Fellows in Focus: Demystifying Land Value Capture, from Colombia to California

The Lincoln Institute provides a variety of early- and mid-career fellowship opportunities for researchers. In this series, we follow up with our fellows to learn more about their work.

Urban economist Néstor Garza first partnered with the Lincoln Institute’s program on Latin America and the Caribbean (LAC) over 20 years ago—to publish a working paper based on his undergraduate thesis, looking at the spatial distribution of land values in Bogotá, Colombia. Garza’s early career coincided with the city’s increased use of land value capture tools—policies that empower communities to recover and reinvest a portion of property value increases that result from public investment or government action—which allowed him to both study and experience their impact on the built environment. In 2005, Garza received a LAC Graduate Student Fellowship while pursuing his master’s degree in Colombia; he later earned a PhD in Land Economy from the University of Cambridge.

Today, Garza teaches economics at California State University, Dominguez Hills. In this conversation, which has been edited for length and clarity, Garza explains what Los Angeles could learn from his former hometown, why the concept of land value capture is sometimes misunderstood, and why he was excited to prove a 19th-century political economist correct.

JON GOREY: What is the main focus of your research, and how did your Lincoln Institute fellowship help you build upon that work?

NÉSTOR GARZA: My research has always been about urban economics, and more precisely, on the spatial analysis of land markets, regulation, and taxation. For example, I wrote a series of four papers on the neutrality of the land value development tax in Bogotá. This is neutrality in the sense described by Henry George, in that you’re able to extract part of that land value without changing anything else; I was able to prove both static and dynamic neutrality in Bogotá.

In 2005, I was doing my master’s in economics at Universidad Nacional, and I participated in the LAC fellowship. It was about the spatial distribution of housing markets and the creation of a value index for newly built housing in Bogotá. That one was super special: they flew us to an event in Quito, Ecuador, with Lincoln Institute faculty and with the other thesis fellows, and it was super interesting, I learned a lot. And more importantly, I started exchanging with all these colleagues in Latin America that are also interested in these types of things. It was really valuable for me. Then in 2008, Lincoln invited us to stay for three months in Bogotá, a group of Latin American students from maybe 10 different countries, to intensively learn about land markets, land policy, land law, geographic information systems, valuation, and so on. Once again, it was extremely rewarding.

JG: What are you working on now, and what are you hoping to work on next?

NG: One thing I’m working on is in-kind development contributions in Seattle. We all know the West Coast is suffering from a lack of housing—at this point it’s a humanitarian crisis, no?—and part of that is definitely related to the operation of land markets. So I have continued studying in-kind development contributions, specifically sidewalks in Seattle, and the effect of that on the supply of housing.

In Latin America, I’m working with a colleague in Santiago, Chile, creating spatially accurate land value indexes, and with another colleague in Merida Yucatan, in Mexico, on the effects of globalization on the local real estate markets. Essentially, huge amounts of international money are flowing to this region, purchasing absentee-owner real estate which geographically encloses the city, limits its development potential, and increases land values.

And I’m working with a colleague in Colombia tracing the unfolding of neoliberalism there back in the 1980s and ’90s. There was a paradigm shift in the way policy is made toward neoliberal logics, so we analyzed, one by one, the key economists and policymakers who were behind those transformations, analyzed their professional, educational, and research careers, to understand the motivations behind the reforms of 1991.

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JG: What’s the most surprising thing you’ve learned in your research?

NG: To really be able to see and prove, empirically, the static and dynamic neutrality of land value capture, that surprised me. Because, sure, I expected to find that, but when you do find it? Okay! So Mr. George was right, it’s not crazy. The entire thing makes sense. So I would say that was surprising, but a nice surprise, that it works the way we thought it works. Static neutrality means that applying a land value capture fee where there’s a reason for it—for example, new zoning rules, or a new park—decreases land values or decelerates land value increases while leaving everything else constant; it doesn’t discourage new development or change built environment prices in that area. Dynamic neutrality means that the enactment of the land value capture fee does not cause preemption, where developers rush to build, increasing land values, nor does it shift development or home value increases to a different part of the city that doesn’t have the land-based fee.

JG: What’s one thing you wish more people understood about Latin American land policy, or about urban economics more broadly?

NG: There are two things. One is what I wish that the Latin American policymakers and public would understand, and another is what I wish the rest of the world would perceive, particularly the place where I live, the metro area of Los Angeles.

In Latin America, thanks to the Lincoln Institute, I have traveled around the continent, making presentations, talking to people. Some people are really engaged and want to participate and activate all these economic tools for land management. But some people are super resistant, and the resistance comes from a kind of preconception, where in Spanish “land value capture” is translated as la captura de plusvalías. And plusvalías, in Spanish, is the same as the Marxist term “value added,” which has a kind of socialist connotation. People think that this is some kind of socialist conspiracy against private property and markets. This preconception is very difficult to change, to tell them, ‘No, it’s not, it’s actually the opposite. These are tools to enhance the construction industry, to enhance a very active real estate market’—because that’s what we want to march towards, an active market able to provide more housing for everybody.

Now on the other hand, I would like other places, particularly Los Angeles, to see how well Latin American cities use the tools they have to make positive changes in the built environment. It’s an environment of precariousness, poverty, lack of funding—but still, things get made, city blocks get transformed. Here in LA, we have Proposition 13 that completely undermines property taxes, and it’s the exact opposite. We have one of the largest financial bonds markets in the world, with large and extremely sophisticated developers, but we are unable to, for example, redevelop one block, we are unable to increase densities to what’s required to make this region sustainable. It’s so, so difficult here to do anything, as if all of those policy tools did not exist. In Latin America, regardless of the poverty and the problems, it’s not that it’s easy, but it’s being done, it’s happening. So I would like the rest of the world, the US and particularly the state of California, to notice that lots of positive transformations to the urban built environment can be made in the context of market institutions. We can change cities and make them a bit more livable, a bit less hostile to pedestrians or to the inhabitants.

JG: When it comes to your work, what keeps you up at night? And what gives you hope?

NG: For the last few years, what has kept me awake at night, but at the same time given me hope, is higher education, here in the United States and around the world.

On the one hand, I notice a kind of obsession with the specialization of higher education, an obsession with practical skills in everything we do. I feel it from students, from administrators, and from higher level education experts, where everything has to be immediately applicable, and abstract or higher reasoning skills are set aside as unimportant, because they’re not immediately marketable skills to be used in the labor market. But those higher-level abstract reasoning skills are the ones all of us use all the time in the labor force.

At the same time, the higher education system is what gives me hope. In Colombia, back in the ’90s, I attended public school—it was one school for millions of possible students, so the rate of rejection was like 99 percent, everybody was rejected using purely standardized exams. Then once you got in, they failed about 50 percent of the students. It was a cruel elimination process that I somehow survived. But that’s not what higher education should be about—it’s not about eliminating people, it should be about widening possibilities for everybody. Of course, you have to have some degree of rigor, some real seriousness with it. But it doesn’t help to just eliminate people, that doesn’t help society. And I have noticed that in my own country, and everywhere in the world, higher education has moved towards a more accepting, less regimented, less boring way of doing things. And that gives me hope.

JG: What’s the best book you’ve read or show you’ve streamed lately?

NG: About three or four years ago, I read a book—the title is actually quite aggressive—called Bullshit Jobs: A Theory, by anthropologist David Graeber. And it caught my attention because, in a very funny way, it touches on the nonsense that the neoliberal organization of society is bringing on us, the kind of obsession with working. Why? The truth is, the modern capitalist system is able to deliver for everybody by doing almost nothing, it’s so immensely wealthy. But we have ingrained in our heads that we need to have a job to justify our very existence, and that’s produced a kind of collective paranoia where we need to do something and justify doing it, because our lives depend on it. And it creates these masses of disenfranchised workers in a middle state, where it isn’t clear if they’re productive or not, and people suffer psychologically because of that. So the book, in a funny way, takes all of that, and actually touches on important elements of ethics and economics and philosophy, with some funny commentary and interesting anecdotes.

Jon Gorey is staff writer at the Lincoln Institute of Land Policy.

Lead image: Néstor Garza. Credit: Courtesy photo.