The Private-Investment Community Land Trust

A Better Way to Revitalize Communities

by Dan Sullivan

The essential concept

The private-investment community land trust is an alternative system for private land-holding, for generating community revenues, and for encouraging better land use. Essentially, land users lease the land, rather than purchase it, from a land trust. The trust then uses lease revenues to pay investors, to provide community services, to rebate taxes levied against occupants of trust land by larger taxing bodies, and to acquire additional land. It has many advantages over our traditional land tenure system, and particularly over urban-renewal projects, to the occupants, the investors, and the communities in which they are located.

Current Occupants Can Stay

People often complain that urban redevelopment projects create "gentrification," by which they mean pushing poorer people out in order to entice richer people to move in. The land trust approach attracts richer people and more dynamic businesses with little or no displacement of those already living or doing business in the community. Studies show that when a community gradually improves, it actually loses fewer residents than similar communities that stagnate or continue to decline. The real cause of displacement is the urban renewal project that is undertaken to trigger gentrification. Indeed, the original term for "urban renewal" was "slum clearance." The painting at left was of Ruch's Hill in Pittsburgh's Hill District. No economic development followed, and the land was eventually used for the Elmore Square housing projects, which have also been torn down. Ironically, Elmore Square was to house people displaced by other Urban Renewal projects.

The land trust model does not push people out. To the contrary, it invites landholders to sell their land to the trust and rent become trust members on the same terms that attract others to the neighborhood. They also have the option of keeping their conventional land titles and enjoying trust leaseholders as neighbors.

No Risky, Expensive Projects

The track record of conventional urban renewal projects is spotty, at best. Billions of dollars of public money have been spent on failed projects. In Pittsburgh, the only major multi-building, multi-owner projects that could be called clear financial successes over the long term are Gateway Center and Station Square.

Parkway Center Mall (pictured at right) was successful for about two decades, but had been built on a landfill and failed both structurally and economically. The project wasted a fortune in public money, not only on the mall itself, but on an interstate exit specially built to service the mall.

Allegheny Center Mall was an economic disaster almost immediately. The retail shops that were supposed to serve surrounding residential developments quickly closed and the spaces were eventually used as offices.

Penn Circle, which was supposed to revitalize East Liberty, saw one project disaster after another, and quite literally became a textbook example of how not to revitalize a community. It is only now beginning to succeed after half a century of failure.

Perhaps the biggest disaster, both economically and socially, was the clearance of the Lower Hill District beginning in the late 1950s that forced thousands of people into housing projects and left much of the land in limbo until the mid 1990s. The main project, the Civic Arena, was torn down owing more money than what had been owed when that hockey arena first opened. Three Rivers Stadium on the North Side also had a much larger outstanding debt when it was torn down than when it had first opened.

The land trust approach does not involve projects. It simply creates incentives that encourage ordinary people to take up land in the trust and put it to better use.

No Economic Cannibalism

Even the most successful renewal projects destroy other Pittsburgh businesses. They create new businesses that steal customers from existing businesses, often without doing anything to increase the overall market for these businesses. When the Grand Concourse opened at Station Square, it was ballyhooed by the Urban Redevelopment Authority, elected officials and newspapers as the place for seafood. As a result, nationally famous Klein's Seafood quietly went out of business. It had been such a Pittsburgh landmark that its sign now hangs in the Heinz History Museum.

Businesses already pay higher tax rates in the City of Pittsburgh than in the suburbs. Part of their taxes go to subsidizing their own competitors. When the tax-subsidized East Liberty Home Depot opened in 2000, there were eleven hardware stores within a 2.5 mile radius. By 2010, there were none. Carpet stores, paint stores, plumbing and electrical suppliers and other competitors also closed or moved out of the city. The owners of these stores were driven out of business by the same city to which they had taxes that were used against them.

Worse still, after Giant Eagle Supermarkets got subsidies to build large stores with parking in prime neighborhoods, they closed smaller neighborhood stores in poorer neighborhoods. People do not buy more groceries because we subsidize new grocers. Instead, we subsidized the closing of small grocers and even of neighborhood Giant Eagles. This is economic cannibalism - subsidizing new businesses to eat up the profits of existing businesses.

The land trust does not take money from some businesses to subsidize others. All tax advantages to businesses in the trust are funded from land rents paid to the trust. Established businesses who want these  advantages can also sell their land to the trust and enjoy the same incentives as other trust lessees.

No Eminent Domain

It is almost impossible to assemble land for large-scale development projects without resorting to eminent domain. Even Gateway Center used eminent domain against more than 100 property owners. The pattern is that small property owners who do not fight the takings in court are poorly compensated, while those who conduct high-profile campaigns are often given many times what the properties are worth. Pittsburgh Wool won such a fight and was awarded $7.5 million for the factory pictured at right, that had an estimated value of only $1.5 million. The settlement was heralded as a victory for property owners everywhere, but other taxpayers had to cover a $6 million overcharge.

Although the land trust has more synergy if it owns all the properties in an area, it is not so important as to require the use of eminent domain. Small property owners can join the trust or not, as they see fit.

No Corporate Welfare

Development projects usually involve massive subsidies to large corporate interests - from construction firms to commercial occupants. Much of this is unavoidable. Small independent business owners are usually too busy tending to their own operations to even pay attention to development-project opportunities. Large corporations, on the other hand, have agents who specialize in negotiating deals with development agencies.

The land trust approach involves no subsidies. All tax advantages come from rent revenues. People are encouraged to take individual properties and put them to good use, which means ordinary businesses and residents are on equal footing with large corporations.

No Insider Deals

Developers like to keep their projects secret from those who might buy  land out from under them, from competing developers, and even from community members who might organize against the project. this secrecy compounds problems when public money is involved. Even politicians who give lip-service to openness and transparency find that the very nature of development projects prevents them putting together deals in a transparent fashion. Local community organizations, who had been promised that they would be part of the project planning process, often find project plans handed to them as a fait accompli. The most progressive developers will listen to community leaders, but will not reveal tentative plans and negotiate along the way. This is not the fault of particular developers or particular politicians, but is in the very nature of large-scale developments.

The land trust, on the other hand, is open from beginning to end. The land trust proposal, the charter, the process for selling shares, the lease agreements, the internal governance of the trust and all other issues are completely open.

Idle Land Speculation Ended

Our current tax system punishes good behavior with high taxes and rewards idle speculation with low taxes. Wage taxes, sales taxes, income taxes, business taxes and the building portion of the property tax all fall on those who putting their land to good use and making the community more dynamic.  Each land speculator minimizes his taxes an maximizes his profits by getting others to improve and operate their properties while he sits back and watches the value go up. That is, he becomes an enemy of the very revitalization he from which hopes to profit. If too many speculators do this, the community deteriorates and everyone's land loses value. That is, the idle speculator is even the enemy of other idle speculators. Still, the last one to develop gains the most. Urban renewal projects actually encourage idle speculators to hold on in hope that the redevelopment authority will bail them out.

The land trust reduces this. Every leaseholder pays a fair rent on the value of his land, and a large portion of the lease revenue is used to rebate taxes on his improvements and on desirable activities. Although one can speculate on shares of land trust itself, the shareholders have no control over land use. Their only powers are to demand that the terms of the trust be upheld and to bring additional land into the trust.

All control of land-use decisions rests with the Leaseholders Association, the Occupants Association, and individual leaseholders. The trust is designed so it is in everyone's interest to make the community as dynamic as possible.

Healing communties, not replacing them.

Urban redevelopment projects are like tissue transplants. They cut out rotted parts of a community, along with the people who live in them, and replace the rotted parts with entirely new properties. One of the reasons these "property grafts" fail so often is that they do not deal with the underlying problems, or with the bad incentive structure that caused the communities to decline in the first place.

The land trust changes those incentives so the trust community can heal naturally. As with any healing, improvement is first seen at the edges and the blighted area shrinks away.

Localized and Specialized Control

The trust divides power into three sets of associations. The Shareholders Association represents  those who have put up the money to make the trust possible, the Leasholders Association represents people who have taken up leases, and the Occupants Association represents the people who actually live and work on trust land. The Leaseholders and Occupants Associations are further divided by neighborhood and by residential occupancy and employee occupancy. (On-site business owners and managers are included in the employee occupancy criteria.)

Amending the trust charter or changing future leases requires that all three associations concur. Other decisions may be made by one or two associations alone.

The Shareholders Assocation and each member thereof has standing to demand that the trust be administered as prescribed in the charter. This is very important, as similar trusts have violated their charters by collecting as little rent as possible. Because nobody had standing to demand that the charter be administered as prescribed, these trusts failed to offer the promised rebates or to acquire new land, even when excellent opportunities presented themselves. The Shareholders Association also controls the fund for additional land purchases, and can make such purchases on behalf of the trust.

Each community's Leaseholders Association and Occupants Association have joint jurisdiction over how their portion of the rent fund in their community is allocated between capital improvements, operations and tax-rebate incentives, except that the trust-wide associations might set minimum-rebate policies in order to advertise those policies, and the Shareholders association might grant additional funds to particular neighborhoods.

Until there are enough leaseholders and occupants, representatives of community groups and Community Development Corporations can perform these functions. This puts initial control at the neighborhood level.

Customizable Incentives Promote Local Priorities

The land trust does not rely on planning and projects, but on built-in, rent-funded incentives that attract the kinds of development that the local communities want. Community groups and Community Development Corporations can set up the incentives. Once the land is leased, the lessees and occupants control the incentives and other trust aspects themselves.

Where the local trust village chooses to rebate taxes on employers and employees, the best deal goes to the leaseholder with the biggest payroll for the land he occupies. That means not only the most employees, but the best-paid employees. Rebating mercantile and sales taxes attracts the store owners who expect to have the highest sales volumes. If the community wants to attract the working poor, it can rebate a portion of wage taxes on residents up to a particular income level, such as rebating taxes on the first $20,000 of earned income tax. In Pittsburgh, it might want to rebate the most regressive tax of all, the $52 per capita tax on every employee at the job site.

If the trust wants to attract families with children, it can offer child care vouchers and education vouchers. These vouchers can be cumulative so those who attend public schools can save them for vocational schools or higher education. For every desired outcome, there can be an incentive system that promotes an outcome without resorting to hard and vast rules that mandate that outcome.

Flexible land use

Even the best-planned communities have run into problems as conditions changed. For example, Columbia, Maryland has been heralded as a quintessential example of a well planned community. Yet as times changed, they found that they had relied too much on physical planning and hadn't addressed underlying economic dynamics. Serpentine roads that were all the rage when the towns were planned in the 1960s have become problematic as reliance on mass transit has become more important. Embedding houses in wooded lots, which was appropriate to the surrounding areas at the time, has left Columbia more vulnerable to criminals from poorer neighborhoods that have grown up  around Columbia. Most of all, these planned communities have not avoided the bad economic incentives that have lead to blight generally. For example, The West Lake Village Center, one of Columbia's planned shopping districts, (shown at right) is now dependent on urban renewal projects for rehabilitation.

By using economic incentives instead of relying on hard planning alone, the trust avoids the pitfalls of planned communities. The incentives lead naturally to good urban land use, reducing the need for even conventional zoning.

Small Businesses Attracted

Small businesses employ more people on less land than big businesses. Rebates to wage taxes, or to employers' contributions to payroll taxes, are a better deal for small businesses than for big businesses. New small businesses are also more concerned about startup costs, and are happy to lease land rather than purchase land. In the same way, small home builders and struggling home buyers are drawn to the trust because it avoids land acquisition costs. It has the opposite effect of of redevelopment projects, which push out small struggling businesses to attract corporate chain stores.

The Rent Funds

Many commercial properties are built on leased land. Usually, the leaseholder is entirely responsible for all taxes, for attracting tenants, for providing amenities, and so on. The landlord pockets the entire rent as a profit or dividend. This  works well enough for prime land, where there is no difficulty attracting tenants.

However, the land trust model is designed to create a synergistic effect by attracting better tenants to poor neighborhoods where those tenants would not commit to a conventional lease.

First of all, the land trust continues to pay all taxes on the land itself. Should the city or borough increase real estate tax rates, the trust bears the entire increase on the value of land.

Second, the trust sets aside a significant portion of the rent to rebate taxes that fall on the leaseholder or his occupants. This is not merely a rent discount, but an incentive  to get the leaseholder and his occupants to more fully use the land.

Third, the commitment to continually buy more land and bring it into the trust protects those who build today from being pushed out by those who would build even more tomorrow and would bid up the rent to do so. (Additional rent protections follow.)

This can only work for shareholders if the result is not a zero-sum game. That is, the stockholders hope to come out ahead with a smaller share of a much larger pie. If it works well for occupants and leaseholders, and if they make the most of the incentives by doing more with less land, it will also work well for the shareholders.

In ordinary circumstances, dedicating 30% of the rent to rebating taxes should be enough to attract people to the trust. In blighted areas, larger rebates would probably be necessary to get things started.

The trust could specify a high-growth incentive system for a specified period of years, or until a specified goal is attained, and shift to a good-growth system after that. However, such a change would have to be written into the original charter. Once the charter is in place the shareholders cannot unilaterally decrease the rent share that goes to amenities and rebates.

A taxing jurisdiction might also give the trust a better deal on vacant properties held by that jurisdiction, contingent on the shareholders taking smaller dividends and increasing the fund for amenities and rebates. That way the taxing jurisdiction gets the development it desires more quickly, and also gets most or all of the rebate revenue. However, there is a point at which the trust ceases to be an investment, and the shareholders are essentially purchasing stock for charitable reasons. It is wise to set the divisions to maximize growth, but also to guarantee adequate initial investments.

Rent Increase Protections

The trust reassesses the rent annually using market data, including bidding on any vacant lots. The lessees can be protected from large increases, but only up to the rental value of their buildings. For example, say that the protected rent is a limited to a fixed increase plus general inflation. But as the land trust is likely to be very successful, land might go up by far more than that. In the graph at right, the yellow area is the market rent, the blue area is the protected rent, and the orange area shows what happens when improvements do not warrant complete protection.

A vacant lot gets no protection unless it is joined to an improved lot. If the leaseholder makes significant improvements are in the future, the rent returns to what is shown on the blue line.

An improved lot, or set of lots, is protected as long as the value of the improvements is greater than the value of the protection. Suppose, for example, that the leaseholder parks a mobile home on one of the lots. As long as the rental value of the mobile home exceeds the difference between the protected rent and the market rent, he gets the full protection. However, if rent protection exceeds the value of the mobile home, he begins to pay higher rents (orange area). To remedy this, he can build a more valuable structure, or even (zoning permitting) put a second mobile home on the lot.  Because the rent would continue to climb, we recommend a that people erect high-value permanent structures that take full advantage of the rebate incentives. However, mobile homes and other temporary structures are good interim uses of the land while people learn what is likely to become the best long-term use of the land.

Better Internal Political Systems

The concept of a democratic republic is that the people deliberate and choose their leaders. However, modern democracy, which is based on elections and majority rule, has become dominated more by power struggles and propaganda bombardments than by deliberation.

The ancient Greeks didn't have elections. Local decisions were made by whoever showed up to vote on those decisions, and Senates of Greek city-states were chosen by lottery. While this approach eliminated the power struggles of political campaigns, they had other problems. The  meddlesome tended to show up most often to town councils, and the Senates were made up of people who often just average or even below average in their ability to govern.

A third form of democracy, somewhat similar to the way Greeks choose their Senators, is the jury system. We trust juries to decide who goes to prison and who goes free, and sometimes who lives and who dies. Ideally, juries are also chosen by lottery, although this has been modified to eliminate jurors who have conflicts of interest.

We propose juries, not to run trust operations directly, but to chose the most talented,  most dedicated, and most ethical leaders, to oversee those leaders, and to propose and adopt changes to governing documents. Juries select representatives for routine decision-making, and are only called to deliberate on policy measures. Juries are far more resistant to special-interest campaigning, and the meddlesome have no greater chance to serve on juries than anyone else. Of course, those who are concerned or knowledgeable can testify to the juries.

Jury service would be entirely voluntary, and jurors should be paid enough that at least 50% of those invited volunteer to serve.

Small Investors Favored

In an normal corporation, board members are elected on the basis of one share, one vote. A single shareholder or a small number of shareholders who have over 50% of the shares have absolute power over the corporation. In contrast, the land trust uses a jury system to select board members. The trust invites shareholders to serve on Shareholders Association juries by lottery. While each shareholder's chances of serving on such a jury is proportionate to his number of shares, even the largest shareholder can only have one seat on a jury. This creates a balance between large and small shareholders that prevents large shareholders from dominating the trust.

Also, while institutions (particularly non-profits) are welcome to buy shares, only real persons who own shares in their own names are invited to serve on shareholder juries.

Small Leaseholders Also Favored

Each leaseholder's chances of being invited on to a jury is also proportion to the rent paid for his leasehold or leaseholds. Family owned corporations may designate a family member to be eligible for jury service, but extended and publicly traded corporations are not represented.

Occupant Juries and representatives

Matters that affect all occupants are composed of both residential and employment-based occupants. Matters that pertain to residential or employment-based occupants alone can be decided by their representatives alone.

Innovated from Successful Precedents

Endorsements from economists

The trust incentive system has been proven, both by taxing jurisdictions that taxed land values instead of buildings, wages, business activities, etc., and by actual trusts, a number of which were formed at the turn of the last century. The essential concept dates all the way back to John Locke, who noted that all taxes come out of land rent anyhow, and that other taxes are so destructive that it is better, even for the landowners, to pay the taxes directly than to try to make their tenants pay:

It is in vain, in a country whose great fund is land, to hope to lay the publick charge of the government on any thing else; there at last it will terminate. The merchant (do what you can) will not bear it, the labourer cannot, and therefore the landholder must; and whether he were best to do it, by laying it directly where it will at last settle, or by letting it come to him by the sinking of his rents, which when they are once fallen, every one knows are not easily raised again, let him consider.

- John Locke "Some Considerations of the Consequences of the Lowering of Interest, and Raising the Value of Money."

Other economists and economic philosophers have also endorsed raising public revenue from land values throughout history, from classical liberals like the French Physiocrats, Adam Smith, William Penn, Herbert Spencer, Ben Franklin, John Stuart Mill, Thomas Jefferson and Tom Paine, to modern economists including Nobel Laureates James Buchanan, Milton Friedman, Franco Modigliani, Paul A. Samuelson, Herbert A. Simon, Robert M. Solow, Joseph Stiglitz, James Tobin and William Vickrey.



We have also seen the benefits of charging for land in hundreds of taxing jurisdictions around the world, including many jurisdictions in Pennsylvania.

Jurisdictions using land value tax

HOW THE PRIVATE INVESTMENT LAND TRUST OPERATES

The private investment land trust is created out of a contractual agreement between an investors1 corporation, a leaseholders1 association, and a non-profit community corporation. The land is owned by the investors' corporation, but the deeds are held in escrow to guarantee the security of the leaseholders and other community residents.

An independent real estate appraiser determines the fair market rent of each land parcel based on real estate statistics. If the investors' corporation and the leaseholders1 association are both satisfied with the quality of county tax assessments, they can be used for determining rents.

Every four years, parcels are re-appraised, with particular attention given to separating the value individual improvements made by the leaseholders and residents from the value of the parcels themselves.

Lease rents are determined by the unimproved values of the parcels using a predetermined formula. Between appraisals, lease rents are adjusted according to a general inflation index or by a land price index for the area.

Leases are administered by an independent real estate agent, or, if agreed upon, by a member of the community.

The rents are collected, and the costs of administering the leases are deducted. Also, all property taxes accruing to land values are deducted.

The remaining proceeds are divided according to an established formula. A portion goes to the community corporation, a portion to the investors1 corporation, and a portion into a fund for future land purchases.

The funds allocated to the community corporation are used first to pay property taxes on improvements owned by the community and by community members. Additional revenues can be used to finance community improvements and services. Any funds still remaining are used to pay other taxes incurred by the tenants.

The portion sent to the investors' corporation is distributed as dividends to the investors after necessary corporate expenses have been paid.

The portion allocated for future land purchases is put in a fund held jointly by the community corporation and the investors' corporation. When both groups agree, the fund can be used to purchase land adjacent to the community, which then becomes a part of the community.

If the fund reaches an established limit and no adjacent land purchases are agreed upon, the investors' corporation can use the funds to purchase another tract of land elsewhere, where another leaseholding community will be established.

Land for expansion can be acquired in other ways as well. Additional investors can be invited to join the corporation and be issued stock commensurate with the value of their investment. They can invest with money, which is placed into the expansion fund, or with suitable land, which becomes a part of the community upon being invested in the corporation. Occupants of the land are offered priority in taking leases.

ADVANTAGES TO THE LEASEHOLDER

There are several advantages which accrue to the leaseholder. First of all, he does not have to make an initial purchase to acquire land. His funds can be directed toward making property improvements. He does have to pay a fair market rent, but this costs far less than a mortgage on the land would cost.

Mortgage costs include interest plus "amortization" of the purchase costs; land rent reflects interest value alone. Also, the purchase price of land is artificially high due to the presence of land speculators who bid up prices. However, leases of this type are not attractive to speculators. Land rent, therefore, does not reflect "speculative" value.

Although land rents will continue and gradually increase, while mortgage payments end after thirty or forty years, the most difficult financial period for most homeowners is while their house is still being paid for. Being able to defer land payments by leasing helps them get through this critical period. A leaseholder who wants to make higher payments and have equity in his share of land in the community can become an investor as well by purchasing stock in the landholding corporation.

The leaseholder is just as secure in his lease as he would be holding a deed. The leases are fully transferable, and the rents are guaranteed not to exceed fair market value.

Conventional landowners can lose their property for failure to pay any number of taxes imposed upon them -- taxes which can be selective, arbitrary, and unfair. Some leases shield leaseholders from discriminatory taxation, and are, therefore, better security than a conventional deed. Under a tax-sheltering land lease system, leaseholders can build homes, earn wages, etc., without being taxed for these activities by local governments.

Also, leases are not subject to the deed transfer tax, which, in Pennsylvania, takes two percent of the purchase price from conventional property owners every time title is transferred. Leaseholders can sell their property improvements and transfer their leases without anyone having to pay transfer taxes.

The community corporation can and should co-endorse home improvement and construction loans, since some banks are reluctant to issue mortgages on leased property. However, more credit is available to community-backed leaseholders than to conventional landowners. The community corporation can even start a credit union for improvement loans with revenues in the expansion fund. Such a policy greatly increases the opportunity for leaseholders to acquire funds for property improvements.

The leaseholder's biggest advantage is the assurance that adjacent properties in the community will not become derelict. Because land rent is collected by the community corporation, it is not profitable to hold leased land out of use. Negligent absentee landlordism is virtually non-existent in land-lease communities.

ADVANTAGES TO THE COMMUNITY

Advantages which accrue to responsible, energetic leaseholders translate into advantages to the community and to all of its members.

When the lease system and other considerations are designed to create a particular set of advantages, the community attracts people interested in those advantages. People who like a particular kind of community will like a particular kind of lease, for the lease provisions embody the essence of the community structure.

A lease system that gives advantages to conscientious homeowners is not particularly attractive to exploitative landlords or to demoralized and unambitious squatters. Even if such people find their way into a leasehold community, it is likely that they will either become productive community members or that they will leave.

Because the land is not owned as separate parcels, the community is not torn by conflicts of interest that arise between private landowners. And because the land is leased, and property improvements privately owned, the community does not have to depend on rigid structures and strong leadership, which are often necessary in communities where common ownership goes beyond ownership of land.

The land lease community does not have to resort to taxation to pay for community improvements. This guarantee against taxation makes the leases more attractive. Moreover, using land rents for financing community improvements provides sound criteria for judging whether an improvement is worthwhile: a worthwhile improvement makes the community a more desirable place in which to live; a more desirable community commands higher land values and, therefore, higher rents. The increase in rents to the community fund automatically pays for most economically sound community improvements. In fact, leaseholders who benefit most from a community improvement pay the most for it, as their benefits from the community are part of the basis of their assessed rental obligations.

Because the community is run as a private corporation and not as a municipality, it has greater flexibility than local governments. It can be run by town meetings, elect officials within the structure of its choice, and even choose leaders by lottery. It can operate like a private condominium development, or it can take on what are considered to be municipal functions. If revenues permit, it can even provide for private education without interference from the state.

The Fairhope Single Tax Colony, for example, created the still thriving community of Fairhope, Alabama in 1894. Fairhope is like any other municipality except that it has no taxes; all municipal services being paid for out of lease revenues. Because all the property in Fairhope is listed on a single deed, the corporation was able to have all public utilities delivered directly to the corporation at reduced rates available only to large users. The corporation is able, therefore, to provide utility services to community residents at a savings.

The amount of services a land-lease community can provide for its members depends on how much revenue it collects, and on what portion of that revenue is allocated for community services. But the absence of idle speculation creates advantages in all land-lease communities, even if they defray no taxes for the leaseholders and allocate no revenues for community services.

ADVANTAGES TO INVESTORS

Investors in the community corporation are essentially landowners who have pooled their resources and have given up control over land use to the community and to the leaseholders.

Because they have invested their money, they are entitled to dividends. As with any growth investment, dividends are lower at first, but increase with the growth and development of the community. If the lease agreements allocate a large portion of lease revenues to the community fund and expansion fund, initial dividends are even lower, but the growth of the community is faster, yielding higher dividends in the future.

By owning shares in a community instead of parcels within the community, investors know they will not be indifferent to one another's desire for a return on investments. Stockholders in a community have a natural harmony of interests, compared to the often conflicting interests of investors in land parcels.

Private land speculators have a natural tendency to want to see their neighbor's land developed first. By the same token, anyone investing in land next to a speculator's land will find his speculating neighbor to be a drag on community development. In a lease community there is no such drag. Investors in such a community can be confident that the community will grow smoothly and evenly.

In communities that shelter residents from property tax and other taxes, community members are even more eager to improve their properties, making the community grow even faster. In the long run, this means higher returns to investors.

Investors can also transfer their holdings without having to pay transfer taxes and without disrupting the lives of the leaseholders.

Investing in a private community land trust is every bit as sound as investing in land directly. In the long run it will pay more; it is easier and more convenient to sell shares in the trust than to sell real estate directly; and it is certainly more ethical and prestigious to invest in a community land trust than to be a land speculator.

The fact that the land trust is such a good deal for leaseholders and residents makes it a better deal for long term investment as well. Leases are accepted quickly, people tend to develop their properties more fully, and as the community develops a reputation for being a fine place in which to live, rental values automatically increase.

OTHER ADVANTAGES

There is a growing number of people who believe in the land trust concept as crucial to the vitality of social development. If invited, many of these people would eagerly invest in a land trust community like the one outlined above. Some people have even expressed an interest in bequeathing portions of their estates for the promotion of land trusts. Indeed, many land trust communities have been at least partially funded by bequests of this kind.

Investment in the land trust does not have to be for private gain. Investments can be made naming charities as beneficiaries, and investments can be made by the charities themselves. The community fund itself can be the beneficiary of investment dividends, or dividends can be placed in the expansion fund.

The unique and progressive features of a private-investment land trust community make it a suitable subject for many alternative publications, and generate opportunities for free publicity. Such publicity attracts potential investors as well as potential leaseholders.

STARTING A LAND TRUST CORPORATION

Starting a land trust corporation requires careful planning and sound legal judgment. Fortunately there are a number of organizations interested in land trusts which can be helpful with problems of designing leases, developing community structures, etc. Also, there are existing land trust communities which can serve as models for future communities.

Most land trusts are non-profit and have no provision for expansion, and some are radically different from what is outlined above. Still, information about these trusts can be helpful to anyone starting a land trust community.