Dr Shann Turnbull FRSA is a prolific author on reforming the theories and practices of capitalism by introducing ecological ways of owning and controlling realty, enterprises and money. Here, he takes the case of the First Garden City of Letchworth and advocates that separating the the ownership of land from the ownership of buildings is the way to achieve truly affordable housing. As the RSA’s new Housing Equity programme develops, he hopes that it will consider the ideas and proposals presented in this blog.
Technology has been reducing the cost of building homes. However, the price of homes can be double their cost from buyers needing to also purchase the Common wealth of cities embedded in the price of land.
One solution is to separate the ownership of land from the ownership of buildings to establish different markets. This allows land costs to be eliminated by being owned by a self-financing Real Estate Investment Trust (REIT). The cost of housing would halve and a magnet created to attract commercial developers. Virtuous self-reinforcing and self-financing city precincts would be created. This is how the First Garden City of Letchworth, 35 miles North of London, was established without any government expenditure on infrastructure.
A bit of history
The First Garden City Limited (FGCL) was listed on the London Stock Exchange in 1903. FGCL funded the land purchase and the construction of roads, water, sewerage, electrical generating plant, gas-works and public amenities like a swimming pool and cinema. These infrastructure assets represented the common wealth of the town that increased land values. The uplift in value increased the equity of the REIT shares to support additional borrowings, assets, and increasing land values.
A circular virtuous self-financing development process was established. The process was super charged by private leasehold investments in houses, rental apartments, shops, various businesses, offices and factories. The value of private investment became 15.6 times the FGCL equity in ten years. The land rents from the private improvements underwrote confidence in FGCL equity investors in receiving their five percent cumulative dividend from the REIT.
Learning from history
Planning authorities around the world can learn from this self-financing process, which could also be applied to the redevelopment of brownfield sites or existing cities. A modern version of FGCL could become mutually owned with only resident citizens holding voting shares to assure self-governance. The shares would be issued without cost to pioneer homeowners and all future tenants in proportion to the time and area of the site they occupied. However, each adult resident would only obtain one vote to allow the REIT to take on the role of a local government body.
Ideally, the REIT would be incorporated under facilitating legislation to establish a Community, Cooperative or Collective Land Bank (CLB). This would also allow leasehold ownership of improvements to be replaced with the Australian concept of a “Strata Title” to enable self-governance of local common areas.
Land assembly by CLBs
CLBs can acquire land by issuing Redeemable Participating Negotiable Preference Shares (RPPS) offering a cumulative dividend. Vendors can maintain ownership of any improvements by obtaining a Strata Title or leaseback. If the land had been mortgaged, then the lender would obtain security of both the RPPSs and the lease or Strata title that together should enhance both the value and liquidity of their security.
Like at Letchworth, CLBs could replace the need for governments to fund urban infrastructure. The £3.5 billion cost in 1999 of the London Jubilee underground train line created aggregate windfall gains in land values within 1,000 of yards of each of the eleven new stations that aggregated £13 billion. Even if the existing common wealth equity of each CLB was not used as collateral, the net windfall gain of £9.5 billion is more than sufficient to allow mutually owned CLBs to finance the £3.5 billion expenditure. Instead the £13 billion windfall was gifted to the minority of already rich adjacent landowners, many of who would be foreigners who do not vote, yet introduce to the national economy: "unlimited, unknown and uncontrollable foreign liabilities”. CLBs remove such economic vandalism and unacceptable inequity. CLBs also capture “Surplus Profits” not reported by accountants and so ignored by economists. In this way CLBs can make a substantial contribution in funding a Universal Basic Income (UBI) while democratising the wealth of cities and nations.
Sharing common wealth without taxes
The extraordinary size of the private windfall gains and surplus profits generated by public or private investment illustrates the extent that the current system of property rights is inefficient, inequitable and concentrates wealth in a way hidden from orthodox analysis. It also reveals that any expenditure by governments on urban infrastructure at any level of government is counterproductive, as is the privatization of such investment, unless it is achieved with a CLB.
Unlike traditional privatizations, CLBs introduce an ecological form of ownership to capture - without taxes - the systemic overpayment of investors as well as uplift in land values. CLBs also introduce ecological governance to enrich democracy from the bottom up with universal stakeholder participation to sustain humanity on the planet.
Introducing bottom up democracy
Facilitating legislation is required to allow any community to initiate a referendum to approve becoming a CLB. To protect elected members of government at any level from vested interests a super majority of 75% of voting residents is suggested. Additional information is available from the New Garden Cities Alliance.
As the RSA’s new Housing Equity programme develops, I hope that it will consider the ideas and proposals presented in this blog.