Urban infrastructure in Sub-Saharan Africa

Harnessing land values, housing and transport

Presented by Stephen Berrisford

20 July 2015

Comparative Assessment of Land-based financing in Sub-Saharan Africa, India, Brazil and Colombia

Background: DPU workshop, 1-2 June, London

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LBF: the international context

• North America, Europe, Japan, Australia etc – all have rich, long LBF experience • note: it’s contested and controversial

everywhere: it doesn’t just take “capacity, political will and resources” to make it work (though they help)

• What can we learn from experiences in countries a little bit more like SSA countries?

• Contributions at the DPU workshop from: • Edesio Fernandes and Mariana Fix – Brazil • Sudeshna Mitra – India • Alan Gilbert – Colombia

Brazil 1: helpful laws

1988 Constitution and 2001 City Statute

• social function of property

• separation of right to own land from right to develop

• obligation on municipalities to plan

• CEPAC – ‘certificate of additional development potential’

2004 São Paulo Land Use Law

• OODC – ‘charges for additional building’

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CEPACs in operation

What worked

• ‘non-trivial’ revenue volumes • 2004-2102: in São Paulo

alone $2,5 billion (= 22,5% of total property tax revenue) – and that in only 2 areas (‘UOs’)

• auction better than trying to value increment calculation

• predictable(ish) revenue for infrastructure investment

• developers able to plan ahead

• integration of slum upgrading obligations (instead of cash)

Ongoing challenges

• really only working in big cities with sophisticated capital markets

• and in those cities, only in areas where market demand is high

• strong critique: worsening sociospatial segregation

• city governments haven’t always supported new FAR with new infrastructure

or

• city governments have spent carelessly because so much money available in particular ‘urban operation’

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Colombia (mainly Bogotá)

City land prices rising fast recently

2004 2010

Value of urban land below USD 114/sqm

70% 20%

Long history of land value capture

• ‘Betterment’ (‘contribución de valorización’ since 1921

• City Land Bank (‘metrovivienda’) since 1999

• Payment of plusvalia since 2007

• Forced use of idle land since 2010

• Property tax (’impuesto praedial’

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Note new instruments developed to capture rising land values

Bogotá: (very) rough summary • Betterment

• widely used, more in Medellín than Bogotá • best results in better-off areas • when other source of infrastructure finance available, it’s preferred to betterment

(or plusvalia)

• Land-banking • failed to compete with informal land supply • many legal challenges from private sector

• Plusvalia (30-50% of land value increment in urban operations) • widespread failure • key part of radical city master plan (‘Pedro’s POT’) • difficulties in valuation methodologies, landowner resistance, complex rules

• Forced landuse • 15-25% social housing for developers, and forced sale of vacant plots • very low success rates, mainly due to resistance

• Property tax • up to date valuations increased city’s taxable value by 173% in four years (2008 –

2012) • protests against apparent subsidising of higher value properties

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India – a lot going on

More than 100 years of land-based financing (introduced by British legislation in 1800s to provide for Improvement Trusts)

Different instruments used in different states. But most commonly used in Tamil Nadu, Andhra Pradesh, Karnataka, Maharashtra and Gujarat.

Most common instrument –‘area based development charge’ in terms of town planning law

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The area based development charge

• widely applied

• generally accepted

• but rates are not updated, so not enough money raised

• revenues are not buoyant (because area-based, not value based)

• acknowledged to be yielding insufficient revenue, but response is not to update rates but develop additional instruments and levies – which makes for a more complex regulatory environment, and more difficulties for city government

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The experience of supplementing area-based development charge

• Mumbai introduced TDR (1991) – succesfull, but attributable to natural constraints on land supply and not emulated successfully in cities with less land scarcity

• Maharashtra (2010) changed from ‘Rs/sqm’ to ‘percent of land value’ – which is an official (not market-related) value – hence some, limited buoyancy

• Gujarat land readjustment – aimed at cost recovery rather than land value capture per se – bogged down with valuation methodologies

• Many new fiscal instruments have failed legal challenges because they’re not permitted i.t.o. town planning legislation – some states have started amending town planning laws

• Payments for regularization – increasingly used, but controversial

• Impact fees – considered and tried – but fail because of absence of reliable, up to date capital investment plans, which makes it difficult to establish the required rational nexus

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Some initial lessons for SSA • land-based finance is a no-brainer but it isn’t easy

• common themes running through the international experience: • where value has to be calculated, valuation

methodologies are an obstacle • resistance by vested interests – expressed in

litigation as well as political pressure – makes implementation hard work for officials, so strong political leadership is needed

• city government capacity is crucial – land records, GIS, municipal finance, property tax system, city planning. LBF is part of city governance and city financial management.

• it is important to be clear about the underlying purpose of any LBF instrument – why is it needed, how will it work, what rules have to be made and applied?

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Alan Gilbert’s reflection

After studying the different LBF instruments introduced in Colombia for 30+ years:

“if you have vaguely honest mayors and elites and vaguely effective municipal administrations then some of these ideas could work”

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End

Urban infrastructure in Sub-Saharan Africa – harnessing land

values, housing and transport