corner
corner
corner
corner

The Value of Land in Economics

Economics As If Values Mattered, part 1

BY CHUCK MATTHEI

AS OFTEN AS economic issues occupy our personal thoughts or dominate public discourse, the subject of “economics” remains confusing and even intimidating to many people. It seems to be vast, highly technical, and quite impersonal—yet we are each so profoundly affected by its realities.

Despite appearances, economics is in essence a very personal and fundamentally moral discipline. It is nothing short of the web of our material relationships with one another and with the natural environment. Economic relationships have personalities and personal histories. Inescapably, these relationships physically manifest our social and spiritual values.

Our language expresses this duality. “Values” are both moral principles and economic measures. “Equity” is defined both as a financial interest in property and as fairness or justice. The root of “property” is also the root of “propriety.” But perception and practice often reflect a division between them.

Many of the economic problems confronting us can be understood as the result of neglected or broken relationships. Americans celebrated the fall of communism, citing its failure to respect individual rights and the legitimate role of individuals in the economy. But we have a tendency to polarize public and private interests and, in our case, to mythologize the private sector and ignore the community as a genuine economic actor.

If it will, the church can play a critical role in healing these divisions. It has a unique contribution to make: philosophically. by drawing on its theology of creation, its understanding of the individual in community, and its preferential option for the poor; practically, because it is the largest and most widespread nongovernmental institution and one of the few stable institutions in low-income communities.

The encyclicals and pastoral letters of recent years bear witness to the intellectual acuity and moral insight of church leaders. But by omission they also highlight a particular challenge. What’s too often missing is a simple, straightforward discussion of how individual Christians, parishes and other religious institutions should live their economic lives. What’s needed is practical, faithful advice on the myriad economic decisions each of us must make: when and how to acquire, use, lease, or transfer real properly; where and on what terms to place investments; what employment structures, working conditions, and compensation scales to establish or advocate; and more.

In practice, the division of faith and finance is nearly as common within the church as it is outside. Some of these issues are complex, with real institutional and personal consequences; it’s important to avoid oversimplification. Still, one cannot help remembering O.K. Chesterton’s observation that our problem “is not that Christianity has been tried and found wanting, but that it has been found difficult and not tried.” In this time of rising need and diminishing charitable resources, the challenge of restoring the commonwealth is not only a matter of theological consistency, but may well be the only way to keep our social fabric from tearing apart.

The following is the first in a series of three articles reflecting on relationships along the three legs of the economic triangle—land, labor, and capital—from the perspective of a community development practitioner. They are by no means comprehensive, but they will offer an overview of several constructive new initiatives and serve as an invitation to readers to participate in such efforts.

Land

TRADITIONALLY, land is the first leg of the economic triangle. Even in a modem economy, it is the source of shelter, nourishment, and raw materials for production—and literally the common ground on which all social and economic activity takes place, all shaped the character of American society and, for many individuals, real property remains the greatest personal investment and economic asset.

Nevertheless, the most prominent domestic problem in the United States in the past decade was homelessness and the crisis of affordable housing. In the same period, tens of thousands of family farmers left the land, and an already troubled national economy was further burdened with nearly a trillion dollars in debt that is significantly related to the involvement of Financial institutions in speculative real estate ventures.

Despite many good efforts, the problems still persist. In housing as in health care, the evidence is that conventional social welfare programs simply aren’t working. The subsidies are inadequate and inefficient. Needs are growing faster than available resources, and political will is limited. But more fundamentally, conventional programs cannot ultimately succeed because they are based on false premises.

The Myth Of Poverty

THREE WIDESPREAD MYTHS distort popular perspectives on poverty. First is the “myth of poverty,” or the tendency to judge the poor by their apparent deficiencies, ignoring very real economic capacities.
Most low-income people are renters. Before Mrs. M became one of the first homeowners in a new community land trust in Cincinnati, Ohio she was paying $350 a month for a dilapidated apartment with a market value of less than $15,000. Over her lifetime, with normal rent increases, she would have paid several hundred thousand dollars for a slum dwelling, far more than would have been required to purchase the same (or better) housing on conventional terms. In fact, many low-income families pay not only a higher percentage of income, but a greater total amount than many homeowners pay—with none of the same benefits.

Poverty is not simply a lack of income. Examine the economy of most low-income communities and you will find far more money flowing than one might suspect. The problem is that what flows in flows right back out: and that is a problem of ownership.

From small urban neighborhoods to large areas, one of the most common characteristics of low- income communities is a prevalence of absentee ownership that rivals any Third World country. These patterns may not represent our national average, but they are the circumstances of the poor and a root cause of their continuing poverty.

The poor need equity before subsidies.

The Myth Of Wealth

NEXT IS THE “MYTH of wealth.” which is very respectful of private initiatives and protective of private investment, but often ignores the social contribution to property value. When individuals purchase or improve properties, they create value. But when a city government installs a subway line, giving” another neighborhood the amenity of convenient transportation, that also adds value.

And when low-income tenants organize to transform vacant lots into mini-parks or otherwise make their community more desirable, that too enhances property values. They themselves will receive no economic return for their investment and may inadvertently accelerate a process of gentrification that will displace them altogether.

The legal conception of property as a “bundle of rights” (air rights, development rights, timeshares etc.) has an economic corollary. Property value is a “bundle of values.” It comes from many sources both individual and communal. And this realization may hold a key to solving our land and housing problems.

When we fail to measure the social contribution then we also fail to utilize the social increment in value, the “commonwealth” for the common good. This is true when public funds are used to subsidize housing in the private market, and it has been true of the management of public timber, mineral, and grazing lands in the West and elsewhere. If private trustees or investment managers were so heedless they would be dismissed or held legally liable for breach of fiduciary duties. But we have become accustomed to the neglect of public interests.

The Myth Of Public Assistance

LAST IS THE “MYTH of public assistance.” which portrays efforts to bridge the economic gap as a process of taking from those who have fairly earned and giving to those who have not (but probably should have). This characterization stigmatizes the poor and fosters resentment among the taxpaying public, creating a political climate in which appropriation levels will never be adequate.

Even more important, it reflects only a partial understanding (perhaps a willful blindness) of subsides in the housing market. In fact, while the poor receive some services through direct appropriations, a second set of indirect but very substantial subsidies are embodied in the tax code. It is significant that these subsidies are not even acknowledged as such: they are not subjected to annual review and renewal: and. in great disproportion, they benefit the wealthier sectors of society, not the poor.

If you ask a group of middle or upper-income homeowners. “How many of you live in subsidized housing?” no hands will be raised. But ask. “How many of you take advantage of the federal and state home mortgage interest deductions?” and virtually every hand will rise. Through this deduction alone, the federal treasury gives up several times as much each year as the total amount spent on housing assistance for the poor – and 80 percent of the financial benefit accrues to the wealthiest fifth of the population. The rationale for this policy is the national commitment to helping every family realize the American Dream of home ownership. But this can hardly justify the deductions on million dollar homes, second homes, or equity loans unrelated to housing acquisition.

Property As Partnership

PROPERTY CAN never be wholly private or wholly public, but must be seen as a partnership between the individual and the community. This realization is implicit in the religious doctrine of stewardship or Gandhi’s concept of trusteeship. “The Earth is the Lord’s.” It is not of our making and cannot be, in absolute terms, a private possession.
There is growing public awareness of the environmental dimension of land stewardship, but less attention to the social and economic implications. A half-century ago, the early environmentalist Aldo Leopold observed. “We abuse the land because we regard it as a commodity belonging to us. When we see land as a community to which we belong, we may begin to use it with love and respect.” It is not only the land itself, but also the entire community that is affected.

In this partnership, individuals have a legitimate economic interest; the community has a legitimate interest: and the original, essential value of the creation may be considered, in the spirit of the gospel, to be held in trust for the good of all and especially for the poor.

Historically, the church has affirmed the legitimacy of private ownership—but always qualified its affirmation by recognizing that the private interest is not singular or absolute and that there is a “social mortgage” on property. Our challenge is to give this principle a practical, personal application in a modem market economy.

Models For Community Development

A NUMBER OF community development practitioners are doing just that today. Perhaps the most distinctive of these new models, and the most deliberate in its delineation of individual and community interests and the relationship between them, is the community land trust (CLT).

CLTs are democratically structured, nonprofit corporations that own land and make it available to individuals and organizations for residential, commercial, agricultural, public service, or other appropriate purposes. Occupants may own the buildings and other improvements they make on the land, and a lease agreement defines the relationship and the rights and responsibilities of each party.
Through a CLT, individuals gain the essential benefits of ownership: lifetime security and a legacy for their heirs, as long as they will actually use the land: and fair equity for their personal investment of capital and labor. But the community democratizes access, protecting itself from the effects of absentee ownership and monopolization; it has a stronger voice in planning decisions. And it reserves subsidies and the social appreciation in land value for multi generational benefit.

In different ways, public and private interests are also balanced by limited equity cooperatives (in which every resident owns a share but the transfer value is limited to preserve affordability) and mutual housing associations MHAs, which are resident controlled, not-for-profit housing corporations), and by deed restrictions, “sleeping” mortgages, and other legal and financial devices.

Many of these techniques can be used in combination with one another. For example, it is common for a CLT to hold land on which a group of families own their building as a limited equity coop.

These models can be applied in cities, towns, and rural areas. Over the past 15 years, there has been dramatic growth in the number of such organizations. The scale of their development activity, and the breadth of popular and institutional support. In important ways, they bridge traditional political divisions. On the one hand, they are cost-effective and create opportunities for individual homeownership: on the other, they give low-income communities security, economic power, and greater control over their own destinies.

For churches in particular, these efforts have both practical appeal and spiritual affinity. From the outset, churches have provided facilities, board and staff members, volunteers, and substantial amounts of investment capital. For example:
The West End Alliance of Ministers and Ministries initiated the development of the Community Land Coop of Cincinnati (a CLT):
black and white churches joined together to establish the Time of Jubilee CLT in Syracuse, New York.
The United Methodist Church sponsored a pastor/organizer to work with developing CLTs in Atlanta, Georgia:
the Catholic archdiocese in New York City assigned personnel to the sweat equity homesteading projects of the RAIN CLT.

Companion Initiatives

There are now more than 100 CLTs across the country, and many individual coops or MHAs. Yet their numbers are still limited and most of this development takes place in low-income communities where the need is most urgent and where these models have obvious advantages over conventional marker or public sector options.

Companion programs are now needed engages socially concerned property owners in every geographical and economic sector, to make it clear that the social mortgage is not a form of “second class ownership for the poor” but rather, a guiding principle for an equitable market. The new Equity Trust Fund (see box below) is designed to be a vehicle for this commitment. It invites gifts from the social appreciation in proper value and gifts of property to be used to meet the needs of those who are disenfranchised or disadvantaged by the same market that gives current owners a windfall profit.

The Equity Trust Fund is unique. There are many conservation organizations that solicit land gifts, but this program addresses human needs as well. It does draw inspiration, however, from the Bhoodan/Gramdan (“land gift/village gift”) movement of Gandhi’s successor. Vinoba Bhave and Javaprakash Narayan in India in the 1950s. While that effort failed co meet its ambitious goal of providing for poor landless peasants. It did redistribute more than a million acres, achieving more than any government program.

The purposes of the Equity Trust Fund are educational and political, as well as financial. It is designed to focus public attention on basic questions of property and equity as participants go beyond traditional charity to reform their own economic relationships.

Of course, CLTs and Equity Pledges alone cannot equal the volume of need, but they can play a role in developing a political constituency for properly reform. In Gandhi’s conception, social change has three dimensions: personal commitment, the “constructive program,” and political campaigns. CLTs. coops. MHAs—this emerging “third path” between the strictly public and private—represent our constructive program.

The Equity Trust Fund offers individuals and institutions an opportunity to express the values that underlie these efforts and to demonstrate the will to make the personal changes that meaningful political reform will require. For religious persons, it effectively combines practical economic action with prophetic witness.

An American Land Reform

LAND REFORM in the United States will not take the same forms as in the Third World, but land reform is what we need. It should not be seen as a confiscatory program but rather, one that reflects renewed respect for one another and a new regard for equity in the economic relationship between individuals and communities.

Three principles should guide the development of a platform for reform. First, public contributions should be treated as long-term investments for the common good. Second, the poor should be able to make full use of their assets. And third, the playing field should be leveled so that all have the same opportunities, and preferential subsides are allocated to those who genuinely need them.

Conventional land and housing programs are constrained by budget limits that may well be a permanent feature of our political economy. But many reform measures need not be costly, and some will actually increase revenues or reduce the demand for future spending.
Appropriations can be used much more efficiently if they are allocated on a priority basis to projects that ensure long-term affordability.
Tax-default properties and the inventories from failed banks and S The flow of investment capital could be increased by encouraging public and private pension funds, ensuring liquidity to give community development funds greater access to institutional assets, and applying the Community Reinvestment Act to insurance companies and even charitable institutions.
Tenants and community trusts should have a first right of refusal for the purchase of rental properties and properties that have received public subsidies, as is true for housing in Washington. D.C., mobile home parks in Massachusetts, and farmland in Vermont.
Tax reforms should be pursued, including capping mortgage-interest deductions (or relating them to the percentage of income paid for housing) and legislating more progressive capital gains and property taxes.
Facing The Challenge

THESE ARE BUT A FEW of the measures that might be included in an American land reform agenda. They reflect the moral imperative to help first those in greatest need. But this would not be a “poor people’s policy.” Rather, it would be an inclusive effort to establish a socially, as well as environmentally responsible land ethic and more equitable market.

It is interesting that in the current national debate on health care, an unusual degree of consensus has emerged that the private market alone cannot solve the problems, traditional subsidy programs are financially ruinous, and structural reform of some kind is required, in the previous years during which homelessness and the housing crisis were in the spotlight of national concern, no similar call for structural reform was heard.

Property is both a very basic issue and perhaps’ the most controversial. Genuine reform will be a very difficult challenge. Nevertheless, as both social and environmental problems related to land continue to mount and resources dwindle, it will become clear to more and more people that we have only four alternatives. We can ignore these problems and suffer the terrible social and economic consequences of that neglect. We can continue subsidizing the private market, generation after generation, at ever-higher levels of spending. We can expand the public housing sector, which, though it provides an important service, offers only a limited range of housing benefits to residents and meets considerable resistance in many communities. Or, finally, we can renew the covenant between the individual, the community, and the land on which both depend – and embark together on the path of economic reform.

For some, this process will bring new opportunities. From others, it will also ask for sacrifices. It is appropriate – and perhaps even necessary – that the initiative be taken by people of faith. As the French philosopher Albert Camus said in response to a question from a group of Dominicans, what the world expects of Christians today is that they “speak out clearly and pay up personally.”
CHUCK MATTHEI, 1948-2002, a community development practitioner for more than 20 years, was president and founder of Equity Trust Inc.

This is the first part of Economics As If Values Mattered,
a three-part series redefining land, labor, and capital by Chuck Matthei,
first published in Sojourners Magazine, November 1993
Reprinted with permission.