Infrastructure Investment in a Messy Urban Growth Scenario

The objective of this study is to explore the feasibility of widening public funding of urban infrastructure investment using land value capture (LVC) tools in the Metropolitan Area of Buenos Aires (MABA), Argentina. Over the last 15 years, this region has experienced a highly disorganized urban growth accompanied by low investment in urban infrastructure. The study reviews the nature and experience of LVC tools, particularly in Latin-American countries, with a special emphasis in the cases where income distribution is very unequal. Based on a detailed analysis of the situation in MABA (income distribution, urban growth, land price trends), a simulation model of a typical municipality is developed to represent alternative schemes of betterment contributions and urban investments. Lessons from the international practice and the results of the simulation model are combined to draw recommendations for the MABA case. The study concludes that betterment contributions are well-adapted instruments for financing infrastructure projects that could benefit a wide range of households in specific areas of the MABA. This instrument has the advantage of being already in use at several municipalities of the metropolitan region. The analysis also indicates that under the current regional socio-economic scenario, the balance between the rate of the betterment contribution and the impact of the improvement (measured through land valorization) is a key feature to gain acceptance in the urban planning endeavor. The results suggest that the kind of investment (affecting the quality and/or the quantity of land) may be important in terms of welfare and income distribution results. Finally, policy recommendations include the need to consider the distribution of the levy burden considering current income levels instead of connecting it to the increase in the value of the land plot. One possibility is to spread the cost of the levy collection over a longer period using the financial market to cover for the gap. Another option is to associate the implementation of betterment contributions to the urban plan, allowing for the anticipated collection of the revenue earmarked to the development of the projects.