Scholars and practitioners involved with the regularization of low-income settlements in Latin America shared their experiences in a forum sponsored by the Lincoln Institute last March and hosted by the City of Medellín and its regularization office, PRIMED (Integrated Program for the Improvement of Subnormal Barrios in Medellín). Participants included representatives from PRIMED, Medellín city officials, and observers from multilateral institutions including the Inter-American Development Bank (IDB), the World Bank, AID and GTZ (Germany).

Twelve major presentations reported on the most significant case studies from eight countries: Brazil, Colombia, Costa Rica, Ecuador, El Salvador, Mexico, Perú and Venezuela. The forum proved to be a landmark meeting whose findings, summarized below, are expected to have important implications for Latin American policymakers.

Comparative Perspectives on Regularization

Several different approaches to regularization are illustrated in the country case studies. The two primary approaches are juridical regularization, i.e., legal land entitlement procedures to convert from de facto to de jure property ownership, as in Perú, Ecuador and Mexico; and physical regularization (urbanization), including the extension of infrastructure into irregular settlements, as in Colombia, Venezuela, Brazil and other countries. A third approach, which has been emphasized only recently, puts priority on the social and civic integration of low-income settlements and their populations into the urban fabric by a combination of measures.

While most countries have elements of all three forms of regularization, they usually focus on one direction or another. In Mexico all three approaches are used simultaneously. In most other countries the emphasis depends on the relative strengths of the actors, organizations and politics on the one hand, and on the way the regularization problem is conceived (“constructed”) by federal and local authorities on the other.

Juridical Regularization: Land Title Programs

The regularization of land titles has become accepted practice by governments, international agencies and NGOs alike. (see Figure 1.) In fact, the question “Why Regularize?” that was raised at the beginning of the forum seemed to catch everyone by surprise. Yet, posing this question goes to the heart of the matter about who defines the problems regarding land tenure and who establishes policies in favor of regularization. Most of the legal titling programs examined in the case studies were lengthy and expensive, and, by the time they came on-line, did little to significantly affect the level of security or to systematically provide services in the settlements.

Figure 1 Common Arguments in Favor of Land Regularization

• Provide security against evictions
• Provide incentives to stimulate investments in home improvements and consolidation
• Facilitate and provide for the introduction of services such as electricity and water
• Generate access to credit using the home as collateral
• Incorporate residents into the property-owning citizenry and the democratic process
• Integrate settlements and property into the tax and regulatory base of the city

As far as the poor are concerned, however, several of the arguments in favor of regularization would appear to be spurious. Established households generally have de facto security and rarely prioritize the need for full legal title, the latter being a need more associated with middle-classes value systems. Moreover, once settlements are well-established, home improvements and consolidation occur at a rate that is closely tied to available resources, not to title security. As for the introduction of services, most providers follow their own internal rules for timing and procedures; rarely is legal title an important criterion.

Furthermore, low-income households do not like falling into debt and are uneasy about entering formal credit systems, even though NGOs and governments are moving towards micro-credit support. In short, where low-income groups want regularization of tenure it appears to be because the state wants them to want it and then constructs demand accordingly.

One may conceive of tenure regularization as both an end in itself and a means to an end. Regularization as an “end” emerged clearly in the Lima case, where access to land and land titling programs substitute for a systematic housing policy. The most recent round of land titling (since 1996) even includes a retitling of previously regularized lots as an arena of political patronage serving the central government at the expense of the city’s political leaders. (1) A similar situation prevailed in Mexico with the multiplex regularization agencies created during the 1970s. In both countries the commitment to tenurial regularization is clearly indicated by active programs, usually providing a large number of titles each year at low cost.

Elsewhere, regularization may also be an “end,” but it is of secondary importance. In Colombia, Brazil, El Salvador and Ecuador, for example, titling is at best only a minor part of the physical regularization package. Even so, the absence of legal tenure and the need for regularization may be used to good political effect by regulating the flow and order of infrastructure provision.

Regularization of titles as a means to an end is promoted widely by international agencies as part of the World Bank’s New Urban Management Program. Mexico is a good example of the process whereby land titling is a prerequisite to urban land management, planning and public administration. Regularization incorporates the population into the system of land registry, tax base, planning controls, construction permissions, consumption charges, and recovery of services and infrastructure. Regularization becomes the means to urban sustainability and management, and this more than any other reason explains its widespread espousal and adoption today.

One notable feature in several case studies was the apparent reluctance to regularize on private lands unless the initiative had the support of the original landowner. As a result, the settlements most likely to be regularized are those occupying public land or land whose ownership is unchallenged. With the exception of Mexico, governments are reluctant to expropriate in the social interest. Several countries have a system of land occupancy rights that permits transfer of ownership after a certain number of years of proven and appropriate use. In Brazil this usucapión system has been extended recently to allow for title transfer on privately owned urban lots of less than 250m2 that have been occupied continuously for five years.

Issues in juridical regularization programs:

• Extent of resident demand and priority for full land title: A high priority for titling emerges only when there is high insecurity associated with illegal lot holding (Costa Rica), or where the state promotes the association of insecurity with lack of titling (Mexico).
• Procedures and administration in the titling programs: Examples range from very rapid, efficient and lost-cost practices (Peru and Mexico) to interminable and inefficient procedures. Most of the case studies fell at the latter end of the spectrum (Brazil and Colombia especially), in large part because this arena of regularization is not a high priority.
• The nature and functioning of property registry and cadastre offices: Almost all case studies pointed to major shortcomings in land registry and land valuation assessment institutions. Even where satisfactory institutional arrangements existed, relations and liaison between the two offices were invariably poor.
• The form and “weight” of land titles: The power and importance of titles ranged from “hard” titles, such as registered titles and full property titles that could only be challenged through eminent domain or expropriation procedures, to “soft” titles, which represented little more than certificates of possession, registration of occupancy or contracts of purchase. Somewhere in the middle, and parallel to this legal dimension, are the customary titles of social property rights, such as use rights, common rights, usos y costumbres, etc. The latter will hold force only to the extent that they are supported by the state.

Physical Regularization: Urbanization and Infrastructure Provision

The second principal arena of regularization reported by many of the case studies at the forum focused on the physical regularization process in different forms of irregular settlements. In Medellín, for example, approximately 12 percent of the total population is estimated to live in fast-growing barrios, which are often built on steep slopes like their hillside counterparts in Rio or Caracas. There are undoubted problems and dangers in these areas, but most of the participants who visited the PRIMED settlements were more encouraged by their level and rate of consolidation than the local officials appeared to be. (The discussion did not address upgrades and interventions in inner-city tenements-conventillos, vecindades, cortiços.)

It is impossible to do justice to the many innovative programs that were described at the forum, but one major success story is the Favela/Bairro program in Rio de Janeiro. This project is predicated on close collaboration with local residents to open up favela streets to vehicular access in combination with service installation. However, it is important to recognize that its success has only been possible at considerable cost: the total expenditure between 1994 and 1997 has been US$300 million, in large part provided by the IDB. This raises important questions about the replicability of such programs.

Issues in physical regularization programs:

• Legal instruments: In many cases legal instruments are not required to effect urban regularization projects and public intervention. Moreover, expropriation in the public interest is not attractive to most local authorities. The creation of special social interest zones (ZEIS and PREZEIS in Brazil) is one mechanism to help neighborhoods by providing greater flexibility of intervention outside of city codes and norms. Many other legal instruments were found to be rather weak, especially those with a large degree of discretion in their application (Ley novena in Colombia, for example).
• The costs of regularization and population displacement: Physical intervention brings additional costs associated with installation and consumption of services, and may also introduce higher tax contributions. In order to meet these costs, families may be obliged to find savings elsewhere (by slowing the rate of home consolidation, for example) or engage in rent-seeking behaviors such as renting or sharing lots or dwellings. Inevitably some will choose or be forced to sell and move out. Little is known about displacement levels, but generally low-income owner households remain settled; population stability, not mobility, is the norm.
• Financial mechanisms for regularization: Several of the most notable and successful projects rely on external funding, and many projects appear to carry explicit and implicit subsidies. In order for projects to be replicable, more agile financial methods are required, such as fiscal resources (land/property taxes, as in Mexico) or user charges (as in Medellín, for example). Another mechanism captures capital gains taxes on improvements (plusvalia and valorization charges, as in Colombia), but generally does not apply to low-income housing. (See page 5.)
• Administrative and governmental responsibilities for regularization: Almost without exception the trend has been towards decentralization with a lessening of power at the central government level and a strengthening at the municipal level. The role of the state/department/province level has weakened greatly. This trend means that an increasing responsibility for regularization falls on city authorities, and in turn raises other important issues: institutional capacity; learning and dissemination of best practices; the development of fiscal capacity and responsibility; program continuity across administrations; program coordination and implementation in metropolitan jurisdictions (where cities overlap more than one municipality); and the role of unelected NGOs.
• Popular (public) participation in regularization: While popular participation in neighborhood development projects is widely espoused and desired, it is often non-existent or purely nominal (Ecuador). Elsewhere, it was seen to be genuine and quite intensive (Costa Rica and Brazil). Popular participation involves residents instrumentally in project implementation and offers opportunities to take account of so-called plural (parallel) justice systems (Venezuela), customary laws, usos y costumbres (Mexico), etc.
• Regularization and citizens’ rights: The rising public awareness of citizens’ rights was apparent in many of the case studies. These include rights to housing (Mexico, but unfulfilled); rights of access to housing (Peru and El Salvador); and rights to infrastructure and urbanization benefits. It is also important to recognize that citizens’ rights also carry citizens’ obligations, particularly as taxpayers and consumers.

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Regularization as a Means of Social Integration

It became apparent in the deliberations that an increasingly explicit goal of regularization is to achieve social integration by bringing low-income populations into the societal mainstream and into the urban fabric. This is most frequently observed in reference to the “rescue” of low-income populations and other marginal groups and their incorporation into the urban citizenry. This was one of the important goals in Brazil’s favela/bairro program, which, in part at least, aimed to break up the drug and delinquent youth gangs and to rescue the local population from their influence.

A potential problem with this approach is that concepts of “good citizen” and the societal mainstream are social constructions that are often highly value-laden and may derive from within a particular class and dominant power group. Regularization to achieve integration into the wider set of social opportunities such as public education and health care is one thing; regularization for social convergence and conformity is another. However, this theme remains incipient in the literature, and the whole notion of citizenship with its bundles of rights and responsibilities is part of an agenda still largely unconsidered.

Conclusion

This international forum emphasized the need to be aware of the different underlying rationales for juridical and physical regularization in individual countries, and to be aware that they are closely tied to the political and planning process. In order for regularization to work well there has to be genuine political commitment such that all departments and officials who intervene do so with greater integration, cooperation and empowerment. Policymakers should also think imaginatively about alternative, “parallel” ownership systems and opportunities for genuine public participation in decisionmaking at all stages in the regularization process.

Important, too, are financial commitment and sustainability. Unless regularization is tied to medium- and long-term cost recovery through taxes, user charges and deferred assessments, programs will continue to depend on major external funding and subsidies, which will severely limit the extent and scale of their application.

An exciting last session of the forum allowed participants to reflect on future directions for research and policy analysis on land market regularization. Five major areas emerged. First, we recognized the need to identify the various actors and interest groups involved in promoting irregular or illegal land development in the first place, and to make explicit the differences between land invasions, owner subdivisions, company subdivisions and other actions. The point here is that irregularity is produced by various actors and interests groups as a for-profit business, and is not just a result of dysfunctional urbanization.

Second, we discussed moving away from dualist thinking and breaking with the idea of conceptualizing the land market in terms of the formal and informal city, the parallel city, or normal and subnormal barrios, all of which implicitly assume that the poor are locked into a separate land market. In fact, there is a single land market that is segmented, not separated, along a continuum in terms of access and affordability.

Third, we need to confront the issue of financial replicability and the ways in which finance might be leveraged through cross-subsidies, plusvalia, valorization charges, tax-and-spend, progressive consumption charges, and other mechanisms. Fourth, we need to be less gender-blind. It is important to think more imaginatively about regularization priorities with respect to gender and to explore innovative titling schemes that address the need for women’s settlement and housing rights.

Finally, we need to be much more precise in our terminology, and, more importantly, to recognize that there is a “social construction” embedded within language. The terms adopted in any society are revealing about how that society views and diagnoses housing and related social issues. Terminology may lead to punitive or patronizing policy solutions; it may even “criminalize” local populations. Most of the differences and variations in the case studies stem from the way each society constructs its understanding of the housing problem and how it presents that vision to its people-through its terminology, through its laws, procedures and policies, and through the bureaucratic and administrative organization of the state itself.

1. Julio Calderon, “Regularization of Urban Land in Peru,” Land Lines, May 1998.

Peter M. Ward is professor of sociology and of public affairs at the University of Texas at Austin and a faculty associate of the Lincoln Institute. Among his many books is Methodology for Land and Housing Market Analysis, coedited with Gareth Jones and published by the Lincoln Institute in 1994.

Rampant informality, so emblematic of large cities in developing countries, poses many challenges for property taxation systems. For instance, tenure rights in informal settlements are often obscure or even unknown; buildings are constructed gradually over time, self-construction is common, and the whole unit may never be finished; property value depends on vague or intangible factors such as the security provided by community organizations; the occupant or even the legal owner may be too poor to pay taxes; administrative costs of tax collection are higher than in the formal areas, whereas assessed values are often much lower; and there is hardly any public investment in infrastructure and services.

These critical features of informal housing seem to violate many of the premises on which the administration of a property tax system is grounded: identification of taxable property and corresponding taxpayers; description of the property’s physical characteristics; determination of property values on a reasonable market basis and according to predictable measures; the taxpayer’s presumed ability to pay; collection costs that are relatively low compared to the revenue collected; and an expectation that tax revenues would benefit the area from which the tax was collected.

This comparison depicts the essence of the conventional wisdom on informal occupations and the reasons why they are generally disregarded for taxation purposes, but misconceptions and prejudices are evident. This article examines some of these biases and their consequences for property tax collection in informal areas. The Latin American situation is used to illustrate this debate, but this study is still exploratory due to limited data. The arguments discussed indicate promising directions for further analyses, rather than conclusive findings in most cases.

Informal Occupations

In land occupation and housing, informality is a multidimensional phenomenon involving thorny issues related to land tenure; noncompliance with urban norms and regulations, such as minimum lot size, allowance for public spaces, and street layouts; inadequate provision of public services and equipment; and occupation of improper areas, such as environmentally protected or ecologically risky areas and contaminated brownfield sites.

Slums originated by land invasions are the first image of informality that comes to mind, but other social and physical forms of informality range from pirate subdivisions, usually characterized by market sales of land having no clear title, to situations where even legally qualified owners with titled land do not conform to existing urban norms and regulations.

According to the United Nations–Habitat (2003), about 928 million people (32 percent of the world’s urban population or 43 percent of the population of developing countries) currently live in slums with precarious urban infrastructure and inadequate public services. If current trends and policies continue, the report estimates that slum populations will increase by 37 million per year to reach a total of 1.5 billion people in 2020. Although Latin America accounts for 9 percent of the world’s population, it comprises about 14 percent of those who live in slums.

Why is Informality a Problem?

Informality disorganizes the functioning of urban land markets, since illegal, irregular, and clandestine operators are able to reap higher profits by avoiding some costs, such as taxes, the cost of protecting the land from invasions, or the cost of providing basic urban infrastructure and services. Contrary to expectations, land prices per square meter in informal settlements are often higher than those in formal areas, when discounting investments related to the provision of water, electricity, drainage, sewerage, and other services.

Moreover, informality is expensive for society. The costs of curative policies to upgrade irregular settlements are higher than the cost of new land development, and indirect social costs include the presence of criminal activity and natural disasters caused by development in environmentally sensitive areas. The evidence also suggests that informality is both a cause and an effect of urban poverty. The geographic distribution of poverty tends to overlap with the spatial pattern of informal arrangements, although the magnitude and persistence of informality cannot be entirely explained by poverty. A survey conducted by the Instituto Pereira Passos (2002) based on the Brazilian Census of 2000 found that about 64 percent of the population classified as poor actually lived outside the slum areas.

Myths of Informality

There are many prevailing myths about how informal settlements are either established or operated, including the perception that occupants in informal areas are neither willing nor able to pay property taxes. In fact, not only are occupiers usually willing to pay the tax as a way to legitimate their land tenure, but they are often quite able to pay it. New occupants, in fact, have already paid the property tax in the form of higher land prices, yet the payment went to either the subdivider or original landowner instead of the government.

Moreover, payment of the property tax by occupants of informal areas is likely to legitimate their right to demand public services and other urban improvements from government authorities. Many informal occupants also realize that private provision of basic services through informal means, such as buying water from a truck, is likely to be more costly and risky than payment of the property tax.

Other myths or assumptions about informality include beliefs that occupants of informal settlements are necessarily poor; informal settlements are occupied only by unemployed and informal workers; formal property title is necessary to obtain access to credit; informal settlements are homogeneous entities clearly distinguished from formal settlements; and occupation of informal settlements is made through nonmarket transactions.

Property Tax Collection

In an attempt to relate property tax collection per inhabitant to the presence of informality, we used data based on a survey of municipalities conducted in 1999 by the Instituto Brasileiro de Geografia e Estatística (IBGE 2001). Table 1 presents data that measured two criteria: the occurrence of slums (i.e., informal settlements caused by invasions) and the existence of all types of irregular land development. Slums occur in 27.6 percent of all municipalities in Brazil, while irregular land development (including slums) occurs in almost 44 percent of them. The maximum value of property tax collected is higher in larger municipalities and those with slums and other irregular developments, and the revenues also tend to be higher on average than in those municipalities without such development.

However, Table 2 illustrates the difficulty of monitoring property ownership and tax collection records by comparing the presence of cadastres in municipalities with records on slums and informal settlements. Local cadastres cover information on slums in 52.5 percent of the municipalities in which they are found, but only 39 percent of those cities have complete records on informality. By comparison, 50.5 percent of municipalities with irregular land developments have this information included in their cadastres, and 51 percent of the cases with records have complete information. Thus, one cannot reject the hypothesis that the larger, richer, and more developed municipalities are also the ones with better records on informal occupations.

Using the IBGE database, a model for multiple regression analysis was developed to test the relationship between informality and the property tax collected per inhabitant. The relationship was controlled with other attributes available in the database, including the average income per inhabitant, the size of the population, and a group of variables associated with the role of the local administration in promoting urban development. Based on this model, which explains approximately 72 percent of the variation in the property tax collected per inhabitant, the following factors have proven to be influential in determining the amount of property tax collected.

• Urban regulations and minimum lot sizes. The findings support the argument that municipalities with a more complete regulatory framework are able to collect more property tax per inhabitant. Consistently, a decrease in the property tax collected per inhabitant is found in municipalities where no minimum lot size is established. Thus, stricter land use regulations have a positive effect on property tax performance, as much as their absence produces adverse effects.
• Updated property cadastre and maps. As expected, municipalities in which the property cadastre and maps have been updated more recently tend to obtain a higher collection ratio. The model also indicates that municipalities that use more technology, as measured by the use of a digital cadastre, are able to collect more property tax per inhabitant than the others.
• Occurrence of slums. Municipalities with slums collect more property tax per inhabitant than those without slums. A plausible explanation for this phenomenon may be that more industrialized and/or more economically dynamic cities have a higher incidence of informality. In this case, the loss of property tax revenue generated by informality is likely to be compensated by the revenue collected in high-income areas and from commercial and industrial properties.
• Inclusion of informal property in the cadastre. The importance of a more universal tax base is also confirmed, as reflected in better property tax performance when informality is recorded at the local government level.
• Collection ratio. Municipalities with less tax evasion, that is, a higher collection ratio, tend to collect more property taxes per inhabitant.
• Average income per inhabitant. Finally, the average income per inhabitant is the most important factor in tax collection, accounting for about 42 percent of the variation in the property tax collected per inhabitant.

In addition to the level of income, the findings clearly indicate the importance of an effective administration of the property tax. In other words, even in the presence of informality municipalities achieve better results in comparative terms if they maintain updated cadastres and maps, include informal properties in the cadastre, and have a broad framework of urban legislation. In summary, when focusing strictly on the property tax performance, the major cause of concern is not the presence of informality itself, but the way public officials deal with it for property tax purposes.

The Property Tax as a Tool to Reverse Informality

A more vigorous property tax is likely to affect informality directly. For instance, the portion of the property tax levied on land value constitutes a strong antidote to force the existing stock of serviced land to the market. The property tax may also be important as a tool to influence the decision-making process for which areas should receive urban services. Indeed, communities without a property tax system are particularly vulnerable when it comes to seeking public attention.

The property tax can also be an educational mechanism for helping citizens realize their rights and duties, including the need to contribute to public expenses. The government’s commitment to allocate tax revenues fairly and equitably provides greater legitimacy to the tax. Furthermore, a property tax may be one mechanism to reduce land prices through the capitalization effect (Bahl and Linn 1992). Usually local government recognition of occupancy has no direct, legal effect on guaranteeing property titles at the public registry, but informal occupiers may perceive it as a kind of a green card to access the legal world.

Rabello de Castro (2000) has argued that there are solid legal grounds to use cadastres for property tax purposes to legitimize tenure rights, and that the courts would have no difficulty in admitting such records as trustworthy evidence. Finally, there is an advantage for the property tax to cover informal property because its application requires specific knowledge of the area, which has immensurable value to the city management.

Policy Recommendations

Informality poses particular challenges to property tax administration, including the need to design feasible and politically acceptable procedures. Following are some policy recommendations for consideration.

• Extend tax liability to occupants in informal settlements. Limiting property tax liability to the landowner reduces the ability to collect taxes in countries with a substantial number of informal settlements. Legislation could establish the possessor or occupier as the taxpayer of record, so there should be no technical impediment to considering alternative forms of secured tenure to meet the challenge of enhancing the universality of the property tax.
• Update urban cadastres. Conventional cadastral procedures and techniques are not able to keep up with the physical and legal idiosyncrasies of informal settlements. Low-cost, flexible initiatives to update cadastres and identify irregular land subdivisions and buildings might include the establishment of partnerships with companies that provide public services or institutions responsible for social programs.
• Determine how to assess informal property. Assessing informal property is a challenge since there is little understanding of how informal markets operate. This may require taking into account atypical determinants of property values (e.g., the value of relaxed urbanistic norms and regulations) and creative sources of information (e.g., neighborhood association records on property transactions). However, a vibrant property market is generally observed in informal areas, and the analysis of the determinants of land prices is as feasible and amenable to standard techniques as the analysis undertaken in formal markets (Abramo 2003). Another alternative is to use self-assessment, as applied in Bogotá, Colombia, using simplified forms to make the process easier for low-income families.
• Bypass assessment difficulties for progressive housing. Self-production of housing is common, and improvements may take place on a gradual, albeit permanent, basis in informal occupations. Consequently, proper taxation of informal properties would require inspecting the houses more frequently. These difficult circumstances suggest considering other alternatives, including the use of either the site value as the tax base or a self-reporting scheme. Neighborhood associations and community organizations could be involved in such programs. Initiatives to encourage self-reporting would be facilitated by the extent to which the revenue collected is earmarked to improve public services and equipment in the neighborhoods in which the property tax was collected.
• Minimize tax evasion. Contrary to the view that higher rates of tax evasion prevail in low-valued properties, the general perception is that tax evasion is more likely to occur on high-valued properties. Local administrators and other sources confirm that poor families are quite willing to have their properties included in the fiscal cadastre, and to pay the property tax.
• Adjust the tax burden on the poor. Current alternatives for either reducing or eliminating the tax burden on the poor in formal areas should be applied to informal areas. Such measures include either deductions or exemptions according to the property value, the family income, or both criteria, and the use of progressive rates starting at a symbolic value and moving up according to classes of assessed values.
• Establish a fiscal culture. Symbolic tax payments may have no impact in terms of revenue, but are likely to contribute to the creation of a fiscal culture. A sustainable tax system for informal housing requires steps similar to those for formal property markets: adjust the tax burden according to the ability-to-pay; demonstrate to taxpayers the public benefits related to the collection of the property tax; promote educational programs explaining the rights and duties of citizens; and apply effective and reasonable penalties for cases of nonpayment.

Even though most informal property is excluded from the property rolls, the above requirements should be applied to informal properties if a higher level of efficiency in property tax collection is to be achieved. The argument about high collection costs to exclude low-valued properties (or low-income families for that matter) from the tax-rolls should be reckoned against the benefits of promoting broader fiscal citizenship.

A Longer View

The collection of property taxes in informal areas may be not only possible under certain circumstances, but also attractive for pursuing a more effective urban policy that is capable of mitigating informality and its negative effects for society in general and for individual occupants of these settlements in particular.

Despite the difficulty of providing empirical evidence on its theoretical impacts on the land market, the part of the property tax levied on the land value is likely to produce effects that are critical to mitigate the distortions and dysfunctions in land markets with a high degree of informality. These effects include stimulating land development; deterring land speculation; reducing land prices; increasing the supply of urbanized land; encouraging more compact cities; promoting more efficient provision of urban infrastructure and services; and encouraging a more rational pattern of development. Indirect benefits may include the relevance of the information generated to identify property, the use of paid property taxes as a paralegal means to legitimize tenure rights, and last but not least the opportunity for accessing citizenship and becoming integrated into society.

In summary, when focusing on the property tax performance, the major cause of concern is not so much informality itself, but the way public officials treat informality and how they administer a property tax system. In this context, the introduction of the property tax into an environment with rampant informality requires special caution. The challenges to operating the property tax in informal areas include the need to understand the informal market, curb intervening land ownership claims from previous or absent owners, improve administrative capability, and legitimize public actions that result in social benefits to the poor. In addition, public officials need to overcome prejudice and misconceptions regarding informality and introduce efficient property tax initiatives that may actually reduce informality.

About the Authors

Martim O. Smolka is senior fellow and director of the Program on Latin America and the Caribbean at the Lincoln Institute of Land Policy.

Claudia M. De Cesare is a property tax advisor to the Secretariat of Finance in the municipality of Porto Alegre, Brazil. She is on the advisory board of the International Property Tax Institute (IPTI) and is a faculty member of the Lincoln Institute.

References

Abramo, Pedro. 2003. A teoria econômica da favela: quatro notas sobre a localização residencial dos pobres e o mercado imobiliário informal, in A cidade da informalidade: o desafio das cidades latino-americanas, Pedro Abramo (Org.). Rio de Janeiro: Librería Sette Letras, Fundação Carlos Chagas Filho de Amparo a Pesquisa do Estado do Rio de Janeiro, and Lincoln Institute of Land Policy.

Bahl, R.W., and Johannes F. Linn. 1992. Urban Public Finance in Developing Countries. Washington DC: Oxford University Press.

Instituto Brasileiro de Geografia e Estatística (IBGE). 2001. Perfil dos municípios brasileiros: Pesquisa de informações básicas municipais, 1999. Rio de Janeiro: IBGE.

Instituto Pereira Passos. 2002. Evolução da população de favelas no Rio de Janeiro: Uma reflexão sobre os dados mais recentes. Prefeitura da Cidade do Rio de Janeiro. http://www.rio.rj.gov.br.

Rabello de Castro, S. 2000. Habitação: Direito e governança – Duas sugestões para ação governamental. Fundação João Ribeiro. Cadernos de Textos 2: 321–338.

UN–HABITAT. 2003. The challenge of slums: Global report on human settlements. Nairobi, Kenya: United Nations Human Settlements Programme.

Ciro Biderman is an associate professor in the graduate and undergraduate programs in public administration and in economics at Getulio Vargas Foundation (FGV) in São Paulo; associate researcher at the Center for the Study of the Politics and Economics of the Public Sector (CEPESP/FGV); and associate researcher at the Metropolis Laboratory of Urbanism at São Paulo State University (LUME/FAUUSP). He received his Ph.D. in economics at the FGV and his postdoctoral degree in urban economics at the Massachusetts Institute of Technology in 2007.

Biderman was a visiting fellow at the Lincoln Institute of Land Policy from 2006 to 2009, and he continues to teach courses and conduct research with Martim Smolka and others affiliated with the Program on Latin America and the Caribbean. He also consults on the economics and politics of local development for the World Bank and other organizations. His research interests include urban and regional economics focused on public policies at the subnational level, with particular emphasis on land policy interactions with real estate markets and transport costs.

He has published articles in academic journals, and coauthored or coedited three books, including the 2005 volume Economia do Setor Público no Brasil (Public Sector Economics in Brazil). At the Lincoln Institute he has written several Land Lines articles and working papers, all of which are available on the Institute Web site.

Land Lines: As a Latin American scholar specializing in land economics issues, how do you compare the state of the art of research in the region to other countries?

Ciro Biderman: In Brazil, as in most of Latin America, there is a lack of research in urban economics in general and in land issues in particular. The same is true to some extent in the United States and Europe, although the research interests are quite different, and urban economics is more in the mainstream in those countries.

Some relevant characteristics of cities in Latin America are similar to those in other developing countries, and all would benefit from additional research. For instance, despite the large informal market in Latin America, most economists have neglected that sector. Ironically, most urban economics analysis of informality has been conducted by U.S. and other international scholars.

Second, Latin American cities are usually not as sprawling as cities elsewhere, yet their historic downtowns are often deteriorated and we know little about why this is happening. Third, most countries in the region have recently adopted decentralization policies that shifted the responsibility for the provision of public goods to local governments. However, the revenues of local governments are low and most rely heavily on federal transfers.

Land Lines: How did you become associated with the Lincoln Institute of Land Policy?

Ciro Biderman: My first contact was in 1998, when I was awarded a dissertation fellowship to finish my Ph.D. Working with Paulo Sandroni at FGV, I studied the impact on land prices of a zoning change in São Paulo. At the time, the central business district was expanding toward the southwest, but the expansion was blocked by Jardim Europa, then a low-density, high-end residential neighborhood. New office development bypassed the area, moving towards the new Luiz Carlos Berrini Avenue. To reverse this pattern, in 1996 the city changed the zoning in part of Jardim Europa, increasing density and auctioning building rights to encourage new development.

I compared the part of the neighborhood where zoning did not change with that which experienced exogenous changes from being a low-rise residential area to a high-rise, mixed-use area of high-end residential and office space. In an article written with Sandroni and Smolka (2006) we showed that the change in density increased land prices as expected.

The most interesting finding, however, was the local government’s capture of the land price increment through a fiscal mechanism called CEPAC (Certificate of Additional Potential of Construction). These certificates are auctioned as part of the process by which developers obtain building licenses in specified areas. In the adjacent neighborhood where business development had leapfrogged without CEPACs, the incremental land rent generated by the zoning change was instead captured by the developers.

Land Lines: What other research have you pursued at the Institute?

Ciro Biderman: Since becoming a visiting fellow in 2006, I have focused on the economics of informal housing, particularly on the extent to which urban regulation was statistically associated with different measures of informality, including the role of regulation on prices in formal and informal housing markets (Biderman 2008).

In a related study in 2009, Martim Smolka and I discussed the policy implications of how and why different international agencies define informality to reflect one or more housing attributes. The consequence is that different definitions produce different estimates of the incidence of informality. Thus, when governments improve only one informal housing attribute but not the others, they may report a reduction in informality when in fact there is none.

In a new line of research I am looking at the causes and consequences of sprawl in Latin America, focusing on ten large Brazilian cities. Preliminary findings show that these cities are less sprawled than their North American and European counterparts, but more than comparable Asian cities. Transport systems are based on the automobile, as in the United States, except that less than 10 percent of the population owns a car. Yet the socioeconomic spatial pattern is more similar to Europe, with the rich living in the center and the poor on the periphery.

Land Lines: You help the Latin America Program evaluate research proposals submitted for Institute funding. What have you learned from that experience?

Ciro Biderman: I have been involved in evaluating these proposals since 2006, and the number of high-quality scholarly applications has grown steadily. I have noticed that the research questions from Latin Americans scholars are often better presented than the techniques to address them, in contrast to what occurs in the United States.

I think this is a problem faced in many aspects of social science research, and not only in Latin America. Although the origins of urban economics were grounded in the connections among urban equilibrium, transport costs, and land prices, each of these fields has developed almost independently and there is a general need for more integrated analysis.

Land Lines: What do you see as the main strengths of Latin American researchers?

Ciro Biderman: Highly qualified professionals in Brazil and other countries often move between public office and academia. As a result, they are aware of the respective issues and needs in the public sector and academia, and may have a more direct impact on the implementation of urban policies.

Furthermore, researchers can bring to focus what is specific to Latin American cities compared to cities elsewhere, thus expanding the scope of applied research. For example, to the best of my knowledge, there is no economic model for housing demand that allows the quality of the housing to change in order to adjust housing consumption to budget constraints. This is quite a relevant question in Latin America, but not to researchers in the United States or Europe.

Land Lines: Can you elaborate on the kinds of issues facing scholars in different world regions?

Ciro Biderman: As with most social phenomena, patterns of land use have evolved historically. For instance, sprawl in the United States is closely related to the movement of high-income groups to the periphery of metropolitan areas. In Latin America the movement of income groups is usually in the opposite direction, with poor people seeking affordable land on the periphery.

Although fundamental principles of urban economic theory might apply, the consequences are quite different. Studying different patterns using the same theoretical framework would advance our understanding of urban economics.

Land Lines: What topics or issues are especially lacking in strong empirical work?

Ciro Biderman: In terms of land policy, in my opinion, we need more research on property taxation; the interactions of fiscal and regulatory policies with land use planning issues; socioeconomic patterns of sprawl; and the connections between land use and transport. The lack of research on the economics of the informal housing market is surprising since informal settlements represent more than one-third of the total urban housing stock in some countries. Although this problem could eventually be solved with subsidies, the amount of resources needed is probably prohibitive for most countries.

Currently there is a branch of the literature studying the impact of tenure security on general welfare, suggesting that titling programs may be improving welfare, but there are few similar studies on the impacts of slum upgrading programs. While some evidence suggests that inappropriate regulation may induce more informality, we do not yet fully understand the economic nexus between formal and informal housing markets. We also lack systematic cross-country studies.

Land Lines: Do you think there a trade-off between policy experience and technical research capability?

Ciro Biderman: As an economist, I know the virtues of the division of labor and gains from trade, so it is important that academics and public officials complement each other. Thus, researchers need to be as rigorous as possible and able to expose the unintended consequences of public policies, and policy makers must ensure that their policies are designed so they can be implemented effectively and efficiently to reach the intended goals.

For example, a major policy issue is how to increase the supply of affordable, high-quality housing for the poor in developing countries, which requires understanding the opportunity costs between affordability and quality. The trade-offs may be technical, but the alternatives are clearly political. How can this housing imbalance be fixed? Who has to pay the cost (the residents or the society)? What are the consequences of different policy options? These are practical questions. Empirical evidence that helps to evaluate current policies might be a major resource for a policy maker.

Land Lines: How do you think the Lincoln Institute can contribute to narrowing the gap between rigorous empirical research and policy relevance?

Ciro Biderman: I believe that the Institute is already doing that by working with both scholars and policy makers in a variety of programs and fellowship opportunities. Classroom and online courses offer training to policy makers to help improve their dialogue with researchers, and to young scholars to expand the pool of policy-sensitive researchers. The intensive courses in methods for land policy analysis also inform researchers about advances in urban economics theory and strengthen both their methodological skills and their knowledge of new analytical techniques.

References

Biderman, Ciro. 2008. Informality in Brazil. Does urban land use and building regulation matter? Working Paper. Cambridge, MA: Lincoln Institute of Land Policy.

Biderman, Ciro, Paulo Sandroni, and Martim Smolka. 2006. Large-scale urban interventions: The case of Faria Lima in São Paulo. Land Lines 18(2).

Smolka, Martim, and Ciro Biderman. 2009. Measuring informality in housing settlements: Why bother? Land Lines 21(2).