Land as a Strategic Factor for Urban Development in the State of Mexico

Fernando Rojas and Alfonso Iracheta, Septiembre 1, 1997

Mexico is beginning to create an enabling environment to use land value increments for development purposes. Recent constitutional and legal reforms have authorized the clarification of land titling as well as the commercialization of land. Real estate markets are gradually superseding the immobile land tenure arrangements that gave rise to informal markets characterized by confusing and often arbitrary arrangements and high transaction costs. The private sector is moving into the areas of low-income housing and public-private arrangements for balanced and sustainable land developments.

The State of Mexico has launched a comprehensive program, known as PRORIENTE, to promote government, business and community interaction for joint management and financing of urban development in the eastern part of the territory. PRORIENTE’s vision is one of “new cities” surrounding the Mexico City megalopolis, characterized by balanced growth between demographic densification, income-generating activities and environmental protection. The creation of employment in and around the new settlements is an overriding social and economic goal of the program.

Given the intricate pattern of interests involved, PRORIENTE has adopted an intersectorial and interjurisdictional approach. Indeed, PRORIENTE requires that the State of Mexico take the initiative to coordinate land and fiscal policies and instruments among the federal government, the newly elected opposition government of the Federal District, and the many municipalities that are largely controlled by opposition parties.

The challenges for PRORIENTE are formidable:

Population growth in the region between now and the year 2,020 is estimated at five million people.

Deforestation and disorganized urbanization of agricultural areas are leading to further desertification of this region.

Innovative policies and contractual arrangements have yet to be introduced to create effective land markets.

Uncontrolled urbanization has been dominated by private developers who speculate with land prices, ignore urban planning and appropriate huge increases in land values, as well as by settlements of low-income immigrants. New mechanisms for public capture of increases in land values that emanate from new policies and/or administrative decisions will have to overcome serious resistance.

Real estate taxation is largely underdeveloped, and the property tax structure is plagued with many exceptions. Cadasters are often outdated and have only weak connections with the system of transfer and registration of real property.

Public-private partnerships that are accountable to the communities and operate on a transparent basis are practically unknown in a country with a tradition of a strong federal government.

Intergovernmental fiscal relations and interjurisdictional arrangements have been dominated by the will and the overwhelming fiscal power of the federal government, which controls 80 percent of public income compared to four percent for the municipalities and 16 percent for the state. Local and regional governments are just beginning to experiment with political coalitions and multiparty governments capable of surviving the short life span of one administration.

In view of these obstacles and challenges, the leaders of PRORIENTE have adopted a participatory, negotiating approach that is already producing visible results. Businesses have formed large-scale conglomerates capable of funneling much-needed capital and management technologies into the area. The federal government, the Federal District, municipalities and communities are invited to the negotiating table to participate in an ongoing process that nurtures an expanding program rather than a precise policy or institutional goal.

The Lincoln Institute recognizes that this project presents an excellent opportunity to study the complex role of land as a strategic factor for development throughout Latin America. Last April, the Institute coordinated a seminar on urban land markets in the city of Toluca, and is continuing to serve as a sounding board for policymakers of the State of Mexico and other public and private actors involved in PRORIENTE.

In addition, a Lincoln Institute team is cooperating with other institutions and practitioners to share international experiences regarding both the process of policy formation and the operational side of the PRORIENTE program. Special attention is given to the sustainability and replicability of strategies to facilitate the transition from restrictive land tenancy systems, weak property tax administrations and highly centralized fiscal resources to competitive land markets and local land use initiatives to encourage development. The Institute will utilize this experience in Mexico for developing courses in other countries facing similar situations.

Fernando Rojas, a visiting fellow of the Lincoln Institute, is a legal scholar and public policy analyst from Colombia. He was formerly a visiting fellow at the David Rockefeller Center for Latin American Studies at Harvard University. Alfonso Iracheta is technical secretary of PRORIENTE and the director of planning for the State of Mexico.