Affordable Housing Institute : US

By: David A. Smith

 

Having by now written extensively on China, I’ve become convinced that three mutually reinforcing phenomena underlie its real estate and affordable housing challenges:

 

1. Rapid economic development driving rapid urbanization.

2. A dysfunctional land-and-local-government system that is a money factory.

3. Weak eminent-domain rights and a coercive government.

 

The background threatens the foreground

 

All three are at play in this AP/ Boston Globe story (27 Mar 11) about eviction-for-your-own-good:

 

Farmers moved in China’s bid to protect rural land

 

That headline, as we will see, is itself an uncritical swallowing of the Chinese packaging of its motivations. 

 

Does this look like rural land to you?

“Relocations of farmers to apartments such as this one under construction at Damazizhuang village are raising tensions.”

(Ng Han Guan/Associated Press)

 

The next sub-headline’s more accurate:

 

Local government policy often forces stressful relocation

 

Start with global urbanization pressure, combine the Law of Economic Gravity with the principle that Markets Always Clear, mix in a dollop of public-choice theory, and the result is pre-ordained: land ringing a metropolis will be upzoned as its development potential rises, no matter who or what stands in its way.

 

Going up?

 

If a government cannot or will not judicially evict recalcitrant property owners standing in the path of progress, it can always make their staying progressively less tolerable:

 

Jiangzhuang Village, China — First the taps ran dry. Now Sun Yueming wonders when the electricity will be cut.

 

Neighborhoods, be they horizontal communities of walks and yards or vertical communities of elevator banks and hallways, need to be well occupied with rule-abiding households.  When the structure or neighborhood depopulates, so that the vacancies outnumber the occupancies, not only does illicit and illegal activity seep in, community is lost, creating living problems for the holdouts, as we saw in Atlantic Yards.

 

His family is one of two holdouts in this otherwise abandoned village in northern China, resisting a local government campaign to move farmers off their ancestral lands and into apartments.

 

In China, private-property rights are weak, unsurprising given its Maoist and collectivist legacy, although there are signs some Chinese realize that a nation cannot be economically successful unless it protects private property.

 

As China tries to protect farmland from development, officials are going after the land underneath farmers’ homes instead.

 

As presented, this is an intriguing concept, in effect a community land trust approach to the nationalization of green space.  Akin to creating a national park, except that this won’t be a park – and in fact, a simple map gives the lie to the green-space rationale:

 

Who’s kidding whom?  This land will all be developed

 

Hebei is the ring belt around Beijing, which in addition to being China’s capital is one of the world’s largest cities, and one of China’s fastest growing, adding the breathtaking total of 520,000 people a year.  The destiny of Hebei is now green and flat, but gray and up.  This is a land taking for future development, and with minimal compensation.

 

The relocations, often forced and at compensation levels deemed unfair, are raising tensions in a countryside already straining from protests over official misdeeds.

 

Here in the US, the Fifth Amendment of the Constitution prohibits taking without three conditions: (1) ‘public use,’ (2) just compensation, and (3) due process.  The 2005 Kelo decision, which affirmed the established broad interpretation of ‘public use’ and encompassing ‘private purpose accomplishing public use,’ most specifically eminent domain for economic development (ED4ED), set off five years of judicial and political tussle that is not yet resolved.  If anything, ED4ED is clearly in retreat, the standards for taking being tightened, to prevent precisely the expropriation experienced here:

 

Here comes progress

 

Under a new national policy, farmers are being moved into apartments so the land their houses stand on can be converted to farmland.

 

Evidently converting-to-farmland is the Chinese judicial requirement, but color me incredibly skeptical that the parcels so taken will in fact wind up as farms.  The power of land development economics will create swaps where this well-located land is built upward in exchange for the purchase and preservation as farms of land far away from the major cities. 

 

Then local governments are allowed to increase their land quota for development elsewhere by the same amount.

 

In China, as we’ve seen previously, local governments are hand in glove with property developers, an urbanization cartel that is all too common in developing nations.  That map of Hebei is to me the smoking gun – nothing to do with farmland preservation, everything to do with higher density – especially when it is clear that to create new farmland, China is proposing to displace existing farmers:

 

Chinese farmers displaced for the Three Gorges Dam

 

It is on land that has been home to generations of his family.

 

Sun’s one-story wood and red brick house may be dingy and poorly insulated, but it has nine rooms, a well in the yard, and plots to grow cucumbers and tomatoes.

 

One-story structures signal rural life.  Two stories mean the suburbs or informal urbanization.  Multi-story living means cities.

 

Officials want him to give that up for a two-bedroom apartment with central heating, gas, and modern toilets — and to pay $4,600 for the relocation.

 

Interesting concept of property rights they have here, isn’t it?

 

“They’re taking my house. They should be giving me money. Why should I have to pay them?’’ Sun Yueming said at his home, about an hour’s drive from Beijing.

 

A fair question, Mr. Yueming.  Perhaps you should have a Fifth Amendment.

 

A bulwark of protection against an overreaching government

 

The problems appear to stem from a well-intentioned new national land policy that has gone awry in the hands of greedy and sometimes corrupt local officials.

 

I’m shocked, shocked to hear of this.  What the Globe presents as a bug, to my cynical mind is a feature – policy camouflage to give a righteous gloss to extremely profitable judicial land confiscation and friendly upzoning.

 

The policy, still in trial phase, seeks to preserve China’s dwindling farmland while also making room for more commercial development.

 

Dwindling?

 

Official estimates show that farmland is close to the minimum of 300 million acres that the government considers necessary to grow food.

 

That’s roughly 470,000 square miles, roughly the size of Peru or Chad, and five percent of China’s total land area.

 

That’s how much land China thinks it needs for farmland

 

That represents a loss of more than 20 million acres in the past decade.

 

I cannot say I’m in a panic about losing farmland at that rate, especially since food can be imported (Australia is quite nearby, and produces thousands of tons of wheat annually), agriculture can become more productive, and China’s growth lies in cities.  It still sounds to me like rationalization.

 

Officials are eager to move farmers off the land, because land sales make up about half of local government revenue and, in some areas, as much as 80%.

 

Every time I read about this system, it gets more rotten.

 

Don’t crack the shell

 

The governments earn huge profits by compensating farmers very little, said Xianfang Ren, senior analyst in Beijing for IHS Global Insight, a consulting firm.

 

Xianfang Ren

 

Forced land taking for minimal compensation is yet one more piece in the Chinese housing puzzle, as is gleefully running up state debts to finance purchase of newly developed high-rises.

 

“Basically, this scheme has become a new source of land supply for many local governments,’’ she said.

 

That’s how markets work – they are amoral intelligences that do not evaluate, they merely pursue.  That is true for political markets as well as economic ones. 

 

Money is the mother’s milk of politics

 

A law allowing land grabs under the guise of conservation is ripe for the exploitation, and given the well-established cabal between local governments and developers, expropriation and exploitation were inevitable.

 

Sun’s village is a ghost town. The doors and windows have been ripped out of dozens of crumbling houses.

 

That is disinvestment.  Disinvestment isn’t un-investment, such as Detroit is experiencing; rather, it’s the removal of invested capital, through the exporting of marketable chattel and the gradual dismantling of private infrastructure.  Sun’s village is being judicially killed.

 

The yards are strewn with abandoned items: broken wooden chairs, a torn leather couch, a dirty yellow teddy bear. An eerie silence has replaced the barking dogs, playing children, and chatting villagers on street corners.

 

Like many parts of Detroit, Sun’s village has fallen below the level of infrastructure sustainability.  Once it is dead, huge sums will be made by its new landowners’ developing the property upward, creating a new urbanized community.

 

No room for farms here

 

In the long run, higher density is almost certainly what that village needs – as an urbanist, I want to see the high-rises sprout.  Yet, as Keynes said in his most misunderstood quote, in the long run we are all dead, and it is wrong that the Chinese government can destroy Mr. Sun’s way of life so that others than he can profit from it.

 

In the long run, I’m used to being misunderstood

 

Many farmers are happy to cut their ties to the land for better living standards, particularly those able to find jobs in nearby cities.

 

That’s the key, isn’t it?  Those who are urban-employable have a life uplift – those who are not, have their lives wrecked. 

 

Over the course of a generation, homo Agricola will turn into homo Urbana.  For the species as a whole, that is as it should be – but what benefits the species often destroys the individual, and people have individual rights.  Or they should have.

 

 

It’s a better school, but my father is so sad

 

It’s a massive change in lifestyle as they move into apartment buildings for the first time.

 

Cities mean verticality.  Verticality changes family and economic dynamics.  Vertical relocation disrupts livelihoods: a vertical family cannot be agricultural.  It cannot be a shopkeeper.  Many home-based businesses are impaired if not crippled. 

 

In Hebei province’s Anping township, farmers have moved into six-story apartment blocks, parking their mud-encrusted, three-wheeled farm vehicles alongside shiny sedans in the compound’s lot.

 

The farmers’ cryptobiotic lifestyles have been destroyed.

 

The vertical lifestyle is also inherently more expensive.  Cooking now requires appliances, now burning wood on the floor. 

 

A poster on a notice board illustrates the safe use of gas for stove-top cooking.

 

Utilities are involved, piping, wiring.  The costs of occupancy arise. 

 

Professor Zheng Fengtian, a rural economy expert at Renmin University in Beijing, said that farmers find that apartment living brings costs they cannot afford. No longer subsisting on their land, they must pay for food, water, gas, and repairs.

 

Zheng gets it

 

“A lot of farmers have a saying: ‘Even if you beat me to death, I won’t move into an apartment,’’’ Zheng said. “Moving into an apartment is like cutting off their life source.’’

 

Their children may thank them, but for the generation that has moved up, life will never be the same. 

 

If urbanization’s imperatives require such a change, therefore, the utmost consideration should be given to the relocated families, with compensation in kind (the new housing), in cash (for disrupted lifestyle), and in services (adult education or other new-opportunity creation).

 

The compensation varies from place to place, and sometimes even within villages.

 

Li Huishan said he is happy with his 1,300-square-foot apartment but concerned about how long the $46,000 he received would last him and his wife.

 

Mr. Li’s new flat is very large, and he has been paid what sounds a significant sum.  I wonder if Mr. Li benefited from the holdout effects we have previously chronicled, such as arise in New York rent stabilization.

 

Then too, there is the challenge of the unenforceable counterparty, the unbindable possibly corrupt sovereign:

 

Others are unhappy. In Jiangsu province, hundreds of farmers marched twice last year to the offices of the Hua’an city government to protest against officials who withheld 70% of money owed to them after they moved into apartments, said Li Jinsong, a lawyer for one of the farmers.

 

What legal rights, I wonder, do the officials have for blocking the cash?  Or do they not need a legal right?

 

Is your home your castle?