Access to Land, Local Taxes and Financing of Urban Development

This document is a report on research conducted as part of the Latin America Program of the Lincoln Institute of Land Policy, intended to contribute to the production of applied research and educational materials. It is an analysis of land market dynamics in Greater Santiago in relation to the process of locating new housing, the collection of real property taxes, and public sector urban investment during the 1990s. The objective of the report is to put forward proposals for urban financing, and in particular to review the functioning of property taxes and their potential to strengthen municipal investment capacity.

It must be noted that Greater Santiago contributed decisively to the growth of the Chilean GDP during the last decade of the twentieth century, but it is also largely responsible for the country’s highly concentrated income, manifested in the cities by a tendency for increased urban land prices, with serious consequences for the poor population’s aspirations for housing within the urban core, and therefore for access to urban infrastructure and public facilities. During the period under study, Santiago was characterized by strong economic performance, low inflation, successful poverty reduction, record housing construction, healthy growth in public sector urban investment, and a newly vital role for urban planning.

This document has four chapters. Chapter 1 presents the conceptual framework of the study and a general overview on Chile’s capital city, known in Spanish as Santiago de Chile. Chapter 2 presents a quantitative analysis of land valorization and its relationship to housing dynamics, land tax revenues, the evolution of fiscal valuations, and central and local government investments in urban infrastructure in Greater Santiago in the 1990s. The last part of chapter 2 presents a statistical model of determinants for real property valorization in the city.

Chapter 3 presents the results of a multi-case study based on the observation of four selected urban projects located in

two of the city’s municipalities with different characteristics and urban standards and their impact on market values and fiscal valuations at the neighborhood or intra-municipal level. Chapter 4 presents the conclusions of the study and resulting proposals.

One of the studys’ conclusions is that five specific factors have impeded the above mentioned achievements from leading to greater equality of access by different socioeconomic groups to urban infrastructure and public facilities. These factors are:

1. 1. persistently high levels of distributive inequality

1. 1. a lack of sufficient instruments for urban financing on the part of the public sector

1. 1. the inflationary dynamic of the land market in the absence of means for the internalization of externalities

1. 1. the impact of this dynamic on the housing market

1. 1. the economic weakness of municipalitiesNew methods for the recovery of value increments are necessary for the future financing of urban development based on improvements to current taxation methodologies and the establishment of new value capture mechanisms.