Quito’s Use of Land-Based Finance for Climate Resilience

Quito, the capital of Ecuador, has implemented urban policies using land-based finance mechanisms since 2011. These instruments are based on the premise that public authorities should be able to recuperate some of the land value that increases as a result of government actions, such as a change in land use, development regulations, or investment in public infrastructure (Cho et al. 2022). This research examined the processes and outcomes of land-based finance mechanisms and the ways in which they have evolved, including variations in land-use plans and zoning as well as changes in the formula for land value capture (LVC). We also mapped and analyzed data provided by the Municipality of the Metropolitan District of Quito relating to 305 projects that purchased air rights. We compiled data that reflected the revenues collected by the city and associated those values of purchased air rights with property tax collected on the same projects to compare the analysis of an LVC mechanism with property tax policy, since both are related to urban density and compact city concepts.

In summary, the study’s findings confirm that the land-based finance mechanisms implemented in Quito are now successfully institutionalized as urban policy. Quito’s experience has served as a model for other Ecuadorian cities and has influenced the design of land management in national law (LOOTUGS 2016), which today governs the land management system in Ecuador’s municipalities. Land-based finance mechanisms, as regulated by national law, are implemented by first using zoning rules to plan areas where changes in land prices will occur. Second, the residual land value and share that the land and housing developer will pay are calculated. Third, the collected amount are managed and disbursed by the Municipal Housing Company, which functions as a public developer (operador urbano público) for improving public space and renovating welfare housing or building affordable housing in other parts of the city in accordance with the comprehensive land use plan for the metropolitan area.

The study identified implementation challenges related to urban planning processes and the development of technical capabilities to organize land management with the various stakeholders and procedures involved. The economic and political environment of the country, and particularly of the city, also play a role. Key lessons first showed that what occurs in Quito regarding land-based finance mechanisms is relevant and deserves ongoing formal evaluation by the city. Buildings that purchase air rights after compliance with eco-efficiency measures are not currently monitored. Additionally, income from property taxes increased due to changes in zoning, as it became a more stable source of income than LVC mechanisms in the context of Quito. Recommendations include improving the policy and LVC mechanisms, evaluating outcomes regarding territorial equity, and incorporating a long-term climate-oriented approach for the incentives.