The Anarchist Case for Land-Leasing versus Subdivision
by Spencer H. MacCallum
When planning a new community, questions of architecture, planning of streets and parks and other physical considerations immediately come to mind. It is rare that anyone consciously considers the system of land tenure. Seldom is it recognized that there is a choice other than subdivision, and least of all that the choice might make a difference for those who share the kinds of concerns that are most important to modern anarchists. Those concerns are individual autonomy, entrepreneurship and, lastly, community, which enables the flowering of the human spirit in cultural pursuits of every kind.
A necessary first step when forming a community of any kind is to parcel a tract of land into exclusive occupancies while retaining for common use areas such as parks and access ways. The parceling can be accomplished in either of two ways. One is to subdivide the land ownership into separate fees. The other is to let out parcels as leaseholds, keeping the land title intact. These two logical possibilities do not have equal merit.
At first blush, subdivision might seem to be the anarchist choice, each individual owning his own piece of turf and building thereon his castle to enjoy that individual autonomy that is the necessary precondition for community. This seems so self-evident that the alternative is seldom explored. This paper will help fill that gap by briefly reviewing the modern anarchist argument for land leasing. Bear in mind that land leasing means only what the phrase implies, namely, leasing the land, or location, itself and not necessarily any of the improvements on it such as buildings. These latter can be readily owned, bought and sold independently of the land under them.
The Argument from Individual Autonomy
The first of the several anarchist arguments for land leasing over subdivision is the argument from individual autonomy. Because of the fractured land interest, subdivision gravitates toward government—toward the formation of arrangements whereby each persons tries to coerce the behavior and lifestyle of his neighbors. What is the logic supporting this? Imagine a couple who have bought their new home in a subdivision. It is perhaps the largest single investment they will make in their lifetime, and they are understandably concerned that it retain its value. Note, however, that this is not a productive investment but a speculative one. It is a consumer expenditure—a residence. There is no capital employed on the site, no business to generate value apart from its site value. The value, therefore, aside from the salvage value of the bricks and mortar, is locational, rising and falling with the fortunes of the neighborhood. It is speculative because it depends upon factors beyond the control of the couple. If they want to make their investment less speculative, their recourse is to try to control some of those locational, or neighborhood, factors influencing the value and liquidity of their individual site. In plain words, that means controlling who their neighbors are and how their neighbors live. This is a classic externalities argument for the origin of states.
Communities in the United States from colonial times onward have been subdivisions. Invariably as they have grown in size, they have organized under a municipal government. Such governments at first were controlled by the land owners through a property qualification for voting, but by the end of the nineteenth century virtually all had become popularized, which is to say, democratic. Forming a perfect parallel in the last half century, planned residential subdivisions have organized under a home owner association (HOA) which, though now controlled by the land owners who alone can vote, are virtually certain to follow the same historic pattern.
Unlike municipal and country governments, HOAs enjoy immunity from the constitutional restraints that apply to other levels of government. This very immunity threatens to undo the property qualification on voting, however, when the thus far disenfranchised renters and family members (normally more than half of the residents) sue for federal protection of the freedoms of assembly, speech, religion and voting, not to mention guarantee of due process, to which they may suppose themselves to be entitled as United States citizens.
Meanwhile these neighborhood governments, unrestrained by any constitutional limitations, levy taxes and legislate rules, many of which are extremely invasive of traditional freedoms to enjoy one's castle. Often these rules govern such minutiae as the color one can paint one's front door and the kind of window curtains one may use. "Double Diamond," a subdivision in Reno, Nevada currently requires that garage doors be up not more than three hours a day. Compliance is enforced by fines and ultimately by liens on homes.
The very structure of subdivision living under an HOA encourages watching for and reporting infractions by neighbors. Tipsters are rewarded by warm feelings of self-righteousness and of being a good citizen while never having to accept responsibility for taking a complaint personally to his or her neighbor. The association launders every complaint as a bank might launder money, and enforcement follows as an impersonal action of "the community," anonymous and divorced from whomever reported the infraction. Such pitting of neighbor against neighbor has given rise to so much litigiousness that the California legislature in 1992 established tort immunity for association board members, giving them protections like those enjoyed by municipal officials (44 per cent of association directors were threatened or harassed with lawsuits during one year, according to a study).
Why would anyone choose to live under such conditions? It is not as though people had complete freedom of choice. The subdivision pattern is fixed in American life by federal subsidy and a tax law which discriminates against renting. Most new housing construction takes place in subdivisions, and all new subdivisions must have mandatory-membership HOAs. That is because only housing in subdivisions under an HOA can qualify for FHA and VA insured mortgages (the assumption being that HOAs will keep property values from declining), and no builder can compete in the market whose product does not qualify for such federal assistance. It would be a mistake, therefore, to assume that planned subdivisions accurately reflect consumer choice. When anthropologist Erna Gunther once asked a woman weaver of one of the Northwest tribes why she used harsh aniline colors rather than softer ones more nearly resembling natural plant dyes, the woman replied that these were the only colors sold at the trading post. Later Dr. Gunther asked the trader why he didn't offer a better selection of colors. "Because," he answered, "these are what the women buy."
It is natural for subdivision to drive toward government formation. We can't prevent it, and obviously a bigger government to oversee the matter is no solution. But if we were to have a private, competitive enterprise a part of whose business was to see that governments did not form in a community and that, more to the point, no one had reason to want them, we would be able to live in relative freedom, secure in the enjoyment of our person and property. But I'm getting ahead; I'm alluding to the community entrepreneur at the various levels in a land-lease community.
In sum, the argument from individual autonomy is that externality pressures inherent in fractionated land ownership drive toward political organization, the most recent example being HOAs. The downside to HOAs legislating rules or laying them aside, changing the restrictive covenants, and levying fines and taxes, all by vote of the neighborhood, is that it gives residents no control or ability to predict, from day to day or from one year to the next, how they will be allowed to enjoy their property. Individual autonomy, which is nothing if not control of one's person and property, is thus lost. In a land-lease community, by contrast, all the rules that will ever apply are stipulated not by faceless others through periodic votes of the community or an elected board, but only once—and then only by the private parties who entered into the lease. For the term of the lease, however short or long, the contracting parties know where they stand. (It is not uncommon in English common law countries for leases to be written for 999 years.) The terms are negotiated and spelled out, once and for all, unlike the shifting sands of an HOA where everything is subject to the politics of a voting constituency.
It should go without saying that because lease terms are fixed and dependable unless amended by mutual agreement between lessor and lessee, lease writing requires careful thought on both sides. This is where lawyers will have a legitimate role in a free society. It is a field that Alvin Lowi calls "contractual engineering." Some novel exercises in contractual engineering are being considered even now in connection with a proposed land lease for a free society in Somalia.
It must be noted that, although precluded by government policy from any widespread application in residential housing, land-leasing is not an unknown quantity but has a robust business record in commercial real estate. The twentieth century proved its practicality and market acceptance in that field. From the mid-nineteenth century onward, a rising trend toward renting or leasing multiple sites with a concentrated entrepreneurial interest in the "commons" was evidenced in a proliferation of multiple tenant income properties affording specialized micro-environments of every description: hotels, apartment buildings, office buildings ("skyscrapers"), luxury liners, commercial airports, shopping centers, RV/camp grounds, mobile home parks, marinas, science parks, professional parks, medical clinics and theme parks, as well as integrations and combinations of these and others to form properties more complex and, over all, less specialized. The MGM Grand Hotel in Las Vegas, which promotes itself as a "city within a city" and comprises an elaborate mix of land uses, is substantially larger in population on an average day than the city of Boston at the time the United States gained its independence. The multiple tenant income property has proved its viability, competing hands down with subdivision in commercial real estate. No contest . Given equal treatment under the law, it might be expected to do the same with respect to residential housing, providing consumers attractive alternative housing choices in a field now dominated by the planned subdivision and obligatory HOA.
The Argument from Entrepreneurial Opportunity
A second line of argument for favoring a leasehold policy is the entrepreneurial opportunity it opens up to profit from the production and marketing of community services. The entire public service field now becomes an opportunity for private enterprise. The speculative profits realizable from subdividing land—buying at wholesale and then parceling out at retail when land uses have grown up sufficiently to give the sites added locational value—are nothing compared to the long-term opportunities for return on investment from operating an entire community as a complex multiple tenant income property. The principle is the same as that of a hotel out of doors and on an enlarged scale. The business rationale of such a wholly nonpolitical, entrepreneurial enterprise is discussed in more detail in a recent paper by the author under the title, "The Entrepreneurial Community in the Light of Advancing Business Practice and Technology" (available from the author).
The Argument from Quality of Community Life
A third line of argument is the quality of community life that is only possible where a private company is in the sole business, competitively for a profit, of promoting the success of the community qua community—facilitating ways that it might become an attractive place to live, work, visit or raise a family. Such a company, representing the organized land interest of the community, is impartially positioned to afford authentic leadership (not rulership). One study of this subject has been made in shopping centers, considered in their internal organization as a community of landlord and merchant tenants. Mall merchants are nothing if not competitive, yet these merchant communities are utterly non litigious. Members settle their differences according to the custom of the particular mall. In the course of fieldwork undertaken in 35 centers and twelve mobilehome parks many years ago, in which I collected accounts of dispute situations and analyzed how they were handled (Human Organization 30:1, Spring 1971), I never heard of anyone "going off the mall" to litigate in a political court.
In a land-lease community, our couple still might still make a major investment in their home even though leasing the land. But much of the speculative element will have been removed, since it will be the business of the community entrepreneur to look to the land values. The couple will be free to enjoy their neighborhood as a place to comfortably live rather than as an investment to be be concerned about.
Because a land-lease community has someone—the community entrepreneur—whose business it is to facilitate "community" and thereby build land value as measured by the capitalized revenue from the land leases, it is here that we begin to find out what real community can be—where individual privacy is respected and opportunities for communication and exchange facilitated. This is the intangible value and potential of the land-lease community. To put it in the terms of public-choice economics, given competition and a well considered lease, incentives can be structured for mutuality into the indefinite future. It is win-win.
Somalia: A Special Application
A fourth line of argument in favor of land-lease can be made in an area like Somalia, where leasing would require no substantive change in customary tribal law. This question has arisen in connection with recent proposals to develop freeports on tribal lands in northern Somalia. One of the major tribes, a traditionally stateless society, has been considering how to make its statelessness an asset by attracting world-class professional and business talent to form a free enclave within its territory. If successful, this latter-day Hong Kong might then become their stepping stone to full participation in the modern world without becoming subject to any government. To do this, they would need to lease or sell a land area.
Because ownership of land in Somalia is ultimately defined by kinship status, land theoretically cannot be alienated permanently from the kin group without the unanimous consent of every member. Leasing, however, is quite acceptable provided the kin group's eventual right of reversion is not lost sight of. (If the end of a line died intestate, for example, the land would have some place to revert.) This explains the practice, surviving in English law with respect to leases of hundreds of years duration, or in parts of Africa with respect even to perpetual leases, of a "peppercorn" rent such as a single rose being paid every year as a reminder.
Especially since the proposed freeport would have a predominantly European population at the outset, we should not ignore the possibility, however remote, that a sale of land could be attacked in the future. Activists, if it served their purpose, could represent it as an unlawful and unconscionable alienation of the tribal patrimony. If land values had increased dramatically, they could appeal to envy, painting it as a European "land grab."
Under a land-lease, however, the tribal people would identify with the freeport land and could feel pride in its progressiveness. They wouldn't be strangers in the freeport; like everyone else, they would be tied into the contractual fabric of the community. Even if it were mainly ceremonial, they would nevertheless enjoy a dignified status as the ultimate landlords. This would afford PR for the freeport to answer any would-be political detractors worldwide who might try to impugn the integrity of the developers of the freeport as exploitive of tribal peoples. Such continued identification of the tribe with the freeport could also help to ensure their support and possibly even defense at a critical time.
A further advantage of a lease of land rather than a sale is the possibility of building into the lease agreement with the tribe certain safeguards against politicization ever happening within the freeport. Words to the following general effect might be included as a condition of the lease from the tribe:
No person holding land in Newland Freeport shall be required by his immediate landlord to pay more rent than was consented to in his lease agreement, nor shall his landlord hold him accountable for rules of conduct not specified there. Nor shall any person subletting to another under this lease enforce a monopoly in any economic activity including the provision of policing or court services. No land shall be sublet on terms inconsistent with any of the terms of this lease. In the event any of these conditions are disregarded, the lessor shall have the option of repossessing the lands herein described (although sub leaseholds shall continue to be honored) or receiving monetary penalties in such amounts as may be set by independent arbitration.
Some prospective investors in the proposed Somali freeports, reflecting their American background, expressed misgivings about leasing rather than owning. They had only to look to Singapore and Hong Kong, however, to see that land-leasing is not by any stretch of the imagination incompatible with economic development and prosperity. Indeed, prosperity in the freeport would translate directly into profits for the investors, such productivity being the source and whole basis of ground lease revenues. Land comes into demand only as it is conducive to people being productive there. Land-leasing does not foreclose subdividing for speculation, since leaseholds can be bought and sold the same as freeholds. However, the subdivision approach yields a one-time capital gains opportunity from the speculative turn-over of location, whereas enlightened land-leasing will yield increasing returns indefinitely into the future. Rather than a speculation, the latter has the advantage of being a productive enterprise set up to rationally build land values.
Leasehold as Property
To conclude this brief discussion of land-leasing, the fact is sometimes lost sight of that a leasehold is property as much as anything else ever was or might be. It is not a second-class form of tenure. David Hume makes that clear (A Treatise on Human Nature 1986:529-31):
A man that hires a horse, tho' but for a day, has as full a right to make use of it for that time, as he whom we call its proprietor has to make use of it any other day; and 'tis evident, that however the use may be bounded in time or degree, the right itself is not susceptible of any such gradation, but is absolute and entire, so far as it extends.
Postscript: A California developer, Paul Lascola, is in the initial stages of planning a land-lease, mixed-use community of approximately 25,000 population. Among its amenities, the community will feature its own integrated, on-site utilities system with zero discharge into the environment. Only in a land-lease community is such an approach possible, since it requires a concentrated entrepreneurial interest in the commons. With that sole proviso, however, the implications for real estate development are significant. It obviates any need for government involvement in utilities and opens the possibility of community development any place on the globe, independent of government utility grids or even naturally occurring water (since the object will be to manage and recycle an inventory, having only to make up evaporative losses). What is refreshing about Lascola's idea is that it is as fine an anarchic concept as might be found, yet it is non-ideological, being promoted as a purely business venture for profit to its investors.
More information about the project is available from the author (Spencer MacCallum email@example.com).