Today an estimated one million people are living in subterranean apartments in Beijing, where affordable housing near employment is scarce for the greater city’s 23 million inhabitants (Xing 2011). These units are often windowless subdivisions in basements and air raid shelters, and the median size is 9.75 square meters.

In August 2010, Beijing instituted a three-year plan to evacuate tenants from these underground dwellings. Evictions started taking place in 2011, particularly in the innermost urban districts with expensive land values, but demand remains high. In some areas of the city, particularly in the outer districts, conspicuous signs on the street advertise subterranean rentals, and the Internet lists thousands of units below street level as well.

This article draws on the author’s analysis of this phenomenon from 2012 to 2013, when online advertising for subterranean apartments was active and growing. These listings contain enough information on individual units—including location, price, size, amenities, and depth below ground—to assess the dynamics of this low-income rental housing submarket.

Shortage of Affordable Rental Housing

Like most Chinese cities, Beijing suffers an acute shortage of affordable rental housing, driven by the massive migration to urban centers (Liu et al. 2013; Xie and Zhou 2012). It also has a vast amount of subterranean space, resulting from a policy dating to 1950 that requires all new buildings to have common basements and air defense shelters. Construction codes specify building guidelines, including the provision of infrastructure such as electricity, water, and sewers. This supply of underground space has grown exponentially amid China’s extraordinary building boom in recent decades. Some complexes contain as many as 600 units below street level.

As a means of addressing the housing deficit, official policy for 24 years encouraged the “economic” utilization of this underground space during peacetime, and residential shelter was one of the sanctioned uses (BMBCAD 1986). But in 2010, Beijing stopped granting new use permits for underground apartments and instituted the aforementioned three-year plan to evacuate residents. Given the number of people involved and the lack of affordable housing alternatives, the process has posed challenges, including landlords who demand compensation for occupancy rights they had purchased when the units were legal.

State-Sponsored Housing

Since China transitioned to a private market from a centrally planned economy, wherein the state provided all housing, the real estate sector has grown explosively. Treated primarily as an investment vehicle, new private units are accessible only to those with enough savings to purchase a house with little financing.

Restrictions on land supply are another obstacle to the private provision of shelter. Because the state, which owns all land, is trying to protect fertile farmland, development is prohibited in rural areas on the urban periphery. Nevertheless, informal settlers have rapidly built out that landscape into housing projects. These “urban villages” provide private residences for 5 to 6 million low-income people who cannot afford to live closer to the city center, but the government has been trying to remove them by demolition.

The Chinese state provides four types of affordable housing projects, particularly for public employees with lower incomes (see table 1). The earliest types of assistance included the lian zu fang program, which provided rental housing to the poorest families, and jing ji shi yong fang, which provided subsidized homeownership opportunities.

The government launched a program in 2011 to construct more rental housing (gong zu fang) for recent college graduates and skilled workers in key sectors such as the high-tech industry. Given the relative newness of this program, though, the number of affordable rental units is still relatively small. Meanwhile, xian jia fang housing projects are targeted for the displaced. Despite the large number of units constructed for low-income residents over the years, demand far outstrips supply and wait lists are long.

The Hukou Barrier

Beijing hukou, or household registration permit, is a prerequisite for all four types of affordable housing. A holdover from central planning, hukou entitles households to public services in the place of residence assigned to them by the government, but restricts receipt of services in other locations. People born into hukou of large cities are eligible for better educational, health, and infrastructure services. Unless a state-sponsored employer requests a change of hukou for a worker, those without hukou in major cities still face a significant barrier to economic opportunity.

Figure 1 shows the current location of public housing programs for people with Beijing hukou. As in other places around the world, affordable housing projects are located in more remote parts of the city, as mentioned, where land is less costly but also less desirable. Also typical of affordable housing projects, subletting is reportedly widespread, with program recipients collecting rents for their publicly provided apartments.

Analyzing the Underground Market

Our study took advantage of the detailed listings for underground rentals available at Ganji.com, which were optimal for analysis because the site was well organized, with the greatest number of ads. Using the search term “地下室,” or “underground unit,” we captured the monthly rent, square meter area, specific location, amenities, and other descriptors of subterranean apartments, such as the depth below ground level. Of the 7,312 ads we collected from October 2012 through September 2013, we culled 3,677 unique listings with complete information. As figure 1 shows, these units are well distributed throughout the city, reflecting the requirement that all new buildings in Beijing include underground space.

It is important to mention that the ads represent what is likely the higher end of the underground housing market. Landlords who advertise online tend to be better educated, with more resources. The ads themselves usually feature photos, evincing the relatively high quality of the housing. Moreover, the landlords’ willingness to advertise suggests that they felt relatively secure about their tenure.

Table 2 provides descriptive statistics for the 3,677 subterranean housing units studied. The median size is 9.75 square meters, slightly smaller than Beijing’s 10-square-meter minimum and the overall average housing area per capita (28.8 square meters per person). Even so, the apartments are generally larger than the average worker dormitory housing, which is just 6.2 square meters (Xie and Zhou 2012).

The mean monthly rent of 436 RMB (US$70) confirms that the apartments are at the higher end of migrant housing. A 2012 government study found that about 48 percent of migrants in Beijing pay less than 300 RMB (US$48) per month, 27 percent pay 301 to 500 RMB (US$48–80), and 17 percent pay more than 1,000 RMB (US$160) (Xie and Zhou 2012). In other words, these underground rental units are generally a higher-valued type of shelter for migrants than the more common worker dormitories and urban village housing.

On average, subterranean units are less than 11 kilometers from the city center, with a standard deviation of 6.2 kilometers, placing them well within the 5th Ring Road. With these locational advantages, the apartments offer potentially lower commuting costs and better economic opportunities. Similarly, the average distance to the nearest subway station is a little over 1 kilometer, which is considered within walking distance.

Roughly 50 percent of the advertised units are one or two stories below street level. The other 50 percent are half underground, like so-called “garden apartments” in the United States, with a small window near the ceiling of the room. Our preliminary analysis found that whether a unit was one or two stories below ground did not make any statistical difference in price after holding for other variables. As for amenities, the ads for about one quarter of the units advertised the presence of heating, more than half mentioned Internet connectivity, about one quarter mentioned the presence of surveillance cameras, and less than one eighth mentioned the employment of security guards.

Analyzing Market Dynamics

Our study examined whether demand in this unusual subterranean housing submarket is similar to the conventional market above ground. In particular, the disadvantage of living below street level may be large, and this type of housing is generally so small that other standard variables in hedonic price models may be more pronounced or differ in some other way.

Our statistical analysis involved a step-wise progression of fitting test variables to a base model that includes the variables well established in the literature to be significant. It performed predictably with all the variables significant and in the expected direction. For example, rent increases around 3.3 percent for each square-meter increase in unit size, and 3.6 percent for every one-kilometer decrease in distance to the city center. Transportation access is also significant. Proximity to a subway station raises rent by 1.8 percent per kilometer; for each subway line station within an 800-meter radius of the unit, the rent increases by 2.8 percent.

Given that our hedonic price model performed like other models with the same major significant variables and in the same direction, the underground housing phenomenon is clearly a market. Its emergence suggests that there is strong demand for rental housing—especially among lower-income households—that neither the formal market nor public housing programs are satisfying. This is obvious, given that hukou policies do not allow migrants to apply for public housing programs and that even lower-income Beijingers with hukou have been known to live underground.

Our analysis suggests that the highest priority for the lower-income, often migrant population in Beijing is proximity to jobs and transportation. The central location of these units makes the trade-off of living underground worthwhile. Moreover, the comparison with public housing rents in table 1 indicates that while costs per square meter might be higher, the total rent for underground units is much lower (Hu and Hu 2012). The underground market is thus meeting the demand of people with incomes below the levels targeted by affordable housing programs.

Conclusions

Subterranean living is a sizable phenomenon in Beijing. Thousands of advertisements for underground apartments exist on the Internet, and that number was still growing in 2013 despite evictions. But the size of this submarket does not mean it should be incorporated into public policy.

There have been extraordinary accounts of people living on roofs and in sewer wells, trying to find a way to live in central Beijing. Reliance on underground housing is often just another desperate measure that the urban poor resort to in order to live and work in urban areas where they lack hukou and therefore cannot access services.

How much can a society minimize living space to make urban locations affordable? This question will become even more pressing as densities in Asian megacities exceed levels of acceptable human decency, forcing policymakers and designers to think more creatively about urban reforms. While underground units are in fact more spacious than dormitories for workers or students. China’s extraordinary economic development has raised its citizens’ aspirations and expectations for better housing conditions.

Given the fact that most of the renters are single or couples without children, and tenure is temporary, lasting no more than several years, housing policy should consider the need for lifecycle housing for people just starting out in this expensive city, or for those requiring temporary stays for health care, education, and other needs.

About the Author

Annette M. Kim, Ph.D., is associate professor at the Sol Price School of Public Policy at the University of Southern California. She is also the director of SLAB, the newly formed spatial analysis laboratory at Price that advances the visualization of the social sciences for public service through teaching, research, and public engagement.

References

BMBCAD (Beijing Municipal Bureau of Civil Air Defense). May 15, 1986. “关于改变结合民用建筑修建防空地下室规定的 通知》的实施细则” (Changes to the Implementation Rules on Constructing Air Defense Shelters by Combining with Civil Buildings).

Hu, Hai-feng and Ji-ya Hu. 2012. “Overall Evaluation and Future Development Planning of Beijing Affordable Housing System During the Eleventh Five-Year Plan.” Beijing Social Science 1: 7–14.

Liu, Xiang, Maojun Wang, Jiabin Cai, and Mengchen He. 2013. “An Analysis on the Spatial Structure of Non-Native Permanent Population of Beijing Metropolitan Area in 2000–2010.” Urban Development Studies 20(10): 86–93.

Xie, Xinmei and Le Zhou. 2012. “Study on Housing Demands of Migrant Workers in Key Industries in Beijing.” Paper read at China Urban Planning Annual Conference Proceedings, Beijing.

Xing, Fan. 2011. “北京清理地下空间提速 百万北漂可能无处寄居” (Beijing to Clean Up Underground Space Speed One Million North Drift May Have Nowhere to Sojourn). Beijing Times, January 14. http://news.qq.com/a/20110114/000529.htm

Governments have long recognized the need to preserve certain open space lands because of their importance in producing public goods and services such as food, fiber, recreation and natural hazard mitigation, or because they possess important geological or biological features.

New impetus for open space preservation results from the desire to counteract the effects of declining urban cores, suburban sprawl, and the socioeconomic and land use changes now encroaching on high-amenity rural areas. The growing use of habitat conservation plans for reconciling environmental and economic objectives also draws attention to the values of open space, especially in comparison to alternative land uses.

It is likely that most decisions about open space preservation will be made at the local level, due in part to the general trend of devolution of governmental responsibility (with accompanying fiscal responsibility), as well as an increase in the institutional capacity and activism of local land conservation trusts. Since local governments are heavily dependent on the property tax for operating revenue, the fiscal and economic implications of open space preservation decisions are paramount. Conservationists are frequently called upon to demonstrate to local communities the economic value of preserving open space.

While much has been written about the economic value of the environment in general and of open space in particular, the literature is segregated by discipline or methodology. It is therefore difficult to assess the economic value of open space comprehensively. It is even more difficult to apply what is known in a public policy context, where open space holds significant non-monetary value.

Concepts of Value and Public Goods

Like all natural ecosystems, open space provides a variety of functions that satisfy human needs. However, attempting to assign monetary values to these functions presents several challenges. First, open space typically provides several functions simultaneously. Second, different types of value are measured by different methodologies and expressed in different units. Converting to a standard unit (such as dollars) involves subjective judgments and is not always feasible. Third, values are often not additive, and “double counting” is an ever-present problem. Finally, some would argue that it is morally wrong to try to value something that is by definition invaluable. At a minimum, they say, open space will always possess intangible values that are above and beyond any calculation of monetary values.

Open space often plays an important role in the provision of “public goods.” Public goods are nonexcludable: once they are produced it is impossible or very costly to exclude anyone from using them. They are also nonconsumptive: one person’s enjoyment of the good does not diminish its availability for others. The limited ability of producers to exclude potential users typically precludes the development of market allocation systems for public goods. As a result, easily observed measures of value, like those expressed through market prices, do not exist. Yet land use and resource management decisions imply tradeoffs between marketed and non-marketed goods and services, making it difficult to compare relative values and, through tradeoffs, arrive at socially optimal decisions.

Use and Nonuse Values

Much of the economic value associated with open space activities like recreation can be examined as use value and nonuse value. Use value results from current use of the resource, including consumptive uses (i.e., hunting and fishing), nonconsumptive uses (i.e., hiking, camping, boating and nature photography) and indirect uses (i.e., reading books or watching televised programs about wildlife).

Activities directly or indirectly associated with open space may provide an important source of revenue for businesses and state and local governments. For example, hunting and fishing license fees are a major source of funding for state wildlife agencies. Less direct but perhaps more important from an overall economic perspective are expenditures related to nonconsumptive open space activities that also have income and job multiplier effects and often occur in rural areas with limited commercial potential.

The economic implications of use and nonuse values across society can be very large, and many economists agree that these values should be considered in open space decisionmaking. Measuring use and nonuse values is difficult, however, due to the lack of markets and market prices and the existence of administratively set, quasi-market prices such as hunting and fishing license fees. To arrive at socially meaningful estimates of value for many nonmarket resources, economists use the concept of consumer surplus, or the amount above actual market price that a buyer would theoretically be willing to pay to enjoy a good or service.

Two methods are used to first estimate the demand curve for the resource: contingent valuation or travel cost methods. In the first, a hypothetical market is created in a survey and respondents are asked what they would be willing to pay for some defined activity or resource. In the second, the cost of travel to a site is viewed as an entry or admission price, and a demand curve is derived from observing visitation from various origins with different travel costs. While still controversial, these methods have been used in numerous studies to estimate the willingness to pay in addition to actual expenses for various recreational activities ( see chart 1), as well as for nonuse values such as maintaining populations of certain endangered species or preserving unique bird habitats.

Several types of nonuse values consider the possibility for future use. Option value represents an individual’s willingness to pay to maintain the option of utilizing a resource in the future. Existence value represents an individual’s willingness to pay to ensure that some resource exists, which may be motivated by the desire to bequest the resource to future generations.

Measuring the Economic Value of Open Space

As a result of decreased intergovernmental transfers of financial aid and increasing citizen resistance to taxes, local officials now scrutinize the fiscal consequences of land use decisions more than ever before. The primary analytic tool available to policymakers for this purpose is fiscal impact analysis, a formal comparison of the public costs and revenues associated with growth within a particular local governmental unit. Fiscal impact analysis is utilized frequently in large communities experiencing growth pressures on the metropolitan fringe, and it is being applied to open space preservation.

A review of fiscal impact studies by Robert Burchell and David Listokin concludes that generally residential development does not pay its own way. They found that nonresidential development does pay for itself, but is a magnet for residential development, and that open space falls at the break-even point. A study of eleven towns by the Southern New England Forest Consortium shows that on a strictly financial basis the cost of providing public services is more than twice as high for residential development as for commercial development or open space. (see chart 2)

Care must be taken when evaluating the results of fiscal impact analyses for several reasons: the choices of methodology and assumptions greatly influence the findings; specific circumstances vary quite widely from community to community; and fiscal impact analyses do not address secondary or long-term impacts. Nevertheless, fiscal impact analysis is a powerful and increasingly sophisticated planning tool for making decisions about land use alternatives at the community level.

The most direct measure of the economic value of open space is its real estate market value: the cash price that an informed and willing buyer pays an informed and willing seller in an open and competitive market. In rural areas, where highest and best use of land (i.e., most profitable use) is as open space, one can examine market transactions. In urban or urbanizing regions, however, where highest and best use (as determined by the market) has usually been development, the open space value of land must be separated from its development value, especially when land is placed under a conservation easement.

Open space may also affect the surrounding land market, creating an enhancement value. Casual observers find evidence of enhancement value in real estate advertisements that feature proximity to open space amenities, and it is explicitly recognized by federal income tax law governing the valuation of conservation easements. A number of empirical studies have shown that proximity to preserved open space enhances property values, particularly if the open space is not intensively developed for recreation purposes and if it is carefully integrated with the neighborhood. Enhancement value is important to the local property tax base because it offsets the effects of open space, which is usually tax-exempt or taxed at a low rate.

Open space possesses natural system value when it provides direct benefits to human society through such processes as ground water storage, climate moderation, flood control, storm damage prevention, and air and water pollution abatement. It is possible to assign a monetary value to such benefits by calculating the cost of the damages that would result if the benefits were not provided, or if public expenditures were required to build infrastructure to replace the functions of the natural systems.

An example of this approach is the Charles River Basin in Massachusetts, where 8,500 acres of wetlands were acquired and preserved as a natural valley storage area for flood control for a cost of $10 million. An alternative proposal to construct dams and levees to accomplish the same goal would have cost $100 million. In another study, the Minnesota Department of Natural Resources calculated that the cost of replacing the natural floodwater storage function of wetlands would be $300 per acre foot.

Lands valued for open space are seldom idle, but rather are part of a working landscape vital to the production of goods and services that are valued and exchanged in markets. Often, the production value resulting from these lands is direct and readily measured, as is the case in crops from farms and orchards, animal products from pasture and grazing lands, and wood products from forests. The economic returns from production accrue directly to the landowner and often determine current and future land use alternatives.

Open space lands may also play a less direct but nonetheless important production role for market-valued goods that depend in part on functions provided by private lands. Examples are the role of privately owned wetlands in fish and shellfish production and the role of private lands in supplying habitat for wild game. In addition to providing market-valued goods and services, direct and indirect production from open space lands supports jobs that are valuable to local, regional and national economies.

Conclusions

It will never be possible to calculate completely the economic value of open space, nor should it be. Certain intangible values lose significance when attempts are made to quantify them. Indeed, to incorporate into the real estate market the public values of open space without also developing a means of capturing those values for the public benefit would be counterproductive for conservation purposes.

Land use decisions ranging from the allocation of scarce conservation budgets to the property rights debate will be better informed if there is a more comprehensive understanding of the economic value of open space. Methods for determining and comparing value vary widely in level of sophistication and reliability. Some are based on long-established professional standards, while others continue to evolve. Given the inherent subjectivity of the term, any discussion of value must include a variety of disciplines, methodologies and approaches. The greatest benefit may be in prompting reassessment of the “conventional wisdom” about the economic consequences of development and conservation.

Charles J. Fausold is a fellow at the Lincoln Institute of Land Policy. Robert J. Lilieholm is an associate professor at Utah State University and a former visiting fellow at the Lincoln Institute. With partial support from the Boston Foundation Fund for the Preservation of Wildlife and Natural Areas they are reviewing and synthesizing existing information to develop a useful framework for considering the economic value of open space.

Carlos Morales-Schechinger ingresó al IHS, el Instituto de Estudios sobre la Vivienda y el Desarrollo Urbano de la Universidad Erasmus en Rotterdam, Holanda, en el año 2008. Dicho instituto internacional atrae estudiantes de todo el mundo, en su mayoría de los países en vías de desarrollo. Algunos programas del IHS están organizados conjuntamente con el Instituto Lincoln.

Anteriormente, Morales se desempeñó como profesor a tiempo parcial en la Universidad Nacional Autónoma de México (UNAM). En los últimos 12 años, ha colaborado en forma regular en seminarios y cursos organizados por el Instituto Lincoln en toda América Latina. Su labor docente se centra principalmente en temas tales como instrumentos de recuperación de plusvalías del suelo, tributación sobre suelo e inmuebles, y políticas preventivas basadas en el suelo como alternativas a los asentamientos informales.

Morales ha ocupado diferentes puestos gubernamentales: se desempeñó como Director de Políticas e Instrumentos de Suelo en la Secretaría de Desarrollo Urbano de México, donde diseñó e implementó un ambicioso programa de reservas territoriales, y como director de política catastral del gobierno de la Ciudad de México, donde manejó una extensa reforma fiscal de los impuestos sobre la propiedad. También ocupó puestos en bancos públicos y privados en México, donde se ocupó de valuaciones inmobiliarias, hipotecas, administración de propiedades y préstamos para grandes desarrollos urbanos y para gobiernos municipales.

Morales obtuvo el título de grado en Arquitectura por la UNAM, un diploma en Financiamiento de Gobiernos Locales por la Universidad de Birmingham, Reino Unido, y una maestría en Estudios Urbanos por la Universidad de Edimburgo, Reino Unido.

Land Lines: ¿Cómo se involucró usted con el Instituto Lincoln?

Carlos Morales: Mi primer contacto fue a principios de la década de 1980, cuando asistí a una conferencia internacional patrocinada por el Instituto que tuvo lugar en Cambridge y que estaba relacionada con mi trabajo para el gobierno sobre políticas de suelo urbano. Las ideas que aprendí allí pude ponerlas directamente en práctica dos años más tarde cuando trabajaba en una reforma para aumentar la oferta de suelos con servicios en ciudades de tamaño mediano y logré subsidio cruzado para lotes con servicios para las familias de bajos recursos en México. A principios de la década de 1990, al estar trabajando para el gobierno de la Ciudad de México en una ambiciosa reforma del impuesto sobre la propiedad, asistí a otra conferencia del Instituto sobre tributación sobre la propiedad.

A partir del año 2000, participé en varias actividades educativas organizadas por Martim Smolka a través del Programa para América Latina y el Caribe. Alrededor del año 2004, el Instituto creó una iniciativa conjunta con el IHS y me contrató como uno de los conferencistas invitados por el Instituto para dictar clases en estos programas. Más adelante, me invitaron a ser parte del IHS a tiempo completo para manejar esta iniciativa conjunta.

Land Lines: ¿Cómo compara usted la efectividad de instituciones como el IHS y el Instituto Lincoln?

Carlos Morales: Creo que son complementarios. El Instituto Lincoln es líder en investigación y educación sobre políticas de suelo, con un enfoque internacional en América Latina y China. El IHS es reconocido por su tarea educativa y de formación de capacidades en temas de gestión y desarrollo urbano para una audiencia mundial, particularmente los países en vías de desarrollo y en transición. Los cursos del IHS se encuentran abiertos a estudiantes de todas las regiones, aunque la mayoría proviene de países de África, Asia, Europa Central y Europa Oriental. Mediante la iniciativa conjunta con el IHS, el Instituto Lincoln tiene la posibilidad de alcanzar a estudiantes de muchos más países de manera eficiente.

Land Lines: La tarea de transmitir conocimientos fundamentales sobre políticas de suelo y gestión urbana a profesionales no es fácil. En su opinión, ¿cuál es el enfoque más efectivo para lograrlo?

Carlos Morales: Es importante la combinación de dos factores: el perfil del profesor y una pedagogía adecuada. Los profesores deben tener experiencia tanto en lo práctico como en lo académico, para poder así responder las preguntas que resultan relevantes para los técnicos profesionales, especialmente cuando las respuestas impliquen alejarlos de su zona de confort y enfrentar algún tipo de desafío.

El objetivo último de las ciencias sociales es precisamente el de cambiar la realidad, no sólo entenderla. La consultoría acerca a los académicos a la práctica, pero no los confronta con el compromiso moral de implementar una política o con la responsabilidad ética de hacer que la política funcione en la realidad. La experiencia en la práctica directa es fundamental. Los programas del Instituto en América Latina emplean profesores con este perfil, quienes han probado ser efectivos al tratar cuestiones tales como el impacto de la tributación y las regulaciones en los mercados inmobiliarios y al escoger instrumentos de recuperación de plusvalías del suelo, ambos temas candentes en la región.

En cuanto a la pedagogía, los técnicos profesionales tienden a ser escépticos acerca de la teoría, ya que la consideran poco práctica y desean probarla para convencerse. El uso de ejemplos de políticas implementadas en otras ciudades resulta muy útil. Algunos estudiantes de países en vías de desarrollo no aceptan casos de países más desarrollados, ya que sostienen que sus estructuras de gobernanza son demasiado diferentes. Otros estudiantes prefieren casos de situaciones diversas, ya que, a pesar de las diferencias contextuales, aspiran a lograr mejores oportunidades de desarrollo para sus propios países. Un profesor debe tener un arsenal de casos diferentes para examinarlos cuando surjan las preguntas.

Los juegos de simulación también resultan una técnica muy efectiva. Los juegos de roles en los que los participantes compiten entre sí son los más útiles para comprender los mercados inmobiliarios y ayudar a resolver problemas. Los juegos de roles son muy reveladores, aunque los participantes no logren resolver los problemas, puesto que los motiva a preguntarse qué ocurrió. He visto cómo los participantes que experimentaron el fracaso en un juego comienzan a cooperar y a diseñar reglamentaciones ingeniosas por su propia cuenta. Otra estrategia es la de asignar a los participantes un rol que sea contrario a sus creencias o experiencias. Por ejemplo, los funcionarios gubernamentales que representan el papel de desarrolladores piratas descubren las grandes cantidades de dinero que tienen que gastar los pobres sólo para tener acceso a los terrenos.

Jugar al abogado del diablo funciona bien cuando se debaten conceptos controvertidos, como si los participantes estuvieran en un tribunal de tierras. Esta no es una técnica nueva, a menos que se juegue con algunas variaciones. Un ejemplo sería determinar los criterios para la compensación por expropiaciones. En este juego, un equipo sostiene ideas a favor de los valores de uso actual, y otro equipo, los valores de uso futuro. Se brinda literatura de apoyo e información práctica para que cada equipo pueda elaborar sus argumentos. Los profesionales de diferentes países pueden referirse a ejemplos de expropiaciones normativas, ya sean las expropiaciones ocurridas en China, las restituciones de terrenos en Europa Oriental o la venta de derechos de construcción en Brasil.

Debido a que los participantes deben defender una postura con la que no están de acuerdo, les resulta necesario estudiar y trabajar con más ahínco. En muchos casos, terminan cambiando de opinión o, al menos, identificando nuevos argumentos para su uso posterior en los debates con sus oponentes en la vida real. Al finalizar el juego del tribunal de tierras, el grupo que actúa como jurado vota dos veces en secreto: primero sobre al desempeño del equipo cuyos miembros actuaban como defensores; segundo, sobre los argumentos conceptuales. Cuando un equipo recibe más votos que la posición que defendían, queda claro que se necesita investigar el tema con mayor profundidad. Lo que más me gusta es que el juego no impone una posición a los participantes, sino que eleva el nivel de debate.

Land Lines: ¿Cuáles son los principales tipos de resistencia que existen en torno a los conceptos e ideas relacionadas con las políticas de suelo?

Carlos Morales: El concepto que con mayor frecuencia suscita resistencia tal vez sea la forma en que los impuestos y las normas se capitalizan en el precio del suelo. La resistencia puede provenir de un punto de vista ideológico (tanto la izquierda como la derecha tienen sus argumentos), del interés personal (los propietarios no aceptan fácilmente sacrificar sus ganancias) o de la ignorancia acerca de la forma en que funciona el concepto de capitalización. Como educador, es mi función tratar el tema de este último desafío.

Aunque a los profesionales se les explique la teoría, permanecen escépticos si su experiencia contradice la teoría. El malentendido puede surgir del hecho de referirse a un impuesto sobre un bien de consumo que no es tan escaso como el suelo, aunque también puede derivarse de la experiencia que tengan con los mercados inmobiliarios en sí. Esto ocurre cuando se presentan de forma conjunta dos políticas con efectos opuestos, como por ejemplo el aumento de las densidades y el aumento de los impuestos. El efecto combinado de estas medidas dificulta la comprensión del impacto que tiene cada una de ellas. Un juego de simulación puede ayudar a aislar cada impacto. Los profesionales deben experimentar con cada medida para poder entender mejor ambas políticas. He notado que a veces asienten con escepticismo cuando uno dicta la teoría, pero que luego sonríen con cara de “eureka” cuando logran comprenderla después de participar en un juego.

Land Lines: ¿Cómo supera usted la resistencia hacia temas tales como la recuperación de plusvalías?

Carlos Morales: Toda tarifa relacionada con el aumento de las densidades es una forma de recuperar la plusvalía del suelo, así como también una fuente de financiamiento de infraestructura, tal como lo está llevando a cabo la ciudad de São Paulo al cobrar por derechos de construcción adicionales. El debate sobre la forma en que esta política tiene un impacto sobre los precios de mercado es controvertido. Los propietarios no están de acuerdo, ya que esta política reduce sus expectativas de precios; por otro lado, los desarrolladores están a favor, ya que esta política reduce los precios del suelo y los pagos que se realizan a la ciudad vuelven en forma de obras públicas. Una situación similar se dio en Bogotá, cuando se creó un impuesto sobre la plusvalía del suelo.

Ambos casos resultan referencias útiles cuando se quiere explicar la recuperación de plusvalías del suelo en los países en vías de desarrollo, aunque es necesario documentar y divulgar más casos de ciudades, y algunos profesionales quieren ejemplos de países desarrollados. Esto no es fácil, ya que la recuperación de plusvalías del suelo es un término de moda en los círculos de América Latina, no así en la mayoría de los países desarrollados. Y esto no quiere decir que el concepto de recuperación de plusvalías no se utilice en los Estados Unidos u otros lugares, sino que se asume como parte del funcionamiento del mercado inmobiliario. Por lo tanto, los profesores tienen la función de resaltar esta cuestión y dar lugar a la posibilidad de compartir experiencias entre los profesionales provenientes tanto de países desarrollados como en vías de desarrollo.

Land Lines: ¿Qué podría comentarnos acerca de las dificultades que existen al tratar de transmitir conceptos sobre tributación a los planificadores?

Carlos Morales: Los planificadores aprenden acerca de los impuestos sobre la propiedad si estos son lo suficientemente altos como para tener un impacto sobre las decisiones que toman los propietarios, los desarrolladores y los usuarios del suelo, tal como ocurre en los Estados Unidos. En los países en vías de desarrollo, estos impuestos son, por lo general, tan bajos que no tienen un impacto sobre las decisiones del mercado, por lo que los planificadores no se interesan en ellos. Cuando participamos en juegos que ilustran el funcionamiento de los mercados de suelo a los arquitectos (quienes, con frecuencia, también son planificadores) y estos se dan cuenta de que la ciudad no está yendo hacia donde ellos esperan, su reacción más frecuente es la de sugerir más impuestos y mercados inmobiliarios más eficientes. Casi nunca proponen un plan de uso del suelo tradicional.

Land Lines: En su opinión, ¿cuáles son los conceptos o ideas fundamentales que podrían marcar la diferencia en el debate internacional sobre los mercados inmobiliarios urbanos?

Carlos Morales: Resaltar el hecho de que la recuperación de plusvalías del suelo es una fuente importante de financiamiento de infraestructura y prevención de asentamientos informales puede generar la participación de más partes interesadas en un debate serio. Las ideas relacionadas con la seguridad de la tenencia, el registro de inmuebles y los títulos de propiedad a fin de aumentar el acceso a préstamos han estado dominando las políticas, aunque los resultados no han sido tan positivos como se esperaba. Los asentamientos informales siguen desarrollándose y la prestación de servicios continúa bastante atrasada.

Aquellas políticas que tienen que ver con la tributación del suelo y las obligaciones —no solamente con los derechos de propiedad— tienen mayores posibilidades de mejorar el funcionamiento de los mercados inmobiliarios urbanos. UN-Habitat y el Banco Mundial adoptaron las primeras nociones de seguridad de la tenencia como una solución, pero ahora están comenzando a mostrar interés en los instrumentos de desarrollo urbano basados en el suelo. Las políticas de recuperación de plusvalías del suelo tendrán un efecto mañana, aunque su costo político se produce hoy, ya que entregar títulos de propiedad es barato y atractivo para los políticos de corto plazo. Este es el desafío que debemos enfrentar en el debate internacional con el fin de asegurar una reforma del mercado inmobiliario más efectiva y a largo plazo.

The proliferation of informal and illegal forms of access to urban land and housing has been one of the main consequences of the processes of social exclusion and spatial segregation that have characterized intensive urban growth in developing countries. Given the absence of adequate housing policies and the failure of the land market to offer sufficient, suitable and accessible housing options, millions of urban poor have to create their own shelter, either by invading private or public land or by buying land illegally and constructing their own housing. This phenomenon has attracted the attention of many researchers, policy makers and others worried about the grave socioeconomic, environmental and political implications for the urban poor and society at large.

Peruvian economist Hernando de Soto is one of the most influential contemporary ideologues addressing this complex issue. His ideas and proposals regarding large-scale regularization programs, most recently presented in his book, The Mystery of Capital, have received extensive media coverage and have raised the level of public debate. His influence can be measured by the fact that an increasing number of countries and cities, in Latin America and elsewhere, have introduced regularization policies based on his ideas, and these programs have already had a significant impact on international and institutional approaches to property reform and good governance. In many countries, politicians who were never particularly interested in urban development concerns have now become vigorous defenders of de Soto’s ideas. Why?

A Review of Urban Settlement Trends

Before addressing de Soto’s work directly, a brief summary of the current situation is in order. In Latin America, the urbanization process has been especially significant: 380 million people, some 75 percent of the total population, lived in urban areas in 2000, making it the most urbanized region in the world. While the globalization of urban land markets has intensified in Latin America, the region has also seen poverty escalate. It is estimated that between 40 and 80 percent of the population lives illegally because they can neither afford nor gain legal access to land near employment centers. As a result, illegal tenure arrangements have become the main form of urban land development.

The violent evictions and forced removals of the 1970s have been gradually replaced by a relative tolerance of illegal occupations, culminating in some cases with the official recognition of such settlements. Responding to growing social mobilization, public administrators and policy makers in several countries have struggled to formulate regularization programs aimed at both upgrading informal areas and recognizing the land and housing rights of the dwellers, thus legalizing their status.

Most land tenure regularization programs have been structured around two intertwined objectives: to recognize security of tenure and to promote the sociospatial integration of informal communities within the broader urban structure and society. The definition of what constitutes security of tenure has varied in both theory and practice. The UN Global Campaign for Securing Tenure for the Urban Poor, for example, seeks to protect dwellers against eviction and achieve other basic objectives, such as contributing to sustainable livelihoods; improving access to basic services; securing urban citizenship; producing certainty and incentives for investment; mobilizing disparate communities; and empowering women.

Generally speaking, regularization programs in Latin America have been more successful in upgrading settlements through public investments in urban infrastructure and service provision than in legalization programs. The definition of the nature of the rights to be attributed to dwellers has varied greatly, ranging from titles (such as freehold and leasehold) to contracts (such as social rent and other rental mechanisms) and precarious administrative permits (such as temporary licenses and certificates of occupancy). Experiences based on the transfer of individual freehold titles have been largely unsuccessful, given the many existing legal, technical and financial obstacles.

de Soto’s Contributions to the Debate

Although he has claimed that he initiated the debate, de Soto instead has made an undeniably important contribution to a long-standing discussion of the need to confront the phenomenon of urban informality and illegality through public policies aimed at legalizing informal settlements and other extralegal economic activities. Since the 1970s, this debate increasingly has involved planners and policy makers, but de Soto has repackaged the discussion and, to some extent, contributed to widening its scope and reach.

What makes de Soto’s ideas so appealing is that, perhaps better than anyone else, he has been able to emphasize the economic dimension and implications of urban illegality. Most of the academic research, social mobilization and policy-making on the matter of informal settlements and land regularization have been supported by a combination of humanitarian, ethical, religious, sociopolitical and environmental arguments. de Soto’s approach, on the other hand, has stressed the significant impact that comprehensive regularization programs could have on the overall urban economy by linking the growing informal extralegal economy into the formal economy. Moreover, he has argued that such public policies can be instrumental in reducing social poverty.

In his view, small informal businesses and precarious shanty homes are essentially economic assets, “dead capital,” that should be revived by the official legal system and turned into liquid capital so people could gain access to formal credit, invest in their homes and businesses, and thus reinvigorate the economy as a whole. He has estimated the amount of dead capital in the developing world at about US$9.3 trillion, a staggering figure that has drawn the attention of many influential politicians, land developers, government officials and financial organizations (Bourbeau 2001). His argument has been summarized as follows:

“Most of the poor already possess the assets they need to make a success of capitalism…But they hold these resources in defective forms…They lack the process to represent their property and create capital…They have houses, but not titles…. It is the representation of assets in legal property documents that gives them the power to create surplus value” (Mammen 2001).

In his first book, The Other Path, de Soto advocated the formalization of informal settlements. In his new book, The Mystery of Capital, he has taken this argument one step further, advocating that property ownership is the reason “why capitalism triumphs in the West and fails everywhere else,” which is also the subtitle of the book. de Soto offers a three-part argument:

• People need to feel secure of their legal tenure status so they can start investing in housing and business improvements;
• Security of tenure and resulting access to credit can only be provided by the legalization of informal settlements and businesses;
• The way to proceed is to provide universal title ownership through individual freehold titles, with clear titles and enforceable rights, to enable third world countries to leverage themselves and thus eradicate poverty.

The recognition of property ownership in de Soto’s proposal is important because it would entail access to credit and finance. He argues that European countries and the U.S. improved their property systems, allowing economic actors to discover and realize the potential of their assets and thus to be in a position to produce the kind of noninflationary money necessary to finance and generate production. Following that logic, national and international organizations have proposed, and even imposed, the full legalization of businesses and the unqualified recognition of individual freehold titles for urban dwellers in some informal settlements as the “radical” way to transform decaying urban economies.

Critiques of de Soto’s Assumptions

Appealing as his ideas are, there are many flaws in de Soto’s arguments. Now that the dust raised by the initial media attention to his book has started to settle down, the debate has become increasingly critical. Such an appraisal is especially important because the regularization programs inspired by his ideas have had a significant impact on the daily lives of millions of people.

To begin with, there has been increasing criticism of de Soto’s methodological approach that led to the highly unlikely estimated figure of existing dead capital. Some analysts have pointed out that his grasp of the role and social construction of individual property ownership in European and U.S. economic history is not entirely correct (Payne 2001). Others have criticized de Soto for oversimplifying, if not totally misunderstanding, the complex dynamics of both informal and formal urban land markets (Bourbeau 2001). I have stressed the specific, perhaps unique, role of land ownership in developing countries, especially in Latin America, where historically the combination of weak capital markets, highly inflationary economies and deficient social security systems has turned land value appreciation into a fundamental capitalization mechanism, thus generating a culture of speculation that has long supported a heritage of patrimonialism and political clientilism. This process has, in its turn, deeply affected the conditions of access to urban land and housing and the spatial distribution of public equipment and services, as well as generating urban illegality.

Another related critical argument is that de Soto has failed to recognize that the poor, despite their poverty, have already amassed assets through access to credit, albeit not from formal institutions. In fact, de Soto has failed to provide evidence that banks and other official financial and credit institutions would be prepared to give systematic credit to the poor, even though there is historical evidence to the contrary. For example, in de Soto’s country of Peru very few people have been able to access official credit following a massive regularization program (Riofrio 1998; Calderon 2001). Moreover, existing research in Colombia and other Latin American countries has indicated that the poor would not even be interested or willing to obtain official credit, given the socioeconomic and fiscal implications of this process (Gilbert 2001). Recent studies also have questioned the urban and socioeconomic sustainability of settlements in Mexico, Peru, El Salvador and elsewhere that have been legalized by programs inspired by de Soto’s ideas (Duhau 2001; Kagawa 2001; Zeledon 2001). Such programs have focused exclusively, and artificially, on the formal legalization of informal settlements and have not included adequate upgrading and other socioeconomic programs, thus failing to promote any sociospatial integration.

From my perspective as a legal scholar, I see three main flaws in de Soto’s argument. First, while discussing the importance of legalizing informal settlements, he has failed to question the very nature of the legal system that has generated urban illegality in the first place. I believe that the discussion of laws and legal institutions has to be supported by a critical understanding of the nature of the law-making process, the conditions for law enforcement, and the dynamics of the process of social construction of urban illegality. In particular, I have argued that the legal treatment of property rights should be taken out of the narrow, individualistic context of civil law so the matter can be interpreted from the socially oriented criteria of redefined public urban law (Fernandes 2001).

In this context, far from being radical, de Soto’s argument is a very conservative one. His work has failed to qualify the discussion on property rights, and he seems to assume that there is a universal, a-historical, “natural” legal definition of such rights. However, in Latin American countries and elsewhere in the developing world, the state has treated differently the different forms of property rights (financial, industrial, intellectual, etc.) and the social relations around them, allowing for varying degrees of state intervention in the domain of economic property relations. It is only for a very specific form of property rights, land and real estate, that the state has failed to affirm the notion of the social function of property versus the dominant individualistic approach given to such rights by anachronistic civil legislation (Fernandes 1999). The historical and political factors that have allowed classical legal liberalism to survive in Latin America have to be addressed before any comprehensive legal reform, such as that proposed by de Soto, can be implemented. The intimate though dialectically contradictory relationship between legality and illegality cannot be ignored (Fernandes and Varley 1998). Such a critical approach to law would certainly serve to dismiss de Soto’s claim that formal, unqualified individual ownership can be used against crime and terrorism.

A second flaw is that research in many developing countries has indicated that, given a combination of certain social, political and institutional conditions, residents in informal settlements can share an effective perception of security of tenure, have access to informal (and sometimes formal) credit and public services, and invest in housing improvement, even without having legal titles (Payne et al. forthcoming).

Third, and more important, existing research has shown that while the recognition of individual freehold titles can promote individual security of legal tenure it does not necessarily entail sociospatial integration. Unless titling is undertaken within the context of a broader set of public policies that address urban, politico-institutional and socioeconomic conditions, legalization programs may actually aggravate the processes of exclusion and segregation. As a result, the original beneficiaries of the programs might not be able to remain on the legalized land, although that should be the ultimate objective of regularization programs, especially on public land.

Moreover, regularization programs have had little impact on social poverty, in part because the traditional banking and financial mechanisms have not embraced them, as de Soto has claimed. The root of the problem runs deeper because regularization programs have a remedial nature. They can only have a more direct impact on urban poverty if they are part of a broader set of preventive public policies aimed at promoting overall urban reform and supported by socioeconomic policies aimed at generating job opportunities and income. There is a fundamental role for the market economy in this process, but it also requires systematic intergovernmental relations, public-private partnerships, and above all renewed social mobilization. Furthermore, de Soto has failed to consider the essential gender and environmental implications of land legalization.

To prevent the production of these perverse effects, we must identify and understand the factors that have contributed to the phenomenon of urban illegality. These include not only the combination of land markets and political systems but also the elitist and exclusionary legal systems still prevailing in Latin America. To legalize the illegal requires the introduction of innovative legal-political strategies to promote the articulation of individual land tenure with the recognition of social housing rights compatible with keeping dwellers in their existing settlements. Housing rights cannot be reduced to individual property rights.

New tenure policies need to integrate four main factors: legal instruments that create effective rights; socially oriented urban planning laws; political-institutional agencies and mechanisms for democratic urban management; and inclusionary macro-socioeconomic policies. The search for innovative legal-political solutions also includes the incorporation of a long-neglected gender dimension and a clear attempt to minimize the impacts such policies have on the land market. The benefits of public investment should be captured by the urban poor, not by traditional and new private land developers, as has happened frequently in settlements regularized according to de Soto’s proposals.

In conclusion, I would argue that regularization programs should be group specific, taking into account the local historical, cultural and political contexts as well as the existing forms of tenure arrangements, both legal and customary and formal and informal. Public administrators and lawmakers should refuse the pressure to homogenize land and property laws. Individual property ownership will always be an attractive option that should be considered, but there are many other legal-political alternatives.

Hernando de Soto is absolutely right when he questions the legitimacy of exclusionary legal systems. However, while he has uncritically assumed that legitimacy would result from the widespread recognition of individual ownership, other research has proved that this is not necessarily the case. He is generally right when he says that lawyers lack an understanding of the economic process. However, many observers believe that his own understanding of the economic process may be deeply flawed, and that he could also learn a thing or two about the legal process.

Edesio Fernandes is an attorney, urban planner and lecturer in the Development Planning Unit of University College London. He is also coordinator of IRGLUS-International Research Group on Law and Urban Space. This article is based in part on his ongoing research and a lecture he presented at the Lincoln Institute in October 2001.

References

Bourbeau, Heather. 2001. Property wrongs: How weak ideas gain strong appeal in the world of development economics. Foreign Policy (November/December):78-79.

Calderon Cockburn, Julio A. 2001. Comparative analysis of the benefited and non-benefited population by the national formalization plan, in Has the well-being of the population improved?: A balance of the main social policies and programs. Lima: National Institute of Statistics and Information (INEI): 65-92.

Duhau, Emilio. 2001. Impacts of regularization programs: Notes on the Mexican experience. Paper presented at the Lincoln Institute workshop on Informal Land Markets: Land Tenure Regularization and Urban Upgrading Programs (October).

de Soto, Hernando. 1986. The Other Path. London: I.B. Tauris & Co Ltd.

_____. 2001. The Mystery of Capital. London: Bantam Press.

Fernandes, Edesio. 1999. Redefining property rights in the age of liberalization and privatization. Land Lines (November) 11(6):4-5.

_____. 2001. Law and the production of urban illegality. Land Lines (May) 13 (3):1-4.

Fernandes, Edesio and Ann Varley, eds. 1998. Illegal Cities: Law and Urban Change in Developing Countries. London: Zed.

Gilbert, Alan. 2001. On the mystery of capital and the myths of Hernando de Soto: What difference does legal title make? Paper presented at the N-AERUS Workshop in Leuven, Belgium (June).

Kagawa, Ayako. 2001. Policy effects and tenure security perceptions of Peruvian urban land tenure regularization policy in the 1990s. Paper presented at the N-AERUS Workshop in Leuven, Belgium (June).

Mammen, David. 2001. Roundtable discussion for the International Division of the American Planning Association. Interplan (June):2-9.

Payne, Geoffrey. 2001. The mystery of capital: Why capitalism triumphs in the west and fails everywhere else. Habitat Debate (September) 7 (3):23.

Payne, Geoffrey, et al. Forthcoming 2002. Land, Rights and Innovations: Secure Land for the Urban Poor. London: International Technology Development Group (ITDG).

Riofrio, Gustavo. 1998. Why have families mortgaged so little? Paper presented at the Lincoln Institute workshop on Comparative Policy Perspectives on Urban Land Market Reform in Latin America, Southern Africa and Eastern Europe (July).

Zeledon, Aida. 2001. De facto and legal regularization programs in El Salvador. Paper presented at the Lincoln Institute workshop on Informal Land Markets: Land Tenure Regularization and Urban Upgrading Programs (October).