Establishing Self Financing Self Governing Precincts

This section explains how ecological ownership can be introduced to urban communities to stop economic value draining away as referred to in the previous section. The result is to create a more equitable and efficient and so more sustainable form of capitalism.

For cities to maximize their ability to become energy and financially self-sufficient, their component precincts and/or suburbs need to become energy and financially self-sufficient. Ecological ownership and control of urban precincts introduces a political structure for governing energy conservation initiatives at the local level on a self-enforcing bottom-up basis. This includes renewable energy storage facilities within a precinct, energy trading between precincts, providing an authority to issue energy dollars and managing their integrity. These considerations indicate the multidimensional processes required to be integrated and managed at the local level for establishing financially and energy self-sufficient sustainable urban communities.

The value of urban land is created by how well it is serviced with: water, sewerage, power, roads, transport, communication, hospitals, schools, and places of employment, entertainment and recreation. The value is not in the land but how well the site is serviced by external public and private investment described as 'externalities'. The site also obtains value from the improvements on it which may be a dwelling: home unit, shop, office, factory or entertainment facility. To establish equity and efficiency, property rights need to be designed to separate the externally created values in a site from those created by improvements on the site as indicated in Fig. 5.1.

The separation of private and community property rights is a common feature of condominium, company or 'strata title' systems and in community land trusts (CLTs). However, these 'duplex' ownership systems do not provide separate publicly negotiable title deeds to each type of property right. Nor do they operate over an area sufficiently large to capture most of the values generated externally to any single site.

What are required are two separate title deeds with one deed being represented by a share in a corporation that owns all the sites in a contiguous viable precinct. The other

Value of urban property has two components:

2. Value of improvements

Village

Township

Roads & water

Roads, water, sewerage, electricity

Suburban Centre

A

A

/N

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nn

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Roads, water, sewerage, electricity, phone, shops, bus service, schools

Value of sites depends upon investment in services made by the community

Regional Centre

Roads, water, sewerage, electricity, phone, shops, bus service, schools, factories, hospitals

Central Business District

Roads, water, sewerage, electricity, phone, shops, bus service, schools, factories, hospitals, offices & entertainment

Two different types of property rights are required to create efficient equitable markets for the private ownership of urban property:

1. Dynamic Lease (DL) or 'Strata Title' for improvements on the site/land,

2. Shares in the co-operative which owns all sites/land in the community.

Dynamic Lease (DL) 'Strata Title' captures value of improvements

Value of DL determined by market value of improvements (not by windfall gains from community)

Shares in Community Land Bank (CLB) captures value of site ('Land Title')

Issue value of shares by CLB determined by average market price for all community land. Buyback price from vendors of DL's proportionally discounted for rates not paid over a 25 year period.

CLB captures for all resident home owners and tenants:

• Equity values in all land not occupied by dwellings including all commercial and industrial sites;

• Windfall gains in all sites from public investment in infrastructures services;

• Windfall gains from private investment in local amenities and facilities servicing the site;

• Surplus profits from private investment in buildings and other improvements;

• Profits from buying back its own shares at a discount from short term residents;

• Market value of quality of life created by community sites, services and governance.

Fig. 5.1. Duplex tenure.

title deed would provide negotiable rights to a specific volume in space like a lease or an Australian ' strata title'. It is referred to as a 'Dynamic Lease' (DL) in Fig. 5.1 for reasons described below.

One share in the land owning corporation could be issued for every square metre occupied by each residential DL whether or not the dwelling was on the ground floor or in a high rise. In this way only residents would own all the land occupied by non-residents, trusts, partnerships, corporations and higher levels of government.

Another way of thinking about the arrangement is that it represents an incorporated unit of urban government that issues voting shares only to its residents, be they owners or tenants. Unlike a CLT and other forms of duplex tenure, the scale of operations needs to be sufficient to establish a public market for the two different types of urban property rights. A basis is then established for conventional lenders to use the property rights as collateral to finance home ownership.

There is no necessity to introduce any new law to create the duplex system of property rights that form a cooperative or Community Land Bank (CLB). This is because corporate constitutions possess replaceable rules and the rules can be designed to provide the most desirable property rights for the particular structures built in each precinct. Competition for investment between precincts/suburbs would provide a way of determining the most efficacious design for the rules.

A CLB provides a framework to introduce 'use it or lose it' property rights to both DLs and the CLB shares. Surprisingly, such dynamic ecological property rights would become more attractive to investors in apartment buildings or in other commercial improvements than with the existing system. The attraction for investors is that they would not need to purchase the site they occupied. The cost of a site in advanced economies is typically half the cost of a dwelling as reported in the US (Davis and Palumbo 2006). For pioneer home owners in a CLB this creates half price housing as sites become self-financing from the value added by development and only the cost of the dwelling needs to be financed by its owner (Turnbull 1976).

Commercial investors in a CLB would significantly reduce the size of their investment as they would not need to purchase a land site. However, they would be required to relinquish their ownership rights of their investment at the same rate that they wrote it off for tax purposes. Their rate of profit would not be reduced as the cost of losing ownership is offset by the depreciation cost that would be incurred in any event. In this way the residual value of investments in shopping centres, office blocks, recreational facilities and factories would become owned by the CLB and so by all residents be they home owners or tenants. Tenants are included as they acquire CLB shares associated with their dwelling without charge at the rate ownership of their dwellings is depreciated.

Citizens of CLB in which OTCs were operating would acquire asset ownership in both productive enterprises and in realty of their community. Ecological property rights in CLBs and OTCs introduce a mechanism for mass asset transfer to citizens without the use of money, taxes, welfare or the associated government bureaucracy involved in traditional ways of distributing wealth. Democratizing the wealth of nations (Turnbull 1975a) in this manner is neither identified nor explained by orthodox economic analysis. One reason is because the nature of property rights is assumed to be fixed rather than being a variable. (Turnbull 2007a,b)

Only residents in the precinct can own and so vote CLB shares to control their precinct. In this way external ownership and control can be almost eliminated. The ownership of the DLs in investment dwellings transfers, as they are written off for tax purposes, to the tenants rather than the CLB. The CLB transfers ownership of the shares 'stapled' to the DLs to tenants at the same rate. If investors wrote off the cost of their investment over 25 years, their tenants would obtain 100% ownership of both their dwelling and the CLB shares during this time without paying any more than a normal competitive rent as indicated in Fig. 5.2 . The transfer provides an incentive for the tenants to take over the maintenance cost of their dwellings to increase the return to investors.

The incentive for buying a home rather than renting for pioneer residents in a CLB arise from obtaining half cost housing. If they leave their home and rent it out then they would lose ownership rights in both their DL and the associated CLB shares at 4% per year to become co-owners with their tenants. This creates an incentive for non-user home owners to sell their property rights.

The price paid for the DLs on the open market would take into account the cost of buying the associated shares from the CLB who would price them in the same manner as for a real estate investment trust (REIT). The CLB would purchase its shares back from the

Investment accommodation: in a Community Land Bank (CLB)

Site area 600 sq. metres for 9 apartments si ra ^ eta a I

Nine Dynamic Leases (DLs) -one for each apartment initially owned by investor

2 ^ 800 shares (200 shares/apartment) ¡c c held by CLB in trust for tenants

Only voters residing in CLB precinct can own and vote its shares. Non-residents and corporations do not have to purchase a site (CLB shares) to make investment much more attractive. However, tenants become co-owners of their dwellings at the rate the investor writes off the cost for tax purposes. With a 4% depreciation rate the tenants acquire full ownership of both dwellings and CLB shares over 25 years to provide an incentive to minimize repair and maintenance costs.

Ownership 100?

Investors equity in DL transfers to users at 4% p.a.

Investors equity in DL transfers to users at 4% p.a.

Ownership 100?

»Years

Each tenant acquires co-ownership interest in 200 CLB shares at the rate of 4% p.a. If the tenant moves out after 5 years he/she retains a 20% co-ownership interest in both the shares and the dwelling with subsequent users acquiring residual interests.

Fig. 5.2. Dynamic duplex tenure.

seller at a discounted price to recapture some of the windfall gains created in the community by either public or private investment and/or by improvements in the quality of life created by how the CLB is governed.

The values recaptured from trading in its shares assist in making the CLB self-financing in a way not available to CLTs. CLTs also do not borrow money secured by the equity created from uplift in its land value like a CLB. This denies CLTs from becoming self-financing to force them to be dependent upon obtaining gifts of land to eliminate its cost. For this reason the introduction of CLTs is very restricted. They cannot provide either a widely reproducible or sustainable solution to the inefficiencies and inequities in current urban tenure systems.

Ideally, the CLB precinct will include a rich mix of commercial activities to provide rent/ rates to service any borrowings to finance its infrastructure and/or cross subsidize residents and/or pay a dividend to residents. Ideally also, the number of dwellings in the precinct would be sufficient to support educational facilities up to a basic tertiary level with supporting health care services to sustain its mix of residents over generational changes. This would typically mean a population of from say 50 000 to 100 000 residents that might involve, say 1000 to 5000 acres. With a density of around 18 people per acre residing in London there would be about 12 000 individuals residing on average within a 1000 yards of each Jubilee line station. If a CLB owned the land then each individual would obtain a windfall gain of £101 000.

CLBs have in total six mechanisms for transferring wealth to their residents without including the use of OTCs. These are: (i) pioneer home owners acquiring shares without cost; (ii) tenants acquiring ownership over time of their dwelling without the need to make a purchase; (iii) tenants acquiring ownership of CLB shares without cost; (iv) all residents capturing a proportion of any gain from improvements and windfall values in their dwellings; (v) all residents capturing a share in ownership values of all non-residential land and depreciated improvements in the CLB precinct through ownership of CLB shares; (vi) all residents acquiring a proportion of the windfall gains captured by the CLB when it buys back its shares at a discount from residents selling their dwellings.

As only residents can vote CLB shares, CLBs promote self-governance. The ability of CLBs to become self-financing, unlike CLTs, facilitates their political independence. Both the self-financing and self-governing abilities of CLBs are promoted by the introduction of OTCs as they localize both the ownership and control of productive activities hosted in the precinct. In these ways ecological property rights to money, realty and corporations make capitalism more efficient, sustainable, equitable, responsive and democratic.

The economic and political independence introduced by ecological property rights provides a basis to promote and protect the creation of an independent community banking system based on sustainable energy dollars. The strengths and weaknesses of creating energy dollars are considered in the next section.

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Getting Started With Solar

Getting Started With Solar

Do we really want the one thing that gives us its resources unconditionally to suffer even more than it is suffering now? Nature, is a part of our being from the earliest human days. We respect Nature and it gives us its bounty, but in the recent past greedy money hungry corporations have made us all so destructive, so wasteful.

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