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As the world’s most populous country and its third largest economy, China and its rapid urbanization and development will represent one of the defining trends of the twenty-first century. Over the past 30 years, China has made remarkable economic and social progress, lifting hundreds of millions out of poverty and catapulting China onto the international stage.
This economic transformation has also involved an institutional transformation as China’s centrally planned economy has moved pragmatically to a broad reliance on market mechanisms. This movement has been especially challenging in the case of land, which for decades was owned by the state or peasant collectives. Progress has been made in urban areas, where the leasehold term of land ownership is now normally 70 years, but in rural areas collective land ownership continues.
Despite its noteworthy accomplishments, China is facing critical land policy issues that will determine the direction of its future economic development and urbanization.
With these diverse issues in mind, the Lincoln Institute of Land Policy’s China Program was inaugurated in 2003 and continues to focus on improving the quality of public debate and decisions concerning land policy and urban development in China through sound research and the leveraging of international experience and expertise.
The China Program has grown considerably in capacity, scope, and geographic footprint, highlighted by the establishment of the joint Peking University–Lincoln Institute Center for Urban Development and Land Policy in October 2007. The Center’s mission is to study land, urban, and fiscal policies and to facilitate education, training, policy analysis, and research. Having this joint facility in Beijing provides the China Program with an ongoing domestic presence that expands the Institute’s networks and resources and brings together government officials, practitioners, and foreign and domestic scholars to engage in dialogue and to share experiences to promote a better understanding of land policy, urbanization, and property taxation in China and around the world.
The China Program has identified six key research areas that are highly relevant to China’s future development and also offer the best opportunities to utilize the Lincoln Institute’s expertise and resources.
Adoption of a Property Tax
China’s 11th Five-Year Plan (2006–2010) elevated the issue of a property tax onto the official agenda, and pilot property tax projects are currently under way in more than 10 provinces. However, the issue’s sensitive political nature, lingering technical difficulties concerning data and valuation, and continued debate about the exact form of any proposed property tax have slowed implementation and made it unlikely that a broader property tax and related tax policy reforms will be implemented before the 12th Five-Year Plan begins in 2011.
Through close working relationships with the State Administration of Taxation (SAT), the Ministry of Finance (MOF), and the Development Research Center for the State Council (DRC), the China Program has offered a number of educational programs and provided significant intellectual and capacity building support for China’s adoption of a property tax.
For example, in October 2009 representatives of the British Columbia Assessment Office, the Altus Group, and ESRI Canada led a China Program training workshop on property tax implementation and design of computer-assisted mass appraisal (CAMA) systems. More than 50 SAT officials participated, including representatives from each of the property tax pilot cities.
Delegates from the SAT and the Lincoln Institute attended a three-day conference on valuation and mass appraisal at the University of Pretoria, South Africa, in March 2009, before traveling to Johannesburg’s valuation office to discuss the challenges of implementing a property tax in that country.
In November 2008, training on technical aspects of property valuation was provided in Beijing by property tax experts from Canada, the United States, South Africa, and Hong Kong for more than 40 administrators and assessors from China’s property tax pilot cities.
Local Public Finance
Fiscal policy reform is a key component in addressing many of the social and economic problems China faces. Restructuring the current tax system and promoting balanced tax and expenditure responsibilities at the local government level is one of the main policy objectives of the Chinese government. The underlying efforts are closely related to the future development of any property tax, a necessary and critical solution to local public finance challenges.
The China Program is focused on issues of fiscal decentralization, public service financing, land-related taxes and fees, regional inequity, intergovernmental finance, and the role of property taxation in a modern public sector finance system. Representative activities have included a January 2009 workshop in Beijing on fiscal policy and economic growth in China with leading fiscal policy scholars and experts, including officials from the MOF, DRC, and SAT.
An international conference held at the Lincoln Institute’s headquarters in Cambridge, Massachusetts in May 2008 focused on local public finance and property taxation. Those proceedings will be edited and published in a Lincoln Institute book in 2010, and the volume will be translated and published in China as well.
Land Policy and Land Management
The revision of China’s Land Management Law has been a sensitive issue over the past several years, as the country struggles to define rural land rights, land expropriation, and the public good. With a new land law revision on the horizon, land-related issues remain at the forefront of China’s policy agenda, particularly issues concerning urban and rural property rights, land expropriation, land use efficiency, land use planning, land conservation, and urban expansion and sprawl.
In June 2009 the China Program co-organized a roundtable discussion on the most recent draft revision of China’s Land Management Law with the Land Law Committee of the China Land Science Society in association with the Ministry of Land and Resources (MLR). Experts and prominent scholars from across the political spectrum engaged in direct dialogue and discussion with government officials at MLR who are working on the revision.
The China Program is now compiling and translating several land management laws from a dozen developing and developed countries for use by Chinese officials and scholars. The Program also cosponsored a comprehensive survey of land use and farmland conservation issues in a dozen provinces in China, and is building a database for future research on land management issues.
Urban Planning and Development
Rapid urbanization has led to the explosive growth of Chinese cities and their populations, presenting an enormous challenge in terms of city planning, infrastructure, and transportation. New approaches to urban planning are fundamental to the development and management of cities, as well as a prerequisite to ensuring the efficient use of land and integrated development in China. Efforts also must be made to use land sensibly and to coordinate the spatial layout of urban areas, thereby avoiding rampant and uncontrolled urbanization.
The China Program cooperated with the Chinese Society for Urban Studies and the Urban Planning Society of China, affiliated with the Ministry of Housing and Urban-Rural Development, in organizing the July 2009 International Forum on Urban Development and Planning, which featured the theme “Harmony and Ecology: Sustainable Cities.”
In cooperation with the Lincoln Institute’s Department of Planning and Urban Form, more than 20 international speakers attended a symposium on megaregions and spatial planning practice worldwide, held in Beijing in October 2008.
Affordable Housing
Housing policy, and in particular affordable housing, is becoming an important focus for China’s policy makers during this period of rapid urbanization. With upwards of 15 million new urban residents expected annually over the next decade, the growth in the supply of affordable housing is an immediate concern. In addition to a one-year joint policy research project with the DRC, the China Program is conducting original research in the field of housing policy and introducing international experience to China’s policy makers and the academic community.
For example, in July 2009 the China Program organized a symposium on low-income housing policy in China to provide a platform for international and domestic scholars and government officials from DRC, the Ministry of Housing and Urban-Rural Development, and the People’s Bank of China to engage in dialogue and discussion. Papers from the symposium will be published in an edited volume for distribution in China. The China Program also hosted an international conference entitled Housing Policy and Housing Markets in China in Cambridge, Massachusetts, in May 2009, and is preparing an edited conference volume for publication in both English and Chinese.
Environmental Challenges
With international attention focusing on recent climate negotiations in Copenhagen, there is a pressing need for timely research on low-carbon development and the complex linkages between land, transportation, and urban and environmental policies in China and globally. The China Program is leading research on environmental taxation in China from a global perspective and developing a database of environmental tax statistics.
The Program organized a roundtable on green cities at Peking University in September 2009, which drew strong interest from domestic and international academics and signaled the need for further study of environmental policy issues in the future. And in May 2008, the Program, joined by Loeb Fellows from the Harvard University Graduate School of Design and Chinese policy makers and academics, held a roundtable discussion at Peking University that addressed urban transformation and sustainability.
Building Capacity to Address the Issues
Since its inception the China Program has been committed to enhancing the capacity of both current policy makers and academics and researchers whose analysis and opinions will influence China’s future policies and reforms. This educational emphasis continues with the establishment of the Peking University–Lincoln Institute Center, which has become an important platform for reaching and engaging students and scholars at Peking University and other academic institutions through training programs, fellowships, lecture series, online education, and research publications.
Training the Trainers
This annual program aims to enhance the capacity and awareness of scholars throughout China regarding urban economics, planning, public finance, and related land policy issues. The courses target university faculty and professional researchers, as well as select government officials, with the goal to increase competence through intensive professional seminars on issues related to land policy in China. More than 70 participants on average attend each two-week training program. Leading experts in their fields from around the world offer the participants an invaluable international perspective. The China Program’s recently launched online education platform seeks to build on previous training programs and to move progressively toward more specialized trainings.
Fellowships
The China Program awards several types of fellowships to international and Chinese scholars and graduate students working on Chinese land and urban policy. Two or three international fellowships are awarded annually to leading scholars and professional researchers based at universities around the globe. In addition to producing important research on issues ranging from the spatial structure of megacities to household carbon emissions in Chinese cities, the international fellowship is an invaluable tool to increase scholarly dialogue between China and the world. These fellows are an integral component of the China Program’s other activities, such as teaching at Training the Trainers programs, reviewing other fellowship proposals, and speaking at seminars.
Fellowships for Chinese graduate students and junior researchers are administered through the Peking University–Lincoln Institute Center to bring young scholars into Chinese land and urban policy studies. Approximately 15 dissertation fellowships are awarded to aspiring scholars annually, while an additional 6 or 8 research fellowships help strengthen the capacity of scholars based in China’s leading institutions.
The China Program’s in-country presence at the Peking University–Lincoln Institute Center also facilitates interactions among the fellows, including the provision of constructive feedback on their ongoing research. All fellows are invited to Beijing for a mid-term progress report, where they share their initial research findings with peers and a panel of international experts. This event has proven to be an effective way to help domestic junior scholars and graduate students build research skills and promote studies of urban and land issues in China.
Speaker Series
The China Program also regularly invites distinguished individuals drawn from the Lincoln Institute’s network of leading scholars and policy makers to speak to the Beijing scholarly community on vital topics ranging from planning support systems to fiscal federalism and decentralization in the United States. This speaker series helps meet the demand for knowledge about international development and urbanization experiences and how these cases can be adapted to fit China’s needs.
Online Education
The Lincoln Institute has long history of employing online education as a tool to reach a broader audience and maximize its resources. Given the vast geographic distances in China and its emphasis on training and capacity building, the China Program has similarly been interested in online education for some time. The establishment of the Peking University–Lincoln Institute Center has accelerated the process of making information, analysis, and data available online, and widened the network of collaborators interested in tapping into the Institute’s expertise.
Through the Center, the China Program engaged a local online education company to develop a China-centric platform, which was inaugurated in the summer of 2009 during the China Program’s Training the Trainers session on urban economics and planning. The two-week program was recorded and translated into Chinese, and is accompanied online by Chinese transcripts of lectures and associated PowerPoint presentations and other materials.
The value of the online platform has become apparent almost immediately. During the fall 2009 program and demonstration on property taxation and CAMA, which was also recorded for later conversion to the online platform, attending SAT officials expressed their eagerness to use the platform to demonstrate the concepts to their colleagues and superiors.
Publications and Web-based Resources
As the China Program has increased its research capacity and professional support with the establishment of the Peking University–Lincoln Institute Center, it is producing a steadily increasing series of working papers, books, and training materials that are extending the Lincoln Institute’s and the China Program’s expertise on and influence in China. During 2008 and 2009, nine books were published or made ready for print, and eight other books are at various stages of development. The China Program and the Center’s fellows and visiting fellows have also produced about 40 working papers and a number of focused reports and policy briefs, which will soon be available online.
Complementing all of these activities is the Peking University–Lincoln Institute Center’s revamped Web site. It provides a window into the China Program’s mission and vision, and is an important link between the Lincoln Institute’s and the China Program’s dual educational and research objectives. Drawing together Chinese and English working papers, training and education materials, and conference proceedings from both the Lincoln Institute and the Peking University–Lincoln Institute Center, the Web site is a rich repository of impartial knowledge and an expanding platform for scholarly dialogue concerning the ascendant land, urban, and environmental policy issues in China.
In 2010, the China Program will continue to strengthen its online resources to synthesize and disseminate its recent research to a broader audience of Chinese scholars and policy makers through new publications and focused policy reports, while also striving to advance academic debate through research, demonstration projects, conferences and other activities.
About the Author
Joyce Yanyun Man is senior fellow and director of the Lincoln Institute’s China Program, as well as director of the Peking University–Lincoln Institute Center for Urban Development and Land Policy. She is also professor of economics in the Peking University College of Urban and Environmental Science.
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Las ciudades norteamericanas tienen un potencial prometedor a largo plazo como centros de innovación y crecimiento, y la expansión tecnológica y de las ciencias de la salud están comenzando a compensar la erosión de varias décadas en el sector de manufactura. Las ciudades siguen siendo también lugares llenos de vitalidad, que ofrecen opciones de diseño urbano, densidad y transporte que atraen a residentes de todas las edades y procedencias. De hecho, nueve de las diez ciudades más pobladas de los Estados Unidos han crecido en población en la última década, según el censo de 2010.
Sin embargo, las perspectivas de corto plazo de las ciudades están cargadas de desafíos. Con el reciente brusco descenso en los ingresos tributarios, causado por el colapso del mercado inmobiliario en 2008 y la consiguiente crisis financiera y recesión económica, se ha hecho extraordinariamente difícil para los gobiernos locales y estatales mantener los servicios básicos, por no mencionar los planes de inversion para el futuro. Los fondos federales de la Ley de Recuperación y Reinversión de los Estados Unidos (American Recovery and Reinvestment Act, o ARRA) ayudaron a los gobiernos locales a compensar la disminución de la renta de los últimos tres años, pero los fondos de ARRA ya no están disponibles para el año fiscal entrante (una transición que se ha dado por llamar “el precipicio”), obligando a los funcionarios locales a hacer frente en su totalidad al efecto causado por el déficit de ingresos.
El Foro Periodístico sobre Suelos y el Entorno Edificado: La Próxima Ciudad (Journalists Forum on Land and the Built Environment: The Next City) de 2011 reunió a académicos, profesionales y líderes politicos con periodistas de los medios impresos y audiovisuals para explorar el tema de la infraestructura de las ciudades en el contexto de la recuperación económica presente. Este programa es producto de una asociación anual entre el Instituto Lincoln, la Fundación Nieman de Periodismo de la Universidad de Harvard, y la Facultad de Estudios de Posgrado en Diseño de Harvard.
Los debates del Foro se centraron en dos enfoques para las inversiones en infraestructura y sus servicios asociados. El primero fue un enfoque a corto plazo de las inversiones en infraestructura como estímulo fiscal, con objeto de recuperar el nivel de actividad económica y aumentar el empleo. El segundo fue un enfoque a más largo plazo en cuanto a la función que cumple la infraestructura para sustentar la transformación de las economías municipales y el aumento de competitividad y habitabilidad en un mundo globalizado.
La infraestructura y la crisis fiscal de los gobiernos locales
La necesidad del país de contar con un estímulo fiscal para impulsar la economía en 2009 llevó a plantear inversiones colosales en infraestructura para satisfacer esta necesidad. No obstante, los tipos de proyectos que se podían iniciar rápidamente a nivel local tendían a ser esfuerzos de pequeña escala, como reparación de caminos y mantenimiento de instalaciones. Las iniciativas más ambiciosas, como los trenes de alta velocidad interurbanos, no llegaron a materializarse debido a problemas presupuestarios y de endeudamiento, y porque todas ellas requerían una mayor planificación antes de poder proceder a la etapa de implementación.
Lawrence H. Summers, quien recientemente retomó su cargo de profesor en Harvard después de haber sido director del Consejo Económico Nacional en la Casa Blanca, defendió el plan de estímulo de la administración Obama, que consideró necesario para restaurar la confianza en el sistema financiero y evitar que la recesión “pasara a formar parte de los libros de historia”. No obstante, admitió que “si bien los gobiernos locales pudieron usar los fondos de estímulo para cubrir déficits de ingresos, había muy pocos proyectos grandes listos para empezar”.
Más aún, la cruda realidad de la presión fiscal es que las ciudades no pueden concentrarse en proyectos de infraestructura en gran escala y a largo plazo porque están ocupadas en recortar gastos y realizar cambios en la dotación de los serviciospúblicos locales, señaló Michael Cooper, periodista de The New York Times. Algunos ejemplos de estos recortes en los servicios incluyen el programa de licencia sin goce de sueldo todos los viernes para los maestros públicos de Hawái durante el año escolar en curso; el niño de San Diego que murió atragantado con un chicle porque la estación de bomberos más cercana estaba cerrada debido a las clausuras rotativas; las decisiones de Colorado Springs de apagar un tercio de los faroles de alumbrado todas las noches, y de subastar el helicóptero de la policía; y el pueblo de California que destituyó a su alcalde porque acondicionó las tuberías de Madera deterioradas del sistema de aguas, pero aumentó las tarifas para pagar esta reparación.
Muchas jurisdicciones también tienen problemas fiscales con la falta de financiación de los fondos de pensión y de beneficios sociales. Algunas están agravando el problema simplemente dejando de realizar los pagos anuales requeridos, una medida de emergencia adoptada, por ejemplo, por el gobernador Chris Christie en Nueva Jersey. El Mercado de bonos municipales se está tambaleando y algunas ciudades, como Harrisburg, Pensilvania, se encuentran al borde de la quiebra. Los deficits fiscales están creciendo porque los gobiernos locales han gastado lo último que les quedaba de los fondos de ARRA.
Adrian Fenty, exalcalde de Washington, DC, afirmó que las ciudades se tienen que gestionar de forma similar a un negocio, adoptando una política de rendimiento y alejándose de la política de patrocinio. Es necesario mejorar tanto la eficiencia del suministro básico de servicios como la gestión de las finanzas municipales. Dado que la educación es tan importante para el crecimiento económico de las ciudades, su administración dio prioridad a una reforma educativa, concerniente tanto a la infraestructura humana como a la física, de manera que, durante su mandato en la alcaldía, su administración clausuró el 20 por ciento de las escuelas y redujo el personal administrativo un 50 por ciento. También renegoció los contratos de los maestros, ofreciendo un sistema de remuneración basado en el mérito y sin cargo fijo, que fue aceptado por el 60 por ciento de los maestros.
Desafíos de infraestructura: El caso del tren de alta velocidad
La iniciativa de 53 mil millones de dólares del presidente Barack Obama para construir trenes de alta velocidad ha puesto en evidencia los desafíos de la crisis fiscal en los gobiernos locales. Los gobernadores de Florida, Ohio y Wisconsin devolvieron los fondos federales asignados para ferrocarriles interurbanos con el argumento de que sus gobiernos locales y estatales no estaban en condiciones de asumir los gastos de explotación y mantenimiento, al tiempo que cuestionaban las proyecciones de tráfico de pasajeros. El proyecto de tren de alta velocidad de California, si bien estaba financiado por una emisión de bonos aprobada por los votantes, se encuentra con una oposición similar debido a las cargas financieras y a las disputas sobre el uso de suelos locales.
Bruce Babbitt, exgobernador de Arizona y Secretario del Departamento del Interior de los Estados Unidos, y miembro de la junta directiva del Lincoln Institute, dijo que la campaña de la administración Obama para construir ferrocarriles interurbanos de alta velocidad fue un “desastre político”, y que la visión subyacente se tenía que reevaluar. Sugirió que se usara como modelo el Corredor del Noreste, y que un plan revisado debería incluir un sistema bien definido de refinanciación confiable, similar a la estrategia adoptada para construir el sistema de autopistas interestatales.
El pago de la infraestructura de los ferrocarriles de alta velocidad exigirá una fuente de financiamiento específica, quizás mediante un aumento en el impuesto sobre la gasoline en los estados por donde se localizarán las nuevas líneas de ferrocarril, y un sistema de recuperación de plusvalías que comprometa a los propietarios privados que se beneficiarían del aumento en el valor de sus propiedades como consecuencia de estos proyectos de obras públicas. “No tenemos el coraje político para definir nuestra prioridades”, dijo Babbitt. Hará falta un “martillo nacional” para abordar el déficit de infraestructura del país sin abdicar del control a los gobernadores y los estados.
Los ferrocarriles de alta velocidad podrán vivir o morir de acuerdo a consideraciones económicas. Petra Todorovich, directora ejecutiva de America 2050, que ha efectuado numerosos análisis del potencial del ferrocarril de alta velocidad, propuso un marco de 12 megaregiones en los Estados Unidos que representan conjuntos de áreas metropolitanas donde la mejora en el servicio de ferrocarril brindaría el mayor potencial para reemplazar al automóvil y al viaje en avión de corta duración. Los trenes de alta velocidad pueden intensificar los mercados laborales, aumentar las economías de aglomeración y aumentar la productividad, al vincular grandes centros urbanos. Japón, Francia y China se encuentran entre los países que han demostrado cómo las líneas ferroviarias interurbanas pueden promover las sinergias económicas por medio de la ubicación estratégica de las estaciones para trenes de alta velocidad y sus conexiones con otros trenes y demás sistemas de transporte.
Este argumento de aprovechamiento económico fue respaldado por Edward Rendell, exgobernador de Pensilvania y alcalde de Filadelfia, y miembro de Building America’s Future, una campaña de revitalización de infraestructura deteriorada en todo el país. Rendell argumenta que los Estados Unidos han estado descansando sobre los laureles de las inversiones pasadas, y que la revitalización de los degradados cimientos físicos de la nación es ahora una prioridad urgente. Sin una infraestructura de nivel mundial, el país no será competitivo para atraer inversiones privadas, innovación tecnológica rápida y sustentable, y un crecimiento de la productividad, y no podrá mantener el crecimiento de buenos puestos de empleo a nivel nacional.
La infraestructura y el futuro de las ciudades
A medida que la recuperación se afiance y vuelva el crecimiento económico, serán necesarias inversions en nuevas tecnologías de comunicación, energía verde, sistemas urbanos inteligentes, transporte -como los trenes de alta velocidad y los sistemas de transporte colectivo- y otras obras de infraestructura, para ayudar a las ciudades a cumplir su papel de centros de innovación, cultura y productividad.
La visión de infraestructura combinada con el planeamiento a largo plazo también es fundamental para que las ciudades se puedan adaptar al impacto inevitable de los cambios climáticos, tales como un aumento posible en el nivel del mar de un metro con las consiguientes marejadas de tempestad, inundaciones y aumento en la cantidad de eventos climáticos extremos. La infraestructura de la mayoría de las ciudades costeras es tan vieja que incluso un huracán moderado puede causar importantes daños, dijo Ed Blakely, profesor de Política Pública de la Universidad de Sídney y “exzar” de la recuperación de Nueva Orleans tras el huracán.
Las ciudades han elaborado sus planes actuales sobre la base del registro meteorológico relativamente calmo de los últimos 200 años, pero esta calma probablemente se irá reduciendo a causa del cambio climático, de modo que la infraestructura existente resultará inadecuada u obsoleta. No se debe prestart atención a los esfuerzos de reconstrucción después de catástrofes como los del huracán Katrina, dijo Blakely, sino a la reubicación, reposicionamiento y “garantías de futuro” para ciudades más resistentes.
La infraestructura como servicio de utilidad pública que mejora la habitabilidad de la ciudad se puede observar en el proyecto High Line de la ciudad de Nueva York, consistente en el cambio de uso de una línea de trenes de carga elevada que pasa por el Meatpacking District y Greenwich Village. Uno de los arquitectos de ese proyecto, Liz Diller, socia de Diller, Scofidio y Renfro, sugirió que este tipo de mejoras puede transformar las áreas urbanas, funcionar como centros para eventos sociales y culturales, y promover la actividad económica, si bien advirtió que “la arquitectura no puede resolver en realidad grandes problemas”.
A pesar de la crisis fiscal actual, se espera que las ciudades experimenten otros cambios que puedan ayudar a su recuperación económica. Entre ellos, podemos mencionar las consecuencias de la crisis inmobiliaria actual, que probablemente genere demanda de propiedades en alquiler, y el desplazamiento demográfico a medida que la generación de baby boomers se vaya jubilando y mudando a casas más pequeñas.
Arthur C. (Chris) Nelson, profesor de la Universidad de Utah, notó que ambos cambios pueden generar más demanda de estilos de vida urbanos. Por ejemplo, se puede observar ya una reducción en la demanda de casas unifamiliares ocupadas por sus propietarios en la periferia metropolitana de las Rocosas, el Sudoeste y el Sur, donde hay subdivisions completas que están virtualmente vacías. El porcentaje de familias que son dueñas de sus casas ha disminuido desde un máximo de 69,2 por ciento en 2004 a 66,4 por ciento en 2011, generando una mayor demanda de unidades de alquiler, que normalmente están ubicadas en áreas más urbanizadas.
Los desplazamientos demográficos también están relacionados con cambios en la composición de los hogares. Para 2030, los hogares unipersonales constituirán un tercio de la población, y sólo alrededor de un 25 por ciento de los hogares incluirá niños, comparado con el 45 por ciento en 1970 y el 33 por ciento en 2000. Estos cambios promoverán probablemente un ajuste significativo en los mercados y valores inmobiliarios, a medida que los baby Boomers envejezcan y pongan a la venta sus casas suburbanas y se muden a ubicaciones más urbanizadas con acceso a transporte público y a barrios peatonales. Al mismo tiempo, los próximos cambios en los mercados hipotecarios y la reforma de Fannie Mae y Freddie Mac puedan llegar a aumentar el costo del financiamiento hipotecario (y de ser propietario de una casa) e inducir a las familias más jóvenes a alquilar en vez de comprar.
Las ciudades como motor de crecimiento
La inversión en infraestructura para respaldar las regiones metropolitanas puede justificarse también por la sorprendente fortaleza de las propias ciudades. El resurgimiento urbano se puede observar en el crecimiento de los ingresos de profesionales altamente especializados, la disminución relativamente modesta de los precios de las viviendas y hasta en los recientes incrementos en varias ciudades prósperas, y en una concentración de innovación en las áreas urbanas, dijo el profesor de economía de Harvard Edward Glaeser. “Podríamos mudarnos a cualquier lugar que se adecúe a nuestra biofilia”, dijo. “Pero seguimos atraídos por las ciudades”.
El crecimiento de la población urbana está altamente correlacionado con los ingresos urbanos promedio, los niveles de educación y la participación en la tasa de empleo en pequeñas empresas, a medida que las ciudades siguen atrayendo a emprendedores y promoviendo la productividad. Si los ingresos en otros lugares fueran como los de la ciudad de Nueva York, el PIB nacional aumentaría un 43 por ciento, dijo Glaeser. Las ciudades también resultarán atractivas por su valor medioambiental, por ser lugares de densidad y transporte público, con un uso relativamente menor de energía per cápita y menor emisión de carbono que las áreas suburbanas y rurales. G laeser rechazó las normas de edificación y las regulaciones restrictivas que desalientan el aumento de densidad y hacen que los barrios urbanos antiguos de baja altura estén “fosilizados en ámbar”. También recalcó que la educación pública sigue siendo la inversión más importante que las ciudades pueden y deben hacer para mejorar el crecimiento económico y la calidad de vida.
A medida que se recuperen la economía nacional y los ingresos de los gobiernos locales, una de las prioridades claves será equilibrar los gastos actuales en servicios y las inversiones de más largo plazo. El crecimiento económico facilitará el financiamiento de inversiones en infraestructura, pero éstas serán necesarias a su vez para aumentar el crecimiento económico. El desafío será encontrar una manera políticamente viable de romper este círculo vicioso.
Sobre los autores
Gregory K. Ingram es presidente y gerente ejecutivo del Instituto Lincoln de Políticas de Suelo.
Anthony Flint es fellow y director de asuntos públicosen el Instituto Lincoln de Políticas de Suelo.
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Alan Mallach es senior fellow no residente en el Programa de Políticas Metropolitanas del Instituto Brookings y senior fellow en el Centro para el Progreso Comunitario, ambos de Washington, DC; y académico visitante en el Banco de la Reserva Federal de Filadelfia. Ha sido profesional, promotor y académico en temas de vivienda, planificación y desarrollo comunitario por casi 40 años, durante los cuales ha realizado aportaciones en muchas áreas, como el desarrollo de viviendas sociales y de ingresos mixtos, la revitalización de barrios y la regeneración urbana. En 2003, fue nombrado miembro del Colegio de Socios del Instituto Norteamericano de Planificadores Certificados, en reconocimiento a sus permanentes logros como líder de la profesión de planificación urbana.
Mallach es también profesor visitante en el programa para graduados en Planificación Urbana del Instituto Pratt de Nueva York, y ha enseñado en la Universidad Rutgers y en la Escuela de Arquitectura de Nueva Jersey. Ha publicado numerosos libros y artículos sobre vivienda, desarrollo comunitario y uso del suelo; su libro Bringing Buildings Back: From Abandoned Properties to Community Assets (Reconstruyendo edificios: de propiedades abandonadas a activos de la comunidad) es reconocido como el estándar en la materia. Su libro más reciente: Rebuilding America’s Legacy Cities: New Directions for the Industrial Heartland (Reconstruyendo las ciudades industriales históricas de los EE. UU.: nuevas direcciones para el corazón industrial), fue publicado en 2012 por la American Assembly de la Universidad Columbia. Reside en Roosevelt, Nueva Jersey, y tiene una licenciatura por la Universidad de Yale.
Land Lines: ¿Cómo se involucró en el Instituto Lincoln?
Alan Mallach: Ya había sabido del Instituto Lincoln desde hacía muchos años, e inicialmente me involucré en la década de 1990 con mi trabajo sobre la revitalización de áreas industriales abandonadas. Desde entonces, trabajé como profesor en una serie de sesiones de capacitación patrocinadas por el Instituto y participé en reuniones y conferencias en Lincoln House. Hace alrededor de siete años, Nico Calavita, profesor emérito del Programa de Graduados en Planificación Urbana de la Universidad Estatal de San Diego, y yo comenzamos a investigar el tema de vivienda inclusiva. Este proyecto llevó a que el Instituto publicara en 2010 el libro que coeditamos: Inclusionary Housing in International Perspective: Affordable Housing, Social Inclusion, and Land Value Recapture (Vivienda inclusiva en perspectiva internacional: vivienda económica, inclusión social y recuperación de plusvalías). Más recientemente he estado trabajando con Lavea Brachman, directora ejecutiva del Centro de Políticas del Gran Ohio, en un informe de enfoque sobre políticas de suelo que investiga temas relacionados con la regeneración de las ciudades industriales históricas de los Estados Unidos (ver página 28).
Land Lines: ¿A qué se refiere como «ciudades industriales históricas»?
Alan Mallach: «Ciudades industriales históricas» es un término que se ha comenzado a usar en vez de «ciudades en retroceso», como una manera de describir las ciudades del país que han perdido una cantidad significativa de población y puestos de trabajo en los últimos 50 años o más. Ciertas ciudades icónicas, como Pittsburgh, Detroit y Cleveland se mencionan generalmente en este contexto, pero la categoría también incluye a muchas ciudades más pequeñas, como Flint, Michigan; Utica, Nueva York y Scranton, Pensilvania.
Land Lines: ¿Cómo se conectan los temas de las ciudades industriales históricas con las preocupaciones principales sobre la política de suelo del Instituto Lincoln?
Alan Mallach: Hay muchos puntos de conexión, pero creo que el más importante es cómo debería usarse el suelo en estas ciudades. Todas estas ciudades tienen una sobresaturación significativa de oferta tanto de edificios residenciales como no residenciales en relación con la demanda, por lo menos desde la década de 1960. Como consecuencia de una demolición extensiva a lo largo de décadas, se ha acumulado un gran inventario de suelo vacante o subutilizado. Sólo Detroit tiene más de 100.000 parcelas de suelo vacante separadas y otros 40.000 a 50.000 edificios vacíos. Si bien este inventario es una carga, también podría convertirse en un enorme activo para el futuro de la ciudad. Uno de los temas centrales que enfrentan estas ciudades industriales es cómo desarrollar estrategias efectivas para usar este suelo no solo de forma que beneficie al público sino que también estimule el crecimiento económico y la demanda del mercado.
Land Lines: ¿Cómo compararía este desafío con su trabajo en vivienda inclusiva?
Alan Mallach: Desde el punto de vista económico, es la otra cara de la moneda. La vivienda inclusiva es una manera de usar el proceso de aprobación de planificación para canalizar una fuerte demanda del mercado y crear un beneficio público en forma de vivienda social, ya sea de manera directa, incorporando una cierta cantidad de unidades de vivienda social en un emprendimiento inmobiliario que quiere ser aprobado, o en forma indirecta por medio de desarrollo de predios o contribuciones en efectivo por parte del emprendedor. Como tal, involucra, ya sea explícita o implícitamente, la recuperación de la plusvalía del suelo que se crea en el proceso de aprobación de planes. La vivienda inclusiva parte de una gran demanda en el mercado, y no puede suceder sin ella.
Las estrategias de reúso del suelo en ciudades industriales tratan de generar demanda donde hoy en día no existe, o alternativamente encontrar maneras de usar el suelo para beneficiar al público y que se puedan implementar aun en condiciones donde no se puede inducir demanda en el mercado, por lo menos en un futuro previsible. Estas estrategias se llaman frecuentemente de usos «verdes» del suelo, como es el caso de la agricultura urbana, los espacios abiertos, la restauración de humedales o la gestión del aguas lluvias. Puede ser difícil conseguir que los funcionarios locales y los ciudadanos reconozcan que las formas tradicionales de revitalización, como la construcción de casas nuevas, centros comerciales, etc., requieren de la existencia de un mercado para dichos productos. No obstante, en muchas de estas zonas devastadas la demanda simplemente no existe. Más aún, la demanda no se puede inducir artificialmente por medio de subsidios públicos masivos, si bien los fondos públicos pueden, bajo ciertas condiciones, actuar como un estímulo para crear demanda.
Land Lines: ¿La falta de demanda es evidente en todos lados en las ciudades industriales históricas?
Alan Mallach: No, y esta es una de las cosas más interesantes sobre estas ciudades. En algunas ciudades la demanda crece mucho más que en otras, pero en la mayoría de los casos la revitalización se limita a ciertas partes de la ciudad.
Una tendencia perceptible es que las zonas del centro, o cercanas al centro, particularmente aquellas que tienen un carácter urbano peatonal fuerte, como el corredor de Washington Avenue en St. Louis, o el Distrito de Almacenes de Cleveland, están mostrando un gran dinamismo, si bien en muchas otras partes de estas dos ciudades sigue habiendo pérdida de población y abandono de viviendas.
Parte de este dinamismo se debe al carácter peatonal y la fuerte forma urbana (ver el nuevo libro del Instituto Lincoln por Julie Campoli, Made for Walking: Density and Neighborhood Form (Hecho para caminar: densidad y forma del barrio) (2012), que examina 12 barrios peatonales y las fuerzas que han generado su reciente popularidad). Un segundo factor importante es que estas áreas atraen a un segmento demográfico en particular: individuos y parejas jóvenes. Este grupo no sólo está orientado cada vez más a la vida urbana, sino que su porcentaje en el total de la población norteamericana está creciendo.
Land Lines: ¿Qué otros temas está explorando en su trabajo sobre las ciudades industriales históricas?
Alan Mallach: Me estoy centrando en dos áreas de investigación: una más cualitativa y otra más cuantitativa. En el primer caso, estoy examinando cómo muchas de estas ciudades están pasando por una pronunciada reconfiguración espacial y demográfica, un proceso que está exacerbando las disparidades económicas entre distintas áreas geográficas y poblaciones en estas ciudades. Si bien los centros de las ciudades más viejas, como los de St. Louis, Cleveland, Baltimore y hasta Detroit, son cada vez más atractivos, particularmente para los adultos jóvenes, y están ganando población y actividad económica, muchos otros barrios en estas ciudades están perdiendo población a una velocidad cada vez mayor. En muchos lugares estas tendencias están acentuando divisiones raciales que ya eran problemáticas.
Mi segunda área de investigación gira alrededor de lo que hace falta para promover una regeneración exitosa y sostenida. Lavea Brachman y yo hablamos de esto en nuestro informe de enfoque sobre políticas de suelo, pero espero poder investigar este tema más profundamente, examinando incluso algunas ciudades europeas que se han visto en situaciones similares a las de las ciudades industriales norteamericanas. Creo que las experiencias de las ciudades del norte de Inglaterra, por ejemplo, o el valle del Ruhr en Alemania, son similares a nuestras ciudades industriales históricas.
Land Lines: ¿Qué quiere decir con «regeneración exitosa»?
Alan Mallach: Esta es una cuestión muy importante. Yo creo que frecuentemente hay una tendencia a ver un evento en particular (las Olimpiadas de Barcelona o un edificio importante como el Museo Guggenheim en Bilbao, España, por ejemplo) como evidencia de regeneración, cuando en el mejor de los casos es un impulso discreto para obtener un cambio más sustancial. Creo que la regeneración tiene que ser consecuencia de cambios en tres áreas fundamentales: primero, el bienestar de la población, que se refleja en parámetros tales como el desempeño en educación superior, nivel de ingresos y menor desempleo; segundo, un mercado inmobiliario más fuerte y mayor fortaleza de los barrios; y tercero, la creación de nuevos sectores económicos orientados a la exportación para reemplazar el sector industrial perdido. El crecimiento de población por sí solo (es decir, la reversión de la disminución histórica de población) puede ser o no una prueba de regeneración. Es más probable que sea una consecuencia de estos tres cambios en vez de una causa.
Land Lines: ¿Cómo ve el futuro de las ciudades industriales norteamericanas?
Alan Mallach: Veo un futuro mixto. Como hemos mostrado en el informe sobre enfoque en políticas de suelo, a algunas ciudades les está yendo mucho mejor que a otras. Pittsburgh y Filadelfia están mostrando signos fuertes de resurgimiento, mientras que Cleveland, Detroit y Buffalo están perdiendo terreno. Creo que las ciudades industriales tienen dos desafíos importantes a medida que miran hacia el futuro.
El primer tema es cuál será el motor económico de estas ciudades. Las ciudades que han tenido mayor éxito hasta ahora han podido concentrar los grupos más significativos de universidades de investigación nacional y centros médicos. Estas instituciones tienden a dominar las economías de sus ciudades. Si bien han ayudado a ciudades como Pittsburgh y Baltimore a reconstruirse en la era postindustrial, creo que quedan muchas preguntas por contestar en lo que se refiere a su sostenibilidad como motores económicos de largo plazo.
La segunda cuestión es demográfica. Los centros pueden estar atrayendo a personas solteras y parejas jóvenes, pero muchos de los barrios residenciales de estas ciudades fueron construidos hace alrededor de 100 años, como comunidades principalmente para parejas casadas que estaban criando a sus hijos. Ahora se están descomponiendo incluso muchos barrios que habían permanecido estables hasta hace relativamente poco. Esta demografía de parejas casadas con niños está disminuyendo en todo el país, y más aún en las ciudades más viejas. Hoy, por ejemplo, sólo el 8 por ciento de los hogares de Baltimore está en esta categoría. Creo que el futuro de estos barrios es muy importante para el destino de estas ciudades, y estoy muy preocupado por sus perspectivas.
Land Lines: A pesar de estos desafíos, ¿cree que su trabajo marca la diferencia?
Alan Mallach: El hecho es que muchas ciudades están avanzando. Pittsburgh ha realizado una excelente tarea al valorizar sus activos para desarrollar nuevos motores económicos, mientras que Baltimore y Filadelfia están haciendo grandes avances al reorganizar muchas de sus funciones gubernamentales para resolver los desafíos de propiedades vacantes y problemáticas. Baltimore, por ejemplo, ha iniciado un programa llamado De vacantes a valor (Vacants to Value) que integra el cumplimiento de códigos de edificación y las propiedades problemáticas con estrategias más abarcadoras de construcción de mercados. He tenido la fortuna de haber participado directamente en algunas ciudades, como Filadelfia y Detroit; por otro lado, siempre me gratifica cuando funcionarios locales o líderes comunitarios me cuentan que usan mi trabajo, o que mis pensamientos han influido en ellos. Esto hace que el esfuerzo valga mucho más la pena.
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More than any other single variable, the change in land values across time and over space provides important insights into the shifting spatial structure of a city. Whereas a typical property sale reflects the combined value of the land and buildings, the land value alone represents the actual current worth of a location and suggests expectations about the future. Even if a parcel bears the burden of an outmoded construction, the price of the land reflects the present discounted value of the stream of returns that could be earned from the highest and best use of the parcel. Rapidly rising land prices in an area of a city are a clear indication that people expect the neighborhood to be in high demand for some time to come, signaling investment opportunities to developers. Changes in land values may also serve to alert city officials that an area may require zoning changes and investments in infrastructure.
Land value is also an important component in the cost approach to property assessment, which is one of the three commonly used assessment methods (including the sales comparison and income approaches). The cost approach has three major components: (1) the cost of building the existing structure if it were new at the time of assessment; (2) the depreciation of the building to its current condition; and (3) the price of the land parcel. Adding (1) to (3) and subtracting (2) generally produces a good estimate of overall property value. In standard property transactions, however, land values are not easily separated from the value of structures. Sales of vacant land, which more clearly indicate a site’s value, are relatively rare in large, built-up urban areas; as a result, relatively few studies of vacant land sales exist (see Ahlfeldt and Wendland 2011; Atack and Margo 1998; Colwell and Munneke 1997; Cunningham 2006). Teardowns can sometimes be used to measure land values, because land represents the entire value of a property when the existing building is demolished immediately following a sale (McMillen 2006; Dye and McMillen 2007). However, teardowns tend to be concentrated in certain high-value neighborhoods, and the data on demolitions can be hard to obtain.
Among U.S. cities, Chicago is uniquely fortunate to have a data source, Olcott’s Land Values Blue Book of Chicago, which reported estimates of land values for every city block and for blocks in many Cook County suburbs for most of the 20th century. Olcott’s provided a critical input to the cost assessment procedure: After determining the building cost and depreciation, the overall value of a property can be assessed by multiplying the parcel size by the land value provided in the Blue Book series. This article is based on a sampling of data from the Olcott volumes (box 1). It includes a series of maps that provide a clear picture of the spatial evolution of Chicago during the 20th century, similar in spirit to the classic book, One Hundred Years of Land Values in Chicago (Hoyt 1933).
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Box 1: Data Sources for Chicago Land Values
Olcott’s Land Values Blue Book of Chicago covers the City and much of suburban Cook County with a series of 300 maps, each printed on one page of a book. The city itself comprises 160 individual maps with an impressive level of detail. Most block faces have a value representing the price per square foot for a standard 125-foot-deep lot. Land use is also indicated. Large lots and most industrial land have prices quoted by the acre or occasionally by the square foot for an unspecified lot depth. The data represent land values for 1/8- x 1/8-mile square grids, which closely follow Chicago’s street layout and thus resemble city blocks. Each year’s data set includes 43,324 observations for the entire city.
The Lincoln Institute of Land Policy has provided funding to digitize the data contained in Olcott’s Blue Book for a series of years spanning much of the twentieth century: 1913, 1926, 1932, 1939, 1949, 1961, 1965, 1971, 1981, and 1990. A more thorough description of the procedure used is presented in Ahlfeldt et al. (2011). Digitizing the maps involves bringing them into a GIS environment. Average land values are calculated for 1/8- x 1/8-mile squares overlaid on the maps. The full data set has more than 600,000 data points across the 10 individual years.
Olcott’s stopped publication in the early 1990s, and the last year of digitized data is 1990. To supplement Olcott’s records for recent years, the authors obtained data on all vacant land sales in the city from 1980 to 2011. More than 16,000 sales were successfully geocoded, and they display the dramatic increase in land prices during the period prior to the collapse of the housing market at the end of 2006. These combined data sets provide a unique opportunity to analyze the changing spatial structure of an entire city over an extended time.
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Spatial Variation in Land Values
Despite its flat terrain, Chicago has never been a truly monocentric city. Lake Michigan has long been an attractive amenity for its scenic value, its moderating effect on the climate, and the series of parks lining its shore. The Chicago River also has had a significant influence on the location of both businesses and households. Development to the north of the Central Business District (CBD) was delayed because the bridges over the main branch of the river had to open so often for river traffic that commuting to the Loop business area was unpredictable and time consuming. The north and south branches of the river attracted both industrial firms and low-priced residential developments for laborers while repelling high-priced homes designed for CBD workers. The locations of major streets, highways, and train lines also had significant effects on development patterns. Thus, there is ample reason to expect that the rate of change in land values varies across the city.
The maps in figure 1 show this spatial variation in land values in Chicago over time. In 1913, land values were highest in a large area around the CBD, and they were also quite high along the lakefront and along some of the major avenues and boulevards leading out of the downtown area. In 1939, this pattern was generally similar, along with the rise of the north side relative to the south side of the city: Land values were very high all along the northern lakefront and extending well inland on the north side. The area at the edge of the city due west of the CBD (the Austin neighborhood) also had relatively high land values in 1939.
By 1965, the pattern of land values had changed markedly. Very high land values were confined to a relatively small area in the CBD. The high-value area of the west-side Austin neighborhood was much smaller in 1965 than in 1939, and nearly all the formerly high-value areas had shrunk in size.
By 1990, however, the situation changed dramatically. The area with very high values extended much farther north and inland than previously. Areas on the south side had relatively high land values in 1990, particularly around the South Loop (near the CBD) and Hyde Park (along Lake Michigan south of the CBD).
After 1990, the pattern of continued redevelopment of the city is based on an analysis of actual sales of vacant land. The expansion of the high-value area to the north and west of the CBD is remarkable, and the near south side also enjoyed a resurgence during this time.
Figure 2 addresses how the recent recession affected the growth of land values in Chicago by expressing land values as a function of distance from the CBD. The plots show the change in average (log) land values over time for tracts with centroids falling within 2-, 5-, and 10-mile rings around the CBD. In 1913, average land values were far lower 10 miles from the CBD than in the closer rings. By the 1960s, there was little difference between land values across these distances. Since then, average values grew much more in the 2-mile ring than in more distant locations. During the Great Recession, land values declined rapidly in the 2-mile ring, less rapidly in the 5-mile ring, and not at all in the 10-mile ring. Thus, the areas that had the highest rates of appreciation during the period of extended growth also had the highest rates of decline during the recession.
Figure 3 provides a different perspective on the spatial variation in land values over time. The three panels show smoothed land value surfaces for 1913, 1990, and 2005. The 1913 and 1990 surfaces are estimated using Olcott’s data, while the 2005 estimates are based on sales of vacant land. In all three years, land values are far higher in the CBD than elsewhere. In 1913, there are a large number of local peaks in land values at the intersections of major streets. These areas were relatively small commercial districts that served local residents in a time before car ownership was commonplace. In 1990, the land value peak in the CBD is accompanied by a much lower plateau just to the north along the lakefront. In 2005, the plateau has grown to a large area that extends well into the north side and inland along the lakefront. The region of high land values has also extended south along the lakefront, with a local rise much farther south in Hyde Park.
Persistence of Spatial Patterns
Historical land values are interesting not only because they reveal how an urban area has changed over time, but also because the past continues to exert substantial influence on the present. Cities are not rebuilt from scratch in every period. Buildings last a long time before they are demolished, and sites that were attractive in the past tend to remain desirable for a long time. One of the unique features of the Olcott’s data set is that it allows us to compare land values from 100 years ago to current land values and land uses.
Figure 4 shows the average date of construction for the 1/8- x 1/8-mile squares. The recent recentralization of Chicago is evident in the donut shape of building ages around the CBD. The newest buildings are close to the CBD, while the oldest buildings are in the next ring. Buildings in the most distant region were most likely built between 1940 and 1970.
Figure 5 summarizes this relationship by comparing the mean construction date to distance from the CBD. The oldest buildings are in a ring just over 5 miles from the CBD.
A good measure of structural density is the ratio of building area to lot size. Economic theory predicts that structural densities will be high where land values are high. Structures last for a long time. How well do past values predict current structural density? Figure 6 compares the structural density of buildings in the 2003 Cook County assessment rolls to land values in 1913 and 1990. This data set includes the building area of every small (six units or fewer) residential structure in Chicago.
The height of the bars indicates the structural densities: Tall bars have relatively high ratios of building areas to lot sizes. The color of the bars indicates land values: Red bars have relatively high and values. Thus, we should expect to see a large number of tall red bars and low green bars. In general, the two panels do indicate a positive correlation between structural density and land values. The correlation is particularly evident on the north side and along the lakefront. The correlation with 1990 is less clear on the south and west sides. Several elevations in the density surface are not matched by correspondingly high land values. One explanation for these results, which are in line with the reorientation of high-priced areas toward the north side, is that the relatively high densities in these areas are artifacts of a past when those blocks were relatively more valuable and when there were incentives to use the land intensively. The 1913 panel of figure 6 suggests that land values are actually more closely correlated with building densities for 2003 than are the 1990 values. The root of this apparently anomalous result is that building density reflects the economic conditions at the time of construction, and most of the buildings in that part of the city date from long ago. The past continues to exert a major influence on the present.
Conclusion
Olcott’s data provide a clear picture of the changes in Chicago’s spatial structure during most of the 20th century. Never a truly monocentric city, Chicago began the century with very high land values in the CBD, along the lakefront, and along major avenues and boulevards leading out of the downtown area. Values were also high in neighborhood retail areas at the intersections of major streets. By 1939, the north side of Chicago had already begun to display its economic dominance. The city then suffered an extended period of decline, with the CBD holding the only major cluster of high land values in the 1960s. Since then, the city has undergone a remarkable resurgence. High land values now extend over nearly the entire north side, and land values have also rebounded in parts of the south side. Our analysis also shows the strong role that history continues to play in the current spatial structure of the city. A result of this persistence is that land values from a century ago are better than current land values at predicting the density of the current housing stock.
Acknowledgments
The authors thank the Lincoln Institute of Land Policy for generous funding and support, and are grateful to the Centre for Metropolitan Studies at the TU-Berlin for hosting a team of researchers during the project work. Kristoffer Moeller and Sevrin Weights are acknowledged for their great contribution to designing and coordinating the compilation of the data set. Philip Boos, Aline Delatte, Nuria-Maria Hoyer Sepulvedra, Devika Kakkar, Rene Kreichauf, Maike Rackwitz, Lea Siebert, Stefan Tornack, and Tzvetelina Tzvetkova provided excellent research assistance.
About the Authors
Gabriel M. Ahlfeldt is associate professor at the London School of Economics and Political Sciences (LSE) in the Department of Geography and Environment and Spatial Economics Research Centre (SERC).
Daniel P. McMillen is professor in the department of economics at the University of Illinois at Urbana-Champaign.
Resources
Ahlfeldt, Gabriel M., Kristoffer Moeller, Sevrin Waights, and Nicolai Wendland. 2011. “One Hundred Years of Land Value: Data Documentation.” Centre for Metropolitan Studies, TU Berlin.
Ahlfeldt, Gabriel M., and Nicolai Wendland. 2011. “Fifty Years of Urban Accessibility: The Impact of the Urban Railway Network on the Land Gradient in Berlin 1890–1936.” Regional Science and Urban Economics 41: 77–88.
Atack, J., and R. A. Margo. 1998. “Location, Location, Location! The Price Gradient for Vacant Urban Land: New York, 1835 to 1900.” Journal of Real Estate Finance & Economics 16(2) 151–172.
Colwell, Peter F., and Henry J. Munneke. 1997. “The Structure of Urban Land Prices.” Journal of Urban Economics 41: 321–336.
Cunningham, Christopher R. 2006. “House Price Uncertainty, Timing of Development, and Vacant Land Prices: Evidence for Real Options in Seattle.” Journal of Urban Economics 59: 1–31.
Dye, Richard F., and Daniel P. McMillen. 2007. “Teardowns and Land Values in the Chicago Metropolitan Area.” Journal of Urban Economics 61: 45–64.
Hoyt, Homer. 1933. One Hundred Years of Land Values in Chicago. Chicago: University of Chicago Press.
McMillen, Daniel P. 2006. “Teardowns: Costs, Benefits, and Public Policy.” Land Lines, Lincoln Institute of Land Policy 18(3): 2–7.
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Since its inception just over a year ago, the Northeast State Planning (NESP) Leadership Retreat has been a valuable professional development tool for state planners from Maine to Maryland. This collaboration between Lincoln Institute and Regional Plan Association (RPA) brings together high-level state officials to discuss current state planning issues. After only two annual meetings the participants from 11 northeast states already have implemented ideas discussed with their peers, and a few states have initiated and built smart growth planning and community development schemes inspired by this interstate exchange.
At the second retreat held in March 2000, the participants shared new ideas and success stories, addressed “the do’s and don’ts” of building state planning programs, and took steps toward establishing an economic development program for the northeast corridor. They compared state growth management initiatives in the Northeast to those occurring in the rest of the country, and traded caveats and suggestions on how to sustain political support in the face of a changing economy, bipartisan politics and conflicting interests.
Smart Growth Across the Nation
According to John M. DeGrove, Eminent Scholar of Growth Management and Development at Florida Atlantic University, a new and bipartisan commitment to smart growth is developing across the United States. No longer is the nation enshrouded in a “no-planning” or “planning in isolation” mindset by state and local governments.
As the keynote speaker at the retreat, DeGrove outlined prerequisite factors crucial to a sustainable smart growth program. A primary realization is that the protection of natural systems and the revitalization of urban systems on a local level should happen concurrently with support and coordination from state agencies. Executive leadership can strengthen state legislative initiatives and is usually crucial to program development and implementation. The involvement of diverse coalitions can also be critical in accelerating a smart growth agenda at the state level.
For a progressive smart growth program to survive, there must be an impetus to place growth management in a state or regional framework bolstered by strong incentives and disincentives. State actions linked to federal programs-TEA 21, the Clean Air Act, the Clean Water Act, and the possible renewed funding of the Land and Water Conservation Fund-can enhance the success of strategic, comprehensive planning. Finally, bottom-up coalition building, grassroots efforts, and state agency coordination should be used in place of or in conjunction with top-down approaches. Experiences in Maryland and Pennsylvania have shown that such processes are effective.
Patricia Salkin, associate dean and director of the Government Law Center of Albany Law School in New York, is also at the forefront of growth management research. She has compiled and analyzed information about state planning programs across the country, citing gubernatorial support and legislative reforms as the primary factors driving smart growth programs. She reported that gubernatorial support is generally strong in the Northeast and is growing in such states as Arizona, Colorado, Georgia, Illinois, Minnesota, North Carolina, Utah and Wisconsin.
Salkin mentioned three main categories of legislative reform: 1) recodification and tightening of existing laws, 2) authorization for innovative and flexible controls, and 3) major overhauls. As examples, Oklahoma’s Senate Bill 1151 created a Planning and Land Use Legislative Study Task Force to evaluate the effectiveness of current laws, review model legislation, and identify public information needs; California’s Assembly Bill 1575, encourages innovative land use policies such as unified county plans; and Tennessee is undertaking a study to overhaul its planning and growth management framework and replace it with a smart growth program.
Sustaining Political Support
Sustaining political support for smart growth plans is a challenging task. Bipartisan politics, influential lobbying interests, changes in administration, and home rule are just a few of the most commonly mentioned obstacles to comprehensive, regional programs that address urban, suburban, rural and conservation issues. Arguably, the current strong economy may be facilitating smart growth incentives as many states, especially in the Northeast, offer monetary and capital rewards to municipalities whose policies are consistent with state and regional plans.
A number of common practices on this topic were outlined at the retreat. State agencies such as the office of planning or the department of community affairs may develop coalitions with entities other than fellow state agencies, especially if the “state” is seen as a meddling force in local issues. Some success stories tell of coalition building with elder communities, religious leaders and faith-based communities. Others have tried the silent partner approach in a public/private venture. Most importantly, the political force of local voices can be potent in getting local officials, state congressional representatives and agencies involved.
One key area that requires cautious handling is the presentation and dissemination of information. When plans move from general to specific, care must be taken to allow a broad range of interests to perceive personal and community benefits at the present time and through continued participation in the future. The use of proper terminology is also crucial. For example, in a politically driven world, executives may strive to separate themselves from counterparts with original ideas and phraseology. A state can gain distinction by interchanging the prevalent term “smart growth” with “community preservation,” or “locally designated growth areas” with “urban growth boundaries.”
Political support also can be sustained by creating educational programs to address the planning needs of a community. Training and curricula can be developed for elected public officials and for citizens appointed to planning boards, board of appeals and historic preservation committees. Some efforts have even begun to institutionalize planning studies at the elementary, middle and high school levels. Stamford, Connecticut, for example, is engaged in a program modeled after the recycling movement to encourage school children to bring home planning issues and initiate their family’s involvement in the development and growth of their communities.
Revitalizing the Northeast Corridor
Numerous areas around the globe have adopted the regional corridor concept of economic development. Major capital campaigns are in the process of feasibility analysis or implementation in such diverse locations as California’s San Francisco to San Diego corridor and China’s Beijing to Shanghai corridor. Representatives from several northeast states reported that they are working collaboratively to encourage the economic development of their corridor. Transportation, especially the utilization of rail, is an essential component of the strategy to move goods and people more efficiently throughout the Northeast. Of particular interest is linking the economies of mid-sized cities with the region’s megalopolis anchors-Washington, DC, New York and Boston. The intermediary cities include Providence, RI; Hartford, New Haven, Bridgeport and Stamford, CT; Newark and Trenton, NJ; Philadelphia, PA; Baltimore, MD; and Wilmington, DE.
This planning group, led by the Regional Plan Association, will create a vision and mission statement for the project and then conduct an economic analysis to quantify the benefits. Once a plan is formulated, its cost will be calculated and a timeline will detail the phasing-in of each segment. The participants will then begin an outreach effort to gain backing from various state and local officials, as well as advocacy groups and community representatives. Amtrak, the main source of passenger rail in the corridor, plans to have its high-speed regional train service on-line in late 2000, and a number of partnerships could evolve from the already active advocacy efforts of several groups, such as the National Corridors Initiative/NCI, the I-95 Corridor Coalition, and the Coalition of Northeastern Governors (CONEG). A diverse coalition of business, civic and nonprofit organizations may be instrumental in advancing a regional economic development instrument.
A Southeastern Massachusetts Case Study
The planning retreat culminated with an exercise that looked at the rural southeastern region of Massachusetts where the Commonwealth and the Executive Office of Environmental Affairs (EOEA) are planning to cultivate a bioreserve. Now in its initial stages, this program seeks to preserve vast tracts of valuable land, including forests and wetlands, and curb haphazard and uncoordinated development. The area of concern is the largest high-yield, sole-source aquifer in Massachusetts, with close to 70,000 acres of cranberry bogs, areas of endangered habitat, and a cluster of pine barrens. The Commonwealth is exploring various avenues to preserve these natural resources.
Through a statewide Community Preservation Initiative, the Commonwealth has begun to provide technical assistance to towns in the region by helping them forecast their commercial/industrial buildouts based on current zoning and population estimates. The EOEA hopes this information will help the communities make better decisions regarding future development and put this knowledge to use on a cooperative regional level to create beneficial growth plans for all nearby cities and towns.
The participants emphasized three considerations that specifically addressed the issues raised by the EOEA, and that are transferable to other regional planning initiatives. First, negotiated processes, whether between state government and a municipality, between municipalities, or between a community and a state agency, are effective in consensus building and cutting costs. Investing in consensus building at the beginning of the planning process can preclude litigation costs and the costs of stalled development due to community opposition. Second, technical assistance must be provided in a manner that keeps communities engaged throughout the entire analysis stage. Engagement increases support for the results and demystifies the “technical experience,” thus giving a sense of empowerment and control to those most affected by the final plan. Finally, local government involvement is key to any planning process, since local officials usually have their fingers on the pulse of community vitality and needs, and can use that knowledge to ensure effective programs.
Alternatively, participants mentioned a few pitfalls that need to be avoided in the context of this southeastern Massachusetts case. The original mapping of the bioreserve maximized the layout of open spaces and land in need of protection. However, in the desire to classify maximum acreage for protection, some new boundaries would have cut through municipalities, leaving the potential of an insider/outsider dichotomy. In areas where home rule is a coveted prize, as in Massachusetts towns, government programs are often met with suspicion and resistance. Further, if state government presents an agenda for preservation with lines drawn and boundaries sited without local input, communities will often react adversely to any plans, regardless of the goodwill and intent of the program. The ideal action to preclude these problems is to offer technical assistance to achieve through collaboration the preservation that the state ultimately wants. Preferably, the entire municipality should be represented in any regional framework for southeastern Massachusetts to facilitate inter- and intra-muncipal support for the desired program.
In conclusion, the discussions at the Second Annual NESP Retreat offered a great deal of insight into the experiences of the 11 states represented. Though they share a common geographic location, they have taken many approaches to address future growth and development. The retreat offered instructive lessons on the common theories, practices and principles that are useful in building a diverse array of programs appropriate to each state’s local conditions, and it underscored the value of continuing such meetings.
Robert D. Yaro is executive director and Raymond R. Janairo is senior research associate of the Regional Plan Association, based in New York City.
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Cities in Latin America, Asia, and Central and Eastern Europe are being virtually transformed by inflows of capital in ways that urban land use planners never thought possible. These cities desperately need to develop and implement urban land management systems to maximize the social as well as private benefits of globalization. This article looks at globalization trends, identifies urban land management issues and opportunities, and discusses how Buenos Aires, as a case example, could strengthen its urban land management systems to better accommodate globalization-induced economic growth.
Globalization Trends
Over the past 20 years the world economy has become more and more integrated. International trade and investment have increased and the spatial distribution of industrial activities has become more diffused. Advances in communications, computer technology and logistics have revolutionized how business is conducted and how financial capital is invested. Many cities and regions that were once off the beaten track are now on the world’s main street, and those that once dominated certain markets, such as Glasgow in shipbuilding, Birmingham in textiles and Pittsburgh in steel, have lost ground.
Globalization, that is the international integration of product, service and financial markets, poses enormous opportunities and challenges. In the best of circumstances, globalization can lead to significant increases in non-agricultural employment, increasing wages, improved living conditions and better environmental quality. In other cases it may mean plant closures, unemployment, declining incomes and worsened living conditions
Because globalization requires foreign direct investment in plants and facilities, the internationalization of industrial activities is profoundly altering the world’s urban economic landscape. Over the past two decades, cities benefiting from global structuring have grown rapidly, while less economically competitive cities have stagnated. Given their plentiful supplies of cheap labor and permissive regulatory environments, cities in developing countries have become important actors in global manufacturing.
Multinational manufacturing corporations have been the principal driving force of globalization. These firms have increasingly shifted production from developed to developing countries to exploit the advantages of inexpensive labor. As they restructure their networks of production, they invest in plants and equipment in the host countries and generate significant increases in employment. According to the World Bank, five of the eight million jobs created by multinationals between 1985 and 1992 were generated in developing countries. The total number of jobs created by multinationals in developing countries stands at 12 million, but when subcontracting is included the true total is likely to be 24 million jobs. Multinationals account for more than 20 percent of the total manufacturing employment in such countries as Argentina, Barbados, Indonesia, Malaysia, Mexico, the Philippines, Singapore and Sri Lanka.
Urban Land Management Issues and Opportunities
As cities strive to become centers of global production, trade and development, they are increasingly concerned with improving their attractiveness for foreign direct investment and employment generation. For example, cities must have efficient spatial structures, adequate infrastructure and urban services, affordable housing and healthy environments. Effective urban land management is required to promote urban regeneration and development of new industrial and commercial districts, investments to upgrade and expand critical infrastructure systems, programs to enhance and protect the environment, and initiatives to upgrade social overhead capital (housing, education, healthcare).
To implement these initiatives globalizing cities need to develop urban land management strategies to provide land for industrial and commercial development, to facilitate the formation of public-private partnerships, and to finance the provision of infrastructure and social overhead capital investments. Unfortunately, in many cities around the world such strategies do not exist and foreign investment is either stifled or, if it does take place, causes significant adverse side effects. Several examples highlight the consequences of poor urban land management.
In Ho Chi Minh City, planners have not carefully assessed the land use and transportation impacts of foreign investment. The city administration has approved dozens of high-rise office projects in the Central District but they have not adequately assessed the traffic and infrastructure impacts of these projects. As a result traffic congestion and infrastructure problems with the water supply and sewerage treatment are mounting. To make matters worse, planners have approved the development of Saigon South, a massive 3,000-hectare commercial, industrial and residential project, without assessing its impacts on the city’s transportation system.
Getting access to land for factories and commercial facilities is problematic, particularly in the transition economies of Eastern Europe and the former Soviet Union. Decades of inefficient allocation of land for industrial uses have literally blighted inner-city areas in Warsaw, Moscow and St. Petersburg. Derelict industrial belts that desperately need regeneration surround these cities. Unfortunately, a lack of clarity over land rights, corruption and bureaucratic inertia are impeding redevelopment. To compound matters, land use plans in many transition economy cities have not been adjusted to reflect the new land use requirements necessary to support post-industrial development.
The globalization of economic activity is literally transforming the urban landscapes of developing countries. To effectively exploit the benefits of inward investment flows and to insure that social and environmental goals are met, the public sector needs to take the lead in planning and formulating urban land management strategies to promote sustainable urban economic development.
The Case of Buenos Aires
A recent Lincoln Institute seminar in Buenos Aires offered some ideas on what actions are needed to more effectively manage the challenges of globalization-induced investment and urban economic development in that city. Participants agreed that Buenos Aires needs to strengthen its land management and economic development capabilities. The city should foster the formation of agglomeration economies and define and strengthen its comparative advantage in the global marketplace. The public sector should also foster the formation of social overhead capital and facilitate the development of critical infrastructure, social services and other investments that cannot be provided by the private sector.
Government needs to remove market imperfections and internalize externalities so that the social benefits of urban development are maximized and social costs minimized. This requires having in place sound and appropriate land use and environmental planning controls and regulations. Government should also provide information about the city’s demographic and economic projections and its land and property market so that developers and investors are well informed about urban development trends. This effort includes developing an inventory and assessment of public land holdings that can be used to foster strategic planning objectives.
At the same time, government should work with community and business leaders to improve social equity in real estate market transactions by increasing the supply of affordable housing and seeing that infrastructure and urban services are provided to all neighborhoods regardless of social or economic status. This may include preparing a capital budget for critical infrastructure and real estate development projects, as well as strategies for financing these investments.
The private sector is challenged with developing the city by providing businesses and residents with shops, offices, factories and housing. To the fullest extent possible, the government should enable the private sector to develop real estate to match the changing requirements of households and businesses. In some cases, such activities require partnerships between the public and private sector. For its part, the private sector needs to be more cautious and systematic about the formation and promotion of real estate projects by paying more attention to land market research on occupancy demand and supply for offices, retail, industrial and residential sectors.
To facilitate the implementation of these actions, the seminar participants encouraged Buenos Aires officials to build awareness about the linkages between globalization, urban land management and economic development. One important step would be to form a partnership with the private sector to develop a land market database of real estate transactions in the city. In addition, the participants identified the need for training courses on such topics as strategic planning; public-private partnerships; financing urban development and infrastructure; developing affordable housing; linking urban land management with economic development; and promoting urban revitalization and regeneration.
David E. Dowall is professor of city and regional planning at the University of California at Berkeley.
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The idea of reducing or abolishing capital gains taxes to encourage private investment and general economic growth often comes up in state and national political campaigns. Advocates of cutting these taxes argue that if investors could keep their gains, they would invest them in new enterprises, thereby creating new jobs and strengthening local economies.
The public discussion usually focuses on stock market investments, but most capital gains are generated in the real estate sector where most of the economy’s assets are based. In 1994, the Federal Reserve Board estimated that real estate accounted for 67 percent of the nation’s total economic assets, including land worth about $4.4 trillion, homes worth $5.9 trillion, and other buildings (stores, factories, office buildings) worth an additional $3.1 trillion.
There are no comprehensive national statistics on capital gains from real estate or other assets. But the most recent survey by the Internal Revenue Service, conducted in 1985, estimated that land and buildings accounted for at least 58 and perhaps as much as 70 percent of the total of $208 billion in capital gains that year.
Federal statistics also report that the annual cost of doing business in real estate often exceeds the taxable income generated from land and buildings. It follows that many real estate investors receive a net benefit only when they eventually sell their properties for more than they originally cost. In effect, they are willing to turn over most current income to their mortgage bankers, in the hope of reaping a capital gain at the end of the process.
How Much Total Income Does Real Estate Generate?
There are no adequate national statistics on how much real estate is worth or the total income it generates. It is possible, however, to estimate real estate cash flow by starting from the income reported by the owners of real estate and adding to that some of the major expenses they paid before paying taxes. In 1993, the owners of real estate reported receiving about $209 billion in cash flow (earnings plus depreciation), though the amount depreciated was not taxable. In addition, the real estate industry paid about $515 billion in a combination of mortgage interest and property taxes. Thus real estate generated at least $724 billion in total earnings in 1993 (see chart 1).
The portion of this total paid out as interest to lenders since the end of World War II has grown much faster than any other part of the total. Between 1945 and 1993, the share of real estate earnings paid out as interest grew from about 10 percent to about 50 percent. This reflects the fact that about 70 percent of private sector lending is committed to real estate mortgages. This two-way street—with money flowing from real estate into financial institutions, then back out into real estate loans—is one reason why federal statistics lump real estate and finance together as the “finance, insurance, and real estate” sector, or FIRE for short.
Who Receives Income Generated by Real Estate?
Federal income and tax statistics attribute income from real estate to three categories of owners: persons, corporate real estate and noncorporate real estate. These categories are not self-explanatory. They are based on the motives and behavior of real estate owners, and do not refer simply to individual people, partnerships and companies.
“Persons” receive some income from real estate, though it is not their primary way of earning a living. They may rent out an apartment in a two-family house or a second home during the off-season, for example; or, they may own an apartment building or small commercial property.
“Corporate real estate” is a relatively small category, consisting only of land and buildings that are owned and used for non-real estate business purposes. For example, manufacturing companies typically own their own corporate headquarters and industrial plants. To capture tax advantages, however, these companies may spin off their facilities as “noncorporate” real estate, then lease them back.
The “noncorporate real estate” category is the least obvious. Owners in this category participate either full- or part-time in real estate as a business, mostly through partnerships. The category includes a wide range of people and organizations, from professional developers or property management companies to doctors who own nursing homes.
In 1993, the annual earnings for these three categories were $86 billion for persons, $3 billion for corporate owners, and $120 billion for noncorporate owners (see charts 2-4).
How Is Real Estate Income Taxed?
Since 1970, when the federal government began separating real estate statistics from those for the finance and insurance sectors, real estate has shown little taxable income. Corporate and noncorporate real estate businesses enjoy several tax advantages that help to account for this seeming anomaly of the economy’s major asset generating such low reported earnings:
(a) Like other business owners, they can deduct the cost of maintaining their property (painting, landscaping, replacing a leaky roof, etc.) as an expense before paying taxes on their business income. The purpose of this spending is to preserve the value of their real estate.
(b) They can also claim depreciation (“capital consumption allowances”) for their buildings (technically land does not depreciate). In most businesses, this allowance is a way to compensate for wear-and-tear on machinery, which must be replaced when it becomes obsolete. In practice, real estate owners have often been allowed to depreciate their buildings even though their market value is not declining at all.
(c) When owners sell their properties, any positive difference between the depreciated price received and the price originally paid is taxed as a capital gain. Capital gains are taxed at a lower rate than other income. Thus, over-depreciation turns out to be a way of minimizing tax liability.
The combination of (b) and (c) raises what might seem like an obvious question: how can real estate depreciate, losing value and eventually needing replacement, yet end up selling for more than its purchase price, generating capital gains? Of course a given piece of real estate does not always do both. Some real estate is indeed sold at a loss–for example, if property values in a whole neighborhood or city decline. But land, unlike machinery or even buildings, cannot wear out. Since World War II, urban land in particular and real estate holdings in general have gained in value far more often than they have declined.
How Should Real Estate Income Be Taxed?
In a rising market, federal tax policy allows real estate investors to earn several times more than they could simply by making smart buying and selling decisions. Writing off maintenance expenses and the supposedly declining value of the property before calculating taxable income means that the same property can produce a steady income for realtors and potential investors, but appear to lose money as far as the federal tax collector is concerned.
A tax-smart investor in a rising real estate market will own a piece of property only until it has been fully depreciated. It then has a “book value” of zero—like a piece of machinery so worn out or outdated that it cannot be sold at any price. The owner of such a machine has to junk it and buy a new one. The real estate investor, in contrast, can sell the “zero value” property to new owners, who can depreciate it all over again starting from the new, higher price they paid.
The upshot of these tax policies is that an industry with large total earnings reports little or no taxable income. Charts 3 and 4 show that real estate businesses have reported a negative taxable income frequently since the mid-1980s, despite the fact that real estate values in many places were rising. Since the real estate industry pays hardly any income taxes on its rental income, the major federal tax it does pay is the capital gains tax—for that is where the accumulated rental earnings are taken, when the building is sold for its depreciated value.
Does such favorable tax treatment for real estate benefit the economy as a whole? That question cannot be answered from tax statistics alone. The answer depends in part on whether all real estate projects that are taxed the same way are equally good at generating public benefits, such as jobs in construction and property maintenance, or other needed goods such as housing, shopping, and manufacturing facilities. If the answer to that question is “no,” then the public interest might be better served if funds now invested in real estate for tax advantages alone were invested in new technologies or public infrastructure.
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Michael Hudson is a research associate at the Jerome Levy Economics Institute at Bard College in New York. He is writing a book about how federal income and capital gains taxes on land and buildings affect national taxation and investment patterns, and he spoke on this topic at the Lincoln Institute in October 1995.
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The collapse of communism in the early 1990s launched an era of political and economic reforms in Russia and throughout the former Soviet Union that introduced democracy and the free market economy to countries that previously had no experience with either of these concepts. In Russia privatization of land was one of the first items on the reform agenda, and by the end of 1992 the Russian Parliament had adopted the federal law On the Payment for Land. This law set normative land values differentiated by regions to be used for taxation, as well as a basis for land rent and purchase. At the time the country had no land market, so this was considered a very progressive measure. Lands that were previously held in public ownership were rapidly distributed to individuals, and by 1998 some 129 million hectares of land were privately held by some 43 million landowners. Introduction of private ownership rights in land also meant the introduction of the land tax, since owners or users of land plots became eligible to pay for their real property assets.
Economic reforms in Russia were accompanied by inflation that ran thousands of percent annually. To maintain revenue yields, local and regional authorities adjusted normative land values accordingly. As land market activity started to develop in the mid-1990s, some of these authorities used market price information to make land value adjustments. As a result land taxes became absolutely inconsistent with the economic situation, and tax amounts were not comparable for similar properties located in different jurisdictions.
By the late 1990s the land tax system had developed faults that required tax reform on a nationwide scale. The basic outline of the tax reform included the following features:
Reform of the land tax is seen as part of a wider property tax reform. The current property tax system in Russia includes a number of taxes: individual property tax; enterprise property tax; land tax; and real property tax. While the first three are operational, the fourth tax has been tested as an experiment since 1997 in two cities, Novgorod Veliky and Tver (Malme and Youngman 2001, Chapter 6). It is expected that when Russia is in a position to introduce the real property tax nationally, the first three taxes will be canceled.
In 1999 the Land Cadastre Service of Russia, a land administration authority of the federal government, was delegated the responsibility to develop mass valuation methods and to implement the country’s first mass valuation of all land. The government chose mass valuation, identifying the sales comparison, income and cost approaches as the basic valuation models that needed to be developed. Land is valued at its site value as if it were vacant.
Implementation of a mass valuation system has been constrained by the lack of reliable land market data, however. The housing market is the only developed market in Russia that can be characterized by a large number of sales transactions. These transactions are spread unevenly throughout the country, with large cities characterized by many transactions and high prices for apartments, whereas small towns and settlements have few examples of real estate sales. The national land market recorded some 5.5 million transactions annually, with only about 6 percent of them being actual buying and selling transactions. Official data from land registration authorities could not be used as a data source because transacting parties often conceal the true market price to avoid paying transfer taxes.
This lack of reliable market data has forced the developers of mass valuation models to identify other factors that may influence the land market. The model developed for valuation of urban land included some 90 layers of information that were geo-referenced to digital land cadastre maps of cities and towns. Apart from available market information, these data layers included features of physical infrastructure such as transport, public utilities, schools, stores and other structures. Environmental factors also are taken into consideration.
Mass valuation methods in Russia have identified 14 types of urban land use that can be assigned to each cadastral block. Thus, the model can set the tax base according to the current or highest and best land use. The actual tax base established for each land plot is calculated as the price of a square meter of land in a cadastral block multiplied by the area of the plot.
It took one year of development and model testing and two years of further work to complete the cadastral valuation of urban land throughout Russia. Actual valuation results suggest that the model works accurately with lands occupied by the housing sector. The correlation between actual market data and mass valuation results is between 0.6 and 0.7 on a scale of 0 to 1.0, with greater accuracy in areas where the land market is better developed.
Cadastral valuation of agricultural land is based on the income approach, since availability of agricultural land market information is extremely limited. Legislation allowing the sale of agricultural land became effective in early 2002. The data used to value agricultural land included information on soils and actual farm production figures over the last 30 years. Mass valuation of forested lands was also based on the income approach. Russian land law also identifies a special group of industrial lands located outside the city limits that includes industrial sites, roads, railroads, and energy and transport facilities. These lands proved to be a difficult subject for mass valuation because there are so many unique types of structures and objects on them; individual valuation is often applied to them instead.
Over the past four years, some 95 percent of Russia’s territory has been valued using mass valuation methodology. The Federal Land Cadastre Service continues to refine and improve its methods in preparation for the enactment of relevant legislation authorizing the introduction of a new value-based land tax. During this period, the Cadastre Service organized a Workshop on Mass Valuation Systems of Land (Real Estate) for Taxation Purposes, in Moscow in 2002, under the auspices of the United Nations Economic Commission for Europe. It also assembled a delegation for the Lincoln Institute’s course Introducing a Market Value-Based Mass Appraisal System for Taxation of Real Property, in Vilnius in 2003 (see related article).
Alexey L. Overchuk is deputy chief of the Federal Land Cadastre Service of Russia and deputy chairman of the United Nations Economic Commission for Europe (UNECE) Working Party for Land Administration.
Reference
Malme, Jane H. and Joan M. Youngman. 2001. The Development of Property Taxation in Economies in Transition: Case Studies from Central and Eastern Europe. Washington, DC: The World Bank. Available at http://www1.worldbank.org/wbiep/decentralization/library9/malme_propertytax.pdf
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Daphne Kenyon, a visiting fellow at the Lincoln Institute of Land Policy, heads D. A. Kenyon & Associates, a public policy consulting firm in Windham, New Hampshire. She also serves on the New Hampshire State Board of Education, to which she was appointed by Governor John Lynch (D) in 2006. Kenyon is writing a policy focus report for the Institute, titled Untying the Property Tax–School Funding Knot, which will be available in the fall of 2007.
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At the end of 2009, the United States faced an economic disaster of major proportions, with trillions of dollars of asset value lost, more than 16 million people unemployed, and four consecutive quarters of rapidly falling GDP. These events were the direct and indirect result of extreme volatility in the value of residential property that had served as collateral for the nation’s huge stock of home mortgages.
Between 2000 and 2005, the value of residential land and buildings increased from about $14 trillion to $24 trillion. About half of this increase reflected new construction, and half was due to rising land values, primarily on the coasts (Case 2007). But in late 2006 prices began to decline, and by mid-2009 they had fallen roughly 30 percent.
Measuring House Price Appreciation and Depreciation
The S&P/Case-Shiller repeat sales home price indexes were developed 25 years ago to track changes in the market value of existing homes. Based on observed values of properties that changed hands more than once, the indexes were proposed as an alternative to the prevailing measure of home price appreciation or depreciation, which was the median price of homes sold in a city or region. A simple median price will move up or down over time with changes in the mix of properties that sell, as well as with changes in the price or value of houses. This can cause the median price to shift even if no appreciation or depreciation occurs, particularly when new, higher-valued properties are part of the sales base.
In the repeat sales methodology we collect all available data on home sales and then determine if the same house has been sold in the past 20 years or so. Each pair of sales provides information on appreciation or depreciation. We then eliminate sales where the property has been changed significantly, or the sale was not arm’s length, such as purchases by a financial institution or sales where the buyer and seller have the same name.
Finally, we reduce the weight assigned to paired sales that are far apart in time, in part because there is a greater chance that those properties have undergone physical changes. We also eliminate paired sales that are less than six months apart, because they may represent purely speculative activity. We publish only results that are supported by strong statistical tests of confidence.
Home Prices: 1990–2010
Between 1975 and 2006 no measure of home prices showed a national decline. The S&P/Case-Shiller and OFHEO (Office of Federal Housing Enterprise Oversight) national house price indexes both show a continuous rise, accelerating around the year 2000 and peaking between 2006 and 2007 (figures 1a and 1b). However, Case and Shiller (2003) found that in 43 states the ratio of house prices to income remained low and constant between 1985 and 2002, even as house prices rose, suggesting that it was changes in per capita income that explained the increase in home values.
Figure 2 shows the ratio of home price to per capita income for 17 of the more volatile metropolitan areas between the first quarters of 1987 and 2009. After 2000, this ratio began to increase in virtually all of these metropolitan areas, with steep acceleration after 2002. The data suggest four distinct submarkets. The first consists of Las Vegas, Miami, and Phoenix, with a virtually constant price/income ratio until 2000, followed by a rapid increase in 2003 and 2004.
The California submarket was even more explosive. San Diego doubled its ratio from below 8 to above 16, with San Francisco and Los Angeles close behind. New York and Boston, in the third group, experienced accelerating ratios, but they were not as dramatic as those in the first two subgroups. In the Midwestern cities of Chicago, Charlotte, Portland, and Minneapolis, the increases were much lower than those observed on the coasts.
Figure 3 shows the volatility of home prices in the same 17 metropolitan areas based on sales in the lower third tier of sales prices. The number of these sales tripled in Miami, Los Angeles, Washington, DC, San Diego, and Las Vegas. In September 2005, Boston saw a price drop that later spread to every metropolitan area in the country.
Table 1 shows the S&P/Case-Shiller Index through September 2009, when prices began to stabilize and then rise. The bottom two lines show composite indexes for two sub-samples of the 20 available metropolitan areas. Both have fallen nearly 30 percent since the summer of 2006.
How Did It Happen?
Needless to say, a credit expansion of this magnitude had a major impact on the housing market. As noted earlier, between 2000 and 2006 prices in the bottom tier of the market increased the most—by 241 percent in Miami, 249 percent in Los Angeles, and 200 percent in Washington, DC, Las Vegas, and San Diego. The S&P/Case-Shiller composite indexes more than doubled, and the national index increased by nearly 90 percent.
At the end of 2005 and into 2006, the housing market began to soften. Interest rates rose, and the 30-year mortgage interest rate was back to 6.6 percent by the last half of 2006. Gluts of speculative building slowed markets in Florida, Arizona, and Nevada. Homes in California and in the Northeast had become very expensive relative to incomes, and the manufacturing base of the Midwest fell into recession. As expectations turned gloomy in 2006, 16 of the 20 S&P/Case-Shiller metropolitan areas showed price declines, and by 2007 all were declining. This had never happened before.
Then inventories of houses for sale began to increase. In the past, when markets rose too quickly, prices were slow to change and adjustment was orderly. With house prices falling nationally, and with the bulk of the newly written mortgage debt carrying high loan-to-value ratios, mortgage default rates rose sharply.
Underwriting standards changed over this period as well. Statistical models of default and foreclosure seemed to “explain” defaults as a function of borrower and loan characteristics. These models were used by all market participants, sometimes even without their knowledge. The most widely known underwriting tools were Loan Prospector and Desktop Underwriter, developed by Fannie Mae and Freddie Mac respectively. Their low cost and ease of operation made them the industry standard. As these models spread throughout the market, mortgage lenders and insurers that did not accept their results garnered little new business. The rating agencies also fell victim to the same statistical methods, which suggested a very low likelihood of rapidly rising defaults.
The stated goal of the new model of underwriting was to transform a patchwork risk-allocation process into a more efficient and accurate pricing system. But this proved to be not only difficult, but ultimately impossible. Analysts seeking to predict the likelihood of default had little choice but to look to the past: at what rate did mortgages with the same characteristics fail in the past?
But past experience dealt with a 30-year period of rising prices in which the collateral was in most cases sufficient to cover claims. Thus, outside of a few regional downturns, no experience provided data that could accurately measure the impact of falling house prices on delinquency, default, and foreclosure.
The historic housing boom of 2000–2005, together with the change in underwriting standards and credit market operations, made the period of 2000–2008 one of the truly important economic episodes of the last century. Its legacy is a flood of bad mortgages with millions of homes headed for foreclosure.
The Government Has Played a Big Role
One additional factor clearly played a role in all of this: the federal government’s strong efforts to promote home ownership for rich and poor alike. In 1977 Congress passed the Community Reinvestment Act (CRA) and the Home Mortgage Disclosure Act (HMDA), designed to increase bank lending to low-income and minority households. Even today, banks have a CRA exam every year to determine whether they are meeting the credit needs of their entire CRA area, which in almost all cases includes low-income neighborhoods that in previous years might have been rejected (“redlined”) for loans or insurance.
These programs reflect a belief that the nation has an interest in promoting home ownership as the American Dream, which is thought by many to lead to meritorious behavior. A homeowner is considered likely to be a better citizen, and more involved in local affairs. Home ownership was also thought to be a way of building wealth for low-income households, part of the social safety net (Case and Marynchenko 2002).
Home ownership was encouraged in a variety of ways. The federal subsidy in the income tax treatment of home ownership (the mortgage interest deduction, the capital gains exclusion, the property tax deduction, and the nontaxation of imputed rent on owner-occupied housing) amounts to about $140 billion annually. The Government Sponsored Enterprises (GSEs) including Fannie Mae, Freddie Mac, the Government National Mortgage Association (Ginny Mae), and the Federal Housing Administration (FHA) were all set up to channel capital into home mortgages.
The national housing boom had its roots in unprecedented events that unfolded in U.S. financial markets beginning in 2000. The rapid decline of high tech industries, the stock market collapse in 2000 and 2001, the slow level of technology investment resulting from Y2K, and finally, of course, the events of 9/11 led to a relaxed monetary policy as the Federal Reserve continually reduced interest rates in an attempt to stimulate the economy and prevent recession. In January 2001 the Fed cut the federal funds rate (the interest rate banks charge one another for the use of federal funds) from 6.5 percent to 6 percent, and by the end of 2002 had reduced the rate 11 times, to 1.75 percent.
When the easing of credit began, the 30-year fixed rate for a conventional mortgage was 7.17 percent, down slightly from the 8.3 percent average rate over the first nine months of 2000. By the time the federal funds rate fell to 1.75 percent in the fourth quarter of 2002, the conventional fixed mortgage rate was 6.39 percent. The federal funds rate continued its downward trend until it hit 1 percent in July 2003 and remained there for over a year. By that time, the conventional 30-year fixed-rate mortgage carried an interest rate of 4.6 percent. This easing of credit was the result of a massive injection of liquidity. The dramatic drop in interest rates reduced returns on many investments, placing pressure on yields around the world.
The expansionary monetary policy pursued during this short period reduced the cost of buying a home by almost a third. If its purpose had been to stimulate the mortgage and housing markets, the policy certainly worked, as lower interest rates reduced mortgage costs. Housing production and sales of existing homes boomed. In October 2001 there were about 1.52 million housing starts annually. By the end of 2003 housing starts had increased by a third, to well over 2 million.
Existing home sales were 5.2 million annually at the beginning of 2001 and 6.5 million by the third quarter of 2003. By 2005 they reached 7 million and stayed at about 6 million until 2007. There is little doubt that the housing market kept the economy out of recession through the turbulent early years of the decade.
Figure 4 shows the explosion in home sales and mortgage volume at the end of 2002 and into 2003. Low interest rates stimulated demand for refinancing, and between the fourth quarters of 2002 and 2003, $5.5 trillion in mortgages were originated, and $3.7 trillion were paid off. Over five quarters, the total value of new mortgages was about the same as the entire stock of mortgage debt outstanding in 2001. Seventy-five percent of the new mortgages were written for refinancings rather than purchases of new homes.
By bundling large numbers of mortgages into securities, Wall Street could offer an investment vehicle that combined the implicit government guarantees of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) with a history of very low default rates. As a result, much of the liquidity that drove the economic expansion was channeled directly into mortgages.
In June 2003, mortgage rates began to rise, moving from 4.60 percent to 5.97 percent by August. The third quarter of 2003 saw the highest volume of refinancings, with originations of $942 billion. The refinancing boom ended with the rise in interest rates, dropping 56 percent in the fourth quarter.
During this expansion of credit, the mortgage industry became highly profitable, collecting fees of about 2.5 percent of the $4 trillion in total originations in 2003 alone—over $100 billion. Greenspan and Kennedy (2008) estimate that fees for refinancings and home equity loans in 2004 reached $200 billion. With default and foreclosure rates low and housing prices high, lenders competed vigorously for the business of homebuyers.
Mortgages for home purchases doubled from $239 billion in 2004 to $478 billion in 2005. Much of this business was directed at low-income neighborhoods and sub-prime borrowers. Between 2002 and 2006, the market originated $14.4 trillion in mortgages, retired $10.3 trillion in debt, and increased the stock of outstanding mortgage debt to $10.3 trillion from $6.2 trillion.
This not-so-subtle pressure from the Congress was clearly accepted by Fannie Mae and Freddie Mac as the price they needed to pay to maintain the implicit guarantee of their debt, which they enjoyed as a result of their government franchises. There can be no precise division of responsibility between the GSEs and the private sector in expanding the housing bubble.
Several factors played a role in the ultimate collapse: the competitive battle for market share waged by Wall Street investment banks, the private securities markets, and some highly leveraged specialty firms; the high credit ratings that were distributed by the rating agencies; and the fact that default and foreclosure rates remained low. In fact, it took a partnership between public legislation, governmental regulation, private market exuberance, and an extreme increase in liquidity to bring the markets down.
Where Do We Go From Here?
By late 2009, housing markets seemed to be approaching a bottom with prices stabilizing, but many forecasts anticipate declines extending well into 2010. If that were to happen, numerous mortgages written in 2008 and 2009 would not be fully secured and could turn unprofitable.
A prolonged period of falling prices would prevent a significant increase in housing construction. Despite record low interest rates, housing starts have been in uncharted territory for more than a year, having fallen below levels seen in prior downturns. The last four recessions began with large declines in housing starts. At the end of 2008, starts were down from a peak of 2.27 million in 2006 to around 500,000, where they stayed for more than a year, well below the typical bottom of one million starts per year. This represents a decline of approximately $600 billion in aggregate demand.
Two market-clearing processes are currently underway in the housing market, operating side by side, often neighborhood by neighborhood, within metropolitan areas. First, there is the traditional search for a new equilibrium. Inventories remain high as risk-averse sellers seek to avoid sharp price reductions. Sellers without access to liquid capital can actually be among the most reluctant to sell, because they cannot afford to incur high transactions costs. Homeowners do not like to sell at a loss, and may postpone sales in hope of a rising market. This type of market-clearing process is slow and usually results in a long and costly period of quantity adjustment with relatively little change in sale prices.
Second, banks, loan servicers, and other market participants are left holding properties because of defaults and foreclosures. These houses are typically sold at auction, often at very low prices. In every past regional decline these two processes worked together to clear the market. The final result will be the product of a battle between them.
At the end of 2009, homes were selling at a rate of about 6 million per year, 5.5 million existing and 500,000 new homes, including between 1 and 1.5 million sales at foreclosure auctions. The bad news is that new properties are entering the foreclosure process faster than older cases are being resolved, suggesting that the portion of all sales accomplished through the auction process is likely to grow.
But a number of facts suggest that the current bottom could hold and eventually turn upward. First, prices have fallen substantially. In Boston, they have been falling for some time, and in California they are down over 50 percent. Eventually, when prices get low enough, people will start buying again. Furthermore, interest rates are remaining at all-time low levels, with the conventional 30-year fixed-mortgage rate below 5 percent.
In short, all housing market indicators are improving. Pending home sales, existing home sales, new home sales, and housing starts were all up during 2009; and prices actually stopped falling. The OFHEO price index and the S&P/Case-Shiller indexes for 18 of the 20 cities analyzed were up for several months in a row. New home inventories fell to 251,000 (7.4 months of inventory) in September, after having fallen for 13 consecutive prior months.
California represents about 25 percent of all the land value in the United States, and events there have major implications for the rest of the country. The good news is that for the last three months, the indexes for San Francisco, San Diego, and Los Angeles have led the nation in price appreciation. The California Association of Realtors reports substantial increases in home sales volumes except in the Central Valley.
It is important to remember that it takes only a relatively small number of buyers to move the market. Our measures of home values are based on observed sales, but only 5 to 7 percent of the total housing stock changes hands annually. Even with an unemployment rate near 10 percent, homebuyers continue to be very optimistic, and now there may be enough of them to change the market’s direction.
But, we are by no means out of the woods. Unemployment remains very high and jobs are still being lost. In addition, the foreclosure pipeline is moving very slowly, and foreclosures are spreading from the sub-prime market to the presumably more secure A-, Alt A, and prime loans. If the jobs picture does not brighten, and the market does not speed up the process of resolving foreclosures, the housing market could face a long period of stagnation and even a return to falling prices.
References
Case, Karl E. 1986. The Market for Single-family Homes in Boston. New England Economic Review May/June: 38–48.
———. 2007. The Value of Land in the United States: 1975–2005. In Land Policies and Their Outcomes, ed. Gregory K. Ingram and Yu-Hung Hong, 127–147. Cambridge, MA: Lincoln Institute of Land Policy.
Case, Karl E., and Maryna Marynchenko. 2002. Home Appreciation in Low and Moderate Income Markets. in Low Income Homeownership: Examining the Unexamined Goal, ed. Nicolas Retsinas and Eric Belsky. Washington, DC: Brookings Institution Press.
Case, Karl E., and Robert J. Shiller. 1987. Prices of Single-family Homes since 1970. New England Economic Review September/October: 45–56.
———. 1989. The Efficiency of the Market for Single-family Homes. The American Economic Review 79(1): 125–137.
———.2003. Is There a Bubble in the Housing Market? Brookings Papers on Economic Activity. Washington, DC: Brookings Institution. September 5.
Greenspan, Alan, and James Kennedy. 2008. Sources and Uses of Equity Extracted from Homes. Federal Reserve Board, Finance and Economics Discussion Working Paper Series 2007-20, October. http://www.federalreserve.gov/PUBS/feds/2007/200720/200720pap.pdf
About the Author
Karl E. “Chip” Case is the Katharine Coman and A. Barton Hepburn Professor of Economics at Wellesley College in Massachusetts. With Robert J. Shiller he developed the S&P/Case-Shiller Home Price Indices. Case is a former member of the Lincoln Institute of Land Policy board of directors.
