How to establishing a Community Land Bank (CLB)
- A Company is registered for the purpose of operating a community land bank. (A Corporation rather than a co-operative is required in order to allow the issue of preference shares which can be redeemed at prices other than at their par value.)
- An option is obtained to purchase a viable area of land for development or redevelopment at existing use value (ideally with vendor finance on exercise of the option).
- The company obtains a re-zoning of the land and uses the windfall gains in values created to enhance its ability for raising loans for development.
- The land is mortgaged to fund the costs of sub-division, development and/or associated infrastructure development costs, together with capitalised interest and operating costs for the initial phase of operations. The value of the land should increase accordingly to maintain the equity created in points 2 and 3 above.
- Two types of lease are created: (a) Residential perpetual lease of home sites, subject to agreed residential development, (b) Commercial/Industrial leases for the duration of the period provided by the tax department to write-off all the costs of improvements (eg. 25 years with a 4% depreciation rate). Ownership of the improvements would revert to the CLB with ownership of investment housing reverting occupants to further enhance the equity base of the CLB and its residents.
- The Company admits residential members from government housing waiting lists and/or other acceptable applicants, who are assigned shares in the CLB on the basis of one share for every square meter of the site leased. But each household has only one vote irrespective of the number of shares held (Co-operative principle). All shares issues are restricted to residents to eliminate any external or corporate ownership and control, or claims to windfall profits on commercial leases by non-residents.
- Members raise first mortgage finance for home purchase against the security of the perpetual leases from traditional sources of housing finance.
- Company derives cash flow from: (a) Site rents from commercial/industrial leases; (b) Rent/rates for residential leases; and (c) Buy back of shares at lower price than they are sold to purchases of residential leases when residents move.
- If residential leases (houses) are not sold when owner ceases to be a resident, then co-ownership rights in the house is obtained by the tenant on the basis of 4% per year of occupancy. The discount applied by the CLB to determine the price at which it redeems its shares from residents selling their house is reduced according to their length of ownership. There would be no discount if the ownership were for a sufficient period so that the rent/rates paid from all sources over the period (e.g. 25 years) were sufficient to amortize the pro-rata costs of establishing the CLB. The issue price of the CLB shares to purchases of houses (perpetual leases) is determined by market prices in the same manner as unlisted unit trusts. That is, the value of all the land held by the CLB, (this would include streets, parks and land occupied by public buildings, commercial or industrial interests) would be divided by the total number of shares on issue.
Prepared by Dr Shann Turnbull