When Mortgages Exclude the Location …
Great Home, Great View, Great Price
Some Canadians happily buy homes on land they lease, since their mortgages are much smaller. It’s a model for all of society. We trim, blend, and append three stories from: (1) BC’s Vancouver Sun, 2012 Spt 1, on leasing land by S. Morphet; (2) RadioLab, 2007 Aug 13, on capturing rents, by S. Herships; and (3) Financial Times, Aug 15, on taxing land by J. Tonge.
by Suzanne Morphet, by Sally Herships, and by Jeremy Tonge
Buy the Home, Rent the Land
A 2,500-square-foot home near British Columbia’s capitol city Victoria with a panoramic ocean view with bald eagles circling above for $350,000?
It might seem hard to believe, but that's approximately what one can pay for a new home at Hummingbird Village, a gated community about 20 minutes north of Victoria, 10 minutes from the Swartz Bay ferry terminal and Victoria International Airport, and five minutes from the local hospital.
The reason for the price? They don't own the land, just the home. They rent the land -- located on Tsawout First Nation land -- for $350 per month from an individual band member.
The homes are designed to be mobile and can be moved if required. It gives the bank -- if someone defaults on their mortgage -- the right to come in, take the home off the site if they have to.
It also means owners can move their homes somewhere else if, for any reason, the landowner decides not to renew the lease at the end of the current 49-year term, or the band doesn't approve a new lease. However, buyers will likely have the option of renewing their leases for another 49 years.
In addition to Hummingbird Village and Hawthorne Village, the Tsawout First Nation has nine other housing developments in its jurisdiction (in fact, almost twice as many non-aboriginal people live on the reserve as aboriginal people; 1,055 and 585 respectively at last count), as well as a campground, a couple of motels, a gas station, a McDonalds and a White Spot restaurant.
In some ways, Hummingbird Village resembles a bare land strata, where each homeowner is responsible for the repair, maintenance and insurance of his or her home. And as with bare land strata, the developer at Hummingbird built the infrastructure -- the road, street lights, fences and gate -- and all owners contribute to their upkeep through a monthly maintenance fee, in addition to their monthly land rent.
But unlike strata, residents don't participate in strata council meetings or vote on bylaws that will govern their day-to-day affairs, such as pet ownership, issues that can be divisive and stressful.
So how are rules made and disputes settled at Hummingbird Village? The rules are contained in a sub-lease, which buyers review before they purchase. The sub-lease, as well as a head lease between the aboriginal landowner and the developer, is registered through the Tsawout Reserve with the federal government's Indian Land Registry.
Any special request not covered by the rules in the sub-lease will be reviewed and decided on by Swut-Za-Lee Adult Community Ltd., the company owned jointly by the aboriginal landowner and the developer.
Houses for eight of the 29 lots have been sold and three more have been sold subject to certain conditions being met. The modular houses -- some two storey, others one storey -- are built on-site as people purchase, allowing for customization.
For a pair of retired pharmacists from Dawson Creek, the developer installed granite countertops and higher-end appliances in the kitchen, as well as an $8,000 steam shower and bath unit that comes with lights and music for the ensuite bathroom.
Buyers may be assured of the project's viability by the fact that BMO Financial approved developer financing. The process for people needing a mortgage to buy a house on leased land is similar to that of applying for a mortgage on fee simple land. A buyer would still have to go through the same approval process whether it is a loan or a mortgage.
To read more
JJS: While the above model does make it possible for some to live on wonderful locations, the model still has one major flaw: the rent payments go not to the residents' community but to one absent owner. So, what makes that wrong, morally? Listen the below radio broadcast.
Morality -- Season 2, Episode 3
Where does our sense of right and wrong come from? We peer inside the brains of people contemplating moral choices. There is an interesting segment from an elementary class in which the teacher tries to teach a lesson about fairness of ownership of prime land locations and also about the control of money creation. Who should be the beneficiaries?
To read more
JJS: While most people at the gut level understand right and wrong when it comes to divvying up the profits from land, most governments’ revenue policies violate this sense of fairness. Fortunately, some are trying to change that.
Letter in Financial Times
The last thing a government should be doing is reducing the obligation on private developers and landowners to contribute towards the provision of mixed-tenure affordable housing (“Coalition plans house building stimulus”, August 13). By all means relax the requirement that a fixed proportion of any scheme, say 30 per cent affordable housing, must be provided on site but do maintain the obligation to provide or to make a full financial contribution. Monetized contributions could be hypothecated to a central fund for redistribution to registered providers.
The best way to ensure a supply of land for house building would be an annual tax on undeveloped land. This would work well with the new planning system and the spirit of localism.
To read more
JJS: That’s one way that society could recover the rents that it creates, by taxing private land. Yet leasing public land works, too, as revealed in the first article above. Indeed, financially, there is little or no difference. In the final analysis, residents end up paying rent to the public treasury. And, if they get a share of that recovered rent back, then, in the final analysis, residents end up paying their neighbors for land, for respecting one’s private occupancy of land. Each resident would pay land dues in and get rent dividends back. Politically, getting money back is probably key to persuading people to pay in a land tax or land dues in the first place.
Editor Jeffery J. Smith runs the Forum on Geonomics and helped prepare a course for the UN on geonomics. To take the “Land Rights” course, click here .
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