The excessively high price of serviced land in Latin America is one of several explanations for the extent and persistence of informal land markets. Contrary to popular beliefs, informality is expensive and therefore is not the best or even an advantageous alternative to combating poverty, but it is usually the only one available to the urban poor. A more consistent policy to reduce informality, and in so doing reduce poverty, should be at least neutral or contribute to reducing high land prices.

Poverty Alone Cannot Explain Informality

Although the map of illegality corresponds to a great degree with that of poverty, the extent and persistence of informality cannot be explained by poverty alone. Not all occupants of informal settlements are poor, as many empirical studies in Latin America have proved in recent years. The rate of new irregular land occupations is much higher than the rate of increase in the number of new poor families. In Brazil, for example, the total number of favela residents has increased at five times the rate of poor residents, and a similar trend is seen in most large Latin American cities.

This spectacular growth in informal settlements has occurred through expansion on the peripheries and densification in “consolidated” irregular urban areas, even though the birth rate and the number of rural-to-urban migrants have declined substantially and the percentage of poor citizens has remained relatively stable. Other explanations for this growth in informality include the lack of sufficient social housing programs, inadequate public investment in urban infrastructure for public amenities and services (such as drainage and sewage systems) and, last but not least, the reality that informal arrangements are profitable for those who promote them.

The High Cost of Serviced Land

Conventional economics argues that free market prices reflect the level at which a buyer’s ability and willingness to pay matches a supplier’s ability and willingness to sell, but in practice no assurance is given with respect to meeting social needs. That is, the market for serviced land may be functioning well, even though many families (even non-poor ones) are unable to access such land, and some existing urbanized lands are being kept vacant intentionally.

On the peripheries of many Latin American cities, the price of a square metre (m2) of serviced land made available by private agents can vary between US$32 and US$172. These figures are close in absolute terms to those found in cities in the developed world, where the per capita income is typically 7 to 10 times higher than in Latin America. Even a family above the poverty line saving up to 20 percent of its monthly wages (US$200) would need 12 to 15 years to save enough to acquire an urbanized plot of 150 m2. These indicators suggest that the difficulty of gaining access to serviced land may be one of the factors that actually contribute to poverty.

The price of serviced land, like prices in other markets, is determined by supply and demand. The supply of land depends on the amount that is newly serviced (produced) per year, the amount that is retained from the market, and the intensity of the use of the existing serviced land. The demand depends on the annual rate of formation of new households, adjusted by their income and/or purchasing power, their preferences and the prices of other items in their budgets. It is difficult to provide a full discussion of all factors affecting the behavior of land prices (see Smolka 2002), but it suffices to mention certain determinants that are emblematic to understanding some apparent idiosyncrasies of the functioning of urban land markets in Latin America.

On the supply side, property taxes, a major potential source of revenue to finance the production of serviced land, are ridiculously low. Typically property taxes represent less that 0.5 percent of GDP, compared to 3 to 4 percent in the U.S. and Canada. Overall there is a sense that Latin America underspends on infrastructure and services compared to its per capita GDP. The substantive observed land value increments resulting from investments in urban infrastructure and services are basically neglected as a revenue source to finance such investments, due to weak sanctions on capturing land value increments or simply holding improved land from the market (Smolka and Furtado 2001).

In addition, the disposition of considerable amounts of land is controlled by agents that do not follow strict economic rules (e.g., some public agencies, the Army, the Church or even state-owned enterprises like the railroads for whom some statutory restrictions preclude the disposition of land according to the market’s highest and best use criteria). Furthermore, the limited amount of available land that is fully serviced is often subject to overtly elitist urbanistic norms and regulations (zoning) designed to “protect” those serviced neighborhoods by making it difficult for low-income families to comply.

On the demand side, many families, even those with relatively high incomes, work in the informal sector and are excluded from the market because they lack the credentials required by financial agencies to apply for a loan. The need to self-finance housing production on a piecemeal basis through nontraditional funding sources extends the time between acquisition and occupation of land, thereby adding to both the cost of financing and the overall demand for land. Further, the legacy of high inflation, ill-developed or inaccessible capital markets, and limited participation in the social security system are responsible for nurturing a well-established culture and preference by lower-income sectors to use land as a reserve of value and as a popular means of capitalization, which also adds to the demand for land. In other words, holding undeveloped land and the culture of land speculation are not exclusive to high-income areas.

Prices for Informal Plots

Beyond these conventional arguments about supply and demand, one may also consider the dynamics or interdependency of formal and informal urban land markets as a factor contributing to high land prices. Specifically, the high prices for serviced land in the formal market seem to affect the relatively high prices of unserviced land in the informal market, and vice versa.

Land prices reveal the difference that the purchaser has to pay to avoid falling into a worse situation (that is, farther from work; fewer or worse services, lower environmental quality, and the like). Thus, if the “best” alternative is a plot in an unserviced settlement, one would expect a premium on the existing serviced land, which would also reflect the value of the legal title that comes with serviced land. On the other hand, if the minimum price for serviced land (raw land plus the cost of urbanization) is still unaffordable, then whatever land one could have access to would represent an alternative. This alternative could range from outright squatter settlement, to invasion through the mediation of “pirate” operators or organized movements (both of which involve fees and other payments), to the more prevalent land market for irregular subdivision of large parcels into small plots with inadequate services.

The price of land in the informal market is, therefore, higher than the price of raw land but normally less than the sum of the raw land price plus the cost of providing services. At the same time, it tends to be lower (though not necessarily on a per square-metre basis) than the minimum price of fully serviced and commercialized land in the formal market. In effect the market values more “flexible” means to access land, such as plots smaller than the minimum lot size, or construction without building codes, or even the possibility of selling the roof of a house as buildable space.

Most low-income families do not choose an informal arrangement because it provides the best price option, but simply because it is often their only option. The “choice” of acquiring an informal plot is still expensive. Conservative estimates obtained from an informal survey of 10 large Latin American cities show the average price of land on a commercialized illegal plot was US$27 for one square metre (see Table 1).

Table 1: Prices and Profitability of Informal and Formal Land Markets (US$)

1- Rural land designated for urban use
Informal market: $4
Formal market: $4

2- Cost of urbanization
Informal market: minimal = $5
Formal market: full = $25

3- Final price in the market
Informal market: $27
Formal market: $70

4- Profit over advanced capital=(3-1-2)/(1+2)
Informal market: 200%
Formal market: 141%

The profit figure (4) explains at least in part the question (an apparent paradox): Why, in spite of a significant mark-up in the provision of urbanized land in the informal market, does one find so little interest in development from the private sector? As Table 1 indicates, the provision of informal land is more profitable than the provision of formally developed land. In fact, the figures for the formal market are largely underestimated since there are higher risks associated with financial, security and marketing costs, and other costs borne by the developer that are not incurred in informal developments. These data also help explain why formality begets informality and exposes the fact that the advantages of informal arrangements are not necessarily perceived by the low-income occupants, but by the subdivider or informal developer.

Unexpected Effects of Regularization

Let us turn now to the question of policy responses to this state of affairs. Given the apparent impossibility or impracticality of adopting any other policy, the prevailing notion has been that tolerating informal “solutions” to gain access to land and then regularizing the settlements after they are established is cheaper in the long run for public finances, and better for the low-income occupants (Lincoln Institute 2002).

The public finance argument claims that the existing arrangement is cheaper because it capitalizes on private (self-) investments in the consolidated settlements, thus relieving public agencies of social responsibility and expenditures otherwise associated with one’s full “right to the city.” This view is questionable on two accounts. First, the physical conditions and existing housing are often unacceptable as human shelter, in spite of the ingenuity and imagination of informal solutions under extremely unfavorable conditions. The poor standards of land use and density in these settlements are only tolerated because the damage has already been done. Second, with regard to infrastructure, some of the alternative technologies that look promising are ultimately shown to perform poorly and to require overly expensive maintenance.

The impacts on low-income occupants are also worse than expected. Not only are land prices much too high but there are additional costs: those without an official address (because they live in an irregular settlement) are often discriminated against when looking for a job or social services; rents as a percentage of property value are higher than the rates observed in the formal market; access to water from a truck or other temporary source is much more expensive than piped water; and the cost of insecurity is greater because of living in a more violent environment.

Regularization policies evaluated in a broader urban context may actually contribute to aggravating the problem it is supposed to remedy. That is, as a curative approach these policies may instead have perverse or counter-productive preventative effects, as noted below.

Price Signals

The expectation that an area of land will eventually be regularized allows the developer to raise the price. A purchaser often obtains a lot with written evidence that the developer does not yet have the services required by urban planning norms. At the same time the developer promises that as soon as enough lots are sold the services or infrastructure will be provided, even though such promises are often unfulfilled. At best, a relationship of complicity is established between buyer and seller. At worst, and this is quite common, the purchaser is tricked by the existence of services, such as pipes put into the ground, which the developer claims are part of the infrastructure network. Other problems in these arrangements that can harm poor residents are doubtful rights of tenure, payment terms that disguise the full amount of interest to be paid, and confusing or inaccurate details in the contract.

As in any other segment of the land market, the actual prices reflect, or absorb, expectations about the future use of the lot. The informal sector is no exception. The greater the expectation that the plot of land that is currently without services will get them eventually, either from the developer or, as is more likely, from the government through some regularization program, the higher the price at which the land is sold.

Regularization as an Attraction for More Irregularity

Research on the first arrival dates of inhabitants in informal settlements suggests that in many cases more people moved in just when some regularization program (such as the granting of titles or urbanization improvements) was announced or implemented (Menna Barreto 2000).

The idea that expectations about regularization have an effect on informality is also corroborated by the large number of invasions or occupations that take place either just before or just after electoral periods, when candidates promise new regularization programs. The victory of Miguel Arraes as governor of Pernambuco, Brazil, in 1986 led to 13 land invasions in just over a month (Rabaroux 1997, 124), and the Latin American historiography of the effects of the expectations created by populist promises is rich in other examples. Many of the existing settlements that need to be regularized today owe their origin to the irresponsible complacency of politicians turning a blind eye to the irregular occupation of public or unsuitable areas, or, which is worse, who ceded public land for electioneering purposes.

The Opportunity Costs of Regularization

Regularization programs, which are normally of a remedial or curative nature, have a high opportunity cost compared to the cost of providing urbanized land in a preventative manner. The rule of thumb cost per benefited family of a typical upgrading or regularization program has been in the range of $3,000 to $4,000. Taking the size of a plot to be around 50 m2 and adding 20 percent to account for streets and other public services, the cost works out to US$50 to US$70 per m2. This is considerably higher than the cost for servicing new land, which is less than US$25 per m2, and is similar to the price charged by private developers, even when allowing for a handsome profit margin. ECIA, a private developer operating west of Río de Janeiro, offered completely urbanized plots for US$70 to US$143 per m2 at 1999 prices (Oliveira 1999). The Municipal Secretariat of Urbanism in Río de Janeiro has a technical study, from 1997, which demonstrates that it is possible to commercialize urbanized plots for less than US$55 per m2. Along the same lines, Aristizabal and Gomez (2001) in Bogotá estimate that the cost of correction (“reparation”) of an irregular settlement is 2.7 times the cost of planned areas.

These figures suggest the limitations of preventative programs in favor of curative ones. It is also relevent that permission to develop a regular, formal subdivision may take from three to five years, whereas the decision to regularize an informal settlement often takes less than six months.

The “Day After” of Regularization

A well-executed regularization program (that is, one that effectively integrates the informal area with the urban fabric) would ideally result in the improved quality of life for all occupants and a stronger community. In particular, one would expect an appreciation of property values, causing some residential mobility as families with below-average incomes are forced to move. However, when the program is badly executed the area may be consolidated as a low-income irregular settlement.

The Favela-Bairro upgrading program in Rio de Janeiro is often used to exemplify the most comprehensive and successful experience of its kind. Abramo’s (2002) study of the impact of regularization programs found a relatively small increase in property values in the affected areas (28 percent). Applying this average figure to typical or modest houses with an ex-ante value estimated at US$12,000, the added value is about US$3,400, a number close to the average per-family cost of regularization programs. This result contrasts with the mark-up of more than 100 percent obtained in the process of servicing raw land through the market by private agents. This intriguing piece of information seems to show how little notice the “market” takes of the increased value of these regularized settlements. At the same time, full integration into the urban fabric turns out to be less frequent than had been expected. Many of the favelas that received important upgrading investments remain stigmatized as favelas even 15 years later.

Conclusions

Informality is expensive, and it exacerbates the conditions of living in poverty. The diagnoses of such agencies as the UNCHS (Habitat), World Bank, Inter-American Development Bank and others would seem to be correct in regarding upgrading programs as an essential ingredient of any policy to deal with urban poverty. However, because of the piecemeal and limited approach of such programs, there is no guarantee that the regularization of settlements alone will contribute to reducing urban poverty. In effect these programs not only reiterate and keep intact the land market “rules of the game” that contribute to informality, but they also generate some perverse effects. This situation poses both a dilemma and a challenge. The dilemma is that not regularizing simply is not a political option (nor is it a humanitarian option). The challenge is how to interrupt the vicious cycle of poverty and informality through interventions in the land market. The task ahead is formidable, but there are places in Latin America where local governments are beginning to set new ground rules.

Martim O. Smolka is senior fellow and director of the Program on Latin America and the Caribbean at the Lincoln Institute.

References

Abramo, Pedro. 2002. Funcionamento do mercado informal de terras nas favelas e mobilidade residencial dos pobres. Cambridge, MA: Lincoln Institute of Land Policy Research Paper.

Aristizabal, Nora, and Andrés Ortíz Gomez. 2002. Are services more important than titles in Bogotá?” in Land, Rights and Innovation: Improving Tenure Security for the Urban Poor, Geoffrey Payne, ed. 100-113. London: Intermediate Technology Development Group Publishing.

Lincoln Institute. 2002. Access to Land by the Urban Poor: 2002 Annual Roundtable. Cambridge, MA: Lincoln Institute of Land Policy.

Menna Barreto Silva, Helena. 2000. Programas de urbanização e desenvolvimento do mercado em favelas brasileiras. São Paulo: University of São Paulo: LAB-Hab.

Oliveira, Fabrício L. de. 1999. Valorização fundiária e custos de urbanização na XVII R.A. – Campo Grande: uma primeira aproximação com o caso do Rio de Janeiro. Cambridge, MA: Lincoln Institute of Land Policy Research Paper.

Rabaroux, Patrice. 1997. La Regularizacion en Recife (Brasil). In El acceso de los pobres al suelo urbano. Antonio Azuela and François Tomas, eds. México: Centro de Estudios Mexicanos y Centroamericanos del Instituto de Investigaciones Sociales de la UNAM.

Smolka, Martim O. 2002. The High and Unaffordable Prices of Serviced Land. Cambridge, MA: Lincoln Institute of Land Policy Research Paper.

Smolka, Martim O., and Fernanda Furtado, eds. 2001. Recuperación de plusvalías en América Latina: Alternativas para el desarrollo urbano. Santiago, Chile: EURELIBROS.

Seeking to address housing affordability and transportation congestion issues, the executive directors of the 25 largest public-sector metropolitan regional councils gathered in Los Angeles in September 2003 for their second regional forum. The three-day conference was sponsored by the Lincoln Institute, the Fannie Mae Foundation and the National Association of Regional Councils (NARC).

Case Studies

The opening session featured presentations on three case studies that illustrate different approaches to growth and development: Atlanta, Chicago and Los Angeles.

The Atlanta region is home to 3.6 million people in 10 counties. Charles Krautler, of the Atlanta Regional Commission (ARC), noted that the commission was created in 1947 and in 1952 presented its first regional plan. “It proposed a tight development pattern with an urban growth boundary close to where I-285 circles our region,” he explained. “It was rejected outright. Instead, we adopted a plan with growth in concentric circles. We did not have unplanned sprawl, we planned for it and we got it.” However, he continued, “now we have two societies. Many people moved to the northern part of the region and took their wealth with them. We encouraged them to trade long drives for big houses. But poverty remains concentrated in Atlanta and Fulton County.”

No slowdown is forecasted for 2030, as the population is expected to grow to 5.4 million people and employment to 3.1 million jobs. That means more congestion, and Atlanta faces other constraints as well. The region is the largest metropolitan area with the smallest water supply, and there is no opportunity for significant expansion of the supply. “If we keep doing what we’re doing, then what we have today is the best its going to be,” Krautler stated. “We’re trying to encourage a movement back to the city. After losing population for the last 30 years, the city has grown by 16,000 since the 2000 census. In a further effort to rewind the sprawl clock, ARC has designated 44 activity/town centers as part of its regional development plan linking transportation and land use. Each center receives planning and, more important, infrastructure resources to concentrate development.”

The Chicago metropolitan area is the “hub of the Midwest,” according to Ron Thomas of the Northeast Illinois Planning Commission (NIPC). With more than 8 million residents in 6 counties with 272 incorporated municipalities, Chicago has built its strength around the waters of Lake Michigan. The NIPC region hosts almost 4.5 million jobs and 62 companies that are listed in the Fortune 1000. The 4,000-square-mile region stretches north to Wisconsin and east to Indiana. And yet, Thomas laments, “our urban growth ‘edge’ is beyond our region. That means that the people who are attempting to control this growth are not at our table.”

Building on the Burnham plan, the first regional plan in the country created in 1909, Chicago’s urban fabric is held together by a series of 200 town centers, an extensive rail network and an expansive highway system. The good news, Thomas said, is that “90 percent of the region’s population is within one mile of a transit line.” Three satellite cities, Elgin, Joliet and Aurora, create a polycentric region around Chicago’s western fringe. The net result is that the region still has the capacity to absorb the projected growth of more than 2 million new people in the next 30 years.

Like every metropolitan region, Chicago is experiencing immigration from all over the world, but especially an influx of Hispanic families. New immigrants enter a region with longstanding socioeconomic patterns of segregation, especially in the southern counties. Thomas explained there are pockets of diversity in some suburban communities, but exclusionary zoning keeps the barriers high. While NIPC has successfully brought together the mayors in the metropolitan area to discuss critical issues, “we suffer from a lack of major universities, most of which are either downtown or 100 miles out,” Thomas noted. “Our political leaders are organized, and so is our business community. However, we run on parallel tracks and talk in stereo.” To address this disconnect, NIPC has created a broad-scale civic leadership process to undertake community-based planning. “We have created a tool called ‘paint the town,’ which allows interactive meetings in local city and town halls,” he continued. “We have a future to plan and it needs to be grounded where the people live, work and raise their families.”

Los Angeles has more than twice as many people as Chicago and more than 4.5 times the population of the Atlanta region, and yet “the urban portion of our region is the densest in the country,” according to Mark Pisano of the Southern California Association of Governments (SCAG). “We have 187 municipalities in 6 counties. With 76 local officials in our structure, our congressional delegation comes to us for solutions to the tough issues we face. We do have a region that is large enough to cover the true regional economy, but the economic and social forces are relentless. Our economic bases are shifting faster than we can plan infrastructure to keep up with the changes.”

Like Chicago and Atlanta, Los Angeles is a polycentric region; it spreads across all of Southern California except San Diego County. “We were one of the first regions in the country to become a majority of minorities. Immigration drives development in our region,” said Pisano. Some of the trends are good. “Forty percent of our region is doing extremely well, but that means that 60 percent is not. We have been called the ‘new Appalachia’ by some, and we are banding together with other states along the border with Mexico to create the Southwest Authority. This, like other similar efforts around the country including the Appalachian Regional Commission, would create a federally supported multistate compact to address critical infrastructure needs required to support the economy of this large area.”

SCAG forecasts another 6 million people will arrive in the region by 2030, more than twice the population of the City of Chicago. As the new immigrants arrive, cities and towns already cramped by the constraints of Proposition 13 are beginning to close the door on new housing production. “Housing is the most undesirable land use in Southern California,” said Pisano. “We are seeing the fiscalization of land use. Our leaders tell me that they don’t want any more housing. They say this is sound fiscal policy. However, this approach just puts more pressure on places that already have housing. The net effect is that Los Angeles is three times more overcrowded than the rest of the region and eight times more crowded than New York City.”

To address these big-picture problems, SCAG is focusing on macro-level regional development patterns. “We can’t build our way out of the traffic congestion, but we have two scenarios under discussion,” Pisano continued. “The first focuses on infill development; the second proposes creation of the fifth ring of development in the high desert. Effective land use will generate three times more benefit than highway expansion.” Using a creative strategy of building truck lanes, paid for by the truckers, “we can create some relief and target key transportation logistics, i.e., moving freight out of the port of Los Angeles into the rest of the country. This strategy also addresses a key workforce issue, since you don’t need a college education to drive a truck. To fund such major infrastructure expansion, we are exploring how to create a tax credit that would allow significant private-sector investment in regional transportation projects.”

Discussion Sessions

Ruben Barrales, deputy assistant to President Bush and director of intergovernmental affairs for the White House, presented an overview of the executive branch’s current national priorities. During the discussion Krautler asked if a White House conference would be a possible response to the critical issues facing the largest metropolitan regions in the country. Barrales said the concept was worth discussing but would require considerable advance preparation to be effective. Pisano offered the resources of the group, working through NARC, to help with conference planning. Robert Yaro of the Regional Plan Association (RPA) suggested an interesting theme. “We’ve had several major eras of planning in this country,” he explained. “When Jefferson made the Louisiana Purchase in 1803, he spurred a major expansion in the nation’s land mass and then had to figure out what to do with it. One hundred years later Teddy Roosevelt appointed Gifford Pinchot to create the National Park Service. We’re due for another national planning initiative, but we now have many challenges that require a sophisticated response. We can’t build an economy based on people driving several hours to and from work each day. We need to focus on how we can create a place that is both pleasant and affordable.”

Armando Carbonell of the Lincoln Institute asked the group to expand on what national policies are needed to support the large metropolitan regions in the country. Comments included:

• We need to re-magnitize our regions, and modest incentives from Washington, DC, could help start that process.
• We need to partner with groups like the Urban Land Institute.
• We are flying blind and that’s dangerous. Even though we’re in the planning business, we need better data, better policies and different paradigms for managing our regional governance that include partners from our business and civic sectors as well as our political leaders.
• We can use a structure like the Metropolitan Planning Organizations (MPOs), created for transportation, to address other critical issues like water and housing.
• The bad news is that we are growing, but the good news is that we are growing. We attract smart, entrepreneurial people from around the world.

Dowell Myers, director of the Planning School in the University of Southern California School of Planning, Policy and Development, moderated a session focused on transforming regional actions into local implementation. As part of the program, representatives of three regions commented on their strategies.

“Seattle grew a lot over the last 20 years and we grew in different ways,” said Mary McCumber of the Puget Sound Regional Council (PSRC). “Our new growth was outside of our historic cities. We knew we needed to do something and we got lucky. We got ISTEA [Intermodal Surface Transportation Efficiency Act], a state growth management law and a new regional council at the same time.” Using these tools, PSRC created Destination 2030, which was honored as the best regional plan in the country by the American Planning Association (APA). “But we have planned enough. We are a land of process. Now we need to have the courage to act.”

Martin Tuttle of the Sacramento Area Council of Governments (SACOG) reported, “We used our federal transportation dollars to create land use incentives for community design and backed it up with $500 million. We asked people, ‘Is Atlanta what we want?’” Using the best data available and a sophisticated feedback planning process, SACOG brought the planning to the people and took the people’s plan back to the council.

Bob Yaro of RPA reminded the group that it takes “patience, persistence and perseverance.” He presented New York City as an urban success story, where 8 million people ride the transit system per day. “The Regional Plan Association, created in 1929, oversees a three-state region, and those states don’t like each other much. They have different DNA,” Yaro noted. Despite that history, RPA created the first strategy for a multi-centered region. Unlike the other regional councils, RPA is a private-sector organization. “The real power is in the civic community, if you can get people organized and move them in the right direction,” Yaro added.

Tom Bell, president and CEO of Cousins Properties in Atlanta, introduced a private-sector perspective on engaging in regional policy development: “I was surprised to read in Time magazine that the Atlanta region is the fastest growing settlement in human history. We are gobbling up 100 acres a day. There is no common ground. Democracy and land planning go together like oil and water. But you [planners] are the people who can make a change. Developers will do a lot of work if we can see a payoff. Visions are in short supply and the status quo is not an option.”

Addressing income distribution in the regions, Paul Ong, director of the Lewis Study Center at UCLA, reported that poverty rates among the elderly have declined at the same time that rates among children have increased. More distressing, poverty is higher and more concentrated in urban areas. “We are seeing a working underclass—not people on welfare but people who have jobs.” Rick Porth from Hartford and Howard Maier from Cleveland responded with case studies from their regions on income and social equity. In Hartford, Porth said, “the disparity is getting worse. More important, 20 percent of our future workforce is being educated in our worst schools.” Maier noted, “our economy is in transformation. The Cleveland area was a manufacturing center for steel and car production, but now we have more healthcare workers than steel or auto workers. As a region of 175 communities, we have 175 land use policies based on 175 zoning codes and maps. Each community’s plans may be rational, but together they project a future of sprawl without the ability for coordinated public services or facilities.”

In other sessions several regions that had developed assessment and benchmarking studies presented their current work, and the conference concluded with presentations by each of the councils on a best practice study, strategy or methodology that they have implemented.

The conference theme—confronting housing, transportation and regional growth—underscores the complexity of the metropolitan environment and the necessity for an integrated response to regional dynamics. Traditional regional councils are unique in their ability to link multiple regional systems to focus on specific regional questions. Housing affordability, a seemingly intractable problem overwhelming metropolitan regions, can only be understood against the backdrop of the local government fiscal policy. Transportation systems, often understood as infrastructure designed to service an existing regional settlement pattern, must be seen as a key determinant of economic development policy as well as a primary driver of land use change in regions. The metropolitan regions of this country are the economic engines of our states and the country as a whole. A new, enriched dialogue with the White House could stimulate a series of policy initiatives. As that conversation proceeds, regional councils are the key organizations to engage business and civic leaders with local elected officials around the regional table.

David Soule is senior research associate at the Center for Urban and Regional Policy at Northeastern University in Boston. He teaches political science and conducts research on urban economic development, tax policy and transportation systems. He is the former executive director of the Metropolitan Area Planning Council (MAPC), the regional planning agency representing 101 cities and towns in the Boston area.

Una versión más actualizada de este artículo está disponible como parte del capítulo 7 del CD-ROM Perspectivas urbanas: Temas críticos en políticas de suelo de América Latina.

Los proyectos de reurbanización a gran escala (denominados grandes proyectos urbanos o GPU) plantean muchas dudas sobre las consecuencias de la urbanización subsiguiente provocada por la intervención. Los GPU se caracterizan por el impacto que tienen en una parte significativa de la ciudad, a menudo con el uso de algunos nuevos instrumentos fiscales o reguladores y la participación de una amplia red de agentes e instituciones. Se espera que estos proyectos afecten los precios del suelo, reciclen la infraestructura y las instalaciones existentes o creen otras nuevas, y atraigan otras construcciones nuevas.

Los GPU como instrumento de política urbana han sido objeto de controversia y debate considerable en toda América Latina. Se argumenta a menudo que promueven la exclusión social y la renovación de edificios para aspiraciones de la clase media, tiene efectos limitados en la estimulación de actividades inmobiliarias y requieren grandes subsidios públicos (a veces ocultos) que a menudo quitan recursos fiscales de otras necesidades urbanas. A pesar de su creciente popularidad en América Latina, existe poca evidencia empírica para apoyar estas críticas.

Este artículo presenta el caso de un GPU introducido en São Paulo, Brasil, en 1996 como una “operación urbana” para reurbanizar un área de ingresos medios que constaba en su mayor parte de hogares unifamiliares que iba a ser atravesada por la prolongación de la Avenida Faria Lima. El proyecto es conocido como el Consorcio de Operaciones Urbanas de Faria Lima (OUCFL). Examinamos los principios económicos que afectan el rendimiento fiscal del proyecto y su oportunidad para recuperar plusvalías, evaluamos los cambios en densidad residencial y analizamos los cambios en la distribución de ingresos y la estructura de la propiedad. Por último, ofrecemos algunas sugerencias de políticas sobre cómo y cuándo usar esta clase de instrumento en función de estas evaluaciones.

¿Qué es una operación urbana?

Una operación urbana es un instrumento legal que trata de proporcionar a los gobiernos locales el poder de llevar a cabo intervenciones relacionadas con mejoras urbanísticas y de planificación municipal en asociación con el sector privado. Identifica un área particular dentro de la ciudad que tenga el potencial de atraer inversiones inmobiliarias privadas para beneficiar a la ciudad en su totalidad. Los índices de planificación municipal apropiados (es decir, zonificación y otros reglamentos sobre coeficientes de construcción, índices de ocupación y usos del suelo) se redefinen según un plan maestro, y las inversiones se hacen en infraestructura nueva o reciclada.

Una operación urbana permite a la municipalidad recuperar (a través de medios negociados u obligatorios) los incrementos del valor del suelo relacionados con los subsiguientes cambios de uso del suelo. En comparación con otros instrumentos de recuperación de plusvalías, estos fondos están destinados o justificados dentro del perímetro del proyecto y serán compartidos entre el gobierno y el sector privado para inversiones en infraestructura urbana y subsidios de las inversiones inmobiliarias privadas para apoyar el proyecto mismo.

Cada operación urbana en Brasil es propuesta por el poder ejecutivo y aprobada por el poder legislativo de la jurisdicción. En el caso de São Paulo, esta autoridad fue creada en la Ley Orgánica Municipal (Constitución de la Ciudad) en 1990, que se incluyó más adelante en la nueva ley de urbanización brasileña (Estatuto de la Ciudad de 2001). Los primeros proyectos propuestos fueron la Operación Anhangabaú (más tarde ampliada como parte de la Operación Centro de la Ciudad y denominada Operación del Centro) y Água Branca, seguida por las operaciones de Água Espraiada y Faria Lima. Después de aprobar el nuevo Plan Maestro de la ciudad en 2001, se generaron otras nueve operaciones urbanas. Se espera que estos trece proyectos afecten del 30 al 40 por ciento del área edificable de la ciudad de São Paulo.

Financiación de Faria Lima

La operación urbana de Faria Lima (OUCFL) fue propuesta y aprobada en 1995 con el objetivo de obtener recursos privados para financiar las inversiones públicas necesarias para comprar suelo e instalar infraestructura con el fin de ampliar la Avenida Faria Lima. Se estimó que estos costos ascendían a aproximadamente US$150 millones, dos tercios para adquisición de suelo y un tercio para la avenida en sí. Al proyecto se opusieron muchos interesados por motivos que iban desde el origen de los fondos (es decir, avanzados del presupuesto local a través de una deuda nueva) hasta preocupaciones del vecindario (una de las cuales pudo mantener sin cambios los coeficientes de edificabilidad [floor area ratio o FAR] y excluirlos legalmente de la zonificación de OUCFL) y problemas de diseño técnico.

Los estudios técnicos realizados en su momento indicaban que sería posible aprovechar 2.250.000 metros cuadrados potenciales más de los ya permitidos por la legislación de zonificación de la ciudad y consecuentemente se modificaron los FAR. Estos derechos de construcción adicionales fueron garantizados contra un pago mínimo del 50 por ciento de su valor de mercado usando el instrumento existente Solo-Criado (venta de derechos de construcción). La OUCFL despertó gran interés por parte de empresarios inmobiliarios. No obstante, este instrumento también fue cuestionado por su falta de transparencia, su enfoque de “proyecto a proyecto”, y la arbitrariedad en la forma en que se establecieron precios relevantes que después se usaron para calcular el valor de los derechos de construcción adicionales.

En agosto de 2003 ya se había autorizado un total de 939.592 metros cuadrados, o casi el 42 por ciento de los 2.250.000 metros cuadrados totales posibles. Se aprobaron más de 115 proyectos inmobiliarios, incluidos casi el 40 por ciento de edificios comerciales y el 60 por ciento de edificios residenciales de alta calidad. No obstante, los recursos (aproximadamente US$280 millones) obtenidos de estos proyectos aprobados no habían compensado completamente los gastos (US$350 millones, incluidos el capital más los intereses) relacionados con la ampliación de la avenida, teniendo en cuenta los elevados intereses reinantes en Brasil durante los casi ocho años desde la ejecución de los gastos. Así, aproximadamente el 80 por ciento del costo (aunque mayor que el anticipado) se ha recuperado mediante el proceso de Venta de Derechos de Construcción. Desde julio de 2004, la compensación de estos fondos de avance se obtuvo mediante el ingenioso y nuevo mecanismo de recuperación de plusvalías conocido como CEPAC, siglas que significan Certificado de Potencial Adicional de Construcción. Un CEPAC representa un metro cuadrado.

La introducción de CEPAC

Aunque los CEPAC se definieron en el Estatuto de la Ciudad de 2001 de Brasil, no fueron aprobados por el CVM (equivalente brasileño de la Comisión de Bolsa y Valores de EE. UU.) como libremente comerciables en la Bolsa de Valores Brasileña hasta diciembre de 2003. El reglamento establece que el precio de cada certificado sea definido por una subasta pública y que puedan ejecutarse en cualquier momento los metros cuadrados correspondientes de derechos de construcción (que también incluyen cambios de uso e índices de ocupación) expresados en cada certificado. El reglamento indica también que se pueden emitir nuevos lotes de certificados (y venderse en subastas) sólo después de confirmarse que los recursos capturados por la venta previa han sido destinados de forma efectiva al proyecto. Para asegurar este uso designado, los ingresos se depositan en una cuenta especial, no en el tesoro municipal. Desde el punto de vista de los inversores privados, esta designación asegura la aceptabilidad de este instrumento de recuperación de plusvalías a su propia valorización. Al emitir un número menor de certificados que el número de derechos de construcción potenciales —es decir, al gestionar su escasez— el sector público puede beneficiarse de la valorización y poder así recuperar la plusvalía “ex-ante” (Afonso 2004, 39).

La aprobación final de los CEPAC para la OUCFL y todos los pasos necesarios para lanzarlos al mercado financiero se produjo a mediados de 2004, y la primera subasta a finales de diciembre de 2004 generó casi 10 millones de reales (unos US$4 millones), correspondientes a la venta de unos 9.000 CEPAC de un grupo autorizado de 650.000 metros cuadrados. Los certificados de OUCFL se vendieron a un valor nominal de 1.100 reales (unos US$450) por metro cuadrado sin un precio adicional como resultado del proceso de licitación.

Esta situación contrasta con la operación urbana de Água Espraiada, que se esperaba que fuera completamente financiada por CEPAC desde su inicio. En su tercera subasta, los certificados ya estaban alcanzando los 370 reales por certificado en vez del valor nominal de 300 reales fijado para esta operación. Una subasta más reciente en Água Espraiada vendió 56.000 CEPAC y alcanzó 21 millones de reales (US$9,5 millones), reflejando un precio por certificado de 371 reales. Este contraste de precios refleja los distintos valores nominales originales en los dos proyectos. En el caso de OUCFL los urbanizadores de compraron (y acumularon) derechos de construcción por adelantado, para beneficiarse de las reglas más flexibles antes de las aprobaciones de la CVM. El precio de los certificados en Faria Lima empezó siendo de más de 1.100 reales porque es un área más valorada. En Água Espraiada los urbanizadores estaban dispuestos a pagar un precio mayor que el valor nominal original, ya que los certificados eran menos caros y había una mayor demanda.

Implicaciones de los precios del suelo

Los precios del suelo sin ocupar y de las áreas urbanizadas experimentaron un aumento considerable en algunos bloques dentro del perímetro de OUCFL durante los años 90, pero disminuyó en otros bloques. No obstante, el precio promedio del metro cuadrado de nueva urbanización descendió en toda la región metropolitana de San Paulo (RMSP) en todas las franjas de precios, cuando se comparan los precios promedio de 1991 a 1996 con los de 1996 a 2000.

Después de controlar una serie de atributos relacionados con el carácter variable de las urbanizaciones y su ubicación, las estimaciones de precios mostraron un aumento relativo inequívoco después de haber dado comienzo a la operación. El precio promedio por metro cuadrado dentro del perímetro de OUCFL aumentó de 1.680 reales en el período de 1991–1996 a 1.920 reales en el período de 1996–2001, lo que representa un aumento del 14 por ciento, mientras que los precios en la RMSP disminuyeron de 1.210 a 1.060 reales, lo que representa un descenso del 12 por ciento en el mismo período (1,95 reales/1,00 dólares estadounidenses en diciembre de 2000). Así pues, el precio por metro cuadrado en OUCFL era aproximadamente un 26 por ciento mayor que el de RMSP. El precio por metro cuadrado en OUCFL fue un 38 por ciento mayor que el precio promedio en la RMSP en 1991–1996, y aumentó a un 81 por ciento en 1996–2001.

¿Fue este aumento capturado por la municipalidad el previsto? Considerando que el costo de la construcción es en promedio aproximadamente igual a 1.000 reales por metro cuadrado, la subasta de 2004 (la única hasta ahora) capturó casi todo el valor añadido a los precios actuales. El sistema previo anterior a CEPAC capturó aproximadamente el 50 por ciento o más, dependiendo de la capacidad y del éxito de los negociadores municipales, y de la exactitud del precio de referencia. CEPAC ahora cambia este porcentaje y el valor nominal del instrumento puede recuperar todo el incremento del valor o incluso más, dependiendo de la relación de este valor nominal con los precios del mercado, y de los resultados de futuras subastas. Al comparar un proyecto de reurbanización financiado completamente por bonos de construcción (como CEPAC) y otro financiado totalmente por tributos inmobiliarios generales, no existe ninguna duda de que el anterior es menos regresivo que este último. Incluso con un tributo inmobiliario progresivo, con tasas que aumenten según los valores, parte de los costos serían pagados por hogares más pobres.

Esta evidencia de que aproximadamente el 80 por ciento del costo del proyecto ya se ha recuperado, en combinación con la subasta de los derechos de construcción restantes mediante CEPAC y el impacto de la apreciación de la propiedad en los ingresos de tributos inmobiliarios actuales, indica que el proyecto no sólo debe pagarse por sí mismo sino que realmente genera una plusvalía fiscal para la ciudad en general en los siguientes cinco o siete años.

En efecto, los cambios causados al sustituir casas unifamiliares más antiguas por nuevos edificios residenciales y comerciales produjeron un cambio sustancial en la recaudación de tributos inmobiliarios en el área de la OUCFL. Muchas parcelas e incluso bloques enteros habían sido ocupados por casas de uno o dos pisos construidas en los años 50. Muchas de estas estructuras tenían derecho a un coeficiente de descuentos por obsolescencia de hasta un 30 por ciento del tributo inmobiliario. Fueron reemplazadas por edificios nuevos, más altos y de mayor calidad para los que el descuento era nulo. Nuestras estimaciones indican que las diferencias en recaudación de tributos inmobiliarios por metros cuadrados construidos puede haber aumentado al menos 2,7 veces y hasta 4,4 veces más. Es decir, el tributo inmobiliario promedio por metro cuadrado aumentó a un mínimo de 588,50 reales hasta un máximo de 802,50 reales desde 220,95 reales si la casa tenía más de 25 años, o desde 179,70 reales si la casa tenía más de 30 años.

Implicaciones sociales

El caso de la OUCFL ofrece una oportunidad única para cuantificar cambios en las características de residentes antes y después de la intervención, ya que hay datos disponibles a nivel de seguimiento del censo para 1991 y 2000, y la intervención empezó en 1996. Nuestro análisis de renovación y desplazamiento de residentes más pobres confirma principalmente las conclusiones de Ramalho y Meyer (2004) de que los ingresos promedio han aumentado relativamente en la mayoría de los bloques dentro del perímetro de la OUCFL. En lo que se refiere a las normas brasileñas, la clase media-alta fue desplazada de la región por el 5 por ciento más rico de hogares en el área metropolitana. Los datos del censo también mostraron que la densidad residencial descendió entre 1991 y 2000, de 27 a 22 residencias por hectárea, aunque estas cifras pueden estar distorsionadas porque reflejan la razón de residencias totales en todo el área, no un promedio de las razones por parcela donde se convirtió el uso del suelo.

Los datos de 1991 indicaron que la población ya estaba abandonando el área de la OUCFL antes de la aprobación de la operación urbana, pero este éxodo se intensificó después de 1996, generando parcelas desocupadas en el proceso de configuración del sitio para acomodar a las nuevas urbanizaciones de edificios altos. Al mismo tiempo, aumentó la densidad de construcción. El número promedio de pisos por nuevo edificio en el área aumentó de 12,6 en el período de 1985–1995 a 16,7 en el período de 1996–2001. El número de viviendas por edificio aumentó de 37,1 a 79,6 en los mismos períodos.

Esta contradicción aparente entre la menor densidad residencial y el mayor número de viviendas se explica en parte por la construcción de edificios comerciales que reemplazaron muchas residencias unifamiliares en parcelas pequeñas o de tamaño promedio. La OUCFL provocó una concentración inmobiliaria considerable, ya que los nuevos edificios comerciales y residenciales reemplazaron las casas y requirieron áreas de suelo más grandes para proyectos arquitectónicos de clase alta. Los 115 proyectos aprobados entre 1995 y agosto de 2003 que solicitaron aumentos en los coeficientes de utilización requerían un total de 657 parcelas, o un promedio de 5,7 parcelas por proyecto.

La combinación del aumento en nivel de ingresos y la reducción en densidad de hogares indican que el proceso de renovación avanzó dentro y fuera de la región de la OUCFL durante los años 90. No obstante, éste no es un caso clásico de renovación para la aspiración de clases medias, donde las familias pobres son expulsadas de un área debido a diversas presiones socioeconómicas. En este caso fueron mayormente las clases medias-altas quienes fueron desplazadas. Excepto en lo que se refiere al pequeño núcleo de favelados restantes (Favela Coliseu), la región estaba ya ocupada por personas que pertenecen a los sectores más ricos de la sociedad.

Algunas observaciones de política

Este artículo contribuye al debate sobre la gestión social de valoración del suelo proporcionando evaluaciones de datos reales y elementos económicos. Estos elementos faltaban en la mayoría de los análisis, y creemos que este vacío en las publicaciones ha contribuido a una interpretación incompleta de las implicaciones de una operación urbana y a recomendaciones de política pública equivocadas.

Nuestra conclusión es que el mecanismo de financiación de CEPAC por sí mismo no aumenta la característica regresiva de las operaciones urbanas, ya que sin esos bonos de derechos de construcción toda la inversión en reurbanizaciones sería financiada por impuestos generales. Si el proyecto de la OUCFL fuera inadecuado en términos de distribución de ingresos, hubiera sido aún peor sin el mecanismo de recuperación de plusvalías. En vez de eso, CEPAC y el mecanismo de recuperación de plusvalías usado previamente ofrecieron dos características deseables en cualquier inversión pública: cobrar a los nuevos terratenientes es al menos neutro en términos de distribución de ingresos; y los beneficiarios principales terminan por pagar el proyecto.

Además, el mecanismo de operación urbana ofrece incentivos para la reurbanización. Dado que la mayoría de los proyectos aumentan los precios del suelo y echan a los pobres de la región, sería mejor invertir todo el presupuesto municipal en proyectos a pequeña escala. Esto es lo opuesto a lo que ocurrió con la reurbanización de la rica área adyacente de Berrini donde los urbanizadores decidieron la forma de concentrar su inversión, resultando en una concentración aún mayor de ingresos que en el área de la OUCFL. Debido a la falta de acción de los gestores de política en ese caso, la municipalidad no capturó ningún valor de Berrini, pero pagó el costo completo de la infraestructura.

El uso de bonos de derechos de construcción puede disminuir el aspecto regresivo de la urbanización, pero hacer que un proyecto sea verdaderamente progresivo requiere atención en el lado de los gastos, financiando toda la inversión a través de instrumentos como CEPAC. La limitación principal sobre la distribución de beneficios a los pobres es que la ley establece que todos los fondos recogidos mediante la recuperación de plusvalías (CEPAC u otros instrumentos) deben invertirse dentro del perímetro de la intervención. Una forma de que estas intervenciones sean más progresivas es invertir en actividades que suministren extras a los pobres, como transporte público, educación y salud. Además, la legislación importante permite que la administración seleccione un área dentro del perímetro de una operación urbana y la declare zona especial de interés social (ZEIS) donde las parcelas se pueden usar exclusivamente para vivienda social de bajos ingresos.

Otra alternativa es establecer áreas de vivienda social dentro del perímetro de la operación urbana. Al subsidiar viviendas de bajos ingresos con dinero de urbanizadores y nuevos terratenientes, no habría una distorsión de precios fuera de la industria de la vivienda. El subsidio resulta de la segmentación del mercado y de la transferencia de la renta adicional a hogares pobres. Se trata de una gestión social real de valoración del suelo.

Ciro Biderman está afiliado al Centro de Estudios de Política y Economía del Sector Público (Cepesp) en la Escuela de Ciencias Económicas y Empresariales de la Fundación Getúlio Vargas de São Paulo, Brasil. Es profesor visitante de desarrollo internacional y planificación regional en el Departamento de Estudios y Planificación Urbanos del Massachusetts Institute of Technology, Cambridge.

Paulo Sandroni es economista y profesor en la Escuela de Ciencias Económicas y Empresariales de la Fundación Getúlio Vargas.

Martim O. Smolka es Senior Fellow y director del Programa sobre América Latina y el Caribe del Lincoln Institute.

Referencias

(Estas publicaciones sólo se encuentran en portugués).

Afonso, Luis Carlos Fernandes. 2004. Financiamento é desafio para governantes (La financiación es un desafío para los gobernantes). Teoria e Debate Nº 58, Mayo-Junio: 36–39.

Ramalho, T., e R.M.P. Meyer. 2004. O impacto da Operação Urbana Faria Lima no uso residencial: Dinâmicas de transformação (El impacto de la Operación Urbana Faria Lima en el uso residencial: dinámicas de transformación). Mimeo. São Paulo: Lume/FAUUSP.

Biderman, Ciro y Paulo Sandroni. 2005. Avaliação do impacto das grandes intervenções urbanas nos precos dos imoveis do entorno: O caso da Operação Urbana Consorciada Faria Lima (Evaluación del impacto de los precios en la propiedad cerca de intervenciones urbanas a gran escala: El caso del Consorcio de la Operación Urbana Faria Lima). Lincoln Institute of Land Policy Research Report (Abril).

Faculty Profile of Fernanda Furtado

Planning and land policy experts recognize the need for timely and accurate information about how to take account of likely, if uncertain, environmental and climate change impacts on global land use and development patterns. The Lincoln Institute’s fifth annual land policy conference in May 2010 addressed the status of many of these issues currently and through the twenty-first century.

Transport and Land Use

Providing effective transit service—a smart growth policy—requires residential densities of at least 30 persons per hectare. A review of census tract data for 447 U.S. urbanized areas in 2000 indicates that about a quarter of the urbanized population resided in areas with such densities, down from half in 1965. Fully 47 percent of the 447 areas had no tracts with a transit-sustaining density. But, transit ridership requires more than just dense residential areas.

For example, New York and Los Angeles have similar average residential densities, but 51 percent of commuters in New York use transit compared to 11 percent in Los Angeles. An analysis of travel diaries from nearly 17,000 Los Angeles households indicates that accessibility to employment centers increases transit use much more than living in a high-density area. Alternatively, congestion toll schemes dating from the mid-1970s have yielded sustained increases in transit use and reductions in auto use and congestion. While such policies are likely to produce land use changes, theory is ambiguous about their direction, and virtually no empirical evidence is available.

Energy and Carbon Pricing

Analysis of 13 completed LEED-certified developments showed that their residents produced fewer vehicle miles travelled than the average for their metropolitan areas, suggesting that these developments are fulfilling one of their objectives. A review of the land intensity of alternative energy sources demonstrates that wind and solar sources are feasible in terms of their land coverage, whereas heavy reliance on bio-fuels would require unfeasibly large shares of current agricultural land. However, alternative energy sources for electricity will require large investments in transmission lines across the continent.

An analysis of the effects of cap-and-trade, a carbon tax, and emissions standards as instruments to reduce carbon emissions shows that their impacts depend critically on implementation details. The first two approaches can appear very similar if permits are auctioned rather than given away. The regressivity of carbon taxes can be offset by revenue recycling that is proportional to total tax payments. Emission standards are likely to involve efficiency losses but may be most attractive politically.

Climate Change Impacts

Models of how climate change will affect sea-level rise, temperature, and rainfall differ greatly at the micro level, but all indicate that major costs will be borne by coastal cities and areas in the lower latitudes, with lower costs and some benefits accruing to those in the higher latitudes. A temperature rise of two degrees centigrade in this century seems inevitable, and constraining it to that level will require both large investments and effective policies. Such policies will have to include coordinated management of the one-third of land in the United States that is publicly owned, carbon capture in the form of larger forest areas, and mobilization of revenues for protection of environmentally sensitive areas.

The Way Forward

Many subnational U.S. jurisdictions are already engaged in implementing relevant policies, but the federal government needs to develop an approach to climate mitigation that includes benefit-cost standards, a realistic financing framework with beneficiary and user fees, and a national plan consistent with state plans. Internationally, capacity to address governance issues related to global commons is developing slowly and is hampered by inadequate funds, insufficient consensus, and a lack of legitimacy of existing institutions to address these issues, as well as by an increasing popular skepticism about the very existence of climate change.

The conference volume, with papers and commentaries by more than 25 contributors, will be published in May 2011.

Sonia Rabello de Castro has a Ph.D. in law and is a professor of administrative law and urban law at the University of the State of Rio de Janeiro (UERJ). She was elected in 2008 as a member of the Municipal Legislative Council of the City of Rio de Janeiro, representing the Green Party. She is also a member of the Ethics and Mores Parliamentary Committee and represents the Legislative Municipal Council at the Environmental Municipal Council.

From 1992 to 1996 she was attorney general for the Municipality of Rio de Janeiro, where she collaborated in the development of several far-reaching urban projects, including the Favela-Bairro program. She has also worked as director of legal services for a number of public entities and has published numerous articles on urban development, housing, governance, public administration, and preservation of the cultural patrimony. Her book on Preservation of the Brazilian Cultural Patrimony (Preservação do Patrimônio Cultural Brasileiro) is considered a basic reference for administrative and juridical decisions on this topic.

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

Sonia Rabello: I met Martim Smolka, the director of the Program on Latin America and the Caribbean, in the late 1990s, when I was researching how the traditional concept of property rights based upon civil law could be transformed in the context of urban law. The development of new urban laws could lead to conceptual changes in the way the right to property was originally understood, given the need to adapt the concept to meet the social and economic requirements of urban development. At that time, Brazil had not yet approved the federal urban development law known as the City Statute (Estatuto da Cidade), although the Brazilian Federal Constitution of 1988 had introduced the principle of urban development as a social function subject to public policy.

As a visiting fellow at Lincoln House in 2000 I became convinced of the need to create a new, more modern concept of property rights that would reflect the current urban reality in Latin America and allow for the use of the city by all citizens, whether they are property owners or not.

Land Lines: Can you explain this property rights concept further?

Sonia Rabello: It is the need to distinguish the right to own land from the right to build on that land. The Civil Code in Latin American countries follows the French model, which defines real estate property rights as having three components guaranteed to the owner: the right to use the property; the right to receive income accruing from the property; and the right to dispose of the property. Only the owner can exercise these rights. The right to build is not in itself an inherent component of this property right, but a condition for the owner to use the property, without which the utility of the property would be voided—and in this case the very meaning of the property right would be lost.

For the owner to exercise her ownership right to use the property, the public authority, through established urban planning regulations, must allocate a minimum building coefficient to that land. The building coefficient refers to the amount of development allowed on a parcel, also known as floor-area-ratio (FAR). The allocation of an equitable and free minimum building coefficient applied to all properties uniformly has a double function. First, it guarantees to all owners and possessors an economic use of their property. Second, it precludes the occurrence of unjust differences in the allocation of building coefficients among owners.

Land Lines: Why is this concept important for Latin America?

Sonia Rabello: All Latin American countries, including Brazil, have been addressing urban regulation and land policy at the national level, especially since the economic stabilization and redemocratization during the 1990s, when the need to consider the so-called accumulated social debt became a prominent issue. At the time, Latin American cities were experiencing acute problems due to the lack of basic infrastructure services such as sewer systems, public spaces, transportation, and access to affordable housing, as well as the challenge of creating a more equitable distribution of costs and benefits in the urbanization process.

Land Lines: How relevant is Brazil’s City Statute in this process?

Sonia Rabello: The City Statute, which was approved in 2001, confirms the distinction between the right to own land and the right to build, a distinction that had been discussed and implemented since the 1970s in São Paulo and other Brazilian cities. The expression “right to build” as used in the Brazilian Civil Code had led many landowners to assume that their right to own land also included the right to build on the land, in keeping with urban legislation and norms.

How much and what can be built is reflected in the price of land. That is, parcels with a higher building coefficient than others, or parcels where commercial use is permitted as well as residential use, sell at prices that incorporate the benefits freely given to landowners by the public authorities. When this happens, landowners appropriate as their private good the building rights provided by urban law, even though they had not invested in the infrastructure or services needed to support the land development. As a result, the costs of urbanization fall entirely on the public authority while private citizens profit, contradicting the general legal principle barring enrichment without just cause.

Land Lines: What does the principle of “enrichment without just cause” mean?

Sonia Rabello: This general principle of law, accepted in most Latin American countries, deems unacceptable an increase in private wealth that does not result from the person’s own labor or investment—that is, a legitimate cause pertaining to the person who benefits financially. In Brazil this principle is explicit in the legislation, specifically in the Civil Code, and is applicable to the entire juridical system.

Land Lines: How does the City Statute provide for the separation of the right to own land from the right to build?

Sonia Rabello: This concept was introduced through the instrument known as “charge for awarded building rights” (outorga onerosa do direito de construir) in Art. 28: “The master plan may delineate areas where the building right can be exercised above the basic coefficient adopted, given a counterpart payment by the beneficiary.” It is important to emphasize that the City Statute is a federal law that addresses the content of real estate property rights and has the same hierarchical standing as the Civil Code. Thus, if the law states that the public authority shall charge for a given right, then that right does not belong to the person to whom it is given.

Land Lines: In what way does the “charge for awarded building rights” help to preclude enrichment without just cause?

Sonia Rabello: The charge extracts the corresponding value of such rights from the land price. In other words, without that charge, the land price would include the value of the building rights freely granted to the landowner by the urban planning legislation. Without the charge, when the landowner sold the land he would be paid according to its market value, which includes the maximum use permitted on that land.

Land Lines: However, if I buy land expecting to build at a given floor-area-ratio that exceeds the basic coefficient and the public authority charges for these awarded building rights, wouldn’t that imply paying twice for the land?

Sonia Rabello: No, as long as the system of acquiring building rights from the public authority is well-established. Under the new law, building rights above the minimum coefficient belong to the city as a whole and must be purchased separately from the public authority. As a result, when paying the landowner, the buyer discounts from the land price the value of the additional awarded building rights.

Land Lines: In what other ways is this charge implemented to benefit society?

Sonia Rabello: In addition to addressing unjust enrichment, the principle concerns the legitimacy of recovering the added land value generated by public sector interventions in the urbanization process, and to prevent the added value accruing to the landowner. This principle is also reflected in the compensation paid for urban land expropriation. When not recovered by the public authority, the value of the additional building rights becomes an integral part of the market price. If the public authority expropriates that land, the landowner will receive compensation equivalent to the market price, which includes the land value plus the value of the building coefficient granted by the public authority free of charge.

Land Lines: Since the property tax is imposed on real estate property, wouldn’t this charge constitute double-taxing?

Sonia Rabello: To understand why this is not the case we need to look at the important distinction between the Colombian and Brazilian legislation. The Colombian law classifies the value capture charge as a tax, but in Brazil it is defined as an instrument for the public authority to recover a good that belongs to society. That is, the nature of the charge is a responsibility relative to the costs of urbanization. A decision by the Brazilian Supreme Court (RE509422 STFSC of 2008) resolved this issue by ruling that the charge for awarded building rights is not a tax but a payment for which the landowner is responsible.

I think this juridical opinion is coherent given that a tax corresponds to a contribution to the public treasury from one’s private assets, but, as noted, awarded building rights are not privately owned but are a public good that belongs to the city as a whole. To classify the value capture charge as a tax suggests a juridical inconsistency, since taxation is a form of assessing private wealth to finance public goods and services. This is not the case in Brazil, since the charge is levied on an essentially public asset.

Land Lines: Does the judiciary in Latin America accept and implement these concepts?

Sonia Rabello: Not uniformly or consistently. These juridical concepts fundamentally change the traditional understanding of property rights. Because of that, the principles upon which they are based and the logic behind them must be disseminated and assimilated more broadly. This is a judicial evolution that has to happen in order to reduce the exacerbated social exclusion that characterized Latin American cities.

Land Lines: How has the Lincoln Institute’s Program on Latin America and the Caribbean contributed to this new vision of land policy in the region?

Sonia Rabello: The Institute has been a very important influence in clarifying land policy issues among public officials and politicians in Latin America, especially through its training programs in which participants can be exposed to such principles, concepts and ideas, exchange experiences, and build a new land policy culture. The Institute has developed a critical mass of people committed to improving the quality of land policies and promoting new strategies to finance urban development. Understanding that individual property rights can coexist with social rights to the city has been a critical factor driving the evolution of urban thinking in the region.

Antonio Azuela, fellow del Instituto de Investigaciones Sociales de la Universidad Nacional Autónoma de México, posee títulos de grado en Derecho de la Universidad Iberoamericana (México) y de la Universidad de Warwick (Inglaterra), así como también un doctorado en Sociología por la Universidad Nacional Autónoma de México (UNAM). Desde finales de la década de 1970, Azuela se ha dedicado a la investigación y la enseñanza del derecho urbano y medioambiental desde una perspectiva sociolegal. Su libro “Visionarios y pragmáticos: Una aproximación sociológica al derecho ambiental”, México: UNAM, 2006, es una reconstrucción sociológica de sus experiencias como procurador general en la Procuraduría Federal de Protección al Ambiente (PROFEPA) de México desde 1994 hasta 2000. Recientemente editó el libro “Expropiación y conflicto social en cinco metrópolis latinoamericanas”, publicado por la UNAM y el Lincoln Institute of Land Policy en 2013.

Land Lines: ¿Cómo se involucró usted con el Lincoln Institute of Land Policy?

Antonio Azuela: En 1991, conocí a varios funcionarios del Instituto mientras realizaban un viaje de exploración por México. Mantuve el contacto con ellos porque me interesaba el enfoque del Instituto respecto de la política urbana. Mi relación con el Instituto se afianzó en el año 1998 en una reunión que tuvo lugar en El Cairo, organizada por el Grupo Internacional de Investigaciones sobre Derecho y Espacio Urbano (IRGLUS), en la que el Instituto expresó su interés en un enfoque sociolegal de los problemas del suelo urbano. En el año 2000, tuve el honor de que me invitaran a formar parte del directorio del Instituto. Desde entonces, he mantenido un contacto permanente con el equipo y los programas del Instituto Lincoln.

Land Lines: ¿Por qué la adquisición pública de suelo se ha convertido en un problema tan crítico, en especial en América Latina?

Antonio Azuela: La expropiación (es decir, la adquisición obligatoria de suelo por parte del Estado) es un tema muy importante en todo el mundo, ya que es una manera de obtener terrenos para proyectos urbanos públicos. Sin embargo, en América Latina este problema es aún más crítico, debido a la naturaleza débil del Estado en cuanto a los asuntos urbanos. Antes de la transición democrática que experimentó la región, los gobiernos obtenían terrenos fácilmente mediante el uso de mecanismos que se considerarían cuestionables en una democracia. Pero la transición fortaleció al poder judicial, que, por lo general, no es proclive a las intervenciones del gobierno en el mercado. Hoy en día, los propietarios privados tienen cada vez más posibilidades de interferir en la adquisición pública de suelos en la región (con la notable excepción de Colombia, donde una amplia coalición de diferentes profesionales, jueces y organizaciones sociales apoya la doctrina de la función social de la propiedad). Esta tendencia puede observarse, por ejemplo, en la compensación exorbitante que algunos tribunales han otorgado en casos de expropiación de suelo en la ciudad de México y en São Paulo.

Land Lines: ¿Cuáles son los principales puntos en conflicto?

Antonio Azuela: El primero es la adopción de políticas económicas que defienden un rol menor del Estado. El segundo tiene que ver con la condición legal de los derechos de propiedad. Cuando las reformas constitucionales permiten a los jueces limitar la facultad de expropiación, dicha restricción no es necesariamente mala, ya que puede dar como resultado una administración pública de mayor calidad, aunque, a corto plazo, ha interferido en la facultad del gobierno de adquirir terrenos urbanos para proyectos públicos. Existen dos excepciones notables: en Brasil y en Colombia, las reformas constitucionales han establecido políticas urbanas inspiradas en ideas de justicia social, aunque solamente en Colombia existe una nueva generación de jueces que actúan conforme a estos principios. En Brasil, los tribunales se encuentran dominados por la visión liberal clásica de la propiedad privada, lo cual interfiere en la capacidad de implementar la función social de la propiedad, una idea que ha circulado por América Latina durante casi un siglo.

Land Lines: Muchas jurisdicciones prefieren adquirir terrenos en el mercado abierto en lugar de utilizar instrumentos tales como la expropiación.

Antonio Azuela: La expropiación no debería ser la primera opción para adquirir terrenos. El desafío es que el gobierno pueda regular diferentes clases de instrumentos con el fin de lograr un objetivo general: reducir el componente del suelo en el costo total del desarrollo urbano. La utilización de la expropiación debe estar garantizada por un marco legal sólido que establezca un equilibrio adecuado entre el poder del Estado y el poder de los propietarios, y debería representar la última alternativa a la hora de adquirir terrenos para proyectos urbanos públicos.

El gran problema es el costo del suelo, pero los mecanismos de intervención del gobierno pueden inflar los precios. Por ejemplo, si no se espera que el uso de la expropiación aumente el valor del suelo y los jueces determinan que la expropiación es el enfoque adecuado, entonces este instrumento puede tener un impacto positivo en los mercados inmobiliarios. Al menos, podemos esperar que la adquisición de terrenos por parte del gobierno no genere un aumento de precios.

Land Lines: ¿Cuáles son los principales resultados de su investigación en torno a la utilización de la expropiación para el desarrollo urbano en la región?

Antonio Azuela: Aunque existe una tendencia general de fortalecer los derechos de propiedad, que interfiere en la facultad de expropiación, se observan diferentes variaciones en dicha tendencia dependiendo de la relación entre el poder judicial y el poder ejecutivo en los gobiernos post autoritarios de la región. El proceso de cambio institucional depende menos de las tendencias mundiales que de las fuerzas nacionales o incluso locales, ya que puede observarse que ciertas ciudades siguen caminos diferentes a otras ciudades de un mismo país. Aun cuando los gobiernos municipales adoptaran la misma estrategia, los tribunales de una región protegerán a los propietarios en mayor medida que los tribunales de otras regiones. El área metropolitana de Buenos Aires, por ejemplo, ilustra de qué manera el sistema institucional de la expropiación no es homogéneo, aun dentro de la misma área metropolitana. Así, en la Ciudad Autónoma de Buenos Aires, las personas que viven en asentamientos informales (denominados “villas miseria”) han recurrido a los tribunales y han impedido el desalojo. Sin embargo, en la provincia de Buenos Aires, el clima político es tal que no existe amenaza de desalojo: la expropiación se utiliza con el fin de garantizar a las personas la permanencia en el lugar donde se han asentado.

Otra lección importante que podemos extraer es que, en América Latina, no existe un diálogo auténtico acerca de la importancia de la expropiación o de las diferentes maneras en que los tribunales han abordado los dilemas que la expropiación presenta. Aunque el pensamiento constitucional de la región es muy rico en ideas sobre ciertos problemas legales, tales como los derechos de los aborígenes y de los ancianos, las políticas urbanas (en particular, la expropiación) no han generado debates profundos entre los juristas. Lamentablemente, estos problemas parecen ser considerados como excepciones, a pesar de la enorme cantidad de personas que vive, ya sea sufriendo o disfrutando, en los grandes centros urbanos.

Land Lines: ¿Las compensaciones por expropiación son arbitrarias o injustas? De ser así, ¿para quién?

Antonio Azuela: La compensación inadecuada es, sin duda alguna, uno de los mayores desafíos para el futuro desarrollo de la expropiación como instrumento de política de suelo. En algunos casos, los gobiernos pueden aprovecharse de la impotencia de ciertos grupos sociales y ofrecerles una compensación ridículamente baja por sus tierras o casas. En otros casos, el poder económico y la influencia de ciertos propietarios pueden generar compensaciones exorbitantes. Pero más allá de estos dos casos extremos, en los que el propietario afectado es o muy vulnerable o muy poderoso, resulta difícil discernir una tendencia dominante.

Una respuesta más precisa a su pregunta requeriría un estudio de mercado sobre una gran cantidad de casos de expropiación a fin de determinar si la compensación es alta o baja al compararla con criterios preestablecidos. No obstante, según las investigaciones existentes, los tribunales generalmente no poseen criterios claros o ampliamente compartidos para determinar si las compensaciones son justas. Además, los tribunales carecen de la capacidad de comprender lo que está en juego en un proceso de transformación urbana en el que se utiliza la expropiación. Consideremos, por ejemplo, el caso de una familia prominente de Ecuador que recibió una compensación muy alta por la expropiación de suelo de cultivo que poseía en la periferia de Quito. Lo notable aquí fue que el organismo que falló en este caso fue el Tribunal Interamericano de Derechos Humanos, y resulta evidente que este tribunal no estableció criterios claros para determinar la suma de la compensación, sino que simplemente realizó un promedio de las valuaciones presentadas por cada una de las partes. La compensación zen este caso fue la más alta que haya otorgado este tribunal superior, que fue creado con el fin de atender las violaciones a los derechos humanos cometidas por dictadores, aunque terminó beneficiando a los propietarios privados a expensas del interés público. El hecho de que este caso no haya generado un escándalo entre los constitucionalistas de la región indica el grado de marginalización que presentan los problemas legales urbanos en América Latina.

Land Lines: ¿Cuáles son las tendencias que usted ha observado que están cambiando?

Antonio Azuela: Observo con cierto optimismo que muchos tribunales y gobiernos municipales de la región están atravesando un proceso de aprendizaje e intentando no repetir los errores judiciales del pasado. Lamentablemente, estas lecciones raramente trascienden el área local afectada para incorporarse al saber jurídico regional común.

Land Lines: ¿Qué tipo de educación o capacitación recomendaría usted?

Antonio Azuela: Lógicamente, debemos intensificar el intercambio entre las diferentes disciplinas y países y colocar a los tribunales en el centro del debate, ya que estos son los que tomarán las decisiones finales. Sus fallos deberían expresar la mejor síntesis posible de un acervo de conocimientos que debemos construir en torno a la dinámica urbana de la región. En los contactos que hemos tenido con diferentes tribunales, con el apoyo del Instituto Lincoln, descubrimos que, una vez establecido el diálogo, los jueces ven la necesidad de aprender más a fin de comprender los efectos de sus decisiones. En otras palabras, aunque los tribunales parecen no mostrar un gran interés en los problemas urbanos, tal como se demuestra en la actitud rutinaria de sus decisiones diarias, pueden igualmente entrever nuevas perspectivas para su propio desarrollo profesional dentro del contexto de un análisis crítico de problemas urbanos.

Land Lines: ¿Cuáles son los problemas críticos que deben analizarse en mayor profundidad? ¿Qué es lo que aún no sabemos?

Antonio Azuela: Deberíamos intentar comprender la lógica de las decisiones emanadas de los tribunales de la región. Con frecuencia interpretamos de manera simplista las medidas tomadas por los tribunales, ya que los medios de comunicación tienden a amplificar los peores casos. No obstante, muchos jueces se esfuerzan por encontrar la mejor solución posible para cada caso. ¿Y en qué condiciones realizan su labor? Uno de los desafíos que conlleva investigar estos problemas en América Latina es el de comprender el mundo real en el que se toman dichas decisiones, además de los temas de la corrupción y la incompetencia, tan comunes pero siempre relevantes. Debemos analizar los datos estadísticos con el fin de obtener tendencias generales, junto con la aplicación de un enfoque etnográfico sobre el funcionamiento de los tribunales. Sólo entonces seremos capaces de entender qué es lo que debe reformarse para mejorar el rendimiento de los tribunales en los conflictos urbanos. Aunque es muy importante determinar quién resulta favorecido por las decisiones de los tribunales (lo que puede lograrse analizando el contenido de los fallos judiciales), necesitamos comprender mejor las condiciones en las cuales se toman dichas decisiones. Y para ello, debemos acercarnos mucho más a los tribunales.

Strengthening Municipal Fiscal Health in China

Since 2013, Zhi Liu has been a senior research fellow and director of the China Program at the Lincoln Institute of Land Policy, and director of the Peking University–Lincoln Institute Center for Urban Development and Land Policy (PLC). Prior, Zhi was lead infrastructure specialist at the World Bank, where he worked for 18 years, with operational experiences in a number of developing countries.

Zhi received a B.S. in economic geography from Dr. Sun Yat-Sen University (China), a M.S. in city and regional planning from Nanjing University (China), and a Ph.D. in urban planning from Harvard University.

LAND LINES: The Lincoln Institute recently initiated a global research agenda on municipal fiscal health. This effort arises from the recognition that a number of cities in the United States and in many other countries including China suffer financial hardship. What is the nature of municipal fiscal distress in China?

ZHI LIU: It’s very different from the financial troubles faced by cities in the United States. The two countries are at very different stages of urbanization. While the U.S. is highly urbanized, with more than 80 percent of citizens living in urban areas, according to the 2010 census, China is only halfway through the urbanization process. Today, 750 million Chinese citizens live in cities, accounting for 55 percent of the total population. By 2050, the urban population is expected to reach 1.1 billion, or 75 percent of the total population. Over the last two decades, with the exception of a few mining cities, almost all municipalities have seen rapid population growth and spatial expansion, generating a significant demand for public investment in urban infrastructure.

In China, the main sources of funding for urban infrastructure investment are revenues from land concessions and local borrowing from commercial banks, often using land as collateral. Urban land is owned by the state, and rural land is collectively owned by villages. The Land Administration Law stipulates that only the state has the power to convert rural land into urban use. This sets the stage for the municipal governments to take rural land for urban development through the land concession process. As it goes, municipal governments expropriate rural land, service it with infrastructure, and sell the land use rights to real estate developers. The compensation to farmers for the farmland taken is low, based on the land’s agricultural production value instead of market value for urban use. When the demand for real estate development is high, the land concession fees are bid high, and the municipal governments stand to collect a huge amount of revenues. For the last 10 years, revenues from land concessions have accounted for more than one-third of total local fiscal revenues.

Moreover, municipal governments further expand their financing capacity by using land assets as collateral to secure commercial loans from commercial banks. Before a recent amendment, the Chinese Budget Law did not permit local governments to borrow. However, most municipal governments bypassed the law by creating their own local financing vehicles—known as urban development investment corporations (UDICs)—that borrowed commercial loans or issued corporate bonds for the governments. The size of outstanding local debts has grown rapidly over the last few years, reaching at least one-third of the GDP now.

The land-based financing mechanism has helped municipal governments in China raise a significant amount of funds for capital investment. However, the success has also created incentive for municipal governments to rely on land concessions and UDICs too heavily. Today, China’s economy is growing more slowly than before, and the mechanism is running out of steam in many localities where conversion of rural land for urban use exceeds the real demand. Some cities have borrowed much more than they can repay, leaving them heavily indebted.

Many empirical studies, including some funded by the Lincoln Institute, find that China’s land-based financing mechanism is one of the main causes of other urban issues that we face today. Skyrocketing housing prices, growing local debts, excessive land-taking, growing tension between the farmers and municipal governments over land-taking, and widening gaps of income and wealth distribution between urban and rural populations are among the major issues.

LL: The international mass media has been reporting on these issues. How will China address them?

ZL: There is a high level of consensus on the root causes of the problems. In November 2013, the central government announced a set of reforms, and a few are directly related to urbanization policy and municipal finance. For example, the scope of land expropriation will be narrowed to the confine of public purposes, and villages are allowed to develop their land for urban use under the premise that it conforms to planning. The reforms also call for acceleration of property tax legislation; reform of hukou, the household residential registration system, to help farmers become urban residents; and government efforts to make basic urban public services available to all permanent residents in cities, including all rural-to-urban migrants.

LL: What are the implications of hukou reform on municipal finance?

ZL: The government is phasing out China’s longstanding hukou system, and the implications for municipal finance will be significant. Hukou was designed to identify a citizen as a resident of a certain locality, but for several decades the government used the system to control rural-to-urban migration. A rural hukou holder could not become an urban hukou holder without the government’s approval. Without urban hukou, a rural migrant worker is not eligible for public services provided by the urban governments.

Since the economic reform, the expanding urban economy has absorbed a large number of rural-to-urban migrant workers. Earlier, I mentioned China’s urbanization rate of 55 percent and urban population of 750 million. These numbers include the 232 million rural migrants who stay in cities for more than half a year. If they were excluded from the calculation, the level of urbanization would be just 38 percent. Due to their rural hukou status, however, migrant workers don’t have access to many services enjoyed by urban hukou holders, despite the fact that many have labored and lived in cities for years. Municipal governments determine the extent of many urban public services—such as public schools and affordable housing—according to the number of urban hukou holders inside the municipal jurisdiction. Phasing out hukou would significantly increase the fiscal burden to the municipal governments for public service provision. Some scholars in China estimate that the cost of providing full urban public services to each rural migrant would be at least RMB 100,000 (roughly $16,000 U.S.). The total outlays for all current rural migrants would be at least RMB 23 trillion (about $3.8 trillion U.S.).

LL: China is introducing the residential property tax. What is the status of that initiative?

ZL: The government is drafting the first national property tax law as part of the ongoing reform of public finance. China is one of only a handful of countries without a local property tax. The current taxation system relies heavily upon taxes on businesses and transactions, and very little upon taxes on household income and wealth. In a more urbanized China with a wealthier population who own residential properties, the property tax would be a more viable source of municipal revenues. Today, 89 percent of urban households own one or more residential units, and the value of those properties has much to do with urban public services. Property tax will allow cities to tax urban residential properties whose value would benefit from the improved public services made possible by property tax revenues. It should also fill part of the fiscal gap left by the expected reduction of revenues from land concessions. However, property tax will not be a major source of municipal revenues any time soon. It may take one or two more years for the National People’s Congress to pass the new law. It would also take perhaps two to three years for cities to establish the property database and assessment and administration system.

LL: It must be tough for cities to deal with declining revenues from land concessions without an immediate alternative—especially as they are coping with growing local debt, which has been widely reported. How will Chinese cities get out of this situation?

ZL: The situation is indeed tough. China’s economy is slowing down. The real estate sector is no longer as hot as it was in the last 10 years, resulting in lower demand for land and thus lower revenues from land concessions for municipal governments. Cities are now facing a fiscal gap. One possible way to fill the gap would be local government borrowing. However, as I mentioned earlier, many cities are indebted and have little capacity to borrow further. In fact, most cities in China do not have adequate capacity for debt management. The newly amended budget law permits provincial-level governments to issue bonds within the limit set by the State Council, but also closes the door on other forms of local government borrowing. Currently, the central government actively promotes infrastructure financing through public-private partnerships (PPP). While this is a good move, it won’t be sufficient to fill the infrastructure financing gap, as PPP is suitable mainly for infrastructure projects with a strong revenue flow. There are many other urban infrastructure projects that generate little or no revenues. In the long term, I believe that China should actively establish a municipal government bond market to channel funds from institutional investors to municipal infrastructure investment and enable local governments to access commercial loans based on creditworthiness. To do so, municipal governments need to develop institutional capacity on several fronts, such as local debt management, capital improvement planning, multiyear financial planning, and municipal infrastructure asset management.

LL: Is PLC’s work relevant to the current reform?

ZL: The PLC was jointly established by the Lincoln Institute and Peking University in 2007. By the time I arrived, in 2013, the center had developed its reputation as one of China’s premier research and training institutions on urban development and land policy issues. The center supports a number of activities, including research, training, academic exchange, policy dialogue, research fellowship, demonstration projects, and publication. We focus on five core themes—property taxation and municipal finance, land policy, urban housing, urban development and planning, and urban environment and conservation. Over the last few years, our research projects have touched upon land-based finance, local debts, housing prices, infrastructure capital investment and finance, and other topics relevant to municipal fiscal health. We have also provided training to Chinese government agencies on the international experiences of property tax assessment and administration. I would say that our work is highly relevant to the current reform.

Implementation of the new comprehensive policy reforms is generating considerable demand for international knowledge and policy advice in the China Program’s focus areas, especially property taxation and municipal finance. We plan to initiate a pilot demonstration project with one or two selected cities in China, to support the institutional capacity required for the development of long-term municipal fiscal health. Our team has started a study to develop a set of indicators to measure municipal fiscal health for Chinese cities. It is the right time for us to initiate this agenda in China.

Smart growth has moved from the domain of policy analysts into more general acceptance. It is championed by national leaders such as Vice President Al Gore, governors (Parris Glendening of Maryland), urban mayors (William A. Johnson of Rochester, New York), non-governmental organizations (National Trust for Historic Preservation), and the private sector (Urban Land Institute). Voters in many California cities, including Sacramento, Santa Barbara, Irvine and Davis, and in numerous suburbs around San Francisco have approved urban growth boundaries (UGB) as one type of intervention to contain sprawl development.

Urban containment policies are not limited to environmentally active communities in California, Oregon or Colorado, or booming economies in states such as Florida, however. Lexington, Kentucky, observed the 40th anniversary of its urban growth boundary last year, and Sioux Falls, South Dakota, has had a containment boundary for many years. This kind of broad-based popular support for smart growth policies is more than simply a growth management fad and is likely to increase, particularly as long as the national economic expansion continues. Indeed, urban containment appears to be building a kind of momentum as a land use policy that has not been seen since the Supreme Court’s sanctioning of zoning in Ambler Realty Co. vs. Euclid, Ohio.

Urban containment planning has two basic purposes: (1) to promote compact, contiguous, and accessible development provided with efficient public services; and (2) to preserve open space, agricultural land and environmentally sensitive areas that are not currently suitable for development. Urban containment consists of drawing a line around an urban area within which development is encouraged, often with density bonuses or minimum density requirements, to accommodate projected growth over a specified future time period, typically ten to twenty years. Land outside the boundary is generally restricted to resource uses and to very low-density residential development by limiting the extension of utilities, wastewater services and other infrastructure.

Intuitively, however, this sort of land regulation appears to be a double-edged sword. On the one hand, measures aimed at reducing traffic congestion or infrastructure costs, or improving the aesthetic quality of urban areas, are appealing. On the other hand, measures that are seen to limit land supply and potentially cause housing prices to increase are unappealing, particularly to those seeking to expand the stock of affordable housing.

To explore the implications of these two faces of urban containment as smart growth policy, the Lincoln Institute and the Fannie Mae Foundation convened a group of scholars and practitioners for a symposium in Cambridge last February. The economists, planners and other researchers in attendance discussed the existing literature on urban containment and identified questions for future research that could inform policy making in this dynamic area of land regulation.

Housing Price Effects

Housing costs reflect the price of land, the price of the house and the value of amenities. Urban containment policies change housing costs for two reasons. First, land prices change when land supply is altered. Second, if urban containment increases the value of the amenity package associated with a house, then that, too, will cause a change in house prices. Much of the discussion at the symposium centered around these two theoretically distinct aspects of the housing price problem.

Most economic literature assessing urban containment argues that it raises land and housing prices principally by constraining the supply of land and/or by failing to accommodate new demand for serviced land. But, others argue that urban containment systems, when coupled with increased densities within the growth boundary, should not adversely affect supply and, indeed, should generate benefits to residents. This latter view shifts the focus away from the microeconomic theory of price determination to housing economics, which introduces the concept that house prices capitalize the value of neighborhood amenities.

For example, the increased densities within an urban growth boundary can make it practical to extend or enhance existing public transit, thus yielding greater accessibility. In addition, increases in densities can result in lower costs to provide urban services by the public sector. Similarly, higher neighborhood densities can lead to more interactions with neighbors and more “eyes on the streets,” which, in turn, can translate into lower crime rates. Finally, if urban containment is successful in preserving open spaces, house values in neighborhoods near the preserved open space should also rise.

All of these benefits can be counted among the amenities that give value to a house and are ultimately capitalized in its value, even while the land supply restriction can also put pressure on house prices. In truth, both factors may be at work, and we still have much to learn about their impacts. Furthermore, some of these internalized benefits may have different values for households at different income levels.

A comparison of Atlanta, Georgia, and Portland, Oregon, both suggests of these sorts of benefits and points to areas for future research to answer these questions more comprehensively (see Table 1). During the first half of the 1990s, Portland experienced a large increase in housing prices (approximately 60 percent compared to almost 20 percent in Atlanta, in nominal terms). Between the mid-1980s and the mid-1990s, homeownership rates in Portland increased by nearly 5 percent while Atlanta’s rate remained virtually unchanged. Finally, perceptions of improved house quality were greater among Portland residents than those in Atlanta. In both metropolitan areas and in both time periods, the proportion of household income spent on housing was virtually the same, suggesting that income growth in Portland exceeded that in Atlanta. However, it is difficult to conclude definitively that increases in house quality in Portland were due to enhanced amenities conferred on households by changes in land regulation, rather than to rising incomes.

Although urban containment policies may stabilize the supply of land, they usually increase the supply of development opportunities. Such policies are typically accompanied by “upzoning” whereby land zoned formerly at one level of development intensity is changed to allow for a higher density. One strategy to increase densities is to infill and redevelop (or “refill”) urban areas at higher than extant levels through the adoption of “minimum intensity” zoning. We do not know the subsequent effect of such policies on house prices, and we know even less about their effect on household budgets and disposable income. For example, higher housing prices may simply reflect capitalization of more efficient development patterns that reduce expenditures in other parts of the household budget.

It is possible, however, that current and future homeowners will benefit directly from these sorts of capitalized savings. For example, location-efficient mortgages, a lending instrument being tested in a few markets, allow lenders to extend mortgages to households based on a higher mortgage-to-income ratio. The rationale for altering the income eligibility is that, in comparison to suburban households, urban households can substitute walking and public transit for automobile payments, including both capital costs and operating expenses. Thus, disposable income is effectively increased as non-housing expenditures decline. Current experiments with the location-efficient mortgage are underway in Chicago’s northside neighborhoods and in central Seattle. If default rates for these loans are similar to those for traditional mortgages, we may see greater adoption of this instrument in appropriate submarkets.

Other savings that may accrue to urban homeowners as a result of containment policies are lower taxes due to lower capital costs or increases in supplemental income if higher densities are achieved through the addition of accessory apartments in existing houses.

Landowner Behavior Implications

The imposition of urban containment policies and changes in density are also likely to result in changed expectations of landowners. Therefore, an additional consideration for researchers, which the symposium participants confronted, is the role of containment in affecting the nature of landowner behavior with respect to land acquisition and land development.

In an environment of a relatively inexhaustible supply of land, speculation can be reasonably efficient while the competition to sell land keeps prices low. The end result may be that housing prices will not be affected materially. However, when supply is constrained, even if upzoning increases development capacity, the number of players in the land market can fall and cartels may form. Furthermore, an assumption of urban containment policies is that undeveloped land inside the boundary will come on-line in sufficient amounts and at appropriate times to sustain development. There is no research into this, however. Will owners of land, knowing they hold an oligopolistic position in the land market, delay its sale to get a higher price?

Until now, in our studies of urban land markets, we have lived with the assumption of relatively inexhaustible (i.e., elastic) land supply. Urban containment policies can change that premise by making land an exhaustible commodity, resulting in the problem of dual predictability. On one hand, developers are given more certainty in whether and how they develop land; on the other hand, landowners know that land supply will become exhaustible and therefore they may be enticed to become speculators, in their own right. Will local governments reward those willing to develop vacant or underused parcels with higher densities to offset others who delay sale? Certainly, a land tax is expected to limit this sort of behavior. Can other changes in the tax regime encourage development within the UGB? For all of these reasons, we have much to learn about the effect of urban containment on landowner and speculative behavior.

Summary Observations

The symposium participants spent more time on the economic issues related to urban containment than on environmental concerns. However, some material was presented that suggested significant environmental benefits as a result of urban containment. Table 2 presents additional comparisons of Portland and Atlanta between the mid-1980s and the mid-1990s. While vehicle miles traveled increased in both places, Portland experienced little change (2 percent) whereas Atlanta experienced a significant increase (17 percent). At the same time, Portland’s average commute times fell, air quality improved, and per capita energy consumption declined.

All of these indicators suggest that Portland is different from Atlanta in meaningful ways. Furthermore, typical behavior by individuals in each of these metropolitan areas is presumed to be different. We should attempt to find out the degree to which growth containment policies account for these behavioral differences and whether there are other policies that may also play important roles in affecting the economic and environmental dynamics of metropolitan regions. For example, the problem of housing affordability remains a serious concern in most cities, whether with or without urban containment boundaries.

Urban containment creates an entirely new regime in urban planning and development decision making, offering research challenges because of the difficulties in developing methodologies that can tease out complex interactions and frame the results in a manner that can advance both public and private interests. The Lincoln Institute, the Fannie Mae Foundation and the U.S. Department of Housing and Urban Development are among a growing number of research entities interested in pursuing these challenges.

Arthur C. Nelson is professor of city planning, urban design and public policy at the Georgia Institute of Technology in Atlanta. He organized the seminar referenced in this article and has researched and written extensively on this topic.

Numerous convergent trends motivated 40 academics and practitioners from 15 countries to meet at the Lincoln Institute in July 1998 to discuss recent land market reforms. First, the recognition that the world’s population is becoming increasingly urban and so the quantity of land converted to urban use is expected to rise significantly. Second, evidence that a major proportion of the world’s poorest households now lives in urban areas (e.g., 80 percent in Latin America). Third, the perceived sea change in the role of government shifting away from intervention and regulation toward more selective urban management. During the three-day workshop, participants presented papers and discussed the rationale behind recent legal and institutional reforms, the nature of the transition from customary or informal to formal markets, evidence for improved land market efficiency, and access to land for the poor.

Legal and Institutional Reform

Several participants made the case for institutional reform of land markets in different ways. Steve Mayo (Lincoln Institute) drew conceptual and empirical links between the performance of property markets and the macro economy. He noted that poorly functioning land markets influence wealth creation and mobility rates which, coupled with particular finance conditions, could aggravate macro-economic instability. Drawing data from the Housing Indicators Program he showed that the prices of raw and serviced land tended to converge with higher land prices, indicating larger land development multipliers at lower prices. He also noted a relationship between the price elasticity of the housing supply and the policy environment.

Although there is a perception that reforms toward ‘enabling’ policy environments are now widespread in developing and transition economies, Alain Durand-Lasserve (National Center for Scientific Research, France) observed the rarity of explicit reference to ‘land market reform’ in political statements in Africa. Indeed, he argued that the ideological underpinning for freer land markets was more advanced than the practice of establishing the prerequisites for effective and unitary markets. In practice, a number of papers indicated competing political agendas, legal ambiguity and diversity of progress in the reform process.

“The law can be reformed, history cannot,” said Patrick McAuslan (Birkbeck College, London) in discussing the role of the law as a necessary basis for effective land market reform. He described the evolution of the recent Land Act of Uganda, which seeks to establish a land market based on individual ownership. He commended the government for dovetailing the reform process with extensive public debate, but noted that drafts of the Act set up new contradictions in a century-long history of competing land relations between freehold, customary tenure and nationalized public lands. His paper outlined a series of ‘time-bombs’ left by colonial administrations and aggravated by post-independence governments, only some of which are addressed by the new legislation.

The inconsistent nature of reform appears to be particularly acute for the transition economies of Eastern Europe and Southern Africa. In Eastern Europe, the legacies of communism have led to inappropriate land uses and the assignment of non-monetary values to property. Legal changes toward land privatization, however, have been slow. Tom Reiner (University of Pennsylvania) argued that despite a strong normative case for privatization and latent demand in the Ukraine, current laws make no provision for freehold sale. He presented data to show that privatization would yield considerable macro-economic and fiscal benefits: direct sales revenue alone would amount to $13 billion, plus increased taxes and more efficient resource allocation.

In Russia, according to Jan Brzeski (Crakow Real Estate Institute), the emergence of land markets has been inhibited by a different understanding of the social role of property and turf politics. In Poland, where privatization is more advanced, he argued that reforms have been insufficient to overcome extensive resource misallocation. Assignation has taken place at symbolic prices without reforms to ground rents or property taxes, and with high transaction costs. Nevertheless, land market turnover is increasing faster than economic growth and re-sales represent about 25 percent of capital investment.

The1991 privatization program in Albania appears to have stimulated an active property and land market. Research by David Stanfield (University of Wisconsin-Madison) indicates substantial increases in turnover rates and increasing prices, but also extensive conflicts between pre-collectivization and post-privatization holders, contradictions in the many laws and errors in the new documentation. The research points to the relative ease of establishing frameworks for privatization but greater difficulties in allowing markets to function thereafter.

Lusugga Kironde (University College of Lands and Architectural Studies) described how shortcomings in the ‘planned’ allocation system in Tanzania meant that 60 percent of people acquired land through informal methods. This in turn denied revenue to the government since transactions were outside official sanction and in some cases well-off households received plots with a substantial subsidy. Michael Roth (University of Wisconsin-Madison) described a similar situation in Mozambique, where the legacy of state socialism is still felt in the level of government intervention and under-representation of freehold tenure.

In both countries, the assessment of reform was mixed. Tanzania’s New Land Policy (1995), while a useful step in accepting the existence of a land market and providing security to plots with customary tenure, has fallen short of removing the barriers to an effective land market. In particular, Kironde noted that the new measures concentrated decisions in a Land Commissioner despite a national policy of administrative decentralization. The policy offers no incentive to encourage the formalization of informal practices and no stake to ensure the compliance of important middlemen. In Mozambique, since the late 1980s, market-oriented reforms have produced unclear administrative responsibilities and uncertain land rights. One feature has been land disputes with households calling upon newly empowered producer associations to defend claims. The 1997 reforms attempt to guarantee tenure security, provide incentives for investment, and incorporate innovative ideas for community land rights.

In Latin America, reform has been less concerned with establishing markets per se and more with improving their function, especially land reforms motivated by largely rural concerns but which have important urban impacts. Rosaria Pisa (University of Wales) indicated that reforms in Mexico have created the necessary conditions for the privatization of community (ejido) land, but progress has been slow. Less than one percent of land has been privatized in five years due to other government interests and legal ambiguities that have established a second informal land market.

Carlos Guanziroli (INCRA – the National Institute on Colonization and Agrarian Reform, Brazil) argued that rural reform was producing land use diversity, especially through the survival of small family farms. Reform was also affecting Brazil’s urban land markets as capital switched from rural to urban areas, probably raising urban land prices. Francisco Sabatini (Catholic University) argued that the liberalization in Chile had not reduced land prices because landowners’ and developers’ decisions are influenced less by regulations and more by demand.

Overall, the consensus on whether reforms were producing unitary and less diverse land markets was unclear. Agents and institutions are proving to be very adaptable to new conditions, a point made for all three regions. Ayse Pamuk (University of Virginia) argued that, based on her analysis of informal institutions in Trinidad, researchers should look away from formal regulations as a barrier to land market operation. Instead, they should consider how social institutions such as trust and reciprocity were producing flexible solutions to tenure insecurity and dispute resolution.

Clarissa Fourie (University of Natal) described how user-friendly local land records could be merged with registries on marriage, inheritance, women’s rights and debt to produce a useful tool for land administration in Namibia. Nevertheless, she noted that the incorporation of customary practices into land administration to provide security of tenure would mean some adaptation of social land tenure systems. Pointing to research in Senegal and South Africa, Babette Wehrmann (GTZ, Germany) argued that customary and informal agents were flourishing and providing high-quality sources of market information.

The Formalization and Regularization of Land Tenure

Peter Ward (University of Texas at Austin) described the diversity of regularization programs across Latin America, where some countries consider it to be a juridical procedure and others regard it as physical upgrading. Regularization may be an end in itself (mass titling programs), or a means to an end (to develop credit systems). Ward argued that the differences among programs stem from how each government ‘constructs’ its urbanization process and represents this vision back to society through laws and language.

Edesio Fernandes (University of London) explained how Brazil’s Civil Code dating from the beginning of the century created a system of individual property rights that restricted the ability of government to regularize favela communities. The 1988 Constitution attempted to reform this situation by acknowledging private property rights when accomplishing a social function. Nevertheless, legal tensions within regularization programs have failed to integrate the favelas into the ‘official city,’ leading to some politically dangerous situations.

Under different circumstances, South Africa produced a regulatory regime that denied freehold tenure to black households or offered only complicated non-collateral permits to the few. Lauren Royston (Development Planning Alternatives, Johannesburg) outlined how the country’s Land Policy White Paper contemplates legally enforceable and non-racial rights, a wider range of tenure options and opportunities for communal property acquisition.

The two developing countries with the most extensive mass titling programs, Mexico and Peru, were scrutinized by Ann Varley (University College, London) and Gustavo Riofrio (Center for the Study and Promotion of Development – DESCO, Lima). Varley assessed two prevailing assumptions that run through the contemporary policy literature: that decentralization produces more effective land management, and that the regularization of customary tenure is more complicated than the regularization of private property. In Mexico, despite the rhetoric of decentralization, a highly centralized system has been increasingly effective in providing land regularization to settlements on ejido land. On the other hand, the regularization of private property is tortuously long and frequently produces poor results. She commented with some concern on the current trends in Mexico to convert ejido land to private ownership and to move toward greater decentralization.

Riofrio questioned the validity of the claims made for land regularization in Peru. He noted that in reality household interest in property title was quite low, not least because records are inaccurate and therefore offer less security than promised. Moreover, only an incipient housing finance market has emerged, based on the regularized properties. Households are wary of debt but are willing to borrow small sums for micro-enterprises and consumption secured on their housing.

New Social Patterns and Forms of Land Delivery

Would liberalization produce more segregated land markets? Brzeski noted that state planning in Eastern Europe has left a legacy of spatial equity and few informal land holdings, but that it would not last forever and planners need to take this into account in instigating reform. In countries with notable levels of social segregation, such as Chile, Colombia and South Africa, less predictable trends are emerging. Sabatini’s data indicated less spatial segregation in Santiago despite liberalization as intermediate spaces are developed, around malls for example, and as new lifestyles are reflected in ‘leisure home’ developments outside the metropolitan area.

Carolina Barco (University of the Andes) argued that new measures in Colombia, specifically the 1997 Ley de Ordenamiento Territorial, will allow the government of Bogota to capture land value increments and transfer these revenues to public housing and other projects. This process is still problematic, however, even in a city with considerable experience in the use of valorization taxes.

In South Africa, strategies to cope with the ‘land hunger’ of the post-apartheid city, especially the Development Facilitation Act nationally and the Rapid Land Development Program in the province of Gauteng, have offered fast-track land release but have performed less well against the principles of equity and integration. Royston explained that the result has been a large number of invasions and the speeding up of land delivery through local government on the urban periphery that does not challenge the ‘spatial quo.’

Changing the method of land delivery and government stakeholding has the potential to affect segregation and access to land. Geoff Payne (Geoff Payne and Associates, London) outlined the principles and practices of public/private partnerships in developing countries. Although much heralded in international policy, research in South Africa, India, Pakistan, Egypt and Eastern Europe has shown that such partnerships had undersold their potential.

Crispus Kiamba (University of Nairobi) outlined a transition in Kenya from government-sponsored schemes, which left the informal and formal circuits separate, to new approaches with greater NGO involvement, ‘group ranches’ and partnerships. In Mexico, too, partnerships are seen as one method to eliminate the cycle of illegality and regularization. Federico Seyde and Abelardo Figueroa (Mexican government) outlined a new program called PISO, which, despite numerous bottlenecks when compared to previous interventions (e.g. land reserves), was proving more effective.

Land Markets and Poverty Reduction

In my opening remarks I argued that most research on markets considered poverty as a legitimate context, but thereafter seemed more concerned with market operations than with how these operations might affect poverty. In the final session, Omar Razzaz (World Bank) outlined a proposal for linking land market operation to poverty reduction. The ‘Land and Real Estate Initiative’ aims to investigate ways to improve the liquidity of land assets and access to the poor through re-engineering land registries (improved business processes), developing regulatory infrastructure (the exchange-mortgage-securitization continuum), and accessing and mobilizing land and real estate by the poor. The appropriateness of this initiative generated considerable debate, which may help in refining ideas that could benefit the 500 million people living in urban poverty in developing countries.

Gareth A. Jones was the program developer and chair of the workshop.