Open Financing and Ownership

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Financing of levels

Open Management is closely linked with Open financing: a separate financing based on the level distinction. In the nineties the SAR already researched this topic and recognised the wise implications. Within a neighbourhood financed by the municipality, the various investors and managers have the right to finance their investment in the base building in their own way. But, at the parcelling out stage in development areas, agreements are made about categories of financing. This is, of itself, not a new development. Within a base building, residents can decide for themselves about how they want to finance. That is new.

To explain this way of financing, let’s take a normal municipal extension. Let’s follow the main plan of the levels of decision making. The difference in the number of years that a fit-out lasts relative to a base building means that the repayment terms also differ. In addition, there is very little residual value after repayment of fixtures and fittings, while a base building, the supporting structure and foundation, technically has a much longer life span than the usual financial terms of 30 to 40 years. A base building can be seen as an investment while with fixtures and fittings it is more a case of an expense that is completely written off. In Japan, a technical life span of 200 years has been determined by law for a base building included as the basis for a government contribution.

City Level (urban fabric)

At city level, the community invests in common amenities. In between, the urban fabrics for different neighbourhoods are developed. For each neighbourhood, a budget of the exploitation is drafted which includes a contribution from the city on the expenditure side for the land acquisition and the inter-neighbourhood facilities; within the neighbourhood for its own planning, construction and management of the urban fabric, such as ground works, artworks, paving, drainage, lighting and greenery. The income side includes the proceeds from the allocation of land to individuals and institutions, according to the parcelling out of the urban fabric plan. Each neighbourhood is a development domain and therefore has its own exploitation, with extremely long investment periods, maintenance and depreciation. This makes it possible to give local officials, councillors, residents, workers and/or owners insight into what is happening financially. The plots to be parcelled out are the new domains at base building level.

Construction Site Level (base building)

Every ‘building owner’ develops his own project. The expenditure side includes the cost of the land (in which all the costs of the higher levels have been processed) and the costs for preparation, building, maintenance and management of the base building. The incomes side includes the proceeds from the allocated indoor units: homes, offices, shops, schools etc. Each building site has its own exploitation with a medium term investment, maintenance and depreciation. Therefore the financiers can be explicitly informed of how the base building will develop economically in the coming years. As collateral for the loan, the base building is transparent in terms of value, reducing the risk of the money lender. The indoor units to be allocated stem from the parcelling out of the base building and form the domains at fit-out level.

Fit-out Level

Every household, business or institution makes its own fit-out plan. In the purchase price or rent of the base building space each contributes to the provisions of early mentioned levels and adds to that its own planning, installation and maintenance costs of the fit-out. These investments are relatively short term: fixtures and fittings have a life span of less than 25 years. The economic life span may be equally long, but certainly not longer.

Ownership relations

By distinguishing levels in Open Design interesting ownership relationships arise. Now it is mostly about economic ownership, sometimes known as commercial ownership. What is most important is legal ownership. The way in which legal ownership is currently anchored in national legislation makes it very expensive, complicated and inflexible to arrange a division in ownership according to the split, fit-out (resident) and base building (other). As described, the allocation at every level is the transition to the next level of design and management. The ownership may follow that difference and can repeatedly be used as collateral for extra external financing. We parcel out in domains – areas – that as an existing situation, are each the starting point for the next initiator. However, it is not only possible to buy or sell these areas but also to lease or rent. The client who plans to create something in the newly allocated domain ‘rents’ the ‘situation’. What we create ourselves, the added value, we own.

For instance, on the three levels described, urban fabric, base building and fit-out, this means that a municipality can continue to be the owner of a parcelled out plot of building land, and can lease it to a developer/manager. The developer/manager then becomes the owner of his base building on the leased land and thus the owner of the living space, office space etc. allocated by him, which he then leases to a user. This user is the owner of the fit-out kit that he has installed. Finally, a family may decide to lease out a room, where the ultimate lessee and occupier is the owner of the furniture he puts in it.

The first benefit of this approach is that the land that is physically shared, also stays in common ownership. Thus the social trend towards right of use over ownership can be filled. Businesses or housing corporations rent parts of the common property to place their own property on or in it: a residential or office building. Shared property is redundant because the boundaries are transparently drawn.

A second benefit is that speculations on ‘situations’ are prevented. The land is no longer an article to be traded, only that which is put on it. What you bring in naturally appreciates in value when the location becomes more attractive, but the pure appreciation in value of the land is for the community. In this way, a powerful municipal policy in the area of urban development and environment reaps particular benefit. But this tool has not really been recognized by politics in the last ten years.

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