The big difference between a Cooperative Housing Society and a Community Land Reserve is that appreciations in land value over time accrue differently. In the Cooperative Housing Society, this appreciation goes to individuals while in the Community Land Reserve it goes to the community.
The difference matters most dramatically in the way such accruals in value are dealt with when there is a change in ownership of an apartment. In the Cooperative Housing Society, the outgoing occupant walks away with an unearned bonanza of windfall profit, which is entirely consistent with the philosophy of extreme capitalism. In the Community Land Reserve, the outgoing occupant recovers his investment in the property (principally construction and repair cost), adjusted for inflation, but no share of the appreciation in land value.
That belongs to the Community Land Reserve, which is now able to offer the incoming new occupant ownership of the apartment at a price that continues to be affordable to low-income citizens because it excludes the cost of land.
How do we manage a Community Land Reserve in such a way that it does indeed remain a low-income locality and is not taken over by middle- and higher-income residents wanting to take advantage of lower capital costs or lower rentals? The style of management of a Community Land Reserve is critical to its success. It is strikingly different from the way a Cooperative Housing Society is managed.
We have over a century of experience in Mumbai of the functioning of Cooperative Housing Societies. A Cooperative Housing Society has a managing committee made up of members of the Society. Without a limit on how long a member may serve on the committee, many such committees become coteries of the most influential members of the society.
As a result, such societies are not well managed or are managed in such a way as best serves the interests of the managing committee. Such coteries of society members often team up with developers for “redevelopment”. Supervision of their management is minimal, because a Cooperative Housing Society reports to the Registrar of Societies.
A Community Land Reserve, on the other hand reports, to the Company Law Board. The Community Land Reserve is a Section 8 Company, a type of corporation established to promote not-for-profit activities. This means that it cannot declare a dividend.
It also has much stricter controls because it is run by a board of directors with a very specific composition: one-third of the board is elected from among the occupants of homes in the Community Land Reserve, one-third is from people living in a geographically defined contiguous neighbourhood, starting immediately beyond the boundaries of the reserve, and one-third is professionals and outside experts elected by the other two-thirds of the board.
Each board member serves a term of six years. One-third of the board retires every two years. No board member may serve for more than two consecutive terms. Because of the specific requirement of one-third from each category, the total number of board members has to be divisible by three, so either nine or 12 or 15.
A Community Land Reserve board functions differently from a normal company board in one very important way: its functioning is transparent to the highest degree possible. So board meetings are open to any Community Land Reserve member to attend. If for any reason the board needs to have a confidential discussion, it may go into a closed door meeting but at the end of the meeting the substance of the discussion must be disclosed to all Community Land Reserve members.
The transparency is particularly important in regard to the selection of new incoming occupants because they will be receiving accommodation at a cost that excludes the market value of the underlying land. Such transparent functioning with day-to-day transparency also differs from the way other companies are run – often with tight secrecy, open to inspection of the most casual and limited kind at the dreaded once-a-year annual general meeting lasting a couple of hours.
An important question is, will Community Land Reserves not segregate society into two classes, one with the privilege of enjoying unearned wealth because of rising land prices, the other living in houses on Community Land Reserve-owned land, unable to realise unearned wealth on account of rising land prices and thus committed to penury with lowered hopes of pulling out of it? That is indeed an unfortunate corollary of having Community Land Reserve. But even without them, today there are gated communities, trying to be totally self-sufficient in as many aspects of daily life as possible.
True, they have to go outside their enclaves for city-wide amenities like theatres, hospitals, stadiums, and their own jobs, whose space they must share with their more impoverished citizens, so their self-chosen isolation is not complete. The only difference offered by Community Land Reserve is that the already excluded poor will now be decently housed in well-managed, affordable housing with decent local social amenities of schools with playgrounds, parks and primary health care. The affordability will be because housing is priced at the cost of construction with nothing to be paid for the cost of land – just as one pays nothing for the use of a public road or a public park.
An important question is, how do we ensure that families who have advanced from being low-income to now being middle-income or high-income can be asked to vacate their premises in favour of another low-income family.
One way to do this is to specify in the contract the occupant has with the Community Land Reserve that the occupancy is not ownership. It is a 10- or 15-year lease, with vacating of the premises required at the end of that period. If at that time the occupant continues to be low-income the lease can be renewed for another 10 or 15 years. If not, the now higher-income occupant must vacate the low-income housing and move elsewhere.
If occupation is to be a lease and not ownership, how do we finance the construction? The answer is that the occupant pays a hefty lump sum as a deposit with the Community Land Reserve on taking possession, sufficient to cover the cost of construction. Thereafter there is no rental to be paid, only monthly maintenance and operation costs. The bulk of the initial lump sum can be raised as a bank loan with the Community Land Reserve acting as guarantor. This requires the Community Land Reserve to write into its contract with the occupant that in case of a default in bank instalment repayment, the Community Land Reserve can evict the occupant and claim repossession. The Community Land Reserve can then reallot the premises to another occupant.
There is one other issue that needs to be addressed, raised by D Asher Ghertner in his book Rule by Aesthetics about planning and slums in Delhi. The idea of a “world class city” (with zero slums naturally) having seized the imagination of all, all decisions were taken thereafter with the bulldozing of slums as central to urban planning. The worst of it is that the poor not only shared this capturing of the imagination, they subscribed to it. Bulldozing of their slum seemed natural in their vision, too, of the world class city. They did not mind being shifted to sites several tens of kilometres away because they felt that given ownership of their plots this would eventually and inevitably lead to a windfall gain pulling them up into the middle-income classes.
Can this starry-eyed vision of making it big financially, even if the location is remote, be successfully countered by offering an affordable house at a desirable location but with no hope of capital gain? We cannot know until we try it.
Particularly important is the fine tuning of two processes. One is to ensure that new incoming residents are indeed low-income. The other is to ensure that current residents whose incomes have grown beyond low-income are moved out to join the superior ranks of the windfall unearned income creamy layer.
The notion of Community Land Reserve has behind it decades of experience of Community Land Trusts particularly in the United States but also elsewhere. The management style proposed above has been based on what has already succeeded elsewhere. We have replaced the word “Trust”with “Reserve” because Trusts in India have a particular connotation and style of functioning as dictated by our income tax rules. And “Reserve” in regard to land is precise in terms of exclusive use for a specific purpose.
Is the kind of change proposed above likely to happen? Probably not, and almost certainly not in the near future. As long as the government’s focus is on money, not on people, nothing much is going to change. But still it is both useful and important to debate and agree on the directions for change we want to take, if and when the opportunity to bring it about ever presents itself. And certainly nothing is lost in trying it out on a pilot scale. This will both establish viability of what is proposed and at the same time offer an opportunity for adjustments in implementation.
This is the last part in a four-part series on low-income housing. Read the complete series here.
Shirsh Patel is a civil engineer and urban planner, one of the three authors who suggested the idea of Navi Mumbai. He is co-author of “6 Metros”, a comparative study of urban planning and implementation in London, New York, Tokyo, Hong Kong, Delhi and London, available in hard copy and Kindle on Amazon.
