When the ACT government sells land in Gungahlin, it makes a profit. Profits are Capital, and the sale has created new Capital. The Capital stays with the land until it is sold, so how quickly it is built upon and sold is a measure of the productivity of Capital. If the Capital is Equity, it will not be used again until the new owner sells it. However, there is another form of Capital called Community Capital that the government could use to the advantage of the government, investors and the Community.
Community Capital is a productive form of Capital. It was why the founders of the ACT chose the leasehold method. Originally the government leased land cheaply but collected more profit through land tax. It spreads the Capital cost over a longer time but only for the first sale. The government can achieve the same objective permanently by selling the land as Community Capital.
Equity Capital
Equity Capital is ownership of an asset. Each time the asset generates income, like rent, it creates new Capital or profit. With Equity Capital, the increase or decrease in Capital is calculated periodically, and the earnings on Capital are distributed as dividends or interest to the business owners once a year. The Capital does not move until the asset is sold to another person.
Equity Capital has selling and interest costs, sits stationary as an Asset for a long time, and can exit the Community.
Community Capital is designed to keep Capital moving within a Community and available to all at the same cost. With Community Capital, the developer sets up an entity that holds the title to the land and dwellings. Capital is still ownership, but instead of ownership of the asset, it is ownership of what the asset produces. For land and buildings, it is rent ownership where the rent can be from any of the different titles in the Community. The government can specify the rent it wants on the land. Investors purchase future rent and receive a return on their investment.
The differences between Community Capital and Equity Capital are shown in the diagrams. With Community Capital, the Company sets the profit, how much of each payment is buying Capital, and how much is paying rent. Say 50% of the payment is to buy Capital and 50% is rent. The buyer/occupier would pay less rent as they acquire Capital or pay the same rent until they had purchased the asset. The rent will rise with inflation and any increase in the Capital value.
Investors — including the developer, will have their Capital returned continuously over the period, or they can sell immediately. Their returned Capital is available for reinvestment, so they end up with the same return, including Capital gains, and they have their Capital available for reinvesting in half the time. Renters/buyers do not have to pay interest, there are no transfer fees, no buying and selling costs, and they have access to the Capital they accumulate if they have a drop in income.
The government can participate as an investor. For community facilities, the government does not require their Capital to be returned or there to be a charge to the Community. This will reduce the cost of community facilities.
While the above describes a new development, any group of buildings and their owners can quickly move to Community Capital, reduce their mortgage payments, and increase their returns on investment.
Community Capital is a more efficient way to distribute Capital than Equity and will outcompete and replace it. Doing so will voluntarily change the economy of a community that adopts it into a sharing, circular and sustainable economy. In particular, the savings from the more efficient use of Capital will ensure Canberra has affordable housing for all.
The Emergent Properties of Community Capital
Any community can use Community Capital to supply goods and services. It can apply to all investments. Community Capital removes the need for Capital Markets as they currently exist. Instead of a market, the buyer buys directly from organisations offering Capital where the price and returns are part of the payments received from product buyers. Buyers receive the same return under the same conditions. The savings from fixing Capital prices and no Capital markets are at least half the asset’s value, and the buyers and sellers share the savings.
Product markets still exist, with the benefits of free market competition that encourages innovation.
Community Capital builds Public Capital as it localises Capital, reducing the opportunities for fraud and exploitation of others. Companies and individuals have mutual ownership, building strong bonds of mutual dependence. This applies to all organisations, including governments and countries.
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