Pride of ownership provides a powerful motivation for individuals to improve their property. It explains why homeowners are willing to spend their weekends fixing their houses and mowing their lawns. The reason they do so is because the property is theirs and theirs alone. They own it in "fee simple" - that is to say, outright. As the well-known expression goes, no one ever paid money to wash a rented car.

As a visit to a typical Canadian reserve reveals, such pride of ownership is absent in many native communities. Housing is dilapidated, and there is little evidence that occupants care much about their properties.

Needless to say, this is not a reflection of aboriginals themselves, but rather an indictment of our government's native policy: Federal law does not permit those who live on Indian reserves to own their homes in fee simple. Since they cannot sell their houses to recover their investments, residents have no economic incentive to spend money on improvements. For the same reason, there is no reason for housing developers and other entrepreneurs to create new building stock for private buyers.

This explains why a 2003 federal Auditor General (AG) report found there was a shortage of 8,500 houses on Canada's Indian reserves - despite the fact the federal government spent $3.8-billion over the past decade on native housing.

As things currently operate, the Department of Indian Affairs and the Canada Mortgage and Housing Corporation (CMHC) transfer federal housing money directly to native band councils. From there, it is up to the chief and council to determine who gets a new house or repairs. As one would expect in any system in which material benefits are dolled out by unaccountable leaders, bald-faced favouritism is common. In many cases, reserve residents complain, one must be connected to the band council in some way in order to
obtain new or improved housing.

Even well-intentioned native leaders have difficulty fulfilling their oversight responsibilities. For instance, band councils are supposed to ensure that any new housing meets National Building Code standards. But bands often have no way to ensure new housing meets these codes, which helps explain the high percentage of substandard housing.

The average non-native homeowner can walk away from a housing purchase if the dwelling is poorly constructed: In a free market, he has a thousand other homes from which to choose. But on reserves, residents have no choice: Like the citizens of some bygone communist regime, they must take what their political masters give them, whether its falling apart or not.

Because fee-simple ownership of reserve land is forbidden, systems of what may be called "quasi-ownership" have emerged. One such system, customary rights, was discussed in yesterday's column (along with its various flaws). Another more promising alternative is the allotment of "Certificates of Possession" (COP). When a band issues a COP, the landholder is deemed to have an interest in the property he inhabits. This interest may then be used to apply for mortgage financing, which, as noted yesterday, is otherwise unavailable to reserve residents.

In return for a loan, a holder of a COP transfers his certificate back to the issuing band as collateral. The band then enters into an agreement with CMHC by which it pledges to assume the mortgage in the event of a default. Since COP holders can be dispossessed if they do not meet their repayment schedule, they will generally be motivated to comply with the terms of their loan. Once the mortgage is paid off, the certificate is transferred back to the individual.

Certificates of Possession are a stronger and more valuable form of property rights than customary or hereditary ownership: Canadian courts will enforce the rights and obligations associated with COPs, whereas they typically will not in the case of customary rights. And since land held under a COP can be subdivided, left to an heir or sold to another person having a right to reside on that reserve, certificate holders tend to assume the mindset and habits of a true property owner.

Many native bands across Canada have been motivated to issue Certificates of Possession because they are a means to bring more funding to the reserve. Moreover, the economic value that inheres to COPs provides an enticement for younger band members to stay on-reserve. In some parts of Canada, internal real estate markets powered by COPs are thriving. The Six Nations Band in Ontario, for instance, has issued over 10,000 COPs.

In sum, Certificates of Possession are win-win-win: Bands are able to secure more income; residents become eligible for mortgage financing; and Canadian taxpayers are relived of some of the burden associated with the constant replenishment of native housing stock. One can only hope that more of Canada's reserves follow the example of the Six Nations band.