Boostrapping : EAS.06 - Equal Allowace System over Residential Land
Proposed administrative procedure - EAS.06
Equal   Allowance   System   over   Residential   (and   Commercial)   Land
Purpose : To reduce nexusproness in the administrative procedures dealing with allocation of state-owned residential land AND to ensure that citizens get equitable royalty (rent) over state-owned owned.
Pre-requiste readings :
EAS.01 -- Equal Allowance System over Underground Water
- Overview of EAS.06
- Some details of EAS.06
- An eample of EAS.06
- Problem in land plotting
- Protection of a lease holder
- How EAS.06 provides houses for poor
- Length of land lease
- Advantages of EAS.06
- Draft of the act to create procedure EAS.06
The purpose is to reduce poverty, without taxing the rich. How? By ensuring that every citizen gets equitable share in the "rent" or "deemed rent" of natural resource. How? I have proposed several laws to enable that. EAS.06 is one of these proposed laws.
Overview of EAS.06
The land can be used for several purposes, such as :
Now consider following proposal for land owned by district/city :
- Residential purposes like house etc
- Commercial purposes like school, offices, shops etc.
- Agricultural purposes
- Industrial purposes
Is above proposal ethical? YES. Since land is state-owned, every citizen has equitable right over the land. And hence every citizen has equitable right over the rent that comes from the state-owned land.
Now following issues need to be resolved
- the city divides the land into several small/large plots.
- land is leased to users for say 5-30 years for a monthly rent.
- the rent collected from all the plots is equitably distributed amongst citizens in CASH form every month (DIRECT cash, not kind, i.e. not via health/educational institutions or other welfare means).
Now the problem is : the builders etc who would be interested in leasing the land to build houses, offices etc (etc which they may sub-lease), may try to form nexuses with the in-charge officers to ensure that rent they will have to pay will be bare minimal.
- which officer will make plots' boundaries which are to be leased?
- how will leasors be decided for individual plots i.e. what is the procedure to decide "to whom will a plot be leased"?
- who will decide the rent amount?
So how citizens ensure that such nexuses will NOT hurt the income from rent on state owned land.
The proposed procedure EAS.06 is one solution to the above problem. It addresses the above issues. The solution is TRIVIAL, unfortunately NOT as trivial as EAS.01. The rent amount is NOT decided by any officer, but it is decided by a free-market process of allocation of Allowance by RLPP. And rent is NOT collected by an officer and then distributed amongst citizens --- EAS.06 ensures that the land users will DIRECTLY give it to citizens.
Following is an overview of EAS.06 :
- First, I would like to make it clearer than crystal : The administrative procedure EAS.06 covers ONLY the land owned by the District/City. EAS.06 DOES NOT apply on private land. It also DOES NOT apply on land owned by Central/State Governments.
- Procedure for plotting the land : The City/District Mayor will appoint a Land Plotting Officer, who will make plots on the city-owned land marked for residential/commercial use. He will also decide the lease duration of the plots.
- The citizens can replace the Land Plotting Officer using RLPP.
- The Registrar will issue 1 Land Allowance every month for each citizen resident in the district. A citizen can allocate his Land Allowance to any company/individual of his choice, using RLPP.
- Procedure for allocating the land : The Land Plotting Officer will conduct auction for each plot. The bids will be in terms of Land Allowances, not money. Those who want land will need to obtain Land Allowances from the citizens.
- Procedure for Re-allocating the land at the end of the lease : One year before the lease period expires, there will be another auction where the highest bidder will get the land, with a difference : the existing land leaser will only need to bid half as much the highest bidder. If the existing leaser looses the auction, he may sell the construction to the new leaser or remove it.
Details of EAS.06
- As per EAS.06, the Corporation Council will be prohibited from selling its land. It can only LEASE the land for atmost upto 30 years.
- The Mayor will appoint following Senior Officers : Registrar, Land Guard and Land Plotting Officer.
- Citizens control over officers : The citizens can remove these senior officers using RLPP or Jury Trials. The citizens can also remove any officer using Jury Trial.
- Plotting of city-owned land :
- The Plotting Officer will divide the Land owned by the city into several plots and release the plot maps 3 months before the auction.
- At the time of releasing the maps of the plots, the Plotting Officer will mention the length of the lease, purpose (whether residential or commercial) and other terms associated with each of the plot. After releasing the maps, the Plotting Officer cannot change the plots' boundaries and terms.
- After releasing the maps, if citizens suspects that the Plotting Officer has deliberately made plots in such way that it benefits a few individuals at the cost of citizenry, they may remove him using RLPP. If the Plotting Officer gets expelled and the new Plotting Officer comes, the plan will stand cancelled. The auctions will get postponed for 3 months after the new Plotting Officer releases the new plan.
- Timing of auctions of city-owned plots :
- The Plotting Officer will auction about 1% - 2% of the available land every year, so that by the time all the available land gets auctioned, the lease over previously auctioned land expires, and it is due for re-auction.
- This way, every year, significant amount of land will be available of auction. In effect, this auctioning scheme makes land-market open on supply side forever.
- Land Allowances :
- The Registrar will issue 1 Land Allowance to the citizens residing in the city.
- The citizen can give his Allowance to any Allowance-buyer of his choice using RLPP.
- The issued Allowance will be valid for six months after issue. (This is one important difference between EAS for Land and other EASs such as EAS.01.) After 6 months, the Allowance’s count will decrease by 10% every month.
eg. say an Allowance-buyer bought 10000 Allowances from citizens, and all these Allowances were issued in January. Then from February till July, there will be 10000 Allowances in the Allowance-buyer’s account. In August, 10% of Allowances issued before February will get deducted i.e. number of Allowances will become 9000. Next month it will become 8100.
- Auction procedures
- The plots will be allocated using auctions. In the auction, ONLY Land Allowances can be used, not money or anything else.
- The Plotting Officer will ensure that there is exactly one auction every month. The auction schedule will be released at least 6 months in advance along with location and maps of the plots. The Plotting Officer will try to ensure that each month, approximately same amount of land (amount measured by approximate market value) is auctioned.
- In the auction, the land-user which bids highest number of Allowances will get the plot.
- Example : Say the Plotting Officer makes 200,000 plots in city so that say 2000 plots are to be auctioned every month. Say citizens have allocated their Allowance to several companies. In the auction of first plot which is for a 5 year lease, say A, B, C and D bid 1800, 1900, 1950 and 2000 Allowances respectively. Then company D gets that plot for 5 years.
- After the auction, the company which won the bid will decide which plot will be auctioned next. The auction will go on till all plots or Allowance are exhausted.
- Renewal of lease :
- When the lease expires, the land will be auctioned again for a new lease. This auction will be held when 3/4th of the lease time has passed. The only difference is that the existing land-user will need only half as many as the highest bidder’s Allowances to win the bid
(Example: a plot is currently leased to LandUserA. In the auction, LandUserB bids 2000 Allowances. Then to beat LandUserB, LandUserC will need to bid 2001, but LandUserA will only have to bid only 1000 Allowances.)
- If the current lease holder looses the auction then the current land-owner’s lease will expire on the due date, and the Land Guard will allocate the land to the new lease-holder. During the remaining time (time between auction and the expiration of lease), the current lease-holder may sell the constructions to the new land-user or relocate the constructions or destroy the constructions.
- if the current lease holder looses the auction, then 3 months after the auction was held, the Registrar will issue Allowances equal to 50% of the highest bid to the current-lease-holder.
Unlike water and ores, EAS over Land is a bit complex as land is not relocatable and divisible into very small units. I will clarify some of the complexities by examples.
- Say in a town there are 10,00,000 citizens. Say each citizen has 1 Land Allowance. So there 10,00,000 Land Allowances are given out each month.
- Say the EAS starts in the month of March of a perticular year. Then the Registrar will issue 10,00,000 Allowances in March, which can be used for the lease auctions in the month of April onwards. The Allowances will be added to the accounts of registered Allowance buyers, depending on how many citizens has selected (using RLPP) that land buyer.
- So some of the Allowances will get used in the month of April itself. But say some Allowance-buyers could not use the Allowances in April. Then they can use these Allowances in June, July or upto auctions in September. Now at the end of September auction, all the Allowances issued before March will loose their value by 10%.
- For example, say an Allowance buyer has 10,000 Allowances issued in March and 20,000 Allowances issued in April in his account, and he never uses them. Then on September 1, he will have 30,000 Allowances in his account. Say he uses 5000 Allowances in the September auction. Then he will have 5000 Allowances issued in March and 20,000 Allowances issued in April in his account. But at the end of the auction, the Allowance issued in January will reduce by 10%, therefore for the October auction, the person has 4500 + 20000 = 24500 Allowances.
- Say there is 20,000,000 sq. meters of land with the City’s Corporation. The Plotting Officer may divide them into say 20000 plots of average size being 500 sq. meters, and keep remaining area for roads etc. He may divide the 20000 plots into 100 groups, with each group having 100-300 plots, so that each group has approximately same market value. Say he decides to auction most plots for 10 year lease while some for 20 years and some for 30-60 year lease thereby average lease time be 15-16 years. This way, every month, about 100-300 plots will be on auction.
- Say some 1000 individuals/companies register themselves as Allowance buyers. The citizens can Allocate their Allowance to the buyers of their choice and buyers may buy sell the Allowance amongst themselves.
- Now suppose 1000 citizens have 1 Allowance each and they have allocated their Allowances to a buyer in the month of January. So in the auctions which will be held in the February, the buyer will have 1000 Allowances. But if 100 citizens re-allocate their Allowances to some other buyer, this buyer will get only 900 new Allowances in the month of March.
- Now suppose 100-200 plots are for auction. Then the Plotting Officer will disclose the first plot to be auctioned 3 months before the auction using random selection. In the auction, each company will bid NOT in terms of money but in terms of Allowances they have got from citizens. For example, say for a plot five land-users bid 100, 120, 150, 160 and 125 Allowances respectively, then the bidder who has offered 160 will get the lease for the stated duration.
- Now lets say that the lease was 8 years. Now after 3/4th of the time expires, i.e. after 6, the land will be for auction once again. Say the highest bidder bids 200 Allowances. Then the current-lease-holder must bid over half the highest bidder i.e. 101 Allowance. But if the current lease-holder bids less than 101 Allowance, he will loose in the auction.
- If he looses the auction, then in next 3 months, he can offer 125% of the bid (i.e. 250 Allowances) to the Registrar. If the current lease-holder gives 250 Allowances to the Registrar, then the current lease-holder’s lease will get extended and the Registrar will give 250 of Allowances to the highest bidder.
- Now if the current lease-holder cannot give 250 Allowances in next 3 months after the auction, the Registrar will issue him the Allowances equal to 50% the highest bid, i.e. 100 Allowances and his lease will expire on the expiry date.
- Now the current lease-holder can sell the construction to the new lease holder or relocate it or destroy it. This will be a private deal. The two parties will decide the price.
Malicious game Plotting Officer may play, and its cure
A malicious step that the Land Plotting Officer may take is : he can deliberately make huge plots, which will increase per plot cost, so keep small buyers out, reduce competition for big buyers, reduce the money they will have to shell out and will lower the value of the land (on per sq. meter) and benefit the big buyers. For example
In essence, in the 2nd case, the 5 biggies will buy the 20,000 sq. meters plots and then make small plots and sell them. So the buyers will end up paying a much higher price and the Allowance-sellers (i.e. citizens) will end up with a much smaller price for their Allowance. Such a thing can happen if Plotting Officer has nexus with big builders.
- say 10,00,000 sq. meters of land is to be auctioned
- say there are 5-10 big builders in the town, and 100-200 small builders.
- Of several ways of plotting the land, consider two ways : 2000 plots of 500 square meters each AND only 5 plots of 20,000 sq. meters each.
EAS.06 has a built-in process to reduce such nexuses' roles. Since the auction needs Allowance and not money, those who want lease would approach citizens to buy Allowances. As number of buyers increase when plot size increase, the value of Allowance reduces, EACH CITIZEN WILL LOOSE MONEY PERSONALLY. Obviously, when their personal income reduces, over 90% of citizens will inquire about the reasons. Also, the small potential buyers who will be losers will spew venom against the Plotting Officer. Economic loss and venom creates Hatred. So over powered by Hatred, over 60% - 70% citizens will Disapprove that Plotting Office and Approve someone else using RLPP. So within 1-2 months the new Plotting Officer will come. The EAS has a clear clause --- if the Plotting Officer changes, then the auctions are cancelled and the plotting has to be done again.
Thus nexuses in case of plotting the land will reduce.
How a lease-holder is protected in EAS.06
The value of land is value of empty plot at that location plus value of construction on that plot. The value of construction will be less or only slightly more than the cost of similar construction at today's price.
Now say current market value of 20-year lease of an empty plot is Rs 10,00,000. And the cost of construction on this land is less than Rs 5,00,000. Then the EAS fully protects the current lease-holder when this plot is re-auctioned. Even if the current lease-holder looses in the auction, and the new lease holder does not see any value in the construction, the current lease-holder will at least get Rs 500,000 for the contruction. How? Say the market value of Allowance is Rs 100 per Allowance. Then if the land is worth Rs. 10,00,000, the new lease-buyer will have to bid at least 10000 Allowances. Now the current lease-holder will at least get 5000 Allowances, and that will fetch him Rs 500,000 in the market.
The problem will be when the construction’s cost is much above the market value of empty plot. Say market value of empty plot is Rs 10,00,000. And the cost of construction is Rs 50,00,000. Now is the market value of plot Rs 60,00,000? Not necessarily. The potential buyers may not see any value in the construction.
Now say when the re-auction of that plot is announced, the value of Allowance is Rs. 100 per Allowance. The buyers who are only interested in the land, but see no value in the construction will only bid upto Rs 10,00,000 ( = 10000 Allowances). Now the current lease-owner only needs to bid 50% of the highest bid. So one way current lease-owner can retain the plot is by bidding Rs 500,000 ( = 5000 Allowances). Now when the current owner places a bid of Rs 500,000, everyone who is interested only in land but not construction will go out of bidding. But if a buyer values land, with or without construction at Rs 40,00,000 ( = 40000 Allowances), the current lease holder will have to bid Rs. 20,00,000 ( = 20000 Allowances) to beat his bid. Now if potential buyer values the construction at Rs 60,00,000 ( = 60000 Allowances), then the current lease-holder will have to bid upto Rs 30,00,000 (= 30000 Allowances).
What it means, is that in order to retain the land, the current lease-holder MUST CONTRIBUTE TO citizens in some or other way. But in any case, the lease-holder will not go bankrupt as he will get 50% of the Allowance if the highest bidder.
How EAS.06 provides houses to poor
Since Allowances are issued ONLY to resident-citizens, the companies which want to acquire city-owned land to build houses(which they may sell or rent) will have to buy Allowances from the resident-citizens and in turn will have to provide cheaper house or cash.
So following may happen : -----
The company’s business runs on following logic
- say a construction company has 200-300 different plots with 15-20 year lease in such a way that each month lease of 1-2 plots expires
- it has made 5000 - 10000 apartments, some small and some large
- it can lease small houses to tenant for zero rent on the condition that the tenant will Allocate his Land Allowance every month to the company.
- The company rents larger apartment for cash
So in general, where construction cost of small house is equal to sizeable portion of the market value of per person land, EAS.06 will be able to provide a small house even to the poorest.
- the company needs Allowance to renew the land’s lease
- it also needs money to build/repair houses
- the company gets Allowances from poorer while gets cash from the well-offs.
Is current market price of land sufficient to give say 20 sq. to every poor person? At today’s price (Feb 2001), in Ahmedabad, construction cost is Rs 2500 per sq. meter for a reasonably comfortable construction with sanitation, electricity connection, water connection etc. So to make a 20 sq. meters house, one would need Rs. 50000. The city’s area is 190 sq. km i.e. 19,00,00,000 sq. meters and population (2001) was roughly 38,00,000. So there is 50 sq. meters per person. Now some land will get consumed for public use such as roads, footpaths, parks, police stations, courts, prisons etc. Say 50% of the land is available for commercial and residential purposes. So there is approximately 25 sq. meter per person land. Now market price is well ABOVE Rs 6000 per sq. meter. So market value of per person land is Rs 150,000/-. Essentially, EAS.06 will deliver to every person the market value equivalent to renting a land worth Rs 150,000/-. This will very much enable him to rent a house worth Rs 50,000 plus land on which the house stands.
So if all the land of Ahmedabad was allocated using EAS.06, even the poorest would have a dwelling. But some of the land is private. Then can EAS.06 give dwelling for the poor?
EAS.06 can assist poor, ONLY if substancial part of land is district-owned, and is leased out using EAS.06. If 100% of the land is private, then obviously, EAS.06 cannot do anything for the poor.
But in such case, the city can impose a say property tax (say 1% of market value of land per year) on those who have more land than per capita land in the reqgion. The money collected from this can be used buy the land from the market. The land bought by the city can be added to EAS.06 and thus the housing situation can be improved.
Besides, the Governments have given significant land to charitable institutes. What can be better charity than providing houses to the poor? IMO, the charitable institutes would be enthusiastic about giving back the land, that they got from the government, back to the citizens. Likewise, many educational charity institutes have unused land which can be assimilated in the EAS.06 AFTER the trustees accept. And Universities and colleges owned by Government can be also asked to give back their unused land to EAS.06.
Here I am drifting from a basic promise ---- I stated that EASes can solve porverty problem WITHOUT any tax. But here, I am proposing a tax to buy land into EAS.06. Well, this tax is to undo a stupid step taken by policy-makers of the past ---- they should have ONLY leased the land not sold it. Once this wrong is gradually undone, by buying the land at price decided by the owner, the tax can be removed.
Length of land’s lease
The longer length of the lease, more will the value of the Allowance in the first round. But longer the length, lesser will be the land available for the auctions of the future. And landlessness can give rise to homelessness. So "more cash now and homelessness later" or "less cash now and home forever", is the main question citizens have to decide in EAS.06 for Land.
Can short leases reduce the construction activity? A good combination is too use technology of fabricated and relocatable housing units. It is possible to make relocatable blocks, each block being a separate room to make 4-5 storey building. Such technology exists today, but the construction cost is about 50% higher. Thus if the lease-holder looses the lease, he can relocate the building without loosing any of the value of his construction.
Evacuation of the land is NOT different from evacuation of a tenant from a rented house. If the land lease contract clearly specifies the lease-length, the lease holder was told well in advance about the eviction. Thus there is no moral/economic reason for allowing him to possess the land forever.
Advantages of EAS.06
- EAS.05 reduces poverty. How? The companies which wants to build ans sell/rent houses will may want to use city-owned land, which can be obtained ONLY if they have Allowances. They can obtain Allowanes ONLY from the citizens, and thus they will have to pay citizens in cash or in kind for the Allowance. This will reduce commons' poverty.
- It reduces nexusproneness in the process of allocation of city-owned land.
- EAS.06 reduces encroachment over GoI-owned land. How? Suppose city-owned land is encroached. Then this would result into lesser money for citizens' Allowance. IOW, if the Land Allowance is fetching Rs. 1000 per month, stopping land encroachment would increase the value to say Rs 1200. Given the monetary benefit, most citizens will start investigating the issue. And most citizens would Approve someone else for the position of the Land Guard using RLPP. In fact, the fear of prmot replacement alone would ensure Land Guard’s integrity, and thus less encroachment.
Draft of the act to create procedure EAS.06
One laws needed to be passed for to enact EAS.06 in City councils. To see the draft of the law, please click here.
Now citizens can ask Councilors to pass this Act. But IMO, it will be wiser for citizens to first enact procedure LM.01, and then use LM.01 to pass this EAS.06 draftd WITHOUT any help from City Councilors.
To know about procedure LM.01, please click here.
Next - EAS.07 : Equal Allowance System over Agricultural Land