Urban Value Capture in São Paulo Using a Two-Part Approach

The 2002 Strategic Master Plan for the City of São Paulo and the Land Use Law 13,885 of 2004, introduced the mechanism of development concessions for additional urban building rights. The master plan is based on the federal Urban Development Act approved in 2001 applies to the entire municipal area with the exception of Joint Urban Operations areas. Basic and maximum coefficients of land usea were established with development concessions being charged to those wanting to build beyond the basic to the maximum coefficient. This new legislation established residential and non-residential building rights reserves in each District of the city, stipulating the maximum supply of building area.

Among the main effects of these measures, the following stand out: collection of financial compensation from development concessions has been increasing since 2005, with about $420 million Reais collected as of November 2009. In some Districts the establishment of a basic FAR that was lower than the previous coefficient apparently did not reduce the cost of the affected land. The charge for development concessions also does not seem to have affected the profitability of real estate companies. However, setting a maximum building rights reserve seems to have caused an upward trend in land prices, especially in Districts where the supply was lower. In some Districts of the city developers proceeded to quickly deplete the supply of residential building rights, and this type of response will probably intensify in the future, putting pressure on the city government to raise the maximum coefficient. In this case, it is important to consider the risk that motivation to increase revenue collection may outweigh urban recommendations and the limitations of infrastructure, especially transportation and traffic.