. Story Clark pointed out that in the area of stewardship U.S.-based conservationists have a great deal to learn from their international colleagues, especially regarding “community-based conservation methodologies.” Jessica Brown agreed, based on her experience in building support for conservation initiatives in Central Europe by focusing on the role of the local community.
Glenn Prickett offered the group a short presentation on how Conservation International (CI) is helping a community-based effort in the Cerrado, a massive savannah that covers more than one-quarter of Brazil’s land area. Since World War II, the Cerrado has been intensively developed for agricultural purposes, including soybean cultivation. The region is important for its own biodiversity attributes, and because it feeds water into Brazil’s Pantanal, home to one of the globe’s most significant freshwater ecosystems. In working to build a 370-mile biodiversity corridor that connects the Cerrado and the Pantanal, CI has forged a relationship with some of the region’s most important soybean processors to develop purchasing guidelines that encourage local soybean growers to use “best practices” in their operations. Such practices include the protection of natural habitat on agricultural lands as well as careful management of riparian zones to make a measurable difference in local stream and habitat quality. By working with the community, and leveraging the reach of key industrial processors in the area, CI hopes to considerably improve the odds that a regional biodiversity corridor will be sustainable. The approach, Prickett pointed out, is transferable to North American initiatives that will depend on wildlife corridors adjacent to, or even woven into, the fabric of local agricultural and industrial properties.
In addition to working closely with communities and local industry to achieve conservation objectives, participants stressed numerous other opportunities for innovation. Gretchen Daily addressed the need for new financing mechanisms to underwrite large-scale conservation initiatives. She discussed with candor the challenges of accessing potential streams of income associated with the provision of ecosystem services (for example, funding to support forest protection and other “carbon sequestration” efforts that would help to control the levels of gases that are released into the earth’s atmosphere and contribute to global warming).
Participants also discussed the need for increasingly powerful ways to monitor large-scale easements, especially on initiatives that incorporate working forests and farmlands. Peter Stein noted that methodologies for improving both the accuracy and cost-effectiveness of monitoring protocols are under development. At the New England Forestry Foundation, for example, novel applications of remote sensing technology, combined with more traditional aerial photography techniques and on-the-ground inspections, are being leveraged to monitor new landscape-scale easements. Seasoned conservationists including Mike Soukup, Bob Bendick and Philippe Cohen underscored how advanced information technologies, such as those used in detailed, multi-scalar Geographic Information System (GIS) mapping applications, can be particularly useful in thinking through regional conservation strategies.
In conclusion, however, the focus turned from exciting new technologies to the human element. Armando Carbonell summed up the sentiment of the group, noting that a “green matrix is not just land represented by green on a map, but also a set of lasting social relationships.” Like the effort sustained by the diverse group of men and women who brought the Appalachian Trail into existence and have cared for it as a national treasure, it will take the long-term attention of present and future generations to bring today’s expansive conservation concepts into reality.
James N. Levitt is director of the Program on Conservation Innovation at the Harvard Forest, Harvard University, and is a faculty associate at the Lincoln Institute. He organizes the Institute’s annual Conservation Leadership Dialogue, and reported on the March 2002 program in the July 2002 issue of Land Lines.
References
Bristow, Robert S. 1998. Volunteer-Based Recreation Land Management: Appalachian National Scenic Trail Management Model. Parks and Recreation. National Recreation and Park Association, August 1.
Levitt, James N. 2002. Land and Biodiversity Conservation: A Leadership Dialogue. Land Lines 14(3): 1–4.
MacKaye, Benton. 1921. An Appalachian Trail: A Project in Regional Planning. Journal of the American Institute of Architects 9 (October): 325–330.
——. 1990. The New Exploration: A Philosophy of Regional Planning. The Appalachian Trail Conference, Harpers Ferry, WV, and the University of Illinois Press, Urbana-Champaign.
Conservation Leadership Dialogue Participants and Correspondents, 2003
Elizabeth Bell, Land Conservation Advisory Services, Seattle, WA
Robert Bendick, The Nature Conservancy, Altamonte Springs, Florida
Robert Berner, Marin Agricultural Land Trust, Point Reyes Station, CA
Jessica Brown, Quebec-Labrador Foundation, Ipswich, MA
Armando Carbonell,* Lincoln Institute of Land Policy, Cambridge, MA
Story Clark, conservation advisor, Wilson, WY
Patrick Coady, Coady & Company, Washington, DC
Philippe Cohen, Stanford University/Jasper Ridge, Stanford, CA
Charles E. (“Chip”) Collins, Forestland Group, Inc., Cambridge, MA
Gretchen Daily, Stanford University, Stanford, CA
Julie Early, Island Foundation, Marion, MA
Ralph Grossi, American Farmland Trust, Washington, DC
Jean Hocker,* Land Trust Alliance, emeritus, Arlington, VA
Reed Holderman, Trust for Public Land, San Francisco, CA
James N. Levitt,* Harvard Forest, Harvard University, Cambridge, MA
Nick MacPhee, Land Conservation Advisory Services, Seattle, WA
Robert McIntosh, National Park Service, Boston, MA
Nora Mitchell,* National Park Service Conservation Study Institute, Woodstock, VT
Greg Moore, Golden Gate National Parks Conservancy, San Francisco, CA
Brian O’Neill, National Park Service Golden Gate National Recreation Area, San Francisco, CA
Glenn Prickett, Conservation International, Washington, DC
Will Rogers, Trust for Public Land, San Francisco, CA
Audrey Rust, Peninsula Open Space Trust, Menlo Park, CA
Dan Sayre, Island Press, Washington, DC
George Smith, Canadian Parks and Wilderness Association, Gibsons, BC
Ted Smith, Kendall Foundation, Boston, MA
Michael Soukup, National Park Service, Washington, DC
Peter Stein, Lyme Timber Company, Lyme, NH
Douglas Wheeler, Hogan & Hartson, LLP, Washington, DC
* Conference Steering Committee
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Over the past 25 years, there has been a dramatic increase in the acquisition of conservation easements by nonprofit organizations. Privately held conservation easements, i.e., those held by nonprofits rather than governmental entities, have thus emerged as an important and growing tool for the preservation of natural and scenic features of the United States landscape.
Public policy changes often have unintended consequences—side effects, feedback effects, benefits to individuals not in the target group, unexpected costs, perverse incentives, new opportunities to game the system, and the like. Early experiences with assessment limitation measures reveal an unanticipated result: some property owners seemingly targeted to benefit from lower assessments may be harmed instead.
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Many scholars and analysts have suggested that public leasehold systems could allow governments to benefit from a share of future increased land value. Some have even argued that other policy objectives, including stabilizing land prices, controlling land uses and facilitating land redevelopment, could also be achieved through public land leasing. Although these proposals are persuasive at the theoretical level, there is only limited evidence to prove that governments could achieve these policy goals in practice. My research on Canberra and Hong Kong, which have two of the world’s most well developed leasehold systems, examines some of the benefits and problems of public land leasing.
Land Value Capture
Legal scholars have treated property in land as a bundle of rights. According to this perspective, the government can retain the right to own land and assign to a private party the right to use, develop, transfer, inherit and benefit from land. The private party can enjoy the land rights only for a specified time and as stipulated in the land contract. Theoretically, because the government is the landowner, it could retain a portion of the land value increments by asking a lessee to pay:
The Hong Kong leasehold system seems capable of helping the government recoup a large portion of development windfalls from landholders. For the period 1970-1991, I found that the government recaptured, on average, 39 percent of the increased land value from selected land sites through land leasing. This captured value financed an average of 55 percent of the annual infrastructure investment during the same period. (1)
More important, the money collected from leasing is not a substitute for property taxes in Hong Kong. Owners of residential properties must pay annual rates to the government that are 5 percent of the estimated rental value of their flats. Owners of commercial real estate pay a 15 percent property tax on income earned from their rental premises. Combining all land-related revenues, the Hong Kong government could recover, on average, 79 percent of the annual costs of public infrastructure investment.
In Canberra, by contrast, the percentage of infrastructure investment funded by lease revenues was only 5 percent. (See Figure 1.) There are at least two reasons for the difference: the abolition of land rent for residential leases and competition from other cities that weakens government’s ability to collect higher rents on public land.
In the first instance, then-Prime Minister John Gorton abolished all land rent for residential leases in 1970, an action that his opponents charged was designed to rally public support for his reelection. It was estimated that the government transferred 100 million Australian dollars in equity to lessees at that time, resulting in the loss of an important source of revenue. This incident raised the broader issue of politics in public land management, although leasehold systems do not necessarily induce “rent-seeking” behaviors for private or political gain.
Hong Kong’s government seems able to minimize this problem by establishing a tight internal control over the operations of leasing land. It also provides public officials with generous remuneration and fringe benefits to reduce the temptation of corruption. This demonstrates that, in designing a public leasehold system, a government must consider the need for a system of checks and balances to prevent opportunism or political maneuvering. No single person or department within a government should have the unchecked power to decide on the method and timing of allocating land resources.
The second reason for Canberra’s low lease revenues is its keen competition from other Australian cities in attracting capital. If the city government charged high land premiums and rents, businesses and industry would go to other cities. Thus, competition weakens the government’s bargaining position in negotiating with developers on the amount of land premiums or rent for leasing public land. Although Hong Kong also faces competition from other Asian cities, such as Shanghai, Singapore and Taipei, differences in taxation, government structure, business ethics and culture make capital flight less likely in Hong Kong.
This issue of competition is particularly important for developing economies where local governments are eager to attract investment. They may be willing to compromise by collecting a smaller amount of land premiums and rent from both domestic and foreign land investors. The use of land as a source of public funds may require some level of inter- or intra-regional cooperation to prevent developers from playing one government against another.
Land Speculation
In Hong Kong the government’s reliance on land revenues as a source of public funds presents another problem: its financial interest in land conflicts with its public role in stabilizing land prices. The government has relied heavily on initial land premiums because demanding premiums from lessees during lease renewals has proven to be politically difficult. In addition, the assembly of land rights for land redevelopment involves high negotiation costs because most land leases in Hong Kong have multiple leaseholders. These high costs deter private developers from undertaking land redevelopment by acquiring lease rights and modifying contract conditions. As a result, the government is unable to utilize this method fully to recoup land value. As for the land rent, before 1997 the amount of annual rent paid by lessees was fixed and bore no relationship with increases in land value. Hence, the amount of land rent collected has been minimal. (2) (See Figure 2.)
These difficulties have encouraged the government to retain land value at the beginning of the lease. Yet, this method can work only if officials lease land slowly to private developers. A rapid disposition of land when its value is low would impede the government’s ability to recoup land value in the future. Restrictions on land supply, however, have encouraged private land banking and property speculation, leading to high land and property prices and making Hong Kong one of the world’s most expensive cities. (3)
Officials of other countries could avoid this problem by relying more on lease renewals, contract modifications and the annual land rent than on the initial assignment of leases to capture land value. The plausibility of doing so, however, remains an empirical question. The experiences of Hong Kong suggest that such an attempt could encounter strong public resistance and high negotiation costs.
Managing Land Uses
In principle, public leasehold systems allow the government to manage urban growth by incorporating land use regulations into land leases. If lessees do not develop their land according to the lease provisions, the government has the right to take back the land, a contractual right not available to the government when land is privately owned.
To take full advantage of this special land right, the government must be capable of enforcing the contractual agreements. Despite having the ability to repossess land, there is no evidence to show that enforcement costs under public leasehold systems are lower than those found under freehold systems. This is partly because drafting a complete land contract is impossible. Neither public officials nor the contracting party has perfect information, so they cannot account for all contingencies when they negotiate. Contract language is imperfect and subject to interpretation, creating enforcement problems.
In 1995, a special committee was established in Canberra to review its leasehold system.(4) Analysts found that enforcing the lease purpose clause was a major problem in a town called Fyswick because the lease conditions were too complex and ambiguous. Local officials could not evict lessees who breached their contracts. Rather, they gave lessees an amnesty period to regularize their land uses by applying for lease modifications. In the end, lessees paid their modification premiums, but analysts who conducted the study argued that their payments were far less than the fair market value of the land rights obtained by lessees.
In Hong Kong, using lease conditions to control land uses has created a different problem. Although land contracting could give the government the flexibility to control land development in detail on a case-by-case basis, it is extremely inflexible in adjusting to changes in the overall zoning plan over time. As mentioned earlier, the government incorporates land use regulations into land contracts as conditions at the beginning of the lease. Unless lessees initiate a lease modification, these conditions will remain until the lease expires, which could be as long as 50 years in Hong Kong (and 99 years in Canberra).
When the government needs to update the master plan or revise land regulations to accommodate new urban development, the revised rules may be inconsistent with lease conditions established years ago. This problem has created confusion about which planning standards developers in Hong Kong should follow. To make matters worse, any regulatory changes that infringe on the lessees’ contracted land rights may trigger lawsuits against the government. The legal liability has impeded the government’s ability to modernize its land use plan for districts where outdated lease purpose clauses are still in effect.
Urban Redevelopment
Under public leasehold systems, the government can deny a lessee’s application for lease renewal if it needs the land to rebuild the neighborhood or for other public purposes. It can then take back the land and compensate the lessee only for the building. Thus, in theory, leasing should reduce the public costs of land acquisition for urban renewal or other public uses.
The government, however, must wait for leases to expire before it can assemble land for urban renewal. The long duration of land leases could again create a problem. Nor is there evidence that compensation negotiations for buildings are simpler than for both land and buildings. In Hong Kong, issues of holding out and disputes over compensation are as common as in countries where land is privately owned.
Conclusion
The difficulties that Canberra and Hong Kong face in leasing public land show that leasehold systems in and of themselves do not resolve land management problems. This does not mean, however, that leasing is not a viable means to manage land. In Hong Kong, the government retains a large portion of increased land value for public infrastructure investment. Canberra’s public leasehold system enables the government to obtain low-cost land for building the Australian capital.
The important lesson is that policymakers should not set unrealistic expectations on what public leasehold systems can achieve. Failure to deliver their promises could frustrate a well-intended reform and bring the effort to a halt. Because no land tenure system is perfect, the debate should not focus on the choice between leasehold and freehold systems. They are not mutually exclusive. Instead, future research should concentrate on designing specific institutions according to different political, economic and social contexts to minimize problems associated with both systems.
Yu-Hung Hong is a visiting fellow of the Lincoln Institute this year. He previously taught at Hong Kong University of Science and Technology in the Division of Social Science, after earning his Ph.D. in urban planning from Massachusetts Institute of Technology.
Notes
1. See Yu-Hung Hong. 1996. “Can Leasing Public Land be an Alternative Source of Local Public Finance?” Working Paper, Lincoln Institute of Land Policy.
2. See Yu-Hung Hong. 1998. “Transaction Costs of Allocating Increased Land Value: Hong Kong.” Urban Studies 35, 9: 1577-1595.
3. See Yu-Hung Hong and Alven H.S. Lam. 1998. “Opportunities and Risks of Capturing Land Values under Hong Kong’s Leasehold System.” Working Paper, Lincoln Institute of Land Policy.
4. Members of the committee included Justice Paul Stein, Patrick Troy and Robert Yeomans. Findings of the review can be found in the Report into the Administration of the ACT Leasehold, published by the government of the Australian Capital Territory in 1995.
