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This month, like conquistadors of centuries past, tens of thousands of us will ascend the Andes to Quito, Ecuador, in search of El Dorado. But, unlike our brutal and greedy predecessors, we are not pursuing metallic wealth beyond our wildest dreams. The golden city we seek promises a sustainable urban future. Our map—the New Urban Agenda, which will be announced and adopted during Habitat III, the United Nations Conference on Housing and Sustainable Urban Development in October 2016—tells us where we are going, but it does not tell us how we will get there.
We know that we will encounter monumental challenges as we navigate this path to welcome some 2.5 billion people to the world’s cities over the next three decades. We will be tasked with providing jobs and housing for both these newcomers and current urban residents who are inadequately housed or underemployed. And we will have to make unprecedented investments in infrastructure to provide basic services for these new city dwellers. Our local governments will need to step up, as never before, to implement and finance measures to handle extraordinary growth. But while the bulk of responsibility for managing this last epoch of urbanization will fall on local governments, the rest of us are not off the hook. In fact, it is safe to say that the actions of other institutions—particularly national and subnational governments and certain NGOs—will determine whether urbanization succeeds. We will all need to pull together to find our way to larger, more inclusive, equitable, and sustainable El Dorados.
And here is how these golden cities will function. Local, provincial, and national governments will align and coordinate their actions to manage urban growth successfully. This sounds easy enough, but what will it mean in practical terms? It means that different levels of government will commit to getting urbanization right and adopt some new modus operandi. It means that higher levels of government will stop devolving expenditure responsibilities to lower levels of government without identifying or providing sufficient revenues to cover the expenditures. It means that national governments will provide local governments the statutory authority to raise their own funds to meet many of their own financial obligations. It means that we will ensure local governments have the capacity—both technical and human—to make efficient use of all available resources. And it means that national governments will commit to adapt and adjust their policies to match the changing needs of local governments and the contexts in which they work.
Powers conveyed and responsibilities mandated from higher levels of government to lower levels through constitutions and legislation will reflect strategic alignment. Resources transferred from higher government levels to lower levels through agencies or ministries will be less encumbered by earmarks or overbearing compliance rules. Local governments’ powers and responsibilities will be codified in constitutional and legislative “rules of the game” that define a better-groomed playing field. Rules that enable localities to manage their affairs—granting them the power to levy certain taxes and fees or the legal authority to enforce tax collection—will displace regulations that constrain the ability of localities to attend to their own needs, such as property tax rate limitations.
Playing by national rules will no longer be difficult or impossible for cities. Other municipal governments will follow Detroit’s lead and find ways to avoid leaving tens of millions of already-allocated federal dollars on the table as Detroit did in the years preceding its bankruptcy. They will seek assistance to overcome the staff deficits and technical limitations that led to Detroit’s failure to adequately manage federal funding, as noted in the 2015 Government Accounting Office (GAO) report. And they will not fault themselves for their inability to use that money; they will recognize that defects in the design of funding programs are to blame, given that many thriving cities are likewise unable to utilize all of their national funding. And they will know that their problems are not exceptions but rules, as hundreds of cities across the world acknowledge that efficient use, or under-use, of intergovernmental transfers is an almost insurmountable challenge. This is something that we will fix on our way to El Dorado.
But how will we detect and correct defects in the design of intergovernmental transfer programs? Where is the forum where rules of these games are reviewed and refined? It is not surprising that the GAO would conclude that the failure of federal funds to reach the ground is a problem of local capacity. How would the national government get enough objective distance to consider the idea that its programs and policies are ineffective because of bad design? National governments will create programs crafted to fulfill policy goals, not to frustrate local governments’ attempts to meet citizens’ needs. But how? To know whether their programs are working, they will talk about them with their local counterparts. Although these discussions rarely occur now, they will become commonplace. Productive feedback through honestly brokered conversations will ensure that the troops on the ground are on the same page as the legislature and its ministries. And vice versa.
And this is where other key institutions will play a role. Specifically, NGOs and quasi-governmental organizations will connect the work of policy implementers with policy makers. Some institutions are familiar with the work of local governments and trusted by them as partners, but they also have access to and credibility with national leaders and policy makers. These organizations can serve as honest brokers and conveners to bridge the communication gap between policy conception and implementation and help to improve both. Hundreds of these mediators, or “conversation conduits”—including multilateral funders and social-change philanthropists, think tanks and practice-oriented departments of universities, membership organizations of public officials and development lenders, and the Lincoln Institute of Land Policy—will work together to complete a “virtuous circle” that leads to better policies and aligns the efforts of multiple levels of government to achieve the goals of sustainable urbanization. And they will develop and deliver training and technical assistance to build the capacity of local governments.
It is a bold vision of the future. But without efforts like these, it is hard to imagine how we will achieve the goals of the New Urban Agenda. A significant share of the approximately 4,300 cities in the world with populations greater than 100,000 can use some help to grow their skills and systems, and to communicate better with higher levels of government. And many of them are hungry for the help.
We started on this path with the launch of our global campaign for municipal fiscal health two years ago at a congressional briefing where we were invited to talk about the challenges that perpetuate weak economic performance of older industrial American cities. We will follow next spring with a roundtable co-convened with the Pew Charitable Trusts (a fellow mediator) to present findings from a study of unspent federal grants that we have underway with planning students from Northeastern University (another mediator). We will invite representatives from federal agencies to explore the implications of the findings for reforming formula-funding programs. In addition, we have begun to design and offer training modules to build capacity and technical assistance for cities. But we need help—a lot of it.
Let’s take advantage of the Habitat III meeting to network the institutions that want to help cities make efficient use of intergovernmental transfers and other resources—through policy dialogues convened with national governments, or through capacity building programs for local governments, or both. This effort requires more resources and skills than any of us can mobilize individually. We need to tackle this challenge together. The Lincoln Institute is ready to participate in a global effort to empower cities to solve their own problems, and we will identify others to begin the process of mobilizing and coordinating a new global practice. Please seek us out in Quito if you want to learn more about what we are doing and how we might work together.
We will not get another chance to get urbanization right. By the middle of this century, 70 percent of humanity will reside in cities. We must ensure that they are the cities we need. Habitat III is a rare occasion when national governments focus on their urban centers and the outsized role they play in their nations’ futures. Let’s use this moment to focus our collective efforts to implement the New Urban Agenda in the next two decades, and travel together on the road to a new El Dorado.
Photograph by pxhidalgo / iStockPhoto
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The government of China has been concerned about its ability to continue feeding its growing population since the mid-1990s. It has targeted conversion of farmland to industrial and residential uses, especially in the most productive agricultural regions, as the chief threat to the nation’s continued capacity to produce adequate levels of staple cereal crops. China is land poor. Only about one-third of its total land area, which is roughly equal to that of the United States, can be utilized productively for agriculture. Several measures have been introduced with the aim of protecting farmland, especially farmland with the greatest production potential. For example, current regulations require each province to keep 80 percent of its land currently designated as primary farmland under cultivation. Other policies require each province to take measures to ensure self-sufficiency in grain production and to draw up farmland protection plans.
Cultivated Land versus Farmland
Most attention has been focused on “cultivated” land, that is, land used to grow major food grains, feed grains, soybeans, and tubers. Not included is land used for horticultural crops and aquaculture, which would be categorized as farmland in most countries. Roughly 20 to 25 percent of the observed reduction in cultivated land in China in recent years was due to its conversion to orchards and fish ponds (Smil 1999; Ministry of Land and Resources 2003).
Reallocation of cultivated land from cereals and tubers to fruits, vegetables, and fish is a natural accommodation to changing consumer demand and increased income rather than a sign of an inability to maintain staple food production. Urban Chinese households consume much less grain than rural households (Gale 2002). Thus, changes in diets caused by rural-to-urban migration have resulted in less consumption of grains in China between 1995 and 2002, even though total population increased by about one-eighth during that period.
Farmland and Food Security
Even after correcting for reallocations of cultivated land to other food products, China has lost a significant amount of cropland, although the exact amount is difficult to determine because of the poor quality of historical statistics. Estimates of gross cropland losses between 1987 and 1995 have ranged from 3 to 5 million hectares out of a total estimate of 125 to 145 million hectares. Some of that loss consisted of land that was marginal in terms of agricultural productivity, but was highly vulnerable to erosion, desertification, and other forms of land degradation; much of this land was subsequently allowed to revert to more sustainable uses, such as pasture, grassland, and forest. Because the productivity of this land was quite low, its removal from cultivation represents little reduction in agricultural production capacity.
Most observers believe that China can remain largely self-sufficient in food production because of its ability to increase the agricultural productivity of land. For example, China’s agricultural research system has been quite successful in developing and promulgating new crop varieties and cultivation methods that have increased potential grain yields an average of 1.5 to 2.5 percent annually (Jin et al. 2002). A study conducted under the auspices of the International Food Policy Research Institute indicates that China’s ability to remain self-sufficient in food production depends more on investment in irrigation, flood control, and agricultural research infrastructure than on farmland preservation (Huang, Rozelle, and Rosegrant 1999).
Water is likely to be more of a bottleneck than land. Many farming regions face shortages of water for irrigation, so farmers who rely on groundwater have been pumping at unsustainably high rates, causing water tables to fall rapidly. Even regions with abundant water resources have shortages because of poor maintenance and operation of irrigation systems. Improved flood control is also sorely needed to prevent natural disasters that affect cropland losses.
Impacts of Urbanization
Even if the loss of cultivated land does not threaten China’s food security, there are substantial inefficiencies in land allocation generally, and in the conversion of farmland to urbanizing areas in particular. The most worrisome aspect is that farmland conversion has been concentrated in the most productive farming areas of the country, notably the coastal and central provinces that have both fertile soils and climates that allow multiple crops and harvests. Net losses of cropland in these provinces alone between 1985 and 1995 were on the order of 2 to 4 million hectares. Urbanization, industrialization, infrastructure, and other nonagricultural uses have been the primary cause of farmland loss in these rapidly industrializing provinces.
The two sites selected for a recent Lincoln Institute/Ministry of Land and Resources farmland protection study illustrate the scope of this problem. Most of the land around Pinghu City, located halfway between Hangzhou and Shanghai in Zhejiang Province, is prime agricultural land that can be harvested two or three times a year. Cultivated land and orchards account for about two-thirds of the total land area, and little land is left unused. Land taken for construction increased eightfold between 1998 and 2001. The local government has used consolidation of plots to meet its “no net loss” requirements, but the scope for further gains from consolidation is quite limited. Recorded conversion of farmland to urban uses during this period of rapid growth amounted to almost 2 percent of Pinghu City’s 1998 farmland.
Jingzhou City, located in the Yangtze River basin west of Wuhan in Hubei Province, shows the limited impact of urbanization outside of the rapidly growing coastal provinces. Cultivated land and orchards together account for about half of the total land area. Between 1997 and 2003, cultivated land in Jingzhou also decreased by almost 2 percent, but only a tenth of that loss was due to transportation infrastructure and other urban uses. Over half of the loss was due to an increase in areas covered by water caused by flooding and new aquaculture facilities. The remainder was largely due to abandonment of marginal land brought under cultivation prior to 1978, which was either allowed to revert to forest or was simply left unused.
Institutional Impediments
The greatest impediments to China’s ability to maintain adequate levels of food production are not physical but institutional. Inefficient uses of existing farmland arise from policies that affect income generation from farming, including the lack of tenure security, water shortages and poor irrigation management institutions, and the lack of adequate marketing infrastructure.
Tenure Security: Economists have long argued that secure tenure is essential for efficient land use, including appropriate levels of investment in maintaining and enhancing land productivity as well as allocating land to the most efficient uses and/or users. Rural and suburban land in China belongs to village collectives and is administered by the village committee or economic organization, subject to oversight by township, provincial, and in some cases state entities. Rural collectives have the authority to allocate land to alternative uses.
Farmland is leased to households under contractual arrangements in which the household pays a fee to the collective in return for a residual claim on the products of the land. The contract may contain other stipulations as well (for example, requirements that the land be farmed and maintained in good condition). The size of each household’s allocation is based on the size and composition of the household, and may be altered as those factors change. Tenure insecurity has been documented as a deterrent to investing in agricultural improvements (Jacoby, Li, and Rozelle 2002; Deininger and Jin 2003).
Concerns over adverse effects of insecure tenure on long-term investment in land productivity have led the Chinese government to experiment with lengthening the duration of farmland contracts. In 1984 collectives were urged by the state to contract with member households for a period of 15 years, and in 1993 the state urged an extension of standard contracts to 30 years. Revisions to the Land Management Law in 1998 explicitly required that all farmland contracts be written and be effective for a term of 30 years with few or no adjustments allowed.
Farmers also have acquired some ability to alter land allocations by exchanges or subcontracting Exchanges of land among villagers to consolidate holdings were declared legal in 1986, and subcontracting of land to outsiders, subject to approval of two-thirds of the village membership, was declared legal in 1998. Fully implementing these enhanced tenure security and transferability measures remains difficult, however, because they run contrary to longstanding practices and principles of administration in China. For example, they limit the power of the village leadership, and may also result in less equitable land allocations by ruling out reallocations to accommodate demographic or other changes in circumstances.
Ensuring that farmland reforms take hold and preventing abandonment of productive farmland are likely to be increasingly important for maintaining agricultural productivity, especially in areas experiencing rapid urban growth. Urban employment opportunities for working-age men are widely available in fast-growing coastal areas, leaving the farm labor force to be composed primarily of women and the elderly. As many as 80 percent of the young men in the environs of Pinghu City (and 20 percent in Jingzhou) worked in industrial jobs in nearby cities. Lack of urban residency rights keeps farm-based families tied to the land, but since their main source of income is now nonagricultural, they have little incentive to invest in maintaining and enhancing land productivity. Moreover, limitations on labor time and capacity may induce them to leave some land uncultivated.
Such flows of labor out of farming can be accommodated by consolidating plots into larger operational units to exploit economies of scale, thereby lowering land productivity investment costs and increasing farming income sufficiently to make such investments worthwhile. But secure, transferable use rights are essential to accomplish these goals. In areas like Pinghu, for example, wages in urban employment are so much higher than income from farming that farmers have little incentive to invest in the maintenance and enhancement of land productivity by applying organic fertilizer or keeping irrigation and drainage systems in good repair.
Secure tenure rights can also serve as a check on the arbitrary exercise of authority by village leaders who have been known to expropriate land from farmers in order to lease it to rural enterprises or sell it to local governments, often without paying compensation and in many cases pocketing the returns themselves. Illegal land development of this kind has become a national scandal in China, and millions of farmers are known to have lost land as a result. According to the Ministry of Land and Resources (2003), farmers were owed at least $1.2 billion in compensation and relocation fees.
Water Management: The second type of institutional impediment to agriculture relates to water shortages, notably (1) lack of clearly delineated and enforced use-rights for water; (2) inadequate financing of water delivery infrastructure; and (3) failure to price water at its opportunity cost. The lack of clear use-right assignments results in upstream users taking too large a share of the water available, leaving inadequate supplies for downstream users—a phenomenon that applies at both the provincial level, where upstream provinces divert excessive quantities of stream flow, and the farm level, where farmers with land at the heads of delivery canals take excessive amounts, leaving little or nothing for those at the tails of those canals.
Funding for construction, maintenance, and operation of irrigation systems has been inadequate because these activities have no dedicated funding source, and maintenance varies with the overall status of government finances. According to local officials in Pinghu and Jingzhou, for instance, maintenance of irrigation and drainage systems virtually ceased around 1980. Recent attempts to remedy the neglect by investing in repair and upgrades of irrigation systems are hampered by lack of funds. In Jingzhou, for instance, officials estimate that at current funding levels it will take 50 years to repair all irrigation systems currently in need. Many systems that have been repaired recently are likely to require further maintenance before systems currently in need of repair have been upgraded.
Additional inefficiencies in water use arise in China because water prices are set below opportunity costs, leading to overuse. Many farmers are charged for water according to the amount of land farmed rather than the amount of water used. Charges may be set to raise revenue for the township or provincial treasury rather than to induce economically efficient water use. Experiments with water pricing indicate that farmers’ use of water conservation methods is quite price-responsive, so that water price reform has a significant potential to alleviate water shortages.
Marketing Institutions: Inadequate marketing infrastructure and institutions are the third major impediment to realizing potential gains from regional specialization as well as a deterrent to investment in agriculture in many localities. China has a long tradition of promoting self-sufficiency at the local and provincial levels, yet this self-reliance can become an impediment to economic growth by limiting the scope for gains from specialization. China has been moving away from this traditional stance. Grain trading, for example, has been partially liberalized and grain traders are creating more integrated national markets.
Greater market liberalization could contribute to farmland preservation and the maintenance of food production capacity generally. More closely integrated national markets should increase average prices and decrease price volatility, making farming more attractive relative to other forms of employment. Greater market integration should be especially beneficial in poorer inland areas where incentives to migrate toward fast-growing coastal cities have been especially strong.
This market liberalization will require significant investment in infrastructure, however. China’s transportation network has not expanded fast enough to keep pace with the growth of trade volume, and the country lacks sufficient warehouse and cold storage facilities. China has sufficient cold storage capacity to accommodate only 20 to 30 percent of demand, resulting in spoilage losses of perishable freight on the order of one-third (Gale 2002). Increases in such capacity could increase food availability substantially by reducing both spoilage losses and price volatility, giving farmers an incentive to increase their production of vegetables and other perishable products. Expanded provision of electricity could further increase the effective food supply by allowing consumers to reduce spoilage losses by refrigerating produce.
Urban Policies on Farmland Conversion
The current urban policy structure encourages municipal and regional governments to convert farmland, even in areas where the central government has made farmland preservation a top priority. Policies influencing government finance, residential construction, and urban land transactions combine to create a high demand for land. Policies governing payment for land also make farmland conversion the most attractive means of meeting that demand.
Urban land is allocated by a combination of administrative and market mechanisms that create substantial arbitrage opportunities for private enterprises and government entities. Private enterprises can lease land from municipal governments in return for payment of a conveyance fee. Local governments can acquire land by paying a compensation package set according to administrative formulas based on agricultural income, which is typically far lower than the conveyance fee. Revenue from land transactions is a major source of funding for local governments; according to some estimates, it can account for between a quarter and a half of all municipal revenue. As a result, local governments have strong incentives to expand into rural areas in order to finance their ongoing obligations in the areas of infrastructure and housing.
Current regulations also make it more attractive for local governments to provide housing for growing populations by expanding into rural areas rather than increasing density within existing urban boundaries. Redevelopment of existing municipal land requires governments to pay compensation to current tenants and to cover resettlement expenses. Compensation paid to current residents is much higher than that paid to rural inhabitants. In Beijing, for example, land costs (primarily compensation) make up as much as 60 percent of the redevelopment cost of existing urban areas compared to 30 to 40 percent of the cost of developing converted rural land. Tenants may also resist displacement tenaciously, which at the very least creates significant delays. In addition, it is more expensive to provide infrastructure to areas already densely developed.
Industrial development is widely seen as the key to economic growth and a rising standard of living for municipalities. Low land costs have encouraged local governments to acquire and set aside land for industrial development speculatively, in the hope of attracting industrial investment. Much of that land has remained idle as hoped-for investment failed to materialize. By 1996, there were roughly 116,000 hectares of idle, undeveloped land in economic development zones, over half of which was converted farmland that could no longer be converted back.
Low administratively set compensation levels for rural land also create incentives for illegal land transactions that allow rural collectives, rather than urban governments, to profit from conversion, thereby undermining the state’s control over land use. These low compensation levels also create incentives for other types of illegal land transactions, notably forcible takeovers by local officials of land whose owners are unwilling to sell.
Conclusion
The central government’s attempts to limit farmland conversion by administrative measures are likely to continue to be ineffectual as long as local governments and rural collectives continue to have such strong incentives to convert farmland. Institutional reform is thus critical for improving farmland preservation efforts and increasing land use efficiency in general. Reform efforts are also hampered by fragmentation of authority. The Ministry of Land and Resources has jurisdiction over land but not residential construction, industrial development, or local government finance; the latter are overseen by various ministries, each of which has its own distinct set of interests and concerns. Reform requires a cooperative effort that takes these diverse interests into account.
Erik Lichtenberg is a professor in the Department of Agricultural and Resource Economics at the University of Maryland, College Park.
Chengri Ding is an associate professor of Urban Studies and Planning at the University of Maryland, College Park, and is director of the Chinese Land Policy and Urban Management Program cosponsored by the University of Maryland and Lincoln Institute of Land Policy.
This article summarizes their 2004 Lincoln Institute working paper, Farmland Preservation in China: Status and Issues for Further Research, which is available here.
References
Deininger, K., and S. Jin. 2003. The impact of property rights on households’ investment, risk coping, and policy preferences: Evidence from China. Economic Development and Cultural Change, 851–882.
Gale, F., ed. 2002. China’s food and agriculture: Issues for the 21st century. Agriculture Information Bulletin No. 775, Economic Research Service, US Department of Agriculture, Washington, DC (April).
Ho, S.P.S., and G.C.S. Lin. 2004. Converting land to nonagricultural use in China’s coastal province. Modern China 30: 81–112.
Huang, J., S. Rozelle, and M.W. Rosegrant. 1999. China’s food economy to the twenty-first century: Supply, demand, and trade. Economic Development and Cultural Change, 737–766.
Jacoby, H. G., G. Li, and S. Rozelle. 2002. Hazards of expropriation: Tenure insecurity and investment in rural China. American Economic Review 92: 1420–1447.
Jin, S., J. Huang, R. Hu, and S. Rozelle. 2002. The creation and spread of technology and total factor productivity in China’s agriculture. American Journal of Agricultural Economics 84: 916–930.
Ministry of Land and Resources. 2003. Communique on Land and Resources of China, 2002. Beijing.
Smil, V. 1999. China’s agricultural land. The China Quarterly, 414–429.
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In June the Lincoln Institute convened a roundtable of experts from around the country to examine how and why property ownership and title problems exacerbate abandonment. The group debated the merits of public policy intervention, identified policies with the greatest potential for success, and outlined anticipated complications and issues in remedying abandonment. This article reports on that discussion.
The prevalence of vacant and abandoned property in U.S. cities has reached crisis proportions despite efforts to foster reuse of these sites. A mix of macroeconomic and demographic trends, such as deindustrialization, population shifts from urban and rural to suburban communities, and the shrinking urban middle class, have precipitated the decline in real estate demand that can lead to property abandonment in certain neighborhoods.
These trends, along with other factors, have resulted in various abandonment “triggers” (Mallach 2004) depending on the property type: inadequate cash flow; multiple liens; liens that exceed market value; fraudulent transactions; predatory lending; and uncertainties regarding environmental, legal, and financial liability. These triggers often prolong abandonment or relegate a property to permanent disuse, particularly in markets characterized by widespread disinvestment. Many of these triggers also “cloud” the property title and interfere with a potential new owner’s efforts to acquire property title or obtain site control in order to make improvements or commence reuse activities.
Comparable data on vacancy and abandonment across cities are difficult to obtain and vary widely due to different definitions and gaps in data sources, particularly in commercial and industrial land uses. Estimates of the amount of abandoned housing stock range from 4 to 6 percent in “declining” cities to 10 percent or more in “seriously distressed” cities (Mallach 2002). The following city statistics from Census 2000 data and city records only suggest the scope of the problem.
The abandonment problem is even more profound and perhaps less susceptible to reversal in some smaller cities of less than 100,000 that have lost at least 25 percent of their population over the last few decades. The situation in Camden, New Jersey, East St. Louis, Missouri, and other cities with large-scale abandonment suggests a severely weakened market with multiple contributing socioeconomic factors. Where the number of abandoned properties indicates a systemic problem, there may be an inherent limitation on the ability to stimulate market activity.
This problem has ramifications for the quality of our public and private lives, because abandonment can lead to other detrimental social and fiscal impacts: depressed property values of surrounding properties (Temple University 2001); increased criminal activity; health and safety concerns due to environmental hazards; and additional disinvestment. All of these outgrowths of abandonment raise costs for the city, including site cleanup and demolition, provision of legal services, police and fire protection, and legal enforcement.
As urban vacancy and abandonment increase and suburban open space becomes less available or attractive for development, market pressures may improve redevelopment prospects, as in Boston, Chicago, and Atlanta. However, for several reasons we cannot just wait for this to happen everywhere.
First, the market does not always operate perfectly, in part because it is subject to existing laws and regulations (e.g., tax foreclosure statutes and clean title requirements) that impose high transaction costs to taking title and therefore affect market redevelopment. Some level of public policy innovation is needed, whether reform of existing laws or new laws and practices. Second, preserving open space is arguably a public benefit, but that also implies the need for public action to steer new development to previously developed properties. Finally, decisions about whether to spend public money, time, and effort are not made in a vacuum, but require an understanding of the problem, the available tools, and the resources and skills to implement them.
The magnitude of the problem suggests there are no easy answers. Multiple, interconnected market factors and differing state legal frameworks mean that the remedies to abandonment vary. In an effort to better define the public strategies for addressing the problem in different settings, this article sets forth the challenges of overcoming property acquisition barriers to abandonment, outlines a range of remedies, and explores potential next steps.
Neighborhood Redevelopment in New Jersey
Several years ago, Housing and Neighborhood Redevelopment Services, Inc. (HANDS), a nonprofit community development corporation (CDC) in Orange, New Jersey, tried to acquire an abandoned multifamily property. The property was burdened by tax liens that the city had sold to third-party purchasers, a strategy that cities use to raise revenue for other needs. The lien holders included out-of-state investment groups and speculators, and the current property owners did not have the financial ability or desire to redeem the liens. No entity was taking responsibility for property upkeep, so it sat idle and accumulated more tax liens, further elevating the stakes involved in clearing the title and heightening the financial, legal, and psychological barriers to acquisition. HANDS had a plan for neighborhood revitalization and a productive use for the property, but it lacked the funds for acquisition and the tools to clear the legal title.
Over the past few years, however, New Jersey reformed state programs to provide up-front subsidies for property acquisition, removal of liens, and other activities necessary for CDCs to establish site control (Meyer 2005). At the same time, a new state law, the Abandoned Properties Rehabilitation Act (2004), accelerated foreclosure action on vacant property by eliminating the waiting period between the time a potential new owner gives notice of its interest in foreclosing and lien acquisition. In cases where the owner will not rehabilitate a property, the new law allows the municipality to undertake rehabilitation or find a CDC to do so.
In this instance, HANDS took advantage of the new state law and financial incentives to acquire the multifamily property and convert it into housing for first-time homebuyers as part of the CDC’s larger neighborhood revitalization strategy. A few other organizations have begun to use these tools to acquire and redevelop single-family and multifamily homes around the state.
Ownership and Title Issues
Where abandonment or prolonged vacancy occurs due to owner inaction, two options exist for reuse. First, the property may be left abandoned indefinitely, or until the market changes. Alternatively, a new owner (e.g., the municipality, a CDC, or a private developer) may intervene, acquire the property, and carry out rehabilitation or reuse. It is this second alternative and the remedies for implementing it that concern us here. New methods for acquiring abandoned property will help to obtain property control from unwilling, unknown, or incapable owners.
However, the debate between these two alternatives raises significant issues that need further exploration. If the primary objective is to put the property back into productive use, one impetus for intervention is to eliminate the legal barriers to transferring the property to a new owner. Clear title is a critical issue. The multiple tax liens that encumber the title, and often cause the property’s abandonment in the first place, can cloud the title and prevent effective title transfer.
These title complications can be further compounded by the use of certain supposed remedies. For example, forcing title transfer involuntarily, from an unwilling owner or in abandonment cases where ownership is in doubt, can result in a cloudy title that may jeopardize obtaining title insurance—a mandatory precursor to procurement of conventional financing—and thereafter present title problems whenever the property changes hands. Clear title is part of the larger challenge for many states that do not have efficient, workable processes for moving title into the hands of responsible owners.
Remedies: Laws, Practices, and Tools
Municipalities seeking to reduce their stocks of vacant and abandoned property may be inspired by strategies and programs used in other localities, but they should carefully assess their own situations first. Differences in state laws may require a variety of approaches, such as reforming existing laws; improving local practices and implementation; and introducing innovative new tools. Some remedies to facilitate acquisition of vacant and abandoned properties for redevelopment seek to
Remedy choice depends on the property’s stage of abandonment, the current land use (e.g., multifamily rental, single-family house, commercial, or industrial), the property’s ownership status, and state statutes and regulations. A property at an early stage of abandonment due to general neglect and code violations, including conditions that adversely affect the health, safety, or well-being of building residents or neighbors, may be turned around with regular inspections and enforcement. These preventive remedies can slow disinvestment and prevent permanent abandonment by forcing a known owner to either renovate the property or transfer it to another entity willing to do so. Effective code enforcement varies widely because it is a function of local practice, but persistent municipal issuance of orders for code violations is critical.
Localities may also enforce state-authorized nuisance abatement laws to address these code violations by requiring an owner to make repairs or improvements, such as trash removal, structural repairs, and building demolition. If an owner refuses, then the municipality can enter the property to undertake these activities and seek to collect the costs from the owner. If that fails, the municipality may place liens on the abandoned property equal to the costs of these actions, enforcing them through foreclosure actions, or in many states by attaching the owner’s assets. The effectiveness of nuisance abatement laws varies across states, depending on the definition of “nuisance,” the prescribed statutory penalties, and how the local authority chooses to carry out nuisance actions (Mallach 2004).
Significant disinvestment generally occurs where property owners fail to undertake property management responsibilities that cause significant disrepair; stop paying back taxes, utilities, or other public services; and/or allow the property to remain vacant for more than a designated period, usually six to twelve months. Some of these complicated cases require innovative, sometimes controversial remedies.
Under Baltimore’s vacant property receivership ordinance, for example, the city or its CDC-designee may petition a court to appoint a receiver for any property with a vacant building violation notice, though it is generally used in the case of severely deteriorated single-family houses. The receiver may collect rents (if the property is still occupied), make repairs, and attach a super-priority lien on the property equal to the expense; or immediately sell the property to a private or nonprofit developer who will conduct the rehabilitation. Advocates argue that the receivership approach is beneficial because it focuses on fixing the property (bringing an action in rem, literally against the “thing”) rather than on punishing the owner (known as an in personam action, or against the person) (Kelly 2004).
In Cuyahoga County (where Cleveland is located), CDCs have used nuisance abatement as a form of receivership. In these cases, the CDC brings such an action in a special housing court to abate a nuisance and have a receiver appointed, and then the CDC collects the incurred improvement costs from the owner or conveys the property to a new owner.
In both Baltimore and Cleveland, the concept is used effectively against speculating investors who buy inexpensive, dilapidated properties and do nothing but pay taxes, hoping that the revitalization work of others in the community will increase their property values. These “free riders” frustrate efforts to identify them as targets in a legal action by creating sham ownership entities or providing the vacant house as the owner’s only mailing address (Kelly 2004).
Nuisance abatement or receivership actions ultimately may not provide secure title for the subject properties, or may cause properties to be more susceptible to unclear title outcomes. Receivership can create an encumbrance on the title that is difficult to extinguish, thus clouding the title and providing an excuse for banks not to lend on the property. The current title system, as adhered to by title companies and financial institutions, works relatively well for tracking and recording straightforward, linear property transactions, but is not set up to handle properties with multiple liens or encumbrances arising from checkerboard-type transactions that are characteristic of vacant and abandoned properties. Nevertheless, these actions constitute an underutilized and powerful tool, when used in the right legal and market circumstances.
Tax foreclosure is the most commonly used property acquisition tool for local government. It involves the taking of title to properties where owners have failed to pay their property taxes or other obligations to a government entity (e.g., a municipality, school district, or county). Third parties, such as CDCs or private developers, can also use tax foreclosure proceedings, as governed by state law, to acquire properties. The tax foreclosure process is based on the principle that a tax lien has priority over private liens, such as mortgages, so when the buyer forecloses on the tax lien, any private liens are extinguished and the property is acquired “free and clear” (Mallach 2004).
The common problems associated with this otherwise powerful tool arise from the lengthy time periods imposed by state statutes on different stages in the foreclosure process (e.g., the time in which the owner has a right to redeem his or her rights to the property); the length of time that taxes must be delinquent before a sale can occur; and whether the state first requires sale of the liens or sale of the property outright. Constitutionality standards also require strict notice requirements to all parties holding a legal interest in the property. Although rewriting state statutes to reduce or eliminate these time requirements may be a politically protracted process, state law reform can occur. For example, the law passed last year in New Jersey substantially reduced the notice periods, and Michigan’s tax foreclosure reform offers faster judicial proceedings to increase the timeliness of property transfer (Mallach 2004).
An increasingly popular tool is the local land bank, a governmental entity that acquires, holds, and manages vacant, abandoned, and tax-delinquent property. The properties are acquired primarily through tax foreclosure, and then the land bank develops or, more likely, holds and manages the properties until a new use or owner is identified. Land banks can provide marketable title to properties previously encumbered with liens and complicated ownership histories. They also provide localities with a way to create an inventory and monitor properties, and assemble properties into larger tracts to improve opportunities for targeted economic development.
Each city’s land bank is organized and operates differently. Some operate within city agencies, while others exist as legally separate corporations (Alexander 2005). The Genesee County, Michigan land bank has pioneered a way to self-finance redevelopment by using the financial returns on the sale of one property to support the costs of holding other properties, an approach that ultimately reduces municipal costs (Kildee 2004).
Exercise of eminent domain powers pursuant to the Fifth Amendment of the U.S. Constitution is another remedy that transfers real property titles to the government for public use. Targeting blighted properties remains an agreed upon use of eminent domain, although state statutes differ on how it is carried out. Cities are certain to be more wary of using this tool in the wake of the controversial U.S. Supreme Court decision, Susette Kelo et al. v. City of New London, Connecticut, et al. (Kelo), which sanctioned New London’s condemnation of nonblighted private property for economic development purposes. The Kelo ruling has caused state legislatures around the country to consider reevaluating the meaning of public use and limiting the circumstances under which government entities can utilize this powerful remedy.
Without overall market improvements, it is unlikely that these remedies alone can give cities, neighbors, courts, or community nonprofit organizations the tools needed to address the vacant and abandoned property problem. However, anecdotal experience and discussions at the Lincoln Institute roundtable indicate that these tools have been used successfully on a case-by-case basis; whether they affect change on a neighborhood- or city-wide basis and over a period of years is still unclear. Success may depend, in part, on market strength and conditions, but also on localities’ vigilance (for instance, with code enforcement), willingness to take risks and use new tools, and institutional capacity.
Local Impacts of Remedy Implementation
Even where one or more of these tools is legal, available, and effective in eventually converting vacant and abandoned property to productive uses, there are three types of hurdles that may prevent valuable projects from being pursued: local administrative and procedural barriers; unintended and potentially negative consequences; and ancillary local strategies that can enhance or decrease their effectiveness.
Local barriers include costs to cities of administering, managing, and implementing these conversion activities; political opposition, inaction or apathy; and lack of local knowledge or capacity. The up-front costs to cities or nonprofit entities of taking ownership to dilapidated properties and making improvements are not trivial. Also, some tools may require investment in training, innovation, and minor risk-taking by local governments. Studies and experience are beginning to reveal that, for similar reasons, localities are not taking advantage of tools already provided for in some state statutes. One researcher found that local governments in Massachusetts were not utilizing existing mechanisms to address tax delinquent properties (Regan 2000). New Jersey is reportedly experiencing a similar phenomenon, where local entities are underutilizing tools available since adoption of new abandoned property laws and funding programs.
The possibility of unintended consequences fostered by intervention in the market should not be an argument for no intervention, but it is a reminder that any remedy needs to fit market conditions and be used with appropriate reuse restrictions or incentives to avoid new problems. One downside to successful neighborhood revitalization is gentrification, which is the displacement of lower-income residents by new, wealthier residents who can afford the higher prices placed on renovated properties. For instance, in Atlanta and Boston neighborhoods with relatively strong metropolitan-wide real estate markets, carrots and sticks must be used selectively to promote the transfer of abandoned property in some areas. One way to minimize the extent of gentrification is to require that any residential reuse maintain an income mix by preserving a percentage of units as long-term affordable housing. Another model is the nonprofit community land trust (CLT), which generally owns the land and provides affordable housing in perpetuity by leasing it to the building owners (Greenstein and Sungu-Eryilmaz 2005).
Local neighborhood revitalization strategies combined with other appropriate remedies can improve the chances of success as cities and CDCs work to address their redevelopment challenges. These strategies may include documenting and inventorying abandoned properties; targeting pivotal properties in neighborhoods selected for redevelopment; increasing home ownership; forging partnerships with business groups, city hall, hospitals, universities, and other nonprofits; and identifying and reforming significant policies and regulations on tax liens.
Communities must also continue to be innovative and to adapt available tools and remedies to address ever-changing local abandonment triggers. One such challenge is the recent phenomenon of lien securitization, which occurs when one entity buys up multiple liens on multiple properties and bundles or securitizes them for resale. This puts the liens into the hands of investors who presumably have no interest in the local economy or the property’s productive reuse, and can prevent title transfer, especially in weak secondary markets.
Next Steps in Meeting the Abandonment Challenge
Property title and acquisition obstacles are not the only barriers to fostering productive reuse of abandoned property, and removing these obstacles may not overcome the abandonment cycle. However, use of the remedies outlined here is an essential first step, and several next steps could significantly enhance their implementation. First, a pressing need exists to clarify the meaning of “clear title,” possibly by updating title insurance company standards to reflect new practices.
Second, case studies of successful and failed tools and mechanisms in weak and strong urban markets could provide valuable lessons. Possible criteria to evaluate a remedy’s success or failure include the frequency and extent of their use; their applicability to all property uses (residential, commercial, industrial); their effectiveness in fully clearing the title; unexpected consequences; and, if possible, the property’s ultimate reuse and its sustainability.
Third, a study of states where statutory reform has occurred, such as Michigan or New Jersey, would offer an analysis of how such reform has impacted property transfer and reuse. Finally, since local entities play a key role in tool implementation, improving local capacity through education about these tools and their importance in revitalizing urban areas would be another crucial next step in ultimately reducing the numbers of vacant and abandoned properties.
Lavea Brachman, a visiting fellow at the Lincoln Institute of Land Policy in 2004–2005, continues to research public policy remedies and the roles of local nonprofits and government entities in fostering brownfield and abandoned property reuse. She also directs the Delta Institute’s Ohio office, a nonprofit working on sustainable development solutions to environmental quality and community and economic development challenges.
References
Alexander, Frank. 2005. Land bank authorities: A guide for the creation and operation of local land banks. New York, NY: Local Initiatives Support Corporation.
Black, Karen. 2003. Reclaiming abandoned Pennsylvania. Philadelphia, PA: Pennsylvania Low Income Housing Coalition Report, March.
Greenstein, Rosalind, and Yesim Sungu-Eryilmaz. 2005. Community land trusts: Leasing land for affordable housing. Land Lines 17(2): 8–10.
Kelly, Jr., James J. 2004. Refreshing the heart of the city: Vacant building receivership as a tool for neighborhood revitalization and community empowerment. 13-WTR J. Affordable Housing & Community Dev. Law 210.
Kildee, Dan. 2004. The Genesee County land bank initiative. Flint, MI: Genesee County Land Bank.
Mallach, Alan. 2002. Abandoned properties, redevelopment and the future of America’s shrinking cities. Working paper. Montclair, NJ: National Housing Institute.
———. 2004. Addressing the problem of urban property abandonment: A guide for policy makers and practitioners. Montclair, NJ: National Housing Institute, April.
Meyer, Wayne T. 2005. High-impact development for long-term sustainable neighborhood change: Acquiring, rehabilitating, and selling problem properties. Orange, NJ: HANDS, Inc.
National Vacant Properties Campaign. 2005. www.vacantproperties.org.
Regan, Charleen. 2000. Back on the roll in Massachusetts: A report on strategies to return tax title properties to productive use. Boston: Citizens’ Housing and Planning Association (CHAPA).
Temple University Center for Public Policy and Eastern Pennsylvania Organizing Project. 2001. Blight-free Philadelphia: A public-private strategy to create and enhance neighborhood value. Philadelphia, PA, October.
