Like the other New Independent States of Central and Eastern Europe, Estonia is striving to adapt complex social and economic systems to changing conditions. To help Estonian policymakers enhance their understanding of land economics, taxation and related policy issues, the Lincoln Institute has embarked on a far-reaching collaborative education program with the American Institute for Economic Research (AIER).

Of special significance to both institutes is Estonia’s position as one of only a few countries where real estate taxes are applied solely to land, and where buildings and other improvements to land are not taxed. In addition, the country has already made dramatic progress toward establishing a market economy and a system of land taxation based on land value as an incentive for productive use of land and a means of discouraging speculation.

In making the transition to a market economy, Estonian policymakers are constrained by the lack of up-to-date information in the Estonian language on the fiscal and political implications of democratic government or on basic theory and research on land economics. Moreover, as the Estonian Parliament moves the country toward decentralization and land reforms, officials have recognized the need for practical assistance in developing procedures to determine land values and to administer tax assessment and collection systems.

The Lincoln Institute’s Role

For the Lincoln Institute, the current situation offers an opportunity to contribute knowledge about the economics of land markets and taxation based on a broad view of land policy. This approach includes examining the principles expounded by Henry George in his book Progress and Poverty that might be relevant in a country at the early stages of developing land markets.

“Estonia is a model environment for the Lincoln Institute to develop seminars in an economic development framework that analyzes land policy, taxation and valuation,” says Lincoln Institute faculty associate David A. Walker, professor of finance and director of the Center for Business-Government Relations at Georgetown University.

The Institute’s work with Estonia began in September 1993, when senior fellow Joan Youngman and fellow Jane Malme were invited to a conference in Tallinn to discuss the design of a property taxation system. The conference, sponsored and supported by the Paris-based Organisation for Economic Cooperation and Development (OECD) and the Danish Ministry of Taxation, was organized by Tambet Tiits, then director of the Estonian National Land Board and responsible for implementing the land assessment project.

Malme and Youngman subsequently invited Tiits to participate as a faculty member in a Lincoln Institute course on the interaction of land policy and taxation. Designed for government officials from Eastern Europe and the New Independent States, the course was presented in cooperation with OECD at their training centers in Copenhagen and Vienna.

In December 1994, a delegation composed of Malme, Youngman, Robert Gilmour, president of AIER, and C. Lowell Harriss, professor of economics, emeritus, at Columbia University, went on a fact-finding mission to explore research and education opportunities in Estonia. They recommended that the Institute organize educational programs in Estonia with Tiits, and in May 1995 Walker and Tiits cochaired an intensive three-day seminar. More than 20 senior level public policymakers attended, representing academia, business, three city governments, and various ministries and agencies of the national government.

The program focused on three key goals: studying the role of land taxation to promote efficient land use and to finance local government; learning about legal and administrative systems that support the development of efficient land markets; and understanding the relationships among land policies, land taxes, and land utilization, and their effective application to the economy of Estonia.

Other Lincoln Institute faculty associates participating in the May program were Gilmour; Roy Kelly, deputy director of the International Tax Program at Harvard University and research associate at Harvard Institute for International Development; Malme; Anders Muller, project manager for the Property Valuation and Tax Management Department for the Ministry of Taxation in Denmark; Jussi Palmu, director of Huoneistomarkkinointi Oi, a leading real estate agency in Finland; and Vincent Renard, director of research of CNRS for the Ecole Polytechnique, Laboratoire d’Econometrie, in Paris, France.

“We are pleased to be working with Tambet Tiits and other business and government leaders in Estonia,” says Lincoln Institute president Ronald L. Smith. “We believe the Institute can provide the kind of expertise their policymakers can use to develop the best approaches to land and tax reform, and to strengthen their ability to establish viable programs in a new and still changing economic climate.”

Primer on Land Issues in Estonia

The most northern of the Baltic States, Estonia has a strong tradition of family farming and land ownership. Unlike many other former Soviet bloc countries, its history included a period of independence from 1920 to 1940. In 1939 an estimated 145,000 small farms dotted the land area of 45,200 sq. km., and only about 30 percent of the population lived in urban areas. By the early 1990s, more than 70 percent lived in cities, with one-third of the country’s 1.6 million people inhabiting the capital of Tallinn.

During 50 years of Soviet rule from 1940 to 1990, Estonia experienced intense industrialization and urbanization, nationalization of land and mineral resources, and consolidation of its small farms into huge agricultural collectives. Demographic losses due to deportations, emigration and World War II reduced the number of farm workers and shifted the remaining population away from the land. Land use patterns and environmental integrity were further compromised by Soviet agricultural policies, causing much of the traditional farm land to become forested and moving farm activity to more marginal grasslands.

Restitution began in 1991 but it has been a slow process. The lack of up-to-date knowledge and technology, coexisting with bureaucratic inefficiencies and past agricultural policies, are challenging the effective use of land. However, new land use legislation and taxation have been created to solve these problems in a democratic way.

In only a few years, Estonia has become one of the most progressive and stable of the New Independent States. It has a high level of education and its people are eager to catch up with the “information age.” Its business and government leaders have established significant monetary reforms and pursued foreign trade and investment with the west, particularly Finland, other Scandinavian countries, and its former primary trading partner, Russia. Through the privatization of state enterprises such as textiles and forest products, and the growth of new private businesses in the service sector, Estonia is rapidly becoming a strong economic force in the region.

Current Research on Land Taxation in Estonia

Attiat F. Ott, Professor of Economics and Director of the Institute for Economic Studies at Clark University in Worcester, Massachusetts is conducting a research project titled “Land Taxation in the Baltic States: A Proposal for Reform,” with support from the Lincoln Institute. Over the next two years, Ott will conduct an assessment of the land taxation law introduced in 1994 by the Republic of Estonia. This law was developed in conjunction with the privatization and restoration of land to former owners, as stipulated in the 1992 Constitution. During this period of transition, the interrelationship between public ownership and private rights during the transition period is of primary importance. However, as in other countries, the Estonian property rights structure also affects and ensuing patterns of land use and development. These issues are at the core of the first phase of Ott’s research.

In the second phase, Ott will evaluate the land taxation law as an element of Estonia’s new, overall tax structure. The law defines both state and local land taxes using the same bases (sale price or use value of the land), but a different rate of taxation is levied at each level of government. Ott will review the strengths and weaknesses of the existing land tax system as a basis for offering and offer a comprehensive land taxation proposal for Estonia and the other Baltic States. She will incorporate ideas on the use of a site value tax and concerns about the undesirable effects of land speculation, which is occurring such as those occurring in some urban areas of Estonia.

While Ott’s research is directly related to the Institute’s interest in land value taxation, she will also be making methodological contributions as her quantitative work will extend the area of hedonic pricing models from their common application in housing to the area of land valuation.

Additional information in printed newsletter:
Map: Share of Agricultural Land in the Counties of Estonia: 1939, 1955 and 1992. Source: Adapted from Ulo Mander, “Changes of Landscape Structure in Estonia during the Soviet Period,” GeoJournal, May 1994, 33.1, pp 45-54.

Megapolitan areas are integrated networks of metro- and micropolitan areas. The name “megapolitan” plays off Jean Gottmann’s 1961 “megalopolis” label by using the same prefix. We find that the United States has ten such areas, six in the eastern part of the U.S. and four in the West (see Figure 1).

Megapolitan areas extend into 35 states, including every state east of the Mississippi River except Vermont. As of 2003, megapolitan areas contained less than one-fifth of all land area in the lower 48 states, but captured more than two-thirds of total U.S. population, or almost 200 million people. The 15 most populous U.S. metropolitan areas are also found in these megapolitan areas.

Gottmann’s megalopolis idea influenced academics but had no impact on the way the U.S. Census Bureau defines space. Today the idea of a functional trans-metropolitan geography is one that warrants renewed attention (see Carbonell and Yaro 2005). Regional economies clearly extend beyond an individual metropolitan area, and the megapolitan concept suggests a new geography to show how these economies are linked.

The Census seeks simple but definitive methods for describing and organizing space. Metropolitan areas were officially designated in 1949 to show functional economic relationships. Commuting, which at that time mostly joined suburban residents to jobs in the cities, was an easily measured and universal proxy for this linkage. Thus the center and periphery existed as a single integrated unit linked by employment dependency.

A direct functional relationship such as commuting does not exist at the megapolitan scale, however. The area is simply too large to make daily trips possible between distant sections. But commuting is just one—albeit key—way to show regional cohesion. Other integrating forces are goods movement, business linkages, cultural commonality and physical environment. A megapolitan area could represent a sales district for a branch office, or, in the case of the Northeast or Florida, a zone of fully integrated toll roads where an E-Z Pass or SunPass collection system works across multiple metropolitan areas.

A megapolitan area as defined here has the following characteristics:

• Combines at least two existing metropolitan areas, but may include dozens of them
• Totals more than 10 million projected residents by 2040
• Derives from contiguous metropolitan and micropolitan areas
• Constitutes an organic cultural region with a distinct history and identity
• Occupies a roughly similar physical environment
• Links large centers through major transportation infrastructure
• Forms a functional urban network via goods and service flows
• Creates a usable geography that is suitable for large-scale regional planning
• Lies within the U.S.
• Consists of counties as the most basic unit

Figure 1 highlights the key interstate highways linking major metros within megapolitan areas. Interstate 95 plays a critical role in megapolitan mobility from Maine to Florida. Because of the large population centers in the Northeast and Peninsula megas, the number of people living within 50 miles of this interstate exceeds all others in the nation. The West’s bookend to I-95 is I-5, which runs through three separate megapolitan areas. In 2000 more than 64 million people lived within 50 miles of I-95, and more than 37 million lived within the same distance of I-5. Most of this population is found in the two megapolitan areas along I-95 and the three straddling I-5. Interstate 10 also links three megas: Southland, Valley of the Sun and Gulf Coast. Other places where key interstates help define megapolitan growth are the I-35 Corridor from Kansas City, Missouri, to San Antonio, Texas; and I-85 in the Piedmont linking Atlanta, Georgia to Raleigh, North Carolina (Lang and Dhavale 2005).

Big Places, Big Numbers

Figure 2 shows the 2003 population and current growth rates in the ten megapolitan areas. As a group, megapolitans outpaced the national growth rate for the first three years of the decade—3.89 percent versus 3.33 percent, gaining 7.5 million new residents over the period. Only two megapolitan areas, Northeast and Midwest, trailed the nation as a whole in growth, but these are also by far the most the populous megas, with more than 50 and 40 million residents by 2003 respectively. Together, at 90.5 million people, they surpass the population of Germany, the largest European Union nation with 82.5 million residents. Unlike Germany, however, the Northeast and Midwest are still growing. They form the old industrial heart of the nation and still represent the largest trans-metropolitan development in the U.S.

The fastest growing megapolitan areas are in the Sunbelt, and several of them experienced gains above 5 percent for the period 2000 to 2003. The fast-growth megas, ranked by their development pace, are Valley of the Sun, Peninsula, I-35 Corridor, Southland and Piedmont. Two megapolitans now fall below the 10 million resident mark, but based on an extrapolation of current growth rates, Cascadia will pass this population size in 2025, while the booming Valley of the Sun will reach the mark by 2029.

Megapolitan areas also vary by physical size (see Figure 3). The Midwest is the largest with 119,822 square miles, an area slightly smaller than the state of New Mexico. The Piedmont is almost as expansive with 91,093 square miles. The more populous Northeast by contrast comprises just 70,062 square miles. By this calculation, the Northeast would appear to be the densest megapolitan area. However, the square mileage figure for Southland compared to its population density is significantly distorted by the inclusion of Riverside and San Bernardino counties in California, which are two of the largest counties in land area in the U.S.

Megapolitans will account for most new population and job growth from 2005 to 2040, and they will likely capture a large share of money spent on construction (Nelson 2004). These areas are projected to add 83 million people and 64 million jobs by 2040, and they will require an additional 32 million new housing units, including both new construction and replacement units. By 2030 half of the built environment will have been constructed in the previous 30 years, and by 2040 the figure could reach nearly two-thirds. The money needed to build the residential and commercial structures to house this growth is staggering. It will take an estimated $10 trillion to fund megapolitan residential construction and an additional $23 trillion for nonresidential structures.

Megapolitan Form and Function

Megapolitan areas vary in spatial form, ranging from a clear corridor or linear form to vast urban galaxies, and many megas exhibit both spatial patterns. Figure 4 showing the I-35 Corridor highlights all megapolitan counties in light shading and urbanized areas in the darker zones, lined up like beads along a string. The dark black lines are the interstate highways, and the light ones are the county boundaries. The biggest single node in the corridor is Dallas, and the only major metropolitan area that lies away from I-35 is Tulsa. The galactic form of the Piedmont area (Figure 5) illustrates interstate highway corridors lacing the region with a web of cities dominated by metropolitan Atlanta.

Figure 6 provides a summary of selected megapolitan features. The “signature industry” label refers to the businesses that are popularly associated with each area. These may not be the largest industry in the region, but they are key sectors that play to each megapolitan’s current competitive advantages. Thus, high tech is to NorCal what finance is to the Northeast or aerospace is to Cascadia—the sector in which the megapolitan dominates either U.S. or world markets.

A county-level analysis of political trends, based on the 2000 and 2004 presidential elections, shows that five megas lean Republican and five Democratic. The most Democratic area is NorCal, while the I-35 Corridor is the most Republican. Midwest and Peninsula are the most swing megapolitans, with the former tilted to the Democrats and the latter to the Republicans. In 2004 Democratic presidential candidate John Kerry won the megapolitan area popular vote by 51.6 percent to 48.4 for President George W. Bush—almost the exact reverse of the nation as a whole. Kerry received 46.4 million megapolitan votes, while Bush won 43.5 million. The 90 million total megapolitan ballots accounted for three-quarters of all votes cast, while the fourth quarter of the votes went heavily for Bush. The president’s margin of victory in nonmegapolitan America was 60/40, which approximates his 2004 vote share in rural America (Lang, Dhavale and Haworth 2004).

Mega Policy Implications

Any new geographic category can reshape public policy. Given that megapolitan areas as proposed here redefine the space where two out of three Americans reside, their impact could prove significant. There are countless ways that megas may alter the policy landscape, but this discussion focuses on two issues: urban sprawl and transportation planning.

Megapolitan Sprawl. The emergence of megapolitan areas comes not only from rapid population growth over the past several decades; it also reflects how the nation is developing. Since 1950 the most significant urban pattern has been decentralization. Even by the time Gottmann first observed the megalopolis extending north and south from New York City, the emergence of the “spread city” was apparent (Regional Plan Association 1960). Suburbs from Boston to Washington were racing toward one another, making the Northeast a single extended megapolitan space.

The different ways megapolitan areas develop also provide insight into how urban decentralization varies around the nation to produce distinct regional built forms. This knowledge can improve the way regions respond to the consequences of sprawl. As measured by built density, sprawl differs in character among regions from “dense sprawl” in places such as Los Angeles, where even the edge of the region may have subdivisions with small lots, to the edges of southern metropolitan areas that feature low-density development and constitute a quasi-rural environment (Lang 2002).

The percent of metropolitan residents living in “urbanized areas” (defined by the Census Bureau as having densities at or exceeding 1,000 residents per square mile) also shows variation in regional development patterns. A metropolitan area with a substantial number of residents below this threshold indicates a low-density urban fringe. Among the megapolitans, Southland is the most urbanized, with virtually all (98.17 percent) of the region’s residents living in these areas. By contrast, just over two-thirds of Piedmont citizens live in urbanized places. The edge of megapolitan development in Southland is sharp and well-defined, as indicated by the very small share of people living in the nonurbanized fringe, whereas the Piedmont edge is amorphous, given that one in three people live outside its urbanized areas.

Nationally, nearly 25.8 million megapolitan residents live in low-density, nonurbanized areas, mostly east of the Mississippi. Even the intensely built Northeast—the place that inspired Gottmann—has more than 5.2 million residents living in places with less than 1,000 people per square mile. Piedmont has just over 6 million in these same places, while the Midwest mega has almost 6.7 million.

This analysis indicates that there is a Southland versus Piedmont style of megapolitan sprawl, which could affect regionwide strategies for addressing future growth. For example, given that Southland is already densely built, altering its pattern of sprawl could mean better mixing of land uses to facilitate pedestrian or transit-oriented development. The same strategy would not work in Piedmont where densities are low.

Super MPOs and Transportation Planning. There are clearly cases where the megapolitan scale is the most logical one at which to address problems. Consider the recent debate over the fate of Amtrak, America’s National Railroad Passenger Corporation. The Bush administration wants to eliminate all Amtrak funding in the 2006 federal budget. Defending this action, U.S. Secretary of Transportation Norman Mineta (2005) wrote in the New York Times, “The problem is not that Americans don’t use trains; it is that Amtrak has failed to keep up with the times, stubbornly sticking to routes and services, even as they lose money and attract few users.”

Amtrak is a national rail system with a profitable line connecting big northeastern cities, which offsets losses on service to remote rural locals. Megapolitan areas have two qualities—concentrated populations and corridor form—that make them excellent geographic units around which Amtrak could be reorganized. These megapolitans constitute an American Europe—a space so intensely settled that high-capacity infrastructure investment between centers makes sense.

If officially designated by the U.S. Census Bureau, megapolitan areas would be the country’s largest geographic unit. Their rise could spark a discussion of what types of planning needs to be done on this scale. In Europe, megapolitan-like spatial planning now guides new infrastructure investment such as high-speed trains between networked cities. The U.S. should do the same. The interstate highways that run through megapolitan areas, such as I-95 from Boston to Washington, DC; I-35 from San Antonio to Kansas City; and I-85 from Raleigh to Atlanta, would benefit greatly from unified planning. A new Census Bureau megapolitan definition would legitimize large-scale transportation planning and trigger similar efforts in such areas as economic development and environmental impact.

Federal transportation aid could be tied to megapolitan planning much the way it has recently been linked to metropolitan areas. The Intermodal Surface Transit Efficiency Act of 1991 (ISTEA) required regions to form metropolitan planning organizations (MPOs) in order to receive federal money for transportation projects. In a similar vein, new super MPOs could result from future legislation that directs megapolitan areas to plan on a vast scale.

At the moment there is no guiding vision of how to invest the nation’s transportation funds. We are only keepers of past visions, most notably the Interstate Highway System, which for better or worse at least demonstrated a national will for investment. The interstates also completed a nationwide project, begun in the nineteenth century with canals and railways, to provide equal access and capacity across a continental nation. The investment paid off, as witnessed by the emergence of Sunbelt boomtowns such as Phoenix, but the next stage of American spatial evolution is at hand. The U.S. has moved beyond the simple filling in of its land and is now witnessing intensive megapolitan growth. Infrastructure investment must move beyond basic links across the entire country to focus on significantly improving capacity within megapolitan areas.

Robert E. Lang is director of the Metropolitan Institute and associate professor of Urban Affairs and Planning at Virginia Tech (www.mi.vt.edu). His research on megapolitan areas is supported in part by the Lincoln Institute through a 2005 Planning and Development Research Fellowship. Dawn Dhavale is a doctoral candidate in Urban Affairs and Planning and research associate at the Metropolitan Institute.

References

Carbonell, Armando, and Robert D. Yaro. 2005. American spatial development and the new megalopolis. Land Lines 17(2): 1–4.

Gottmann, Jean. 1961. Megalopolis: The urbanized northeastern seaboard of the United States. New York: Twentieth-Century Fund.

Lang, Robert E. 2002. Open spaces, bounded places: Does the American West’s arid landscape yield dense metropolitan growth? Housing Policy Debate 13(4): 755–778.

Lang, Robert E., and Dawn Dhavale. 2005. Beyond megalopolis: Exploring America’s new “megapolitan” geography. Census Report 05:01. Alexandria, VA: Metropolitan Institute at Virginia Tech (June). www.mi.vt.edu

Lang, Robert E., Dawn Dhavale, and Kristin Haworth. 2004. Micro Politics: The 2004 presidential vote in small-town America. Census Report 04:03. Alexandria, VA: Metropolitan Institute at Virginia Tech (November).

Mineta, Norman Y. 2005. Starving Amtrak to save it. New York Times, February 23: A19.

Nelson, Arthur C. 2004. Toward a new metropolis: The opportunity to rebuild America. Washington, DC: Brookings Institution Metropolitan Policy Program Survey Series (December).

Regional Plan Association. 1960. Plan for greater New York. New York: Regional Plan Association.

U.S. Bureau of the Census. 2005. Census 2000 Summary File 1 (SF 1) 100-Percent Data. http://factfinder.census.gov/.

Ciro Biderman is an associate professor in the graduate and undergraduate programs in public administration and in economics at Getulio Vargas Foundation (FGV) in São Paulo; associate researcher at the Center for the Study of the Politics and Economics of the Public Sector (CEPESP/FGV); and associate researcher at the Metropolis Laboratory of Urbanism at São Paulo State University (LUME/FAUUSP). He received his Ph.D. in economics at the FGV and his postdoctoral degree in urban economics at the Massachusetts Institute of Technology in 2007.

Biderman was a visiting fellow at the Lincoln Institute of Land Policy from 2006 to 2009, and he continues to teach courses and conduct research with Martim Smolka and others affiliated with the Program on Latin America and the Caribbean. He also consults on the economics and politics of local development for the World Bank and other organizations. His research interests include urban and regional economics focused on public policies at the subnational level, with particular emphasis on land policy interactions with real estate markets and transport costs.

He has published articles in academic journals, and coauthored or coedited three books, including the 2005 volume Economia do Setor Público no Brasil (Public Sector Economics in Brazil). At the Lincoln Institute he has written several Land Lines articles and working papers, all of which are available on the Institute Web site.

Land Lines: As a Latin American scholar specializing in land economics issues, how do you compare the state of the art of research in the region to other countries?

Ciro Biderman: In Brazil, as in most of Latin America, there is a lack of research in urban economics in general and in land issues in particular. The same is true to some extent in the United States and Europe, although the research interests are quite different, and urban economics is more in the mainstream in those countries.

Some relevant characteristics of cities in Latin America are similar to those in other developing countries, and all would benefit from additional research. For instance, despite the large informal market in Latin America, most economists have neglected that sector. Ironically, most urban economics analysis of informality has been conducted by U.S. and other international scholars.

Second, Latin American cities are usually not as sprawling as cities elsewhere, yet their historic downtowns are often deteriorated and we know little about why this is happening. Third, most countries in the region have recently adopted decentralization policies that shifted the responsibility for the provision of public goods to local governments. However, the revenues of local governments are low and most rely heavily on federal transfers.

Land Lines: How did you become associated with the Lincoln Institute of Land Policy?

Ciro Biderman: My first contact was in 1998, when I was awarded a dissertation fellowship to finish my Ph.D. Working with Paulo Sandroni at FGV, I studied the impact on land prices of a zoning change in São Paulo. At the time, the central business district was expanding toward the southwest, but the expansion was blocked by Jardim Europa, then a low-density, high-end residential neighborhood. New office development bypassed the area, moving towards the new Luiz Carlos Berrini Avenue. To reverse this pattern, in 1996 the city changed the zoning in part of Jardim Europa, increasing density and auctioning building rights to encourage new development.

I compared the part of the neighborhood where zoning did not change with that which experienced exogenous changes from being a low-rise residential area to a high-rise, mixed-use area of high-end residential and office space. In an article written with Sandroni and Smolka (2006) we showed that the change in density increased land prices as expected.

The most interesting finding, however, was the local government’s capture of the land price increment through a fiscal mechanism called CEPAC (Certificate of Additional Potential of Construction). These certificates are auctioned as part of the process by which developers obtain building licenses in specified areas. In the adjacent neighborhood where business development had leapfrogged without CEPACs, the incremental land rent generated by the zoning change was instead captured by the developers.

Land Lines: What other research have you pursued at the Institute?

Ciro Biderman: Since becoming a visiting fellow in 2006, I have focused on the economics of informal housing, particularly on the extent to which urban regulation was statistically associated with different measures of informality, including the role of regulation on prices in formal and informal housing markets (Biderman 2008).

In a related study in 2009, Martim Smolka and I discussed the policy implications of how and why different international agencies define informality to reflect one or more housing attributes. The consequence is that different definitions produce different estimates of the incidence of informality. Thus, when governments improve only one informal housing attribute but not the others, they may report a reduction in informality when in fact there is none.

In a new line of research I am looking at the causes and consequences of sprawl in Latin America, focusing on ten large Brazilian cities. Preliminary findings show that these cities are less sprawled than their North American and European counterparts, but more than comparable Asian cities. Transport systems are based on the automobile, as in the United States, except that less than 10 percent of the population owns a car. Yet the socioeconomic spatial pattern is more similar to Europe, with the rich living in the center and the poor on the periphery.

Land Lines: You help the Latin America Program evaluate research proposals submitted for Institute funding. What have you learned from that experience?

Ciro Biderman: I have been involved in evaluating these proposals since 2006, and the number of high-quality scholarly applications has grown steadily. I have noticed that the research questions from Latin Americans scholars are often better presented than the techniques to address them, in contrast to what occurs in the United States.

I think this is a problem faced in many aspects of social science research, and not only in Latin America. Although the origins of urban economics were grounded in the connections among urban equilibrium, transport costs, and land prices, each of these fields has developed almost independently and there is a general need for more integrated analysis.

Land Lines: What do you see as the main strengths of Latin American researchers?

Ciro Biderman: Highly qualified professionals in Brazil and other countries often move between public office and academia. As a result, they are aware of the respective issues and needs in the public sector and academia, and may have a more direct impact on the implementation of urban policies.

Furthermore, researchers can bring to focus what is specific to Latin American cities compared to cities elsewhere, thus expanding the scope of applied research. For example, to the best of my knowledge, there is no economic model for housing demand that allows the quality of the housing to change in order to adjust housing consumption to budget constraints. This is quite a relevant question in Latin America, but not to researchers in the United States or Europe.

Land Lines: Can you elaborate on the kinds of issues facing scholars in different world regions?

Ciro Biderman: As with most social phenomena, patterns of land use have evolved historically. For instance, sprawl in the United States is closely related to the movement of high-income groups to the periphery of metropolitan areas. In Latin America the movement of income groups is usually in the opposite direction, with poor people seeking affordable land on the periphery.

Although fundamental principles of urban economic theory might apply, the consequences are quite different. Studying different patterns using the same theoretical framework would advance our understanding of urban economics.

Land Lines: What topics or issues are especially lacking in strong empirical work?

Ciro Biderman: In terms of land policy, in my opinion, we need more research on property taxation; the interactions of fiscal and regulatory policies with land use planning issues; socioeconomic patterns of sprawl; and the connections between land use and transport. The lack of research on the economics of the informal housing market is surprising since informal settlements represent more than one-third of the total urban housing stock in some countries. Although this problem could eventually be solved with subsidies, the amount of resources needed is probably prohibitive for most countries.

Currently there is a branch of the literature studying the impact of tenure security on general welfare, suggesting that titling programs may be improving welfare, but there are few similar studies on the impacts of slum upgrading programs. While some evidence suggests that inappropriate regulation may induce more informality, we do not yet fully understand the economic nexus between formal and informal housing markets. We also lack systematic cross-country studies.

Land Lines: Do you think there a trade-off between policy experience and technical research capability?

Ciro Biderman: As an economist, I know the virtues of the division of labor and gains from trade, so it is important that academics and public officials complement each other. Thus, researchers need to be as rigorous as possible and able to expose the unintended consequences of public policies, and policy makers must ensure that their policies are designed so they can be implemented effectively and efficiently to reach the intended goals.

For example, a major policy issue is how to increase the supply of affordable, high-quality housing for the poor in developing countries, which requires understanding the opportunity costs between affordability and quality. The trade-offs may be technical, but the alternatives are clearly political. How can this housing imbalance be fixed? Who has to pay the cost (the residents or the society)? What are the consequences of different policy options? These are practical questions. Empirical evidence that helps to evaluate current policies might be a major resource for a policy maker.

Land Lines: How do you think the Lincoln Institute can contribute to narrowing the gap between rigorous empirical research and policy relevance?

Ciro Biderman: I believe that the Institute is already doing that by working with both scholars and policy makers in a variety of programs and fellowship opportunities. Classroom and online courses offer training to policy makers to help improve their dialogue with researchers, and to young scholars to expand the pool of policy-sensitive researchers. The intensive courses in methods for land policy analysis also inform researchers about advances in urban economics theory and strengthen both their methodological skills and their knowledge of new analytical techniques.

References

Biderman, Ciro. 2008. Informality in Brazil. Does urban land use and building regulation matter? Working Paper. Cambridge, MA: Lincoln Institute of Land Policy.

Biderman, Ciro, Paulo Sandroni, and Martim Smolka. 2006. Large-scale urban interventions: The case of Faria Lima in São Paulo. Land Lines 18(2).

Smolka, Martim, and Ciro Biderman. 2009. Measuring informality in housing settlements: Why bother? Land Lines 21(2).

China ha experimentado un crecimiento económico rápido desde 1978, cuando adoptó una reforma económica y políticas de apertura hacia el mundo. Se ha convertido en la segunda mayor economía del mundo en términos de PIB, y su recaudación tributaria ha experimentado un crecimiento anual promedio de alrededor del 20 por ciento desde la reforma fiscal de 1994.

No obstante, muchos gobiernos subnacionales de China han experimentado problemas fiscales y han incurrido en grandes deudas locales en los últimos años debido a numerosas competencias del gobierno central no financiadas y la gran brecha fiscal entre las necesidades de gasto y la capacidad para generar ingresos. Por ejemplo, en 2008, los gobiernos subnacionales de China han sido responsables por el 79 por ciento de los gastos totales del gobierno, pero sólo del 47 por ciento de los ingresos gubernamentales totales (Man 2011).

A diferencia de muchos países desarrollados, los gobiernos locales de China (provinciales, de prefectura, de condado y municipales) no tienen ninguna autoridad legal para imponer tributos o pedir préstamos, y el impuesto sobre la propiedad desempeña un papel muy limitado en la estructura de financiamiento público a nivel local. En consecuencia, muchos gobiernos locales recurren a fuentes de ingresos extrapresupuestarios, imponen aranceles para el derecho a arrendar el suelo, otras tasas y recargos, y obtienen préstamos bancarios de forma indirecta para financiar las inversiones de infraestructura y desarrollo económico local.

Durante el período de 1991 a 2008, los aranceles para el arriendo del suelo (también llamados aranceles de transferencia del suelo) aumentaron del 5,7 por ciento de los ingresos totales del presupuesto local al 43,5 por ciento. Esta dependencia excesiva de aranceles para el arriendo del suelo ha sido criticada como un factor importante en el crecimiento del precio de las viviendas y el aumento de casos de corrupción y disputas sobre suelos en China.

Problemas con el sistema tributario actual

El sistema actual de impuestos sobre el suelo y la propiedad en China genera una cantidad limitada de ingresos, aun cuando se gravan cinco tipos de impuestos sobre la propiedad inmobiliaria en las diversas etapas de producción (ver tabla 1). Los gobiernos locales cobran el Impuesto a la Ocupación de Suelos Agrícolas y el Impuesto al Valor Agregado al Suelo (IVAS) en el momento de adquirir y transferir el suelo. En el momento de la toma de posesión, se cobran el Impuesto al Uso Urbano del Suelo y el Impuesto sobre la Propiedad Inmobiliaria, y finalmente se cobra el Impuesto a la Escritura cuando se transfiere el título de la propiedad.

Este sistema tributario tiene muchos problemas y debe ser reformado estructuralmente. En primer lugar, los diversos impuestos sobre el suelo y la propiedad constituyen solamente un 15,7 por ciento de los ingresos tributarios a nivel local. Es una fuente de ingresos inestable e inadecuada para los gobiernos locales de China. Los funcionarios de los gobiernos locales han dependido de otras fuentes de ingresos, como el arriendo de suelos del estado a emprendedores inmobiliarios a cambio de un arancel fijo importante, para financiar proyectos de capital y desarrollo de infraestructura. En 2010, los gobiernos locales de China recaudaron 2,7 billones de RMB en concepto de aranceles de arriendo de suelos, además de 8,3 billones de RMB en impuestos y otros ingresos presupuestarios. La relación entre los aranceles de arriendo y los ingresos tributarios totales fue del 32,5 por ciento, comparada con el 4,5 por ciento en 1999.

En segundo lugar, la estructura actual de impuestos sobre la propiedad en China aplica una mayor carga tributaria en la etapa de transacción que durante la posesión. Por ejemplo, la recaudación del impuesto anual sobre el uso urbano del suelo y el impuesto sobre la propiedad inmobiliaria durante la etapa de posesión ascendió a sólo el 6,44 por ciento de los ingresos tributarios locales en 2008, mientras que alrededor del 9,25 por ciento de los ingresos tributarios locales se recaudó en las etapas del desarrollo del suelo y transacción de la propiedad.

En tercer lugar, las propiedades residenciales ocupadas por sus dueños no están incluidas actualmente en la base tributaria del impuesto sobre la propiedad inmobiliaria, lo que restringe la capacidad del gobierno para recuperar la plusvalía del mercado de vivienda en pleno auge debido a la privatización de viviendas de interés social, el crecimiento de los ingresos de la población y la inversión masiva en infraestructura urbana. Para 2010, la tasa de propiedad de viviendas alcanzó el 84,3 por ciento de la bolsa de viviendas urbanas del mercado formal, y los valores de las mismas han experimentado aumentos sustanciales en los últimos cinco años en muchas de las grandes ciudades (Man, Zheng y Ren, 2011). Pero la exclusión de las propiedades residenciales del impuesto sobre la propiedad inmueble creó desniveles de riqueza y una demanda excesiva de viviendas con fines de inversión y especulación, lo que aumentó la cantidad de viviendas vacantes en muchas ciudades costeras.

Finalmente, a diferencia del sistema de impuestos sobre la propiedad en muchos países desarrollados, en China no se grava el impuesto de acuerdo al avalúo de la propiedad. En lugar de ello, su valor es el 1,2 por ciento del precio original, menos un 10 al 30 por ciento por depreciación, o un 15 por ciento de los ingresos reales por arriendo de la propiedad. Los funcionarios gubernamentales tienen poca experiencia en la estimación del valor de mercado de las propiedades existentes, una destreza fundamental para poder establecer un sistema moderno de impuesto sobre la propiedad.

Recientes avances en la reforma del impuesto sobre la propiedad

El gobierno central de China ha estado explorando la posibilidad de reformar su sistema actual de tributos sobre el suelo y la propiedad desde 2003, cuando propuso oficialmente por primera vez el establecimiento de un sistema moderno de impuestos sobre la propiedad. En 2006 se seleccionaron seis ciudades para realizar proyectos pilotos, y un año después se amplió esta cantidad a 10 ciudades.

En 2010, la Administración Estatal de Impuestos (AEI), que está a cargo de este proyecto piloto, ordenó a cada provincia que seleccionara por lo menos una ciudad para realizar ensayos de avalúo de propiedades, con el objeto de verificar el precio de venta declarado por los propietarios para el impuesto a la escritura. Estos ensayos han tenido un importante papel en la preparación técnica e informática de avalúos masivos futuros del valor de la propiedad. El 28 de enero de 2011, las ciudades de Shanghái y Chongqing recibieron permiso para recaudar impuestos sobre la propiedad de segundas residencias y residencias de lujo de reciente adquisición, respectivamente.

Logros importantes

La reforma del sistema de impuestos sobre la propiedad en China intenta establecer un sistema para gravar las propiedades existentes (incluyendo tanto el suelo como las estructuras edificadas) anualmente de acuerdo a su avalúo, con el objeto de generar una fuente significativa de ingresos para los gobiernos locales. Este sistema utilizará varios métodos de avalúo, tales como la comparación con los valores de mercado, su costo y los ingresos generados, y se aplicará a propiedades comerciales e industriales, así como también a propiedades residenciales, incluyendo aquellas ocupadas por sus dueños.

Algunas ciudades piloto, como Hangzhou, Dandong y Chongqing, han estudiado e implementado distintas versiones de Avalúo Masivo Asistido por Computadora (CAMA, por sus siglas en inglés). El AEI ha estado capacitando a funcionarios de las agencias tributarias locales de cada provincia en el desarrollo de un sistema CAMA y sus aplicaciones. También ha intentado establecer normas tecnológicas para cada método de avalúo.

En 2005, el AEI diseñó un ensayo de regulación de avalúo de propiedades inmobiliarias, con 12 capítulos y 40 cláusulas que estipulan los métodos de recolección de datos, las normas y el sistema CAMA. Todas las ciudades piloto han concluido su simulación de avalúo y han calculado las cargas y los ingresos tributarios utilizando distintos escenarios de tasa de impuestos. En 2011 se seleccionó a, por lo menos, una ciudad de cada provincia para realizar un avalúo de propiedades recién adquiridas para recaudar el impuesto a la escritura.

El avance más importante tuvo lugar a comienzos de 2011, cuando Shanghái comenzó a recaudar impuestos sobre las segundas residencias recién adquiridas por residentes y sobre las primeras residencias de no residentes de acuerdo a su valor de transacción, previa exclusión de la base tributaria de 60 metros cuadrados por persona. La ciudad de Chongqing está apuntando a la residencia unifamiliar existente y a los apartamentos de lujo recién adquiridos por residentes o segundas residencias adquiridas por no residentes. El programa excluye 180 metros cuadrados para residencias unifamiliares y 100 metros cuadrados para apartamentos en Chongqing.

Se ha impuesto el tributo sobre la propiedad a alrededor de 8.000 parcelas en total en estas dos ciudades, si bien este experimento de un año de duración recaudó sólo una pequeña cantidad para el financiamiento de viviendas de bajos ingresos. Aunque la base tributaria, la tasa tributaria y la recaudación han sido muy pequeñas en estas dos ciudades, estos esfuerzos representan un gran paso adelante para la reforma del impuesto sobre la propiedad en China.

Desafíos futuros

La reforma del impuesto sobre la propiedad en China todavía enfrenta enormes desafíos, aun cuando los ciudadanos y los medios de comunicación ya la comprenden mejor. En primer lugar, ha encontrado resistencia desde varios grupos de interés influyentes. Los mayores adversarios de un impuesto sobre la propiedad son los funcionarios gubernamentales locales, además de los inversores y especuladores inmobiliarios. Muchos gobiernos locales creen que la adopción de este impuesto reducirá el valor de las viviendas y, en consecuencia, reducirá la demanda de suelo, lo que disminuirá sustancialmente los aranceles por arriendo de suelo en manos estatales. Además, los funcionarios de los gobiernos locales son evaluados según el papel que cumplan en la estimulación del crecimiento de la economía local, y los proyectos de inversión en infraestructura se usan frecuentemente como un estímulo para el desarrollo de la economía local. Los funcionarios quieren acceso ilimitado a los aranceles de arriendo del suelo, porque se pueden recaudar y gastar con muy poco control y pueden generar una gran cantidad de ingresos durante el período de ejercicio de un funcionario.

Un segundo desafío es el progreso lento de los preparativos legales y de avalúo para el sistema de impuesto sobre la propiedad. Se tienen que promulgar leyes y reglamentaciones sobre el impuesto, incluyendo leyes y normas de avalúo. Habrá que capacitar y certificar a hasta 100.000 valuadores en las normas correspondientes. En tercer lugar, todavía no existe un consenso sobre cómo definir la base tributaria, sus exclusiones y exenciones; la asignación de responsabilidades de administración, fijación de tasas y avalúo; y la distribución de los ingresos tributarios. Y, por último, la falta general de familiaridad con el impuesto sobre la propiedad crea continuos malentendidos e interpretaciones erróneas acerca del impuesto.

Al mismo tiempo, cada vez más residentes urbanos comprenden que un impuesto sobre el avalúo de la propiedad comercial y residencial recaudado anualmente puede generar una fuente sustentable de ingresos para los gobiernos locales y reducir su dependencia de aranceles y cargos de transferencia de propiedad que contribuyen a incrementar el precio de las viviendas. A raíz de la política del gobierno central de restringir la compra de viviendas y de ajustar la oferta monetaria, los aranceles de arriendo del suelo han comenzado a disminuir en muchas ciudades en 2011.

Según un informe reciente del Instituto de Índices de China (2012), los aranceles por transferencia de suelos en 130 ciudades han disminuido un 11 por ciento en comparación con 2010. En Shanghái y Beijing han caído un 16 y 35,7 por ciento, respectivamente. Esta reducción significativa puede también ofrecer oportunidades a los gobiernos locales para encontrar maneras más sustentables de equilibrar la promoción del crecimiento económico con el suministro de bienes y servicios públicos. A largo plazo, el establecimiento de un sistema de impuestos sobre la propiedad para sustituir gradualmente los aranceles a la transferencia del suelo ofrece una manera eficiente, equitativa y sustentable de financiar los desarrollos locales y los egresos gubernamentales.

El impuesto sobre la propiedad se ha percibido como una manera efectiva de reducir los precios de la vivienda, amortiguar la especulación y reducir las tasas de viviendas vacantes. Muchos investigadores creen que los gobiernos locales han tratado de limitar la oferta de suelo para aumentar los precios y maximizar los ingresos, produciendo un rápido aumento de los precios de la vivienda y la falta de viviendas económicas en las zonas urbanas de China. La imposición de tributos sobre la propiedad residencial puede aumentar el costo de oportunidad de dejar las propiedades vacías o sin usar, y reducir los incentivos para el comportamiento especulativo. El impuesto se percibe también como una manera efectiva de reducir la brecha de ingresos y riqueza entre los residentes urbanos y desalentar la inversión especulativa en el sector inmobiliario.

Conclusiones

La reforma del impuesto sobre la propiedad de China está progresando en el área de investigación y experimentos de aplicación, y ha comenzado a ser mejor comprendido y aceptado por los ciudadanos y los gobiernos locales. Pero el establecimiento exitoso de un impuesto sobre la propiedad como una fuente importante de ingresos para el financiamiento público local requiere no sólo de técnicas de avalúo y de diseño tributario sino también de determinación política y de una reforma administrativa. Esta reforma podría generar un cambio fundamental en las relaciones intergubernamentales y el papel del gobierno en la estructura política y económica de China.

El Instituto Lincoln comenzó a respaldar las investigaciones relacionadas con la tributación de la propiedad conjuntamente con el gobierno chino en 2004, con la colaboración del Centro de Desarrollo e Investigaciones del Consejo Estatal, el Ministerio de Finanzas y la Administración Estatal de Impuestos (AEI). En 2007 se estableció en Beijing el Centro de Desarrollo Urbano y Política de Suelos de la Universidad de Peking y el Instituto Lincoln, en parte para ayudar a organizar conferencias internacionales y programas de capacitación para funcionarios de las agencias tributarias de las ciudades piloto. El Centro continúa apoyando a expertos nacionales e internacionales para realizar actividades de investigación y proyectos de demostración en el área de impuestos sobre la propiedad y temas relacionados.

Sobre el autor

Joyce Yanyun Man es senior fellow y directora del Programa para China del Lincoln Institute of Land Policy, y es directora y profesora del Centro de Desarrollo Urbano y Política de Suelos de la Universidad de Peking y el Instituto Lincoln.

Referencias

China Index Institute. 2012. http://www.chinanews.com/estate/2012/01-04/3580986.shtml

Man, Joyce Yanyun. 2011. Local public finance in China: An overview. In China’s local public finance in transition, eds. Joyce Yanyun Man and Yu-Hung Hong. Cambridge, MA: Lincoln Institute of Land Policy.

Man, Joyce Yanyun, Siqi Zheng, and Rongrong Ren. 2011. Housing policy and housing markets: Trends, patterns and affordability. In China’s housing reform and outcomes, ed. Joyce Yanyun Man. Cambridge, MA: Lincoln Institute of Land Policy.

National Bureau of Statistics. 2009. China statistical yearbook. Beijing: China Statistics Press.

The United States is emerging from a great recession whose major hallmark has been the collapse of national housing prices, which grew by 59 percent from 2000 to 2006 and then fell 41 percent by 2011, all in constant dollars. Nationally, real house prices in 2011 were 6 percent below levels in 2000. The housing price collapse had unanticipated contagion effects that helped produce the accompanying financial crisis and the most severe economic downturn since the Great Depression. The share of U.S. mortgages that were delinquent by 90 days or more rose from about 1 percent in 2006 to over 8 percent in 2010. The economic and social costs of this house price bubble and subsequent collapse have been immense.

The benefits of preventing future house price bubbles is obviously great, but realizing such benefits will require that policy makers learn to detect price bubbles as they are forming and then implement policies that will attenuate or mitigate them. A recent Lincoln Institute policy focus report, Preventing House Price Bubbles: Lessons from the 2006–2012 Bust, by James Follain and Seth Giertz, addresses the challenges of diagnosing and treating price bubbles in the real estate market. Their report builds on extensive statistical analysis available in several Lincoln Institute working papers.

While it is common to summarize the recent housing market bust using national indicators (as in the first paragraph above), these national indicators don’t account for great variations in both the levels and changes in housing prices across metropolitan areas. For example, from 1978 to 2011, constant dollar housing prices in Dallas, Texas and Omaha, Nebraska varied by less than 20 percent from their 1978 levels; those in Stockton, California nearly tripled from 1978 to 2006, but by 2011 fell back to their 1978 levels. Local housing markets are all influenced by national economic and financial policies and conditions, but these large differences across metropolitan markets indicate that local conditions play a very important role as well.

A key element of the statistical work by Follain and Giertz is to use metropolitan housing markets as the unit of observation for their analyses, which are based on annual data (for 1980 to 2010) and quarterly data (for 1990 to 2010) for up to 380 metropolitan areas. Their econometric work indicates that house price bubbles can be detected across metropolitan areas and that price changes and the accompanying credit risk vary greatly in size. Stress tests, such as those used to evaluate mortgage credit risk, can be useful indicators of potential price bubbles at the metropolitan level.

Because the levels and changes in housing prices vary greatly across metropolitan areas—with bubble-like price increases in some and essentially stable prices in others—Follain and Giertz conclude that policy measures to mitigate housing bubbles should be tailored to target metropolitan areas or regions rather than be applied uniformly across all metropolitan areas at the national level. Thus monetary policy would be an unattractive intervention to counter house price increases in a few metropolitan areas, because it would affect financing terms across both frothy and stable housing markets. Instead, Follain and Giertz favor policy interventions that would target those metropolitan areas with high price increases. The policy they advance would raise the capital reserve ratio that banks are required to hold against mortgages that they finance in those areas. Such countercyclical capital policies would both dampen house price increases and strengthen the reserves of the issuing banks, improving their ability to withstand any unexpected financial shocks.

Applying prudential housing market policies at the metro-politan level seems to be an obvious thing to do; so why has it not been done before? A major part of the answer is that housing market analysis is benefitting from a revolution in the availability of spatially disaggregated data at the metropolitan, county, and even zip code level. The data required to inform policy interventions targeted at the metropolitan level have only recently become widely available, and such data underpin the empirical work carried out by Follain and Giertz. For more information on their analysis, see http://www.lincolninst.edu/pubs/2245_Preventing-House-Price-Bubbles.

People who work with me are often surprised by the extent to which my philosophical canon derives from low-budget offbeat films, typically from the 1980s. When in need of wisdom, I frequently turn to the teachings of Repo Man or, for this essay, Terry Gilliam’s allegorical masterpiece Time Bandits. In the movie, a group of public workers are employed by the Supreme Being to fill holes in the time-space continuum left from the haste of creating the universe in seven days: “It was a bit of a botched job, you see.”

Like the Time Bandits, policy makers are often tasked to fill holes—actual potholes in roadways, or more theoretical holes that are the artifacts of dysfunctional private markets. One big hole that policy has struggled for decades to fill is the inadequate supply of affordable housing. For example, housing economists in the United States have become quite adept at tracking the size of the hole, which has only become harder to fill since the federal government committed to address it as a national policy priority beginning with the Housing Act of 1949, part of President Harry S. Truman’s Fair Deal.

Perhaps our collective failure to solve the affordable housing deficit over the last 66 years stems from wrongheaded analysis of the problem, and the conclusion that market-based solutions can be designed to solve the mismatch between the supply of affordable housing and demand for it. In his 1949 State of the Union address, President Truman noted that to fill the needs of millions of families with inadequate housing, “Most of the houses we need will have to be built by private enterprise, without public subsidy.”

To support this claim, permit me a short departure into market theory. From the now-preferred mathematical approach to economic analysis, a market is simply a system of partial differential equations that is solved by a single price. The partial differential equations capture the complex decisions made by consumers and producers of goods, reconciling tastes, preferences, and budgets of consumers with the technical complexities of producing goods to arrive at a price that clears the market by settling all transactions that suppliers and consumers of goods are willing to make.

Acclaimed economists Arrow, Debreu, and McKenzie proved the theoretical existence of a single set of prices that can simultaneously solve for the “general equilibrium” of all markets in a national or global economy. One important aspect of this Nobel Prize–winning contribution was the observation that a unique price cleared each market—one market, one price. There was no expectation that a single price could maintain equilibrium in two markets. But this is the fundamental flaw of the housing market—it is actually two markets, not one. Housing markets supply both shelter for local consumption and a globally tradable investment good made possible by broad capital markets that serve global investors. This dual-market status used to be more descriptive of owner-occupied housing, but, with the proliferation of real estate investment trusts (REITs), rental markets are now in the same boat.

Markets for consumption goods behave very differently than investment markets, responding to different “fundamentals.” On the supply side, prices for consumption goods are dictated by production costs, while prices in investment markets are dictated by expected returns. On the demand side, such things as tastes and preferences, household incomes, and demographics determine the price of housing as shelter. Investment demand for housing is dictated by factors like liquidity and liquidity preferences of investors, expected returns on alternative investments, or interest rates.

In developed countries, global capital markets and the market for shelter collide locally with little chance of reconciliation. Local households compete with global investors to decide the character and quantity of housing that is produced. In markets that attract global investment, plenty of housing is produced, but shortages of affordable units are acute, and worsen over time. This is because a huge share of new housing is produced to maximize investment return, not to meet the needs of the local population for shelter. For example, there is no shortage of global investment willing to participate in developing $100 million apartments in New York City. But affordable housing, being much harder to finance, is in short supply. And in markets that have been abandoned by global capital, house prices fall below production costs, and surplus housing accumulates and decays. In extreme cases such as Detroit, market order can only be restored by demolishing thousands of abandoned homes and buildings.

Perhaps it is time that we reconsider the analysis that led President Truman, and thousands of housing policy makers after him, to conclude that one could forge market-based solutions to the challenge of sheltering a country’s population. Truman concluded that “By producing too few rental units and too large a proportion of high-priced houses, the building industry is rapidly pricing itself out of the market.” But Truman was thinking about the market for shelter, not investment. It is remarkable to note that the number of housing units supplied in developed countries such as the United States significantly exceeds the number of households. In 2010, the U.S. Census estimated that there were 131 million units of housing in the country and 118 million households—one in seven housing units were vacant. It is even more shocking to note that in the United States this oversupply of housing characterizes every metropolitan market in the country—even metropolitan markets with extreme shortages of affordable housing. In 2010, 8.5 percent of housing units were vacant in Greater Boston, 9.1 percent in the San Francisco Bay area, and 10.2 percent in Washington, DC. The problem is that many households have insufficient incomes to afford the housing that is available.

In the end, rather than fill the holes in the fabric of time and space, the Time Bandits decided to take advantage of them to “get bloody stinking rich.” The bandits sought to capitalize on celestial imperfections in the same way that global investors seek returns from short-term market dislocations. To illustrate the dangers of naked speculation in unregulated markets, consider an apocryphal tale from a very different market. In 1974, heavy rains during planting season in Bangladesh suggested that rice might be in short supply at harvest time. In anticipation of these shortages, rice prices started to rise. Savvy commodity speculators realized that there would be a good return on any rice that was held off the market. Despite the fact that the actual harvest produced a bumper crop, the interaction between market expectations and market manipulations by commodity investors produced one of the worst famines of the 20th century—with an estimated 1.5 million famine-related fatalities. The famine was not the result of real food shortages. The collision of the market for goods and the market for speculative investment priced rice out of the reach of the local populations, with landless families suffering mortality at three times the rate of families with land.

Perhaps shelter and food are too important to be left to unregulated markets to allocate. In light of the damage that the conflict between the market for goods and the market for investment can inflict on local populations, perhaps public policy should focus on protecting a share of the market—and the public—from the ravages of speculation. In this issue, we describe some nascent efforts to produce permanently affordable housing by insulating it from speculation—through community land trusts, inclusionary housing, and housing cooperatives. Miriam Axel-Lute and Dana Hawkins-Simons discuss the mechanics of organizing local community land trusts. Loren Berlin describes efforts to preserve affordable housing in the form of manufactured homes and to promote permanent affordability of that stock through the conversion of manufactured housing communities to limited equity cooperatives.

On more cautionary notes: Cynthia Goytia discusses the ways that low-income communities circumvent housing regulations that drive up housing costs to produce their own affordable but substandard shelter in informal settlements around Latin American cities; and Li Sun and Zhi Liu discuss the tenuous status of one-quarter of urban Chinese households that purchased affordable shelter with uncertain property rights on collectively owned land at the rapidly developing edge of cities and in “urban villages,” former rural settlements now surrounded by modern construction. As capital markets deepen in these countries, the competition between housing as investment good and housing as shelter will likely exacerbate informality in Latin American cities and make property rights of these Chinese families more precarious. After almost seven decades of failed efforts to get private markets to meet populations’ needs for affordable shelter, it might be time to develop, and to export, another approach that is based on a more realistic understanding of the complexity of housing and capital markets.

Conventional wisdom and basic economic principles would suggest that an area subject to higher commercial and industrial property taxes than its nearby neighbors will suffer reduced economic development in comparison to those neighbors. On the other hand, any effort to reduce such unequal or “classified” property tax rates will produce a revenue shortfall. Raising taxes on homeowners to equalize rates and recover this lost revenue will encounter enormous and obvious political resistance.

This is the situation currently facing Cook County and the city of Chicago, and was the subject of a conference led by Therese McGuire of the Institute of Government and Public Affairs (IGPA) at the University of Illinois at Chicago. Held last September and cosponsored by the Lincoln Institute, the IGPA, and the Civic Federation of Chicago, the program brought together more than a hundred business and civic leaders, academics and practitioners to consider alternative methods of addressing the problems presented by the Cook County classification system.

In Illinois, the use of a property tax classification system by Cook County has been blamed for the economic decline of Chicago and the inner suburbs. The classification system is also seen as a barrier to reforming school funding and the state’s tax system. Are these charges valid? Does the classification system put Cook County at an economic disadvantage compared to its rapidly growing adjacent “collar counties”? If classification has so many shortcomings, why was it instituted in the first place? If we are only now recognizing those shortcomings, what steps can be taken that are both economically and politically feasible to overcome the problems?

Overview of Tax Classification

Illinois has long operated under the twin principles of uniformity and universality for both real and personal property, and both principles were incorporated into the Illinois Constitution of 1870. However, de facto or administrative classification of real property developed in Cook County as a response to the difficulty in taxing personal property in the same manner as real property. By the 1920s, the Cook County assessor publicly acknowledged assessing residential property at 25 percent of real value and business property at 60 percent.

A 1966 Illinois Department of Revenue report noted that Cook County was using 15 different classification groups. Despite the fact that classification was clearly in violation of the 1870 Constitution, the Illinois Supreme Court had refused to confront the issue. By the late 1960s, however, the court was prepared to overturn the existing system, and the 1970 constitutional convention faced the potential threat of court intervention.

The convention was the product of numerous reform efforts in Illinois during the previous decade. The state had failed to find a compromise redistricting plan after the 1960 census, causing the entire Illinois House to be elected as at-large members in 1964. That election brought many reformers to office, and a House-created commission charged with recommending constitutional reforms subsequently called for the 1970 convention.

Several delegates on the convention’s revenue committee were passionately in favor of uniformity, and they had considerable support from experts who opposed classification as a matter of economic policy. On the other hand, the Chicago delegation was adamant in demanding that the new constitution legalize classification. It was generally believed that without legalization, the new constitution would not have the support of Chicago Mayor Richard J. Daley and his delegation, in which case it would fail to pass.

As a result, the 1970 Illinois Constitution allowed counties with a population greater than 200,000 to classify property for taxation. The extension of classification to these large counties was also allowed for the collar counties because many taxing districts crossed those county boundaries. Cook County’s system was thus guaranteed, but the Constitution gave the General Assembly the power to apply limitations because of concerns there would be a crazy quilt of classifications should the collar counties adopt that system. Nevertheless, no collar county has done so.

Today, Cook County’s classification system is considered by many to be an impediment to Illinois’ attempts to deal with a variety of social and economic issues. Politically, classification is believed to be partly to blame for the failure to reform education funding in Illinois. In 1997, then Governor James Edgar led an unsuccessful attempt to convince the General Assembly to gradually shift the burden of education funding from property taxes to income taxes. One of the strongest arguments against the effort was that it would be a windfall for businesses and corporations, whose property taxes would be shifted to individual taxpayers. That shift would have even been greater in Cook County, which has more than 47 percent of the state’s entire assessed value and where businesses pay property taxes at a rate double that of homeowners.

Impacts on Economic Development

In terms of economic development, some observers believe that classification puts Cook County at a disadvantage in the eyes of business people who might consider locating in Illinois or expanding their operations in the state. While there are obviously other factors involved, the concern is that classification would cause these companies to look more favorably at locations in the collar counties or other states.

Recent research has shown that high property taxes do have a negative effect on the market value of property and do deter businesses from locating in the affected areas. Studies of property tax differences in the Boston, Phoenix and Chicago areas have shown that, because higher property taxes mean higher rents and lower market values, real estate development shifts from the high-tax area to the low-tax area over time. Other studies have shown that manufacturers seeking to relocate are very sensitive to local property tax rates. New construction and retail trade are also affected negatively, although the service sector is not as influenced by high property taxes.

Is this the case in Cook County? A recent study by Richard Dye, Therese McGuire and David Merriman, all affiliated with the IGPA, found that the effective tax rate of Cook County (5.52 percent for commercial and 5.78 percent for industrial property) is higher than in the collar counties, which have an average rate of 2.54 percent on all property. Furthermore, they found that four measures of economic activity-growth in the value of commercial property, the value of industrial property, the number of establishments and the employment rate-were measurably lower in Cook County than in the collar counties. But is that the end of the story?

No, according to the study’s authors. A multifaceted national trend is dispersing population, employment and business activity away from metropolitan centers to outlying counties. To determine if it is this national trend or specific property tax differences that is causing slower economic growth in Cook County, the study examined the characteristics of 260 municipalities in the Chicago metropolitan area. The researchers used two samples of municipalities-one metro-wide and the other limited to those near the Cook County border, where the effects of higher tax rates should be most potent.

The researchers presented their results, at the conference finding, “weak evidence at best that taxes matter.” Once other influences on business activity were factored out, the researchers determined that, for the entire six-county region, employment was the only economic activity that seemed to be adversely affected by property taxes, although in the border region the market value of industrial property was also affected. “The bottom line is that the evidence is mixed and inconclusive,” said McGuire. “There is no smoking gun.”

Another participant in the conference challenged this interpretation of the results. Michael Wasylenko of Syracuse University, who had been asked to review the study in advance and discuss it at the conference, said he was convinced that the researchers did find significant effects because the employment measure is a better measure of economic activity than the others. “I think the weight of the evidence suggests that these results are consistent with previous findings that property tax differentials will have a substantial effect on employment growth within a metropolitan area.”

If the employment factor, then, is the one to be given the most weight and Cook County’s property tax classification system is economically disadvantageous, in addition to being a political roadblock to reform, what is to be done? “It comes down to whether the economic gains that might be realized if you went to a non-classified tax are worth the political battles. Are the economic development advantages enough to want to do this,” said Wasylenko.

The economic and political stakes in this decision are high, since Cook County currently levies more than 50 percent of all property taxes in the state. The county cannot rapidly shift a large part of the tax burden among classes of property, but neither can it ignore concerns that the tax burden on businesses located there place it at an economic disadvantage with regard to its nearby neighbors. Any solution must be approached as a component of the overall tax system, be grounded in verifiable data, and have significant support from the public, the media and business interests. The September conference sought to contribute to that process of informed public debate on a crucial fiscal topic.

In early December, the Cook County assessor proposed reducing the assessment ratio (the ratio of assessed value to market value) for certain types of business property: from 36 to 33 percent for industrial properties such as factories and distribution facilities; from 33 to 26 percent for large investor-owned residential property; and from 33 to 16 percent for multiuse storefront businesses with apartments on upper floors. The assessor’s hope is that more favorable treatment of business will lead to even more rapid growth of the tax base over time. While these recommendations came out of several different tax studies, any changes in assessment rates must by approved by the Cook County Board before they can be implemented.

Scott Koeneman is communications manager at the Institute of Government and Public Affairs (IGPA) of the University of Illinois in Urbana, Illinois.

References

Dye, R., T. McGuire and D. Merriam. 1999. “The Impact of Property Taxes and the Property Tax Classification on Business Activity in the Chicago Metropolitan Area.” Lincoln Institute of Land Policy Working Paper.

Giertz, J.F., and T. McGuire, “Cook County, Ill., Assessor Proposese Changes in Assessment Levels,” State Tax Today. Dec. 7, 1999.

Man, J. 1995. “The Incidence of Differential Commercial Property Taxes: Empirical Evidence,” National Tax Journal, 48: 479-496.

McDonald, J. 1993. “Incidence of the Property Tax on Commercial Real Estate: The Case of Downtown Chicago,” National Tax Journal, 46: 109-120.

Wheaton, W. 1984. “The Incidence of Inter-jurisdictional Differences in Commercial Property Taxes,” National Tax Journal, 37: 515-527.

Source: Illinois Department of Revenue

The interactions between land and property markets and the broader economy of cities and nations are central to the Lincoln Institute’s concerns. Two key objectives of our work in this area are (1) to raise awareness about the stakes of good land policy for creating well-functioning land and property markets and for improving the performance of financial markets, labor markets, the fiscal affairs of local and national governments, and ultimately the economic health of both cities and countries; and (2) to indicate the need for high quality data and an appropriate analytical framework to aid in understanding the importance of good land policy, monitoring the effects of land policies throughout the economy and facilitating policy reforms. In November 1997, the Lincoln Institute held a conference on the theme of “Land Prices, Information Systems, and the Market for Land Information” to explore these issues.

Land Values and Land Policy

How important are the stakes of good land policy? Hee-Nam Jung of the Korean Research Institute for Human Settlements reported on the importance of land markets in the economies of five countries (see Table 1). The value of land in mature economies such as Canada, France and the United States ranged from about one-third to three-quarters of GNP during the mid-1980s, and represented from 8 to 21 percent of estimated national wealth. In the more rapidly growing economies of Japan and Korea, land values were from three to six times as high as GNP in the 1980s, and represented half or more of estimated national wealth. In the mature economies these figures illustrate the importance of land as a source of wealth, but in rapidly growing economies land has an even more significant role in determining economic welfare and a host of incentives for the performance of the economy.

In Japan, for example, booming land and property values during the 1980s served as collateral to fund credit expansion throughout the economy and, indeed, throughout the world. Land prices in Japan’s six largest cities increased dramatically from 1980 to 1991, at a compound rate of about 12 percent annually (see Figure 1). By 1990, the estimated price of land being developed for residential purposes in Tokyo was estimated to be about $3,000 per square meter, compared to figures of roughly $110 in Toronto and Paris and $70 in Washington, D.C.

Between 1991 and 1996, however, Japanese land prices fell by nearly half, taking down the Japanese economy and a host of financial institutions in its wake. The cumulative losses of the Japanese banking system associated with the collapse of the property market and associated businesses are estimated around $1 trillion, making the U.S. Savings and Loan “crisis” seem comparatively insignificant. Analysis of Japanese land policy suggests some of the causes of the boom and bust cycle in land prices: policies that have severely restricted conversion of agricultural land to urban uses; an especially complex land development system that requires exceptionally long times for approvals; and a fiscal system that places little emphasis on the taxation of land and property values.

Land prices in Korea also rose at a tremendous rate during the 1980s-over 16 percent annually from 1981 to 1991. Remarkably, in most years nominal capital gains on Korean land were greater than Korea’s GNP. Jung explained that these gains had profound implications for the distribution of wealth and income in Korea, and for economic incentives. Not surprisingly, the recent collapse of Korean property markets has had tidal effects throughout the economy. As in the case of Japan, the Korean land policy framework has been seen as highly questionable. Government intervention in land and property markets over the years has been responsible for severely distorted markets that represent a major structural imbalance in the Korean economy.

Using Land Market Data for Policy Analysis

Other speakers at the conference presented information on the importance of land market performance for a variety of stakeholders throughout the economy: consumers and taxpayers; land developers and builders of residential and non-residential properties; banks and financial institutions; and both local and central governments. In the case of Cracow, Poland, Alain Bertaud from the World Bank indicated that policies embodied in master plans and zoning regulations were highly inconsistent with the nominal objectives of the regulations, and would lead to inefficient and costly spatial patterns within the city. His paper illustrated the value of having good data on land prices, regulations and the spatial distribution of the population in order to evaluate the effects of policies involving land use, infrastructure and property taxation.

Paul Cheshire from Oberlin College and Stephen Sheppard from the London School of Economics illustrated how data on land and housing prices, land and housing characteristics, and regulations can be used to evaluate the effects of government policies such as the preservation of urban open space. Jean-Paul Blandinieres of the French Ministry of Equipment, Transportation and Housing discussed an ambitious program of the French government to establish “Urban Observatories” to collect and analyze information on land and property markets and the effects of government policies.

Data Collection on Land and Property Markets

Recognition of the costs of land policy failures or, conversely, of the benefits associated with implementing good policies, has given rise to a number of systematic efforts to collect and analyze high quality data on land and property markets within various institutional settings. Pablo Trivelli discussed land and property information systems in Latin America that serve the needs of public and private stakeholders. Perhaps the most impressive of these is an effort in Brazil called EMBRAESP, which monitors key indicators of urban property market performance along with urban legislation, land regulations and major public works projects that might have an impact on the behavior of property markets. Data and analyses from EMBRAESP are of interest to many institutions throughout Brazil. The distribution of the information is self-sustaining through contracts with major newspaper chains, sales of periodic bulletins, disks containing standard data, and special reports responding to individual demands. Much of this information can also be accessed through the Internet.

Another major data collection and analysis effort was reported by David Dowall from the University of California-Berkeley. He developed the “Land Market Assessment,” a tool for analysis of land and housing markets that has been applied in over 30 developing countries and transitional economies. At comparatively modest cost, data are collected through aerial photos and satellite images, surveys of land brokers, and secondary sources on population, infrastructure and regulatory frameworks. Dowall’s analysis of the experience with these assessments documents a number of generic policy findings, especially concerning the costs of inappropriate land policies. His work also suggests that even more cost-effective versions of the tool can be developed that will illustrate the workings of land markets and beneficial policy reforms.

Romeo Sherko, David Stanfield and Malcolm Childress from the Land Tenure Center at the University of Wisconsin-Madison, addressed the issue of designing a strategy for the creation and dissemination of land information in transitional economies, where information has historically been tightly held, thus frustrating both the evolution of property markets and opportunities for policy analysis. Their conclusions regarding the role of the public and private sectors, the scope of data collection, and pricing and dissemination strategies help to explain why land market information is often not provided or is poorly provided by either the government or the private sector. On the other hand, their analysis suggests that the benefits of good land market information are considerable. Some of these benefits were illustrated by David Dale-Johnson from the University of Southern California and Jan Brzeski from Jagellonian University, Cracow, who discussed efforts to document rapidly evolving market prices of property in Cracow and to inform property tax reform efforts.

Samu Kurri, Seppo Laakso, and Heikki Loikkanen of the Finnish Government Institute of Economic Research discussed the land price information system in Finland, suggesting that it is only now beginning to catch up with the needs of many different potential users of the data. These users include those concerned with implementation of a new property tax and macro-economic and financial sector policymakers concerned with the interaction of the Finnish property market and national economic performance. Karl (Chip) Case of Wellesley College presented findings from a preliminary analysis of 100 years of land prices in Boston, which was designed, among other things, to highlight some of the methodological difficulties of measuring land prices in a way that facilitates policy analysis and reform.

Stephen K. Mayo is a senior fellow of the Lincoln Institute.

As a part of the educational activities of the Lincoln Institute’s Latin America Program, a course on “Large Urban Projects,” held in Cambridge last June, focused on the most important and challenging aspects of this land planning issue. Academics, public officials and representatives from private enterprises in 17 cities participated in the presentations and discussions. This article presents a synthesis of the principal points, questions and challenges raised in carrying out these complex projects.

Large urban redevelopment projects have become an important issue in many Latin American countries recently, due in part to changes motivated by the processes of globalization, deregulation and the introduction of new approaches in urban planning. These projects include varied types of interventions, but they are characterized primarily by their large size and scale, which challenge traditional instruments of urban management and financing.

Urban projects on a grand scale are not considered a novelty in Latin America. The diverse elements of existing developments include the revitalization of historic centers; conversion of abandoned industrial facilities, military areas, airports or train stations; large slum rehabilitation projects; and construction of innovative public transportation models. However, at least four important features characterize this new type of intervention:

• An urban management structure that implies the association of various public and private, national and international actors;
• Significant financing needs that require complex forms of interconnections among these actors;
• The conception and introduction of new urban processes that are intended to transform the city;
• The questioning of traditional urban planning perspectives, since these projects tend to exceed the scope of prevailing norms and policies.

The last feature is reinforced by the influence of different planning strategies and the impacts of large urban projects in various cities around the world (Powell 2000). One project that has influenced many city planners and officials in Latin America was the transformation of Barcelona in preparation for the Olympic Games in 1992 (Borja 1995). Several projects in Latin America have been inspired by, if not directly emulated, this approach (Carmona and Burgess 2001), but it also has faced serious criticism (Arantes, Vainer and Maricato 2000). It has been seen as a convenient process through which a group of decision makers or private interest stakeholders manage to bypass official planning and policy channels that are seen to be too dependent on the public (democratic) debate. As a result most such projects tend to be either elitist, because they displace low-income neighborhoods with gentrified and segregated upper-class land uses, or are socially exclusionary, because they develop single-class projects, either low-income settlements or high-income enclaves, in peripheral locations.

Large-scale projects raise new questions, make inherent contradictions more transparent, and challenge those responsible for urban land analysis and policy formulation. Of special importance are the new forms of management, regulation, financing and taxation that are required for or result from the execution of these projects, and in general the consequences for the functioning of land markets.

Size, Scale and Timeframe

The first issue that emerges from a discussion of large-scale projects has to do with the ambiguity of the term and the necessity of defining its validity. Size is a quantitative dimension, but scale suggests complex interrelations involving socioeconomic and political impacts. The wide variety of feelings evoked by large projects shows the limitations in being able to restore a vision of the urban whole and at the same time its global character (Ingallina 2001). This issue has just begun to be discussed in Latin America, and it is framed in the transition to a new approach in urban planning, which is related to the possibility and even the necessity of constructing a typology and indicators for its analysis. Issues such as the emblematic character of these projects, their role in stimulating other urban processes, the involvement of many actors, and the significance of the impacts on the life and development of the city are all part of the discussions. Nevertheless, it is the scale, understood as being more than just simple physical dimensions, that is the central core of this theme.

Since the scale of these projects is associated with complex urban processes that combine continuity and changes over the medium and long terms, the timeframe of their execution must be conceived accordingly. Many of the failures in the implementation of such projects have to do with the lack of a managing authority that would be free or protected from the political volatility of local administrations over time.

The cases of Puerto Madero in Buenos Aires and Fenix in Montevideo, the first completed and the second in process, offer examples of the difficulties in managing the scale and timing of development in the context of economic situations and policies that can change drastically. Twelve years after its construction, Puerto Madero has not yet stimulated other large-scale projects, such as the renovation of nearby Avenida de Mayo, nor appreciable transformations in urban norms.

The scale and timeframe are particularly important for the project in Montevideo, raising doubts about the feasibility of executing a project of this scale in relation to the character of the city, its economy, and other priorities and policies of the country. Its goal was to generate a “work of urban impact,” in this case promotion of public, private and mixed investments in a neighborhood that lost 18.4 percent of its population between 1985 and 1996, and focusing on an emblematic building, the old General Artigas train station. Most of this work has been executed, with a loan of $28 million from the Inter-American Development Bank, however the percentage of public and private investments are minimal and the Fenix project is having to compete with another large-scale corporate-commercial development located east of the city that is already attracting important firms and enterprises.

Land Policy Issues

The issue of scale relates intrinsically to the role of urban land, which makes one ask if land (including its value, uses, ownership and other factors) should be considered a key variable in the design and management of large-scale urban operations, since the feasibility and success of these projects are often associated with the internalization of formidable externalities often reflected in the cost and management of the land.

Projects to restore historic centers offer important lessons to be considered here. We can compare the cases of Old Havana, where land ownership is completely in the hands of the state, which has permitted certain activities to expand, and Lima, where land ownership is divided among many private owners and public sector agencies, adding to the difficulties in completing an ongoing restoration project. Even though Old Havana has received important financial cooperation from Europe and Lima has a $37 million loan from the Inter-American Development Bank, the main challenge is to promote private investment while also maintaining programs of social and economic assistance for the local residents. Both cities have created special units for the management of these projects, which constitutes an interesting commentary on institutional modernization.

The Role of the State

The scale, the time dimension and the role of land in large urban projects lead us to consider the role of the state and public investment. While urban operations on a large scale are not new in Latin American cities, their present conditions have been affected radically by economic changes, political crises and substantial modifications in the role of the state in general. These conditions make the execution of urban projects, as part of the process of long-term urban development, a source of contradictions with the generally short tenure of municipal governments and the limits of their territorial claims. We must also consider the differences in regulatory competencies between central governments and local municipalities, and the differences between public entities and private institutions or local community organizations, which often reflect conflicting interests due the decentralization and privatization processes being promoted simultaneously in many countries.

Two large projects related to transportation infrastructure are examples of local situations that led to very different results. One was the transformation of the old abandoned Cerrillos airport in Santiago, Chile, and the other was a project for a new airport for Mexico City in Texcoco, an area known as ejido land occupied by peasants and their descendants. In the first case, the active participation of interested groups is expanding the recuperation process of a zone of the city that does not have quality urban facilities. A total investment of $36 million from the public sector and $975 million from the private sector is supporting the construction of malls, facilities for education, health and recreation, and housing for the neighborhood. In Mexico serious conflicts between state interests and community rights to the land had caused social unrest and even the kidnapping of public officials. As a result, the federal government has recently withdrawn from the Texcoco project, assuming huge political and economic costs for this decision.

Segregation and Exclusion

Many planners and practitioners have doubts about the feasibility of large projects in poor countries and cities because of the distortions that their execution could cause on future development, in particular the reinforcing tendencies of segregation and social exclusiveness. The diminishing capacity of the state to look for new alternatives for financing socially beneficial projects through private capital, principally from international sources, adds to the doubts about their success. Many large-scale projects are seen as the only alternative or the unavoidable cost that the city or society has to pay to generate an attractive environment in a context of growing competition among cities for a limited number of external investors.

A key matter with respect to the use of public space generated by these projects is to avoid segregation of space and people. Special attention must be given to protect the inhabitants of the zones where the large urban projects are developed from the negative consequences of gentrification. This is without a doubt one of the most difficult aspects of large urban projects. Table 1 shows the most important aspects and the principal challenges that arise from an analysis of the large urban projects. Effectively, the integration of projects of this scope calls for a vision of the city that avoids the creation of islands of modernity isolated in the middle of poor areas, which would contribute to the process called the dualism of the city, or the generation of new exclusive urban centers.

Table 1: Aspects and Challenges of Large Urban Projects

Two cases in different political-economic contexts help us reflect about this matter. One is the El Recreo project, planned by Metrovivienda, in Bogotá. Although presenting innovative proposals about the use and management of the land in a large project for popular housing, the project has not been able to guarantee the integration of social groups with different income levels. In the Corredor Sur area of Panama City large zones are being planned for the construction of residences, but the result again serves primarily medium- and high-income sectors. Thus in both a decentralized and a centralized country the general norms that provoke residential segregation cannot seem to prevent negative consequences for the poorest sectors of society.

In view of all this, large urban projects should not be seen as an alternative approach to obsolete plans or rigid norms like zoning. They could instead be presented as a kind of intermediate-scale planning, as an integrated approach that addresses the needs of the whole city and avoids physical and social separations and the creation of norms that permit exclusive privileges. Only in this way can large-scale projects take their place as new instruments for urban planning. The positive effects of specific elements such as the quality of architecture and urban design are valuable in these projects if they operate as a benchmark and are distributed with equity throughout the city.

Public Benefits

Large-scale projects are public projects by the nature of their importance and impact, but that does not mean they are the total property of the state. Nevertheless, the complexity of the participant networks involved directly or indirectly, the variety of interests and the innumerable contradictions inherent in large projects require a leading management role by the public sector. The territorial scale of these operations especially depends on the support of the municipal governments, which in Latin America often lack the technical resources to manage such projects. Local support can guarantee a reduction of negative externalities and the involvement of weaker participants, generally local actors, through a more just distribution of the benefits, where the regulation of the use and taxation of the land is a key issue. Such is the intention of the Municipality of Santo Andre in Sao Paulo in the design of the extraordinarily complex Tamanduatehy project. It involves the reuse of an enormous tract of land previously occupied by railroad facilities and neighboring industrial plants that fled this once vigorous industrial belt of Sao Paulo to relocate in the hinterland. The project involves establishing a viable locus of new activities, mostly services and high-tech industries, capable of replacing the economic base of that region.

Beyond creating and marketing the image of the project, it is important to achieve social legitimacy through a combination of public and private partners engaged in joint ventures, the sale or renting of urban land, compensation for direct private investment, regulation, or even public recovery (or recapture) of costs and/or of unearned land value increments. Active public management is also necessary, since the development of the city implies common properties and benefits, not only economic interests. Analysis of economic and financial costs, and opportunity costs, are also important to avoid the failure of these projects.

Conclusions

The basic components in the pre-operational stage of executing large urban projects can be summarized as follows:

• Establish a development/management company independent from the state and municipal administration
• Formulate the comprehensive project plan
• Elaborate on the marketing plan
• Design the program of buildings and infrastructure
• Define adequate fiscal and regulatory instruments
• Formulate the financing plan (cash flow)
• Design a monitoring system

An adequate analysis of the trade-offs (economic, political, social, environmental, and others) is indispensable, even if it is clear that the complex problems of the contemporary city cannot be solved with large interventions alone. It is important to reiterate that more importance must be given to the institutionalization and legitimacy of the final plans and agreements than simply the application of legal norms.

The presentations and discussions at the course on “Large Urban Projects” show that the matter of urban land strongly underlies all the aspects and challenges described above. Land in this type of project presents a huge complexity and offers a great opportunity; the challenge is how to navigate between the interests and conflicts when there are many owners and stakeholders of the land. It is necessary to combat the temptation to believe that modern urban planning is the sum of large projects. Nevertheless, these projects can contribute to building a shared image of the city between the inhabitants and the users. This topic clearly has facets that have not been completely explored yet and that need continued collaborative analysis and by academics, policy makers and citizens.

Mario Lungo is executive director of the Office of Planning of the Metropolitan Area of San Salvador (OPAMSS) in El Salvador. He is also a professor and researcher at the Central American University José Simeón Cañas.

References

Borja, Jordi. 1995. Un modelo de transformación urbana. Quito, Peru: Programa de Gestion Urbana.

Carmona, Marisa and Rod Burgess. 2001. Strategic Planning and Urban Projects. Delft: Delft University Press.

Ingallina, Patrizia. 2001. Le Projet Urbain. Paris: Presses Universitaires de France.

Powell, Kenneth. 2000. La transformación de la ciudad. Barcelona: Ediciones Blume.

Arantes, Otilia, Carlos Vainer e Erminia Maricato. 2000. A cidade do pensamento unico. Petrópolis: Editora Vozes.