6.0 SHELTER AND URBAN MANAGEMENT STRATEGIES
Future strategies for development are important since they lay down various mechanisms and systems which will help in making the objectives, aims and proposals for actions stated in the Gelephu Structure Plan a reality. These are established rules and regulations which form the non-negotiable components of a Structure Plan, formulated to guide the town managers and local authorities during the implementation of the Structure Plan. These strategies will be elaborated in details as a part of the Structure Plan in the later stage of the plan preparation process. At this point it should be made clear that a Structure Plan, once cleared, is not negotiable, flexible or easily adaptable. It sets out a rigid “structure” that can be altered only at the highest level. Smaller Area Plans using Guided Development, or Local Area Plans based on land pooling, are more flexible, adaptable and indeed more participatory. Yet they have to work within the pattern of the Structure Plan.
6.1SHELTER STRATEGY
His Highness has defined the goal of Bhutan as Gross National Happiness. Nothing brings happiness to the people like owning their own home. A major element of the Gelephu Structure Plan is to bring housing within the reach of common people, moving this from the realm of dreams to reality.
The ‘Housing Shortage’ in Gelephu is on account of delayed construction activities, in the absence of any proper Structure Plan for the town. However this stagnant town is very soon going to get transformed into an active regional with high possibilities of increased population in the town, because of the location and the envisioned activities in the region. This housing shortage will grow even more in the coming decades. Hence it is the prime responsibility of the planners to formulate a shelter strategy for the people of Gelephu.
The proposed Shelter Strategy could be understood in two main parts:
1. Designing and physical planning aspects of the town.
2. Finance, management and administration
6.1.1Designing and Physical Planning Aspects
As discussed in chapter three ‘Demography and Planning Standards’, population projections and carrying capacity of a place are two inseparable aspects that have a deep impact on the density pattern and hence the shelter strategy. The main physical determinants of the Shelter Strategy, which would determine the carrying capacity and the population density pattern in Gelephu, would be:
The land condition directly relates to the physical capacity of the land in terms of accessibility to land, the ease of construction, stability of the structure, laying of infrastructure and related costing. The higher the slope, the lower is the associated population density. Gelephu being located in a flat terrain gives the golden opportunity to accommodate larger population density in a given area of land, compared with any other urban settlements of the Kingdom. This gives raise to the need for optimal utilization of land as a resource for accommodating future population in the town. The nature and pattern of land use and hence the activity associated with a place has an impact in the amount of population it attracts. Though, Gelephu has great potential to accommodate more population, the proposed landuse and activity pattern should be eco-responsive and eco-friendly in nature, which would help maintain the existing sanctity and respect the carrying capacity of the place.
Taking into consideration the above factors and their implications, the Structure Plan advocates ‘medium-rise, high-density’ development as a development strategy. ‘Medium-rise, high-density’ means the maximum height allowed in Gelephu Town and its peripheral zone would be ground plus four floors at the maximum. But to accommodate higher density of population the allowable ground coverage of buildings would be relatively high, within the building setbacks rules proposed by the Development Control Regulations. The details of the same are elaborately discussed in the later part of the chapter.
6.1.2 Finance, Management and Administration
In today’s world the term ‘Housing Problem’ is often understood as a numbers game. The available dwelling units are compared with the number of households and a deficit is calculated to determine the “housing shortage.” It has been the government’s responsibility to fill this gap, which always seems to be widening.
The solution to this “housing shortage” lies as much in the financial mechanisms we evolve and in the institutional modalities, as it does in the physical plans we prepare. It is important that we facilitate the private sector to become active in the provision of housing, in addition to the public sector agencies involved now. The idea is to get small and medium sized builders into the shelter provision business, which would also provide employment in the construction industry. There is a crucial need to enhance the building skills and crafts in this sector, which can be one of the largest employers of vocationally trained Bhutanese youth. Other long-term loan schemes can be evolved for the buyers of housing units.
For achieving the above said goal two strategies seem to be required. First, the problem needs to be re-conceptualized from that of a “housing shortage” to one of “facilitating a shelter process.” Next, the problem has to be seen as promoting private sector initiatives. Thus, we are moving from the government producing amounts of minimum standard housing units, to facilitating and promoting an array of private actors to get on with the process of creating shelter in various manifestations.
The strategy proposed views the housing processes from different perspectives. These could be stated as:
The main actors in such a scenario are the landowners, the contractors, the potential buyers, the materials suppliers, the skilled labour, the promoters, the designers and the financial institutions. If a housing strategy is to facilitate all of these actors, the barriers each face in meeting its peak performance need to be isolated and actions taken to break those barriers.
In addition to generating more shelter and more options for shelter, another goal of the Shelter Strategy is to increase the utilization of Bhutanese resources to achieve objectives. This involves evolution of more sophisticated financial mechanisms; training Bhutanese youth into skilled blue collar workers, promoting small electrical, plumbing and other specialized contractors and facilitating medium and large contractors.
6.1.3 Opportunity for Access to Shelter
The Shelter Strategy for Gelephu envisions a variety of needs on the part of end users. These needs would relate to the users locational preferences, on the level of development of shelter (size, amenities and finishes) required and on the extent to which the users envision shelter to be a function of their social status. There will be those who will walk to work, or who will depend on a public transport system. Others will drive and location may not be so severe a criteria. Some may plan to remain single, or be childless parents, or to have large families or to live in an extended household with several generations. For some households, the dwelling unit may act as a basic functional devise, providing shelter and security, while for others it may be a major source of social status. People’s willingness to pay for shelter may not be a direct function of their earning power, as they may prioritize other investments like the education of their children. In the actual design of the range of locations, sizes and potential development of dwelling units in plotted areas and in medium to high-density residential schemes the government must aim for a wide diversity of housing packages. The Local Area Plans will provide the mechanism within which the goal could be achieved.
Landowners require a Local Area Plan under which they can market their land. They need to know the layout and subdivision rules which will determine the density, land use and nearby amenities which will all together set a value and define potential buyers. Individual owners may not have the management skills to develop their land, so a strategy must facilitate “promoters!” Promoters can bring together all of the other actors and manage a physical product within the boundaries of an investment package. Promoters also need to know the prices, the rules and prospects governing each site. A good plan removes the element of the unknown, tying down all of the facts about each parcel of land.
One of the most facilitative processes the government could initiate would be “packaging projects” such that a team of professionals could “bid” a turnkey price to construct and sell entire neighborhoods. For example, the government may provide the bidders with a site plan, a detailed building programme, comprehensive specifications, the public facilities required, including housing units, site development, access roads, walkways and landscaping.
The National Housing Development Corporation (NHDC) could initiate this process by inviting teams including an Architect, Landscape Designer, land owners, Contractor and a financial Promoter, to submit a comprehensive proposal to build, say two hundred houses, and all of the infrastructure and amenities. These bids would be proposals for everything from the design, layout and selling prices of the houses, shops and offices within the project.
The Government could further facilitate this process by assisting in the access to land for Group Housing, private sector projects. The proposed local area plans must designate plots for lower middle class group units, in the layouts. Row Houses must be introduced as a housing typology for higher density locations.
For such a scheme to work the government needs rolling capital for accumulating lands and its overheads. It would recuperate these from the promoter whose responsibility would be to pay all of the actors concerned, maintain a schedule and to sell the units in the open market. For this the promoter would need short-term capital investment of a substantial level. Thus, financial planning and the role of financial institutions like the Royal Insurance Corporation of Bhutan, the Bank of Bhutan, Bhutan National Bank and the Royal Pension Fund is very crucial in increasing the housing stock of any particular place. Consortiums of actors noted above need short term capital loans to “get projects off the ground.”
Facilitative Finance
Finance is another facilitative and promotive element of the housing strategy. Until now, housing finance has been for the end users to buy their homes over some period of amortization and rate of interest. This concept of finance needs to be broadened.
At the national level Bhutan will have to evolve housing policy measures, which create urban and housing financial institutions. In doing so the scale of modest operations and limited human resources available must be formative parameters. On the other hand organizations that are repositories of surplus capital, such as banks, the pension fund and the Insurance Corporation must not act in the shelter sector in an ad hoc and independent manner, skewing the sector toward the internal needs of those organizations. The Shelter Strategy for Gelephu cannot await the emergence of this mechanism. At the same time two forms of development finance are urgently needed and the Bank of Bhutan may be entrusted to initiate these. The resources for these may come from a requirement that the insurance and pension institutions invest a fixed percentage of their reserves annually into the Bank of Bhutan’s shelter fund. The interest rate paid to these investors would be half a percent less then reaped from current market wholesale investments. The finances required are for seed capital for developers /promoters and long-term mortgage finance for homeowners.
Seed Capital
Entrepreneurs and developers will have to be facilitated during the early project gestation period. Finance must be extended to promoters for medium periods at medium rates of interest to buy property and to construct houses . From the time the land is bought, until the time the dwelling units are sold to end users, they will need seed capital to finance the actual construction of the units, to buy materials and to pay the labourers during the construction process . They need medium term to long term loans to buy heavy equipment.
Financial planning and facilitation through Seed Capital is an essential element of the Shelter Strategy for Gelephu. It makes good sense that such an activity be initiated within the organization of an existing financial institution, than within the structure of a new and inexperienced development finance institution, specialized in the housing sector. Such Seed Capital loans should cover a medium quantity of construction. Performance with the first Seed Capital loan should be the criteria for advancement into further support. A gestation period of three to five years would be the credit period, with amortization running not more than four to seven years. Interest rates for Seed Capital should be considerably higher than the rates charged to homeowners for long term finance of individually owned dwelling units.
Long Term Mortgage Finance
The system needs to consider other channels also. A household may opt to build its house. In this case it needs long-term finance to buy the land and to develop it . To develop a vibrant housing market in Gelephu, as well as the country as a whole, a system of long-term mortgage finance is essential.
There are a limited number of perspective homeowners who can afford to make a one-time payment for their homes. The vast majority of potential buyers will be able to muster a maximum of twenty to thirty percent of the total dwelling unit cost as their initial equity share in the project. The Bank of Bhutan may initiate a savings scheme for future homeowners, where in youngsters begin to make monthly deposits toward the time when they have accumulated the needed equity to embark on a full fledged housing loan. What is needed is to initiate a culture of savings and borrowing amongst the populace. In mortgage finance the dwelling unit itself becomes the asset held by the bank as surety against potential defaults. It is also essential in this kind of a system that the judicial system favors the banking system when the issue of repossession of property arises, due to defaults in loan payments by borrowers. A housing mortgage finance system cannot function where the potential of eviction and repossession does not exist. It is clear that a mix of buyers will emerge. Some will be in a position to make an outright purchase, extending payments to the developer in accordance with stages of construction. Others will require smaller portions of the total equity in the form of loans. But the majority of homebuyers will require around seventy-five percent of the equity in the form of a loan, and an amortization horizon of between fifteen to twenty years. Monthly payments will have to be profiled against the buyers estimated ability to pay over the amortization period. That ability would rise over time. Therefore a “telescoped” repayment schedule may make more sense in Bhutan than a simple system of equated monthly installments, which equalize the capital and interest over a long period of time, into a static monthly loan repayment, called an EMI in the banking industry. While these modalities must be worked out, there is no doubt that a mortgage finance system must be created urgently, using a rolling fund concept to initiate more and more loan opportunities with a given base of capital and annual investment from other pension and insurance institutions.
The government may promote such an effort by providing land owners with layouts for small plots and giving them support in planning site and services schemes on their land. Potential house owners may then buy these and build their own houses. By adjusting the building controls such that small houses do not need any permission, access to shelter becomes that much simpler.
This strategy proposes that the government gets out of the housing design, construction, sales and management of estates and facilitates and promotes other actors to do these things. This would allow the government to “go to scale,” through a facilitative and promotive strategy.
The advantage of this approach is that it off-loads the actual management of house building to the private sector; it facilitates the realization of the Structure Plan in terms of creating high density, compact, mixed-use communities near Neighborhood Nodes and Village Squares. Social facilities and amenities can be built into these packages, by the government including their budget allocations for amenities in the budget for the package. With such limited responsibilities the government could then hone in its capabilities on “project packaging,” coordination and facilitation. Concentrating on the Village Squares and high density precincts proposed in the Structure Plan, the government could initiate at least one such project the first year, and two every subsequent year. As the concerned department would be recuperating its overheads from the bidders, this activity would be self-financing. This also becomes a kind of land pooling scheme, as the government readjusts the land and hands it over to the promoters to develop and market it. The landowners are compensated at market rates, but only as the project is sold to consumers, with a “sunset clause” to protect them from inordinate delays in payment. The same scheme could be used for urban infill projects and Urban Core development projects, where saleable space makes up a sizable component of the works.
This strategy proposes that the government become a facilitator and promoter of shelter development rather than a provider of housing units.
Promotion of Construction of Individual Houses
The Structure Plan employs a system of land development known as Land Pooling. In this system the existing land plots have irregular shapes, inadequate road access and no social amenities. Without taking possession of the existing houses, the land is temporarily acquired, reconfigured in a manner that includes minimum standard roads, utilities and urban services. Open spaces are created. In order to realize this level of improvement about thirty percent of the land will have to be shifted into the public domain. The result is a modern layout of regularly shaped plots, all with road and utilities access and within a neighborhood plan that includes all basic public services. The portion of land surrendered becomes a Development Cess or Tax that forms part of the development capital of the area. Where it is not possible to acquire an equitable portion of a particular plot, a Development Tax will be charged.
Low Income Group Housing
It is important that the shelter strategy proposed as a part of the Gelephu Structure Plan address the issue of shelter for the lower income groups. Though in Gelephu, presently the problem of low income group housing is not much evident, in the near future, when the town starts flourishing, the issue of shelter for the lower income groups may become a very vital element to avoid any kind of unhygienic or unsafe settlements. Almost all flourishing towns attract, support and are also supported by a large number of poor and unprivileged population, which we must bring out into the open, and address as a public policy and planning issue. They are predominantly workers whose ability to pay for accommodation is low. Presently these households live in illegal and unhygienic Bagos. These will grow at a much faster rate than the better off segments of the society as the town grows . This is another area demanding immediate attention. Subsidized housing will not solve the problem. One manner to address this issue is to formalize the occupations of these people making it mandatory to register domestic and construction workers, to pay reasonable and minimum wages, and to see that these people have adequate housing. What seems most reasonable is that the Development Briefs for medium and high-density housing complexes in the Local Area Plans include small housing units, whose market values and selling prices are within the reach of a broader band of users. The creation of neighborhoods with economic diversity, yet cultural homogeneity, would aid bringing new urban immigrants into the mainstream of national life. It obviates the creation of low income ghettos.
There needs to be a strategy for Bago Improvement schemes to provide basic amenities to squatter settlements, such as path paving, street lighting, potable water through common taps, common sanitary and bathing places, and washing areas. To cover these costs the local authority would place user charges on the inhabitants. Here again a fund would be needed to start the process. The user charges would have maintenance and capital formation components.
From an urban design point of view, this is the sector that the public sector should be focusing its limited skills on, while the private sector should be facilitating in the middle and upper income groups.
In every Local Area Plan of the town a small high-density village of low-income units could be constructed for domestic servants who will work in the area. Another strategy would be to require each detached bungalow to provide a “servant’s quarter” within their own compound. But these may not necessarily be inhabited by the household’s own servants in the long run. They may be rented out to young bachelor- workers who are recent migrants. Another strategy would be to layout Site and Services schemes of not more than fifty houses each where basic services (storm drains, paved foot paths, street lights, water, sewerage, solid waste collection and electricity) and the inhabitants would buy these little plots and construct their own modest shelters. Plots could be as small as fifty square meters each and party walls would be allowed. It may also be possible to provide the plinths and party walls in some schemes. There could also be provision of loans at very low interest rate or building materials under self help housing schemes. Still another approach would be to upgrade the existing ‘bagos’ and to register the inhabitants who would then be ‘rented’ the units, to stop more infiltration.
Reception Accommodation
Cities and towns are growing rapidly in Bhutan. Educated youth with Tenth- and Twelfth- Standard “pass” are flocking to towns in search of employment, which they are finding in the service sector, in retailing, in the hospitality sector and in blue collar jobs. On the whole these are single, young male bachelors who team up with relatives or village friends and rent shanty rooms in illegal shacks. The shelter strategy sees a viable investment market in the construction of working women’s and working men’s Hospices in Gelephu, as entry point housing. These would be walk-up structures having “triple seated” rooms with a small cooking niche, common toilets and baths and drying balconies. There may be a common mess and T.V. lounge on the ground floor.
Another issue of concern is the need for measures towards improving the skills of the Bhutanese workers in the construction industry. The development of such a force is suppressed by the existence of an underpaid supply of foreign labourers. This must stop! By exploiting Indian labour, which is cheap, the nation is destroying its own labour market. With a per capita income about three times India’s, in the immediate future, Bhutanese working conditions will have to be protected, if there is to be any kind of working force at all. Otherwise Bhutan will be closing the door to its own youth from the potential job market, while creating an underclass of migrant workers. An expanded skill development and construction management training programme is needed. There must be a guaranteed minimum wage to attract Bhutanese youth into the construction industry, and to build up the national capability. The construction industry has the potential to be the country’s largest employer! Any public policy and related programme must include components on regulation of foreign labour, training Bhutanese labour to take over these occupations, upgrading the skills and working conditions of these occupations to bring the dignity that these vocations deserve and to provide a range of housing options to these people. This is a policy area that cannot wait! In Gelephu a “ Building Center” should be created which imparts practical training to youngsters in carpentry, masonry, concrete work, plastering and interior finishes. The center will provide workshop based training mixed with on site training. This pattern of training is already well evolved in Bhutan.
6.1.4 Locations for Housing in Urban Villages
The Structure Plan of Gelephu will fulfill the future housing demand of the town through designating Medium and High-density Housing Neighborhoods in each self-contained Urban Village identified in the town, further amplified by the preparation of Local Area Plans.
The Urban Villages, which form the basic planning unit of the Gelephu Structure Plan, will be dominated by residential areas with varied density patterns to optimize the provision of essential urban services. Conceptually, these units will have amenities, basic services and a convenience shopping core in their center, called Village Squares, surrounded by medium- to high- density walk-up apartments, then with a ring of medium density housing units towards the periphery. The Village Square surrounded by housing neighborhoods, will be basically a convenience center containing social amenities like health unit, police stand, taxi stand, post boxes, convenience shopping, vegetable shop, general store, pub, kindergarten, crèche, garden and public transit stop and will play a instrumental role in attracting and serving the population. The facilitation of the private sector by the government to create these housing stocks in the designated neighborhoods, will be a fillip to the entrepreneurs of the town and will generate employment in the construction industry. It is proposed to use students of the National Technical Training Authority, through a local “Building Centre” in the process, in order to create more skilled labour in the nation.
Local Area Plans will be used as the tool towards making the identified Urban Villages as a functional entity of the Gelephu Structure Plan. This, together with land pooling techniques, will be used to create motorable access to all house plots, to organize plots into rational shapes, to provide services and amenities to these plots and to create more habitable plots! Thus, access to land for shelter is a key method, made operational in the Structure Plan.
In addition to the medium and high-density housing schemes, which will be identified in the Local Area Plan for the development of compact residential neighborhoods, promoted and facilitated by the government, large plots, of about 1000 square meters will also be created as a part of the Urban Village Core precinct (UV - 2) to accommodate private parties who wish to construct ground plus two storied apartment buildings. In the precinct called the Urban Village Periphery (UV - 3) a variety of plot sizes will be created to accommodate cottages, bungalows or smaller apartment blocks. Such structures will accommodate one or two households each, plus attached servant’s quarters.
Incremental Development
First, after the preparation of the Local Area Plans, roads will be demarcated on the sites, indicating all plots. Even before the roads are paved, or before any utilities are laid, the owners shall be entitled to begin their construction. Housing construction and the creation of utilities and services will go hand-in-hand! Only when a tax base is created in an area through the private initiative of plot owners, can support systems come into place. Thus, carving out of the rough roads, giving rudimentary access to the plots is the first priority. The next priority is to provide potable drinking water, first in raw form and later in a processed form. Electricity, telecommunications and rudimentary storm drainage will immediately follow. Finally, sewerage systems will be laid, roads will be surfaced, footpaths built, streetlights placed, solid waste collection bins positioned and other amenities will emerge.
Guided Development
In areas like the Gelephu town core and some parts to the east of the existing Trongsa Highway, where Land Pooling will not be applicable or less feasible tool, densification will be promoted through additions, extensions and the construction of new units. The Development Control Regulations, as applicable to various Precincts, will guide this “infill” process. Guided development will generate densification in areas where it is efficient to extend social infrastructure and amenities. This will make existing infrastructure more efficient.
6.1.5 Role of National Housing Development Corporation in the Creation of Housing Stock
It is essential that the private sector be catalyzed in Gelephu to create housing stock. The National Housing Development Corporation (NHDC) should take a lead role in such an effort. Instead of being a provider of housing, the NHDC can become a Facilitator of the Housing Process.
In each Local Area Plan an area will be designated for the compact residential neighborhood as noted above. The NHDC can identify and prioritize projects according to the market demand, with respect to location, need etc. Housing process in the identified locations will then be facilitated by “banking” all the private land parcels of the designated area in the form of a common account. As opposed to Land Acquisition, where the owners are losers, their land will be held in escrow for them, and they will de facto become participants in the free market production of housing. Should they decline such participation, acquisition procedure shall begin. Should they join they will have “equity” in the project with the value set as the market value, and they will also accordingly get a proportionate share of the profit.
The NHDC will prepare a Project Brief for each Neighborhood. This will include the gross and net residential densities to be achieved; the amount of open space to be created; the service and utility levels to be provided and the types, numbers and areas of the apartments, row houses and duplexes to be created. The Project Brief will also include the envisioned Specifications and a reference to the Development Control Rules and the Bhutan Building Rules, which must be followed. The Brief will include an investment plan stating all costs and projected profits.
The Promotion of Construction Professionals
In the next phase the NHDC will invite architects to compete in the preparation of designs for the over-all layout; buildings; apartment plans; internal roads parking and footpaths; landscaping; and utilities layouts. Architects from nearby countries may also participate, on the understanding that they will have to enter into collaborations with Bhutanese firms, should their designs be selected. Architects must follow the Specifications in the Brief, but may propose improved specifications, if they desire. A Technical Committee will select the best design and commission the architect as the designer and the Project Manager.
The Promotion of Promoters
The NHDC will make the selected design public. It will invite prospective developers who will act as the legal Promoters of the scheme, to bid for the role as Promoter. In the bids the contenders will have to agree to work under the supervision and the control of the selected Architect; they will have to state the percentage chargeable as their overheads, as the profits, and agree that they will charge future owners on a basis of a factor of the land cost, construction costs, fees, overheads and taxes. Their risk lies in the time they take to produce the dwelling units and on the market demand for the units. They may propose, in their bid, variations in the designs, unit areas and finishes, based on their understanding of the market. They may auction units to establish market prices, if they desire. The fees they will assign for the architect, and for the overhead fee they will pay to the NHDC for their promotion and audit role in the project, will be standardized and a “given” in the package. The amount of money to be paid to the landowners will be a “given” in the package. The base amount to be charged per square meter of built-up saleable area to the buyers will be bid by the competitors.
A Technical Committee composed of the Architect, and representatives of the NHDC will analyze and select the legal Promoter of the project. The promoter takes on the financial responsibility and liability of the project, until it is handed over to the end users. He negotiates with financial institutions, maintains accounts, operates bank accounts, and pays the overheads and architect’s fees to the NHDC. The NHDC pays the architect who also acts as the NHDC’s project manager.
Transfer of Project Ownership to the Promoters
At this stage the facilitative role of the NHDC becomes one of over-all Supervisor and Auditor, on behalf of the future clients. The selected architect and promoter now act as Project Managers, carrying out the preparation of construction documents, tendering documents and standard contracts between the Contractors and Promoters. The NHDC will certify the final selected contractor, but the architect and the Promoter will jointly select a contractor based on criteria given by the NHDC. If all the contractors bid over the estimate based on the Bhutan Schedule of Rates, the lowest bidder must be awarded the work. Wherein contractors bid under the Bhutan Schedule of Rates, the architect and promoter will not be bound to select the lowest bidder, but may use criteria like tract record, compatibility as a team member and other discretionary parameters, which they believe will result in the best final product for the end users.
Transfer of Housing Stock into the Market
After the completion of the project, the promoter, under the direct guidance of NHDC could either sell the housing stock at the market price and distribute the profit among the private land owners according to their respective share or could distribute the housing stock itself to the private land owners, retaining the share, of the promoter as initially agreed. In both the cases the involvement of the NHDC, towards making the housing stock available in the market, is very crucial considering the larger implications of such a nature of project in the housing stock of Gelephu. The promoter, and the private land owners, could pay overheads to the NHDC towards the maintenance of the project for a specified period time. Alternatively, each buyer will be required to pay a maintenance fee which goes into a general fund for property management.
6.1.6 Vacant Land Tax
There is an apparent, though not necessarily fundamental conflict between the regime of planning and the regime of property, especially when a new plan is overlaid upon an existing land ownership system. The structure plan sets down a new rationale. It promotes equal access to shelter and to land for shelter. It alters the value of land upward at the same time. Due to its inherent restrictions, it also limits development options. It disrupts the immediate plans of landowners at least until they understand and readjust to the new terms of the new plan.
In most societies land is held in the hands of a few longer-term residents of the city. Newcomers to the city and persons with more modest means may find entry into the housing market blocked by artificially high values of land. Unfortunately, in most of the situations the regime of property dominates the land system and most of the time access to land for shelter has virtually been blocked. The Structure Plan attempts to reverse that trend and opens more opportunities. It suggests that methods towards equitably distributing land must emerge in Gelephu. The Local Area Plans and the access to dwelling units created under the medium- and high-density residential projects go a long way to guaranteeing each household access to shelter. Guided development through the mechanism of the Development Control Rules adds another dimension to the system’s operation. But in the end there must be some mechanism which limits the quantity of land held ineffectively and merely for investment.
There are limited options to control land accumulation. One of them is an effective land ceiling. But the legislation and implementation are cumbersome, means of concealing property ownership are many, and the entire process takes land effectively out of the market, driving up the remaining prices of lands that fall outside of the ceiling still higher. Land banking involves extensive data maintenance, sophisticated financial management and complicated accounting, which will not appear as transparent to the concerned public. It may only work where there are existing and highly developed financial institutions.
One possible mechanism is a Vacant Lands Tax. The concept would be to treat vacant land as an unused wealth of the nation and to use a system of taxation to catalyze it into the market. There would have to be a Register of Land Values maintained wherein the value of land in each area of the town is documented based on the actual registered transactions in the area. To assure that the values stated at the time of transaction are correct the Royal Government has a first option to buy lands where the registration is declared for a value less than twenty-five per cent of the Registered Value in that area of the town. Using the Register of Land Values, each area of the town would have a different ratable value, based upon which the town’s land tax would be charged to users and also upon which the Vacant Land Tax would be charged. Generally, land values and the services and infrastructure provided by the local authority are high at some locations and low at some locations. So the Ratable Values also reflect the levels of services provided. Where there are vacant lands a Vacant Land tax of say five to ten per cent of the land value should be charged annually. The tax would tend to move land into the market, and curb the hording of land for investment purposes. Another characteristic of the Vacant Land Tax is that it also acts as a Wealth Tax, bringing more equity into the society.
When a property is purchased, there should be a Vacant Land Tax Holiday for three years, allowing time for the owner to initiate construction. There must also be a Land Transfer Tax, of about five to ten percent of the registered property value.
Acquisition of excess lands is a last resort. But the process is slow and the low rates create a good deal of animosity against the government. But acquisition must always be with the Royal Government as a last means to equalize the land holdings.
