Sustainable housing: A ground lease partnership model

- The partnership model of ground leases assumes different risks and yield rates for land owners and lessees.
- Due to a low risk, ground leases may create an “added value” for the lessor.
- This surplus can be used to compensate the lessee for contributing to social and ecological targets.
- Doing so, social and ecological targets may be achieved with limited financial resources.

Against the background of strained housing markets, economic, social and ecological targets (e.g. energy-based modernization) may conflict with each other. Against this backdrop, municipal leasehold approaches appear to be interesting. Considering the case of Germany, the legislator designed leasehold rights as an instrument to tackle a variety of targets. However, compliance with the Tinbergen rule suggests that municipalities should focus on economic targets while using leasehold approaches. Nonetheless, they should waive any exploitation of their monopolistic position in the local land market in favor of ground leases that are in line with the capital market. In doing so, public leasehold approaches may create an added value which may help to ease the conflicts between social and ecological targets. In this context, social and ecological targets shouldn't be pursued by the municipality itself, but in cooperation with suitable partners not looking to maximize their risk/return requirements. However, a number of obstacles have to be removed before leasehold rights can be used in this way.