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An apparent paradox exists in developing countries between a more progressive definition of property rights and current trends toward privatization. On one hand, most proposals and programs of urban management have required the adoption of a socially oriented approach to property rights, which guarantees broader scope for state intervention in controlling the process of land use and development. This is particularly the case with land regularization programs. On the other hand, the widespread adoption of liberalization policies and privatization schemes has reinforced a traditional, individualistic approach to property rights, thus undermining progressive attempts to discipline the use and development of urban property. Are these trends mutually exclusive or can they be reconciled to some extent?
Two related workshops for policymakers, urban managers and academics were held in Johannesburg, South Africa, in late July to address this paradox. The Sixth “Law and Urban Space” Workshop was cosponsored by the International Research Group on Law and Urban Space (IRGLUS) and the University of the Witwatersrand’s Centre for Applied Legal Studies (CALS). The Lincoln Institute supported that workshop and also sponsored a seminar on “Security of Land Tenure in South Africa, Sub-Saharan Countries, Brazil and India.”
The Conceptual Framework for Law and Urban Space
IRGLUS, a Working Group of the Research Committee on Sociology of Law of the International Sociological Association (ISA), seeks to discuss critically the legal dimension of the urbanization process, thus promoting a long-needed dialogue between legal studies and urban environmental studies. Most urban studies have reduced law-including legal provisions, judicial decisions and the overall legal culture-to its instrumental dimension. Law is dismissed by some as if it were just a political instrument of social discrimination and political exclusion. It is taken for granted by others as if it were merely a technical, unproblematic instrument that can provide immediate solutions to escalating urban and environmental problems.
Among urban scholars and professionals alike, there is little understanding of the reasons for the growing illegal practices identified in urban areas, particularly those concerning the use and development of land. Existing data suggests that if both access to land and construction patterns are taken into account between 40 and 70 percent of the population in the major cities in developing countries are somehow disobeying the prevailing legal provisions. And this figure is not confined to low-income land users.
Few studies have asked why this phenomenon of urban illegality has happened, why it matters and what can be done about it. Most observers fail to see the apparent divide between the so-called legal and illegal cities as an intricate web in which there are intimate though contradictory relationships between the official and the unofficial rules, and between the formal and the informal urban land markets.
The combination of the lack of an efficient official housing policy in most developing countries and the actions of largely uncontrolled market forces does not provide adequate housing solutions for the vast majority of the urban population. Far from being restricted to the urban poor, urban illegality needs to be addressed with urgency, given its grave social, political, economic and environmental consequences to the overall urban structure and society.
However, if urban illegality is but a reflection of the powerful combination of land markets and political systems, it is also the result of the often elitist and exclusionary nature of the legal system prevailing in many developing countries. Both the adoption of legal instruments, which do not reflect the existing social realities affecting access to urban land and housing, and the lack of proper legal regulation have had a most perverse role in aggravating, if not determining, the process of socio-spatial segregation.
Definitions of Property Rights
One the most significant problems affecting urban management in this context is that, despite the existence of rhetorical provisions, urban environmental policies frequently lack legal support in the basic provisions of the legal system in force, especially those of a constitutional nature. The central issue to be addressed in this regard is property rights, specifically urban real property. Indeed, in many countries the progressive, socially oriented assumptions of urban policies, implying as they do a broad scope for state action, are frequently at odds with the constitutional definition of property rights.
Several presentations in the IRGLUS/CALS Workshop discussed how the traditional approach to individual property rights prevailing in many developing countries, typical of classical liberalism, has long favored economic exchange values to the total detriment of the principle of the social function of property. Many significant attempts at promoting land use planning and control, including the legal protection of the environment and historical-cultural heritage, have been undermined by a dominant judicial interpretation that significantly reduces the scope for state intervention in the domain of individual property rights. Attempts to promote land regularization have also been frequently opposed by both landowners and conservative courts, even in situations where the land occupation has been consolidated for a long time.
Whereas the excessive, speculative hoarding of privately owned urban land has been tacitly encouraged, the effective implementation of a long-claimed social housing policy has been rendered more difficult due to the need to compensate the owners of vacant land at full market prices. In many countries, the individual property rights system inherited as a result of colonial rule often fails to take into account traditional customary values in the definition of property rights. Since these countries have largely failed to reform the foundations of legal-political liberalism, the discussion of so-called neo-liberalism is a false question in this context.
The Workshop participants placed special emphasis on the legal-political conditions for the recognition of security of tenure. It was noted that agents as diverse as social movements, NGOs and international finance organizations have increasingly made use of different though complementary humanitarian, ethical, sociopolitical and, more recently, economic arguments to justify the need to adopt public policies on this matter. Legal arguments also need to be adopted, including long-standing provisions of international law and the fundamental principles of the rule of law concerning housing and human rights, so that a new, socially oriented and environmentally friendly approach to property rights is recognized.
Much of the discussion focused on whether security of tenure can only and/or necessarily be achieved through the recognition of individual property rights. In fact, the analysis of several experiences suggested that the mere attribution of property rights does not entail, per se, the achievement of the main goal of most regularization programs-that is, the full integration of illegal areas and communities into the broader urban structure and society. The general consensus was that a wide range of legal-political options should be considered, from the transfer of individual ownership to some forms of leasehold and/or rent control to more innovative forms, still unexplored, of collective ownership or occupation with varying degrees of state control.
It was argued that the recognition of urban land tenure rights has to take place within the broader, integrated and multi-sectoral scope of city (and land use) planning, and not as an isolated policy, to prevent distortions in the land market and thus minimize the risk of evicting the traditional occupants. Examples from case studies in Brazil, India and South Africa have shown that, whatever the solution adopted in a particular case, it will only work properly if it is the result of a democratic and transparent decision-making process that effectively incorporates the affected communities.
Above all, it was accepted that the redefinition of property rights, and therefore the recognition of security of tenure, needs to be promoted within a broader context in which urban reform and law reform are reconciled. Law reform is a direct function of urban governance. It requires new strategies of urban management based upon new relations between the state (especially at the local level) and society; renewed intergovernmental relations; and the adoption of new forms of partnership between the public and the private sectors within a clearly defined legal-political framework.
Law reform fundamentally requires the renovation of the overall decision-making process to combine traditional mechanisms of representative democracy and new forms of direct participation. Indeed, many municipalities in several countries have recently introduced new mechanisms to allow the participation of urban dwellers in several stages of the decision-making process affecting urban management. Examples are at the executive level through the creation of committees, commissions, etc., or the legislative level through popular referendums or by recognizing individual and/or collective initiatives in the law-making process, as well as the formulation of popular amendments to proposed bills. A most interesting and promising experience is that of the “participatory budgeting” adopted in several Brazilian cities, in which community-based organizations participate in the formulation of the local investment budgets.
Finally, the need to promote a comprehensive legal reform and judicial review can no longer be neglected, especially in order to promote the recognition of collective rights, to broaden collective access to courts and to guarantee law enforcement. India and Brazil, for instance, have already incorporated the notion of collective rights in their legal systems to some extent, thus enabling the judicial defense of so-called “diffuse interests” in environmental and urban matters by both individuals and NGOs.
In other words, urban reform and the recognition of security of tenure are not to be attained merely through law, but through a political process that supports the recognition of the long-claimed “right to the city” not only as a political notion, but as a legal one, too. There is a fundamental role to be played in this process by lawyers, judges and prosecutors for the government. However, the collective action of NGOs, social movements, national and international organizations, and individuals within and without the state apparatus is of utmost importance to guarantee both the enactment of socially oriented laws and, more importantly, their enforcement.
If these are truly democratic times, the age of rights has to be also the age of the enforcement of rights, and especially of collective rights. It is only through a participatory process that law can become an important political arena to promote spatial integration, social justice and sustainable development.
Edesio Fernandes is a lawyer and a research fellow at the Institute of Commonwealth Studies of the University of London. He is coordinator of IRGLUS-International Research Group on Law and Urban Space and coeditor (with Ann Varley) of Illegal Cities: Law and Urban Change in Developing Countries (Zed Books, London and New York, 1998).
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Changes in the global economy, telecommunications and transportation systems are causing cities throughout the world to look at large-scale development projects as a way to restructure land uses and stimulate the local economy. For example, large, well-located areas previously occupied by railroad facilities and related transportation and industrial uses have been left abandoned in many mid-sized cities as more goods are now shipped in containers from a small number of major ports and terminals.
Statutory restrictions on state-owned enterprises have limited options to release these underutilized lands to the private market or to develop them as public projects. With increased privatization and the removal of restrictions, these properties would appear to be ideal locations for successful public/private development partnerships. However, while such monumental urban developments may seem like a panacea, they also raise many concerns about implementation and unanticipated impacts on other neighborhoods of the city, as well as competition with other cities.
Cordoba is representative of cities engaged in strategic planning to restructure local land uses under conditions of a changing macroeconomic and institutional environment. One of the key questions for these cities is to what extent can a major new development, in this case a teleport, effectively stimulate economic diversity and revitalize a neglected area.
Conditions in Cordoba
The City of Cordoba, with a population of approximately 1.3 million people, is strategically located in the geographic center of Argentina and has well-established linkages to the capital of Buenos Aires and to major cities in Chile, Brazil and Uruguay. Cordoba has long been an industrial center focusing on the production of cars, planes, trains and machinery, as well as consumer goods such as food, shoes, clothing and leather products. More recently, the city has expanded its service sector for both local and regional needs.
As Argentina has experienced economic stabilization and restructuring of its economy, Cordoba has gained greater potential to become a thriving center of Mercosur, the regional business district of south central South America. However, one of the city’s most vexing obstacles remains its competition with Buenos Aires.
Like many Latin American cities, Cordoba is also experiencing increased decentralization, movement toward a polycentric urban structure, and related socio-economic problems. Several years ago the city embarked on a strategic planning process that involved a broad cross-section of constituencies and resulted in a 1996 plan that identified some immediate economic development needs and other matters requiring further analysis and implementation.
As part of an ongoing collaboration between city officials and the Lincoln Institute, a seminar held in Cordoba in April 1997 examined the regulation and promotion of the land market. (1) One high-priority idea that emerged from those discussions related to the development of a teleport on underutilized central-city land. A committee formed to address the planning and implementation of such a facility included municipal officials, private sector business interests and members of the local university community.
The teleport envisioned for Cordoba is a mixed-use development comprising office space, convention facilities and hotels along with other ancillary land uses. The provision of state-of-the-art office facilities is considered a key objective to meet the city’s needs as both a regional center and a national location for some firms. These facilities will have elaborate telecommunications infrastructure and will be developed with a combination of public and private sector investment. One of the first projects is to be a hotel developed by the municipality within an historic structure.
The proposed location for the teleport is a 40-hectare site in the center of the city adjacent to the Suquia River. The site includes old railway lines and has good access to major roads linking the Mercosur region. The land is currently in both public and private ownership, and it is anticipated that some land transfers will be required to undertake the project.
Observations and Recommendations
To help the committee finalize its plans for the teleport, the city of Cordoba and the Lincoln Institute organized a second seminar in April 1998 to discuss concerns about implementation of the project. Comparative case studies of large-scale public/private developments in Toronto, Canada, and Sao Paulo, Brazil, provided useful perspectives on the problems and challenges faced by those cities and offered lessons for examining the design and likely prospects for the proposed teleport.
A key consideration is the teleport’s large scale relative to the existing local market, which suggests, at the very least, that the project needs to be phased in to ensure orderly development. Related to the project’s size are its impacts on other land in the city, including sites that have the potential for similar types of development. The relative attractiveness of the chosen site may adversely affect development of non-residential land uses in other designated growth areas of the city. At the same time, it is important to understand the depth and strength of the market for the specific uses intended for the proposed teleport site.
A related concern is the project’s potential negative impacts on existing and expanding residential neighborhoods in the area. On the other hand, the success of the teleport development could benefit the neighborhood if the residents are integrated into the planning and implementation process.
Among the lessons to be learned from other cities’ experience is the value of having a manageable set of objectives, and some seminar participants feared that the Cordoba committee was being overly ambitious. A second lesson regards the need for extreme care in selecting the location for a major new development. While the target location for the teleport was not considered deficient in any specific respect, it had not been selected as the result of a systematic analysis. Rather, this is a case where the city is trying to take advantage of an opportunity to develop a plan for an available site that urgently calls for reuse.
A third admonition came from the private sector, which has special needs in terms of access, infrastructure and costs. Some qualified market research can shed light on a host of issues including the extent to which Cordoba could hope to compete with Buenos Aires as a local or regional headquarters for domestic or international firms. Clearly the intended private sector beneficiaries must be involved directly in the conceptual development and planning of the project.
Several weeks after the seminar, the city commissioned a study to aid the implementation strategy for the teleport based on these concerns and recommendations. The study will also investigate potential instruments to effect land value capture to provide infrastructure financing and mechanisms to structure the kinds of public/private partnerships that appear to be necessary for the success of the teleport project.
A final general observation is that officials in Cordoba, or any city considering large-scale urban development, need to move rapidly beyond the study phase and establish training and other support systems for local leaders and practitioners to enhance their capacity to manage the project. Skills and experience are needed to assess the functioning of land markets, develop requisite technical capabilities, negotiate with the private sector, and oversee financial management, utility regulation, property taxation, land regulations and their complex interactions. The challenge in any such undertaking is to balance sufficient planning and research with the need to take advantage of development opportunities as they arise and to learn from the process as it evolves.
David Amborski is professor in the School of Urban and Regional Planning at Ryerson Polytechnic University in Toronto. Douglas Keare, a senior fellow of the Lincoln Institute, has experience with strategic planning for large cities in developing countries.
1. See “Strategic Planning in Cordoba,” Douglas Keare and Ricardo Vanella, Land Lines, September 1997.
Figure 1: Questions for Large-scale Developments
These topics and questions guided the seminar discussions in Cordoba, and they may be useful to other cities considering large-scale development projects on underutilized urban lands.
Understanding the Land Market: How will the local land market respond to large-scale public interventions such as the proposed teleport? What is the demand capacity for state-of-the-art office buildings in the region? What are the potential mechanisms for intervening in the land market to enhance the chances of success for this type of project?
The Urban Impacts of Large Projects on Underutilized Land: What are the impacts of this type of large-scale project on adjacent lands and competitive locations within the metropolitan area? How can infrastructure use be optimized? What alternatives could be explored to change the existing zoning structure?
Instruments of Promoting and Financing Private Investments in Urban Regeneration Projects: What financial instruments can be used in this type of development in conjunction with private sector participation? What instruments for private investments have been most successful? How can these be used with public/private partnerships? What benefits, disadvantages or complications might result from these partnerships?
Mechanisms of Redistribution and Land Value Capture: How can incremental land value be identified and estimated? How can land value capture schemes be used up front to finance the infrastructure for this project? What alternative instruments may be used for this purpose? What institutional reforms or partnerships might be necessary to implement these schemes and to serve as incentives for further development?
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Una versión más actualizada de este artículo está disponible como parte del capítulo 5 del libro Perspectivas urbanas: Temas críticos en políticas de suelo de América Latina.
México está comenzando a crear un entorno propicio para utilizar las plusvalías para fines del desarrollo. Las recientes reformas constitucionales y jurídicas han permitido un proceso más claro para la adjudicación y comercialización de la tierra. Los mercados de bienes raíces están suplantando gradualmente los rígidos arreglos para la tenencia de la tierra que hicieron surgir los mercados informales caracterizados por acuerdos confusos, a menudo arbitrarios, y por los altos costos de las transacciones. El sector privado se está enfocando hacia las áreas de viviendas de bajos ingresos y los arreglos entre el sector público y privado que buscan un desarrollo urbano equilibrado y sostenible.
El Estado de México ha lanzado un programa integral, llamado PRORIENTE, para promover la interacción entre el gobierno, las empresas y la comunidad con el fin de administrar y financiar conjuntamente el desarrollo urbano en la región oriental del estado. PRORIENTE tiene como visión la creación de “nuevas ciudades” alrededor de la megalópolis de Ciudad de México, que se caractericen por un crecimiento equilibrado entre la densificación demográfica, las actividades generadoras de ingresos y la protección del medio ambiente. La creación de empleos en los mismos asentamientos nuevos y en sus alrededores es un objetivo social y económico primordial del programa.
Dado el patrón intrincado de intereses involucrados, PRORIENTE ha adoptado un enfoque intersectorial e interjurisdiccional. De hecho, PRORIENTE requiere que el Estado de México tome la iniciativa para coordinar las políticas e instrumentos fiscales y de tierras entre el gobierno federal, el gobierno de oposición del Distrito Federal recién elegido y los numerosos municipios que en su mayoría están en control de los partidos de oposición.
PRORIENTE enfrenta enormes desafíos:
En vista de estos obstáculos y desafíos, los dirigentes de PRORIENTE han adoptado un enfoque participativo y negociador cuyos resultados empiezan a ser visibles. Las empresas han integrado conglomerados a gran escala capaces de cubrir las enormes necesidades de capital y tecnología de gestión que tiene la región. El gobierno federal, el Distrito Federal, los municipios y las comunidades son bienvenidos en la mesa de negociación para participar en un proceso continuo que nutre un programa en expansión y no una política o meta institucional específica.
El Instituto Lincoln reconoce que este proyecto constituye una excelente oportunidad para estudiar la compleja función de la tierra como factor estratégico para el desarrollo urbano en toda América Latina. En abril pasado, el Instituto coordinó un seminario sobre mercados urbanos en la ciudad de Toluca y sigue ejerciendo su función como caja de resonancia para los legisladores y oficiales ejecutores de políticas del Estado de México y demás actores públicos y privados que participan en PRORIENTE.
Además, un equipo del Instituto Lincoln coopera actualmente con otras instituciones y profesionales para intercambiar experiencias internacionales en lo que refiere al proceso de creación de políticas y el aspecto operativo del programa PRORIENTE. Se presta atención especial a la sustentabilidad y posibilidad de duplicación de las estrategias que facilitan la transición desde sistemas restrictivos de tenencia de la tierra, gestiones con deficientes impuestos a la propiedad y recursos fiscales sumamente centralizados, hacia mercados inmobiliarios competitivos e iniciativas locales para el uso de la tierra que fomenten el desarrollo. El Instituto utilizará esta experiencia en México para diseñar cursos en otros países que se encuentran en situaciones semejantes.
Fernando Rojas, docente invitado del Instituto Lincoln, es académico en el campo jurídico y analista de políticas públicas en Colombia. Anteriormente ha sido docente invitado en el Centro David Rockefeller para Estudios Latinoamericanos de la Universidad de Harvard. Alfonso Iracheta es secretario técnico de PRORIENTE y director de planeación del Estado de México.
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Driven by an awareness of population expansion and the difficulties that follow growth, Oregon’s Departments of Transportation and of Land Conservation and Development created the “Smart Development” program. The state retained Leland Consulting Group and Livable Oregon to define the goals of Smart Development, to identify obstacles to its execution and to enjoin the development community in discussions about how to implement its goals.
Smart Development is land use that:
In examining over 60 projects across the country that attempt comprehensive solutions to problems of urban growth, the consultant team looked at examples of “new urbanism,” as well as infill development, subdivisions, affordable housing, adaptive re-use and neighborhood revitalization. While common factors exist among all projects, none of the ones that are successful for their developers satisfy all Smart Development goals at once. The good news is that careful attention to local market conditions and demographics can result in successful projects that do satisfy many of these goals.
Why Smart Development Raises Financing Questions
Projects that satisfy some goals are unlikely to satisfy others because the goals may have different land use solutions which—when built in current markets—are in conflict. Proponents of neotraditional, transit-oriented, small-lot, pedestrian-oriented, mixed-use and grid-platted development have bundled these styles as a single concept. Developers and lenders do not understand the markets, values and risks for these hybrid products.
When we surveyed lenders about the factors that affect their decision to finance Smart Development projects, they explained unequivocally that financing of innovation required clear limits on the risk the lender could accept. While factors such as preleasing and on-site management were considered important, lenders strongly preferred working with a developer who had a track record, financial capacity and experience in the product type.
Lenders also expressed doubts about the willingness of the secondary market to lend on innovative projects. The problem is not innovation in physical design itself, but lenders’ anxieties about FannieMae’s “pass-through” requirement: the bank is financially responsible for the project through foreclosure of the asset. FannieMae support does not insulate the bank from the risk of default. Since banks do not want to own real estate, innovative project types that cannot show strong track records cause anxiety that is not allayed by securitization.
Overcoming the Obstacles
There are three technical obstacles to financing Smart Development:
A fourth obstacle is financial, relating to the first phase provision of new infrastructure.
Appraisal and Comparables: Standard appraisals usually focus on the housing product without accounting for the economic value produced by higher quality infrastructure, adjacent services, pedestrian amenities, and access to transit. By comparing only housing units, appraisals allot them the value that they would have in adjoining subdivisions that contain none of the amenities. Yet, new projects that we reviewed were often higher in price than the surrounding market. The quality of new designs may justify pricing, but appraisals based on the local area did not support the same percentage of purchase price as for nearby units. Smart Development projects also required proportionately higher cash down-payments, making the units harder to buy (and harder for the developer to sell).
It must be emphasized that Smart Development features are positive attributes that have long-term effects on value. Appraisal is regularly performed involving regression equations to model the economic value of positive externalities and could be applied to this area to produce new standards for evaluation of Smart Development. This process needs research but is well within the professional purview of the appraisal community.
New Market Studies: Smart Development, with its sophisticated land use and concepts such as inclusion of retail into subdivision development, attracts different demographic groups than standard development. Income levels per capita are higher, household sizes are smaller, and the use of transit and other services per person is often greater.
To overcome feasibility and appraisal obstacles, it is useful to consider Smart Development not as a single market concept but as a series of land use solutions that incorporate traditional real estate products in innovative ways. The market for the products can then be assessed in the same way as existing similar land uses that have attracted the demographic groups noted above—older neighborhoods with the sort of land use proposed in these projects. Through this method it is possible to avoid the pitfalls of “trend” studies that are unable to assess the market for new products.
Presentation of Smart Development to Lenders: The business plan for new products describes how products were arrived at in response to market niches and supporting demographics and sales potential. Every aspect of the business is revealed: project principals and roles; financial structure; applied start-up capital; reserves for operational deficits; and projections of revenues, cash flows and profits. The plan illustrates potential risks and suggests mitigations for risk should conditions not meet expectations.
Presentation of real estate development is typically done through market trend studies and architectural drawings. Neither of these modes addresses the issues raised in a business plan. It may be worthwhile for proactive lenders to consider offering assistance with business planning and presentation of innovative projects to alleviate the anxieties of capital investors and loan boards.
First Phase Financial Feasibility: In many western U.S. cities, grid street plans were built by the city and then builders provided the houses. After World War II, American cities stopped creating streets and the developers began providing the local infrastructure. The major public infrastructure dollars were funneled through federal agencies into regional infrastructure improvements (freeways) which sped private development into fringe areas.
It is now understood that highways and major arterials do not eliminate congestion but rather act as a subsidy for congestion-producing development. New requirements for grid streets, pedestrian amenities, sidewalks and parking strips with trees can make development either unaffordable to median buyers or financially infeasible, and there are no local support mechanisms equal to the magnitude of highway funding.
If the goals of Smart Development are serious social goals, then some level of first phase credit enhancement in exchange for fulfillment of social goals is appropriate. Such credit enhancement would serve to produce land use with the long-term benefits of lowered social cost through reduction of congestion and auto use and a better quality of life.
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Edward H. Starkie, principal, and Bonnie Gee Yosick, associate, conduct economic analysis and research on downtown redevelopment for Leland Consulting Group, 325 Northwest 22nd Street, Portland, OR 97210; 503/222-1600.
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As part of the American Planning Association (APA) 2003 national conference held in Denver in March, the Lincoln Institute assembled a group of planning directors from large and small western cities to discuss a set of topics they had previously identified as being important, including infill housing, maintaining the core vs. sprawling at the edge, paying for infrastructure, and transportation and land use. To explore these issues and exchange case histories, the planners met for a weekend retreat organized by Peter Pollock, Boulder’s planning director, before presenting their findings at an APA session titled “Urban Challenges and Opportunities in the Rocky Mountain West.” This report highlights key discussion points raised during both the retreat and the APA panel.
The West remains one of the fastest growing regions in the country. Not surprisingly, the liveliest discussions among western city planners center on issues of infill housing and the need to protect and maintain the viability of the urban core in the face of continued regional growth. As Chris Knight of Las Vegas noted, “protecting the core is important to the health of the entire region.” Louis Zunguze of Salt Lake City emphasized that “the core area has a real responsibility for the pace of sprawl,” adding that there is a practical need “to keep the area attractive from many perspectives.”
Neighborhood Responses to Infill Development
Part of that challenge has to do with neighborhood resistance to change and increased density. In Billings, Montana, for example (metro population approximately 100,000; county population 140,000), sprawl is becoming a significant issue, according to Ramona Mattix. Yet, despite substantial capital support for downtown revitalization and favorable zoning densities, the city faces considerable resistance from its residents, many of whom are attached to their traditional wide-open spaces.
Bill Healy of Colorado Springs (population 368,000) spoke of his earlier experience as a planner in Salem, Oregon (population 137,000), when he addressed the problem of how to “sell density” in older neighborhoods. As in Billings, the greatest opposition to infill housing in Salem, which involved rezoning established neighborhoods to accommodate multifamily housing, came from existing residents who would grow increasingly vocal if growth was slated to occur in their “back yard.” Healy explained, “The way we sold density [in Salem] was to couple it with better design standards.” People there found density much more acceptable if new development was designed compatibly with existing neighborhoods. A further benefit was that the city obtained new design standards. “Public acceptance of infill is like a sine curve,” Healy explained. “In urban areas there is great acceptance. But as you get out to the first-ring suburbs, there is a real fear of density. Way out where populations are sparce it’s not an issue.” In Colorado Springs, Healy noted, there is little economic incentive for infill. “Half our land area is vacant, so that is a disincentive for infill development. It’s an issue from a planning standpoint.”
Not all western city planners cited neighborhood opposition to infill development as a major obstacle to accommodating growth, however. Ellen Ittleson, for example, discussed Denver’s (population 555,000) recent success in “planning around resistance” in the city’s most recent plan, Blueprint Denver. While preparing the plan, the city looked at growth projections over the next 20 years and devised a way to accommodate the addition of 132,000 predicted new residents and 109,000 new jobs to the city and county. The metro area is expected to receive an additional 760,000 new residents over the same period. “Once we accepted the growth,” remarked Ittleson, “the real task became figuring out where to put it, because where the market or zoning would have put it was not acceptable.”
The Blueprint Denver plan identifies two types of infill areas. “Areas of change” are those parts of the city that would benefit from increased population densities, such as areas of economic need where land use change and transportation initiatives could go hand-in-hand with realizing mixed-use, pedestrian-oriented and transit-oriented development. The only strictly residential area of change is Cherry Creek, which is being transformed from a single-family neighborhood to one with single-family and attached housing. “Areas of stability” are represented primarily by traditional residential neighborhoods, but also include small commercial and even industrial districts where the effort will focus on how to protect the character of these areas rather than adding new households or jobs.
“There has been great consensus on where growth should be and where it should not be,” Ittleson remarked. Yet, there remains considerable controversy “at the edge, that is, how to transition from areas of change to areas of stability,” she continued. Another major obstacle facing the city’s housing initiative is land assembly. “We have the Denver Urban Renewal Authority, but it’s a politically supercharged thing to use. It’s expensive and politically complicated,” she added. Another difficulty is Denver’s “archaic legislation,” which offers far less acceptance of inclusionary zoning than in the East.
Salt Lake City (population 182,000; metro population 1 million) also has demonstrated considerable acceptance of the need for more infill and density downtown. Renowned for its abundant natural amenities, the city has a thriving tourist industry and has become a magnet for growth. As a result, land costs are very high to accommodate the new population, and there are serious discussions between the mayor, the city council and the development community on how to make the city more viable in the face of this challenge. Louis Zunguze remarked that the city is keenly aware that “what happens around us has a lot to do with what we do in the core.”
As part of its efforts to contain the pace of sprawl and attract new development to the downtown, Salt Lake City is putting together a major housing initiative and has studied downtown sites suitable for infill. With the ambitious goal of creating 40,000 new housing units in and around the downtown area, amounting to a three-fold increase in density, a considerable challenge will be to “strike a balance” with more traditional neighborhoods. Strategies include block consolidations for small subdivisions and amending the zoning ordinance to allow for more height in certain appropriate areas, “so more density can be accommodated gradually.”
Salt Lake City has considerable assets working in its favor, notably the Church of Jesus Christ of Latter Day Saints (the Mormon Church), whose world headquarters is located downtown. “The Church is a significant entity from both a social and financial standpoint,” Zunguze noted. In addition to complementing the city on key housing and economic initiatives, the Church works hard to induce corporations to relocate downtown near the Church’s own headquarters. The Church partners with new development and redevelopment in other ways as well. For example, it has built a new conference center and recently bought the Crossroads Mall located downtown (that is still taxable) and other projects as additions to Church facilities.
Cheyenne (population 53,000; county population 81,000) is the largest community in Wyoming but the smallest city represented on the APA panel and it does not have issues with infill housing. “We’re a landlocked, small community,” notes Mike Abel. “Residential areas are close by, so residential development downtown is not a huge issue right now. We’re more interested in community development issues . . . our infill focus is on commercial redevelopment.”
Regional Planning
According to John Hester, Reno (population 200,000; metro population 550,000) relies heavily on regional planning. The city has a state-mandated regional plan, updated every five years and designed to account for growth and development over a 20-year period. The recently revised plan promotes the objective of directing development to existing areas and infrastructure. It also introduces a new conceptual framework for identifying and prioritizing those districts and transit corridors most suitable for infill and development. On a broad scale the plan presents the idea of Municipal Service Areas designed to capture what has already been built and approved. Urban and suburban land uses are allowed only in these service areas. Then, within these areas, the plan identifies activity centers and auto-dependent transit corridors most suitable for high-intensity land use and development. One specific target for the city, noted Hester, “is to capture 35 percent of all regional metro housing over the next 20 years within the McCarran Ring, a four-mile radius from downtown.”
For David Richert, the cities of Phoenix (population 1.4 million; metro population 3 million) and Reno appear to share similar planning approaches toward managed growth. The Phoenix plan identifies six growth areas as overall targets for development and infill. To alleviate traffic congestion within and among the designated growth areas, the plan also recommends redirecting growth to certain strategic perimeter areas. “They become edge cities within a village system,” he explained. “There are one hundred years worth of growth in the Phoenix plan. We’re putting in infrastructure where we think growth is going to occur.” Richert noted, however, that it was important to keep in mind that “getting the infill requires getting the people who want it, too. . . . Among our goals is to get a fair share of everything that happens in the valley and to set a good example.”
Las Vegas (population 500,000; metro population 1.5 million) has been the nation’s fastest growing region for more than 60 years. But, according to Chris Knight, “the city is still young, with an outward focus and large expanses of vacant land. We tear things down if we don’t like them. If it’s bad, we just blow it up and move elsewhere. Redevelopment is difficult because some of the more prominent redevelopment tools such as eminent domain are taboo.” Downtown Las Vegas is perceived to be in trouble, and its revitalization is at the top of the mayor’s agenda. “One obstacle is that the private owners of downtown properties need to buy in on fixing the problem,” Knight explained. Another problem he noted is that “a number of downtown property owners believe they own the site of ‘the next big casino,’ so land prices are very inflated.”
The mayor of Las Vegas has been a champion of regional planning and recognizes that protecting the core is vital to the health of the region. “The mayor wants to leave the legacy of a new downtown,” Knight added. Part of that legacy would include the introduction of new medical research facilities and 40,000 units of housing to the downtown area. “Big retailers are already coming in,” added Knight, and the city is “looking for tall buildings.” The city is also beginning to investigate transportation-related development to support the existing monorail system, “but our zoning standards may be archaic and will be in the way. We have to figure out how to remove them,” he explains.
Infrastructure and Land Management
Maintaining control of a city’s services and proper fiscal strategies may help in managing growth. Salt Lake City is well endowed with transportation facilities: light rail, bus (local and Greyhound) and train (Amtrak) services, and an airport that is within ten miles of downtown. Moreover, the streets in Salt Lake are so wide that it’s easy to install new rail lines down the center for new transit services. The city also has three large malls within the downtown area, which help keep the city viable. In addition, there is considerable willingness on the part of developers “to look at the barriers in the way of the kind of the development we want downtown (i.e., mixed-use along transit),” Louis Zunguze noted. In Salt Lake, “the city development and finance communities are beginning to come to the table together to discuss what type of housing should be developed and how to finance it. . . .The banks are willing to look at new ways to finance mixed-use developments,” he noted. While work still needs to be done in terms of putting the most viable financing tools together, Zunguze cited land use regulations as the city’s major obstacle to its infill efforts. The city is faced with “contradictions of wanting to do things but the process being very slow. . . . Developers seem to have no problem assembling land, but projects are seriously challenged by the review and permitting processes,” he explained.
Reno has less than half the population of Las Vegas, but as the second largest city in the nation’s fastest growing state, growth management is a high priority. John Hester cited two other factors, in addition to strong regional planning, that have been instrumental in shaping the city’s response to growth. First is the need to work within the limitations imposed by the city’s physical constraints: Reno is landlocked and must also contend with limited water supplies. Second is the city’s concern for fiscal equity and accountability. Taxpayers subsidize growth, and the city, in consultation with outside fiscal consultants, has made concerted efforts to ensure that only those who receive municipal services pay for them, and that taxpayers in one area are not subsidizing the provision of municipal services elsewhere. “A lot of what we try to do is use the fiscal system to make people realize they can’t keep building out,” says Hester. He also noted that the city has a unique tax structure that enables depreciation.
David Richert considers the situation in Phoenix to be very similar to that in Reno only on a bigger scale. “We have our land constraints—the Indian reservations . . . and the state trust lands. Only 13 percent of the State of Arizona is in private hands,” he explained. However, the city itself has no constraints on water. “Phoenix is in the business. It sells water to other communities,” he noted. But controlling the allocation of water “provides a measure of growth control in other areas. In Arizona, you need a 100-year water supply for everything you do.”
Phoenix is also trying to achieve “a balance of transportation,” with efforts to enhance existing transportation rather than building new. Greenspace planning is also becoming increasingly important within the Phoenix region. As an example, Richert cited the recent introduction of special zoning for drainage washes and meanders. The city also passed a bill to collect taxes to pay for park acquisition. “It won’t be enough,” he added, “because once you start buying land you create a market. Land values go up and you can’t buy as much.”
Cheyenne is a city poised for change. As the “northern anchor” of the Colorado Rocky’s Front Range, Cheyenne is only 90 miles from urban Denver. Because of its strategic location on north-south and east-west highways and railroad lines, the city is looking to capitalize on its potential as a major regional transportation hub. “Regionally, we have a lot going for us as a transportation center. Businesses are looking at Cheyenne because of its proximity to other major centers,” Abel explained. Moreover, for businesses Wyoming has a very attractive tax structure, and Cheyenne is also proving popular for commercial development because it is “ready to build.” The city has many greenways, and the strong pedestrian orientation within the community is appealing to new development and infill initiatives. Already, Abel stated, “once-vacant city blocks are beginning to change, and there’s a new parking structure downtown.” Growth is not without obstacles, however. Specifically, water will be the limiting factor in the city’s growth cycle. Like many western cities, noted Abel, “we’re dependent on our water resources and future enhancements. Without sufficient snowpack to balance out the high mountain reservoirs during a drought situation such as we have now, Cheyenne could be out of water in less than three years.”
Despite this sobering prospect, the city remains more than optimistic about its future. Recently, a local property owner offered the city a massive 17,000-acre ranch that appears to have several water sources, and with them significant development capability. The city has taken the option to purchase the ranch for its water rights, but the city would acquire both the land and its water. “With this purchase, we could double the size of Cheyenne overnight,” exclaimed Abel, adding that “it will force the city to look differently at land use in the area for commercial and urban development. It’s an opportunity to develop the next generation of Cheyenne.” David Richert commented, “17,000 acres is huge. . . . You’ll need a lot of expertise from the private sector. But you’re doing a very progressive thing; your government has a chance to control development.”
Armando Carbonell is a senior fellow and cochairman of the Lincoln Institute’s Department of Planning and Development, and Lisa Cloutier is a research assistant in the department.
photo:
Participants in the Lincoln Institute-sponsored retreat for planning directors of western cities: Top row, from left: Mike Abel, Cheyenne; Bill Healy, Colorado Springs; Chris Knight, Las Vegas; John Hester, Reno. Middle row: Louis Zunguze, Salt Lake City; Ramona Mattix, Billings; Ellen Ittleson, Denver. Bottom row, from left: Armando Carbonell, Lincoln Institute; David Richert, Phoenix; Peter Pollock, Boulder. Photo credit: Lisa Cloutier
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After spending more than a decade on restructuring central-provincial fiscal relations, the Chinese government is advancing its efforts to reform local public finance. In 2003 the central government issued a directive to ameliorate the real property tax system in China. To fulfill this mandate, tax authorities are reviewing international property taxation experiences, sending officials overseas to study pertinent models and inviting foreign experts to China for consultation. Yet comparable cases from which the government can draw relevant lessons for tailor-making a Chinese property tax system are few. The danger is that when public officials are under pressure to move the reform forward, they may be tempted to adopt concepts that do not match the country’s conditions.
One recent proposal that may develop into such a scenario is to establish an ad valorem property tax system in which leasehold land would be taxed as if it were freehold. This article explains what the Chinese government’s current proposal entails, why it may not be consistent with existing land tenure arrangements and, more tentatively, how the establishment of a land rent system could mediate potential contradictions of taxing land that is not private property.
China’s Property Tax Reform Proposal
The Chinese property tax system currently has as many as nine property taxes, depending on the definitions (see Hong 2003; 2004). The central government has proposed to consolidate three of these taxes into a single levy to simplify the existing tax structure. One of them is the Township and Urban Land Use Tax (LUT), which all land users (except foreign entities, government and nonprofit agencies, and agricultural industries) are required to pay. To collect this tax, local governments divide their jurisdictions into different taxing zones according to population size or land use. Land in different zones is taxed at an array of tax rates preset by the central government, ranging from 0.2 to 10 yuan per square meter (1 yuan = US$0.122). Some Chinese officials have admitted that the tax rates for the LUT have been set too low; hence its collections have little impact on local revenue. The government plans to eradicate this tax.
The other two taxes, the Building (or House) Tax and Urban Real Estate Tax (URET), will also be subject to reform. While the Building Tax is imposed on income-generating properties held by Chinese nationals, the URET is levied on all real estate owned by foreign entities and overseas Chinese. Both are ad valorem taxes whose bases can be the discount original purchasing cost, assessed capital value or gross annual rental value of the property.
When the assessed capital value (or the purchasing cost for the Building Tax) is used as the basis for tax assessment, the tax rate is 1.2 percent for the Building Tax and 1.5 percent for the URET. If an estimated rental value is used instead, the tax rates for the Building Tax and URET will be 12 and 15 percent, respectively. In some locales, like Beijing, if actual rental value is available because individual property owners rent their dwellings to another party at the market rate, the Building Tax rate will be 4 percent of gross rental income of the property. In view of this discrepancy in taxing local- and foreign-owned real estate, the government would replace these two levies with a single property tax as part of the upcoming reform.
The proposed new property tax would be imposed on both land and buildings at a uniform rate. The tax base would encompass all properties, domestic and foreign, located in rural as well as urban areas. As some public officials argue, a standardized property tax could have at least three advantages. First, the new property tax system may ease tax administration. Instead of administering the collection of the LUT, Building Tax and URET separately, local tax bureaus will be able to concentrate their effort on just one tax.
Second, the new property tax would be a value-based tax, which allows the government to capture future land value increments if property reappraisal can be done regularly. Third, one key purpose for creating the new property tax is to convert selected real estate development charges into a unified tax. Many scholars argue that some local governments might have abused the current system of user charges, thereby making payments for public services unduly cumbersome.
Collecting these charges through the new property tax may lower the transaction costs of doing business. As well-intentioned as the proposal may sound, policy designers might have underestimated the importance of one fundamental matter: the integration of the new property tax system with the current land tenure arrangements.
Property Taxation and Public Leaseholds
As specified in the Chinese Constitution, urban land is owned by the state and rural land is owned by collectives. Local governments, empowered by the state, can assign land use rights to users through a set of leasing arrangements. Lease terms are 40 years for commercial land, 50 years for industrial land and 70 years for residential land. If a local government wants to lease an urban land site to a private entity, it must be assigned through a bidding process. The winning bidder must pay the total set of leasing fees (including a “conveyance fee,” expropriation costs if land is acquired from the collective, and various land allocation charges) in a lump sum and immediately to obtain the land use rights.
The payment of the market-determined conveyance fee allows the lessee to transfer or rent the land use rights to another party and to use them as collateral. In the past, land rights were allocated mainly to private entities through negotiation, but this method failed to collect proper fees due to personal connections or corruption and it was suspended by the central government in 2002.
Users of land assigned administratively to public agencies or state-owned enterprises are not required to pay the conveyance fee, but must compensate the state for any allocation costs. The assignment of the land rights has no term limit. According to the law, if a state-owned enterprise wants to transfer its land rights to a private entity for commercial purposes, it must pay the conveyance fee to the state before doing so. For the transfer of rural land into urban uses or to nonmembers of the collective, the state will first expropriate the land from the collective with compensation and then lease the use rights to interested users for the payment of the conveyance fee and other leasing charges.
Owing to a long bureaucratic process and high transaction fees, many users have transferred their land rights to other parties without going through the proper procedure and registration. As such informal exchanges have gained in popularity, the official land leasing record is no longer reliable. Hence, any future attempt to identify the actual landholders, delineate their land rights, and estimate the leasehold value for tax purposes would no doubt be a difficult task.
The design of the new property tax system must take these unique land tenure arrangements into consideration. Aside from the extensive informality involved in land transaction and possession—a topic that is beyond the scope of this article—the most basic question is: How can the government convince lessees to pay property tax on lands that they do not own?
Certainly not all property tax systems are based on the premise that property owners should be taxpayers; occupiers are sometimes liable for tax payment. In some countries, such as Australia, the Netherlands and United Kingdom, taxes paid by occupiers are referred to as rates, a council tax or a user tax to avoid any confusion. Despite the different names, the calculation of these levies is still based on either the capital or rental value of the property, which is the same approach as for the property tax.
More fundamentally, since the supply of land is fixed, the landowner (the state government in the case of China) would bear the ultimate tax burden even if land users paid the property tax directly to the government. This is because the new tax would dampen the demand for land use rights and in turn reduce the fees that local governments could receive from leasing public land.
Because the Chinese government is both the landowner and property tax collector, lessees who leased land in the past and paid the entire leasehold value without anticipating the additional property tax burden would wonder why they should pay more land tax to the government. Thus it is essential to have a rationale for taxing leasehold land, so as to convince lessees to comply with their property tax obligation.
One way to analyze the matter is to treat property rights as a bundle of rights, which includes the right to own, use, develop, transfer, bequest and benefit from land. This bundle also comprises the right to exclude others from enjoying these privileges.
Viewing the Chinese land tenure arrangements through this lens, the government holds the ownership of land and leases other attributes of the bundle of land rights to private entities. So long as the privileges and obligations of holding the leased land rights are fully delineated and recognized, both legally and by the society, there is no reason why leasehold rights cannot be regarded as private property of the lessees for a specific period of time as stipulated in the lease.
In 1988 the Chinese National People’s Congress amended the Constitution to acknowledge the transferability of the right to use land. Further amendments are needed to explicitly recognize leaseholds as private property and empower the state to establish special legislation for the enforcement and protection of leasehold rights. In this way, the implicit contradiction in imposing property tax on leased public land would be clarified and resolved.
One technical issue remains, however: valuation of leasehold rights for tax purposes. Since the new property tax will be value-based, assessors will face the challenges of estimating the leasehold value of land independently, based on market data that normally reflect a combined value of land and all improvements. Most property valuation methods presume that land is freehold, and that developed real estate markets are present. Neither of these assumptions can be applied to China. Although there are practices that separate land and building values for tax purposes, the divisions are generally based on crude assumptions. How can assessors modify the existing (or invent new) valuation techniques to accommodate these special Chinese conditions?
More important, leasehold value is highly sensitive to the lease term and conditions, both of which can vary significantly from one case to another. At this moment, time-tested mass appraisal techniques for assessing large numbers of leasehold sites do not exist. Do these issues imply that property assessment for tax purposes under the Chinese leasehold system requires a case-by-case approach? If so, do local governments have the capability to carry out such detailed property appraisals for the collection of the new property tax? The Chinese government must find ways to deal with these practical matters if it decides to tax leasehold rights as private property.
It is also extremely important to educate would-be taxpayers and public officials about the distinctions between freehold and leasehold systems. Lessees must recognize that they possess only the leased land rights that are not designed to last in perpetuity. If the rights and obligations of both the state and lessees are not clearly delineated, taxing leasehold rights as if they were freehold could complicate the implementation of future land and tax policy. For example, in Canberra, Australia, and Israel, lessees are requested to pay the entire leasehold value up front, and thereafter they pay an annual property tax (or rates in Australia) for leasing public land. Lease terms in both cases are long and renewable—99 years in Canberra and 49 years in Israel with four automatically renewable terms totaling 196 years.
This method of collecting leasehold charges and taxes is tantamount to the payment system for land in countries where land is freehold. Due to this similarity, lessees have developed the perception that land is privately owned (Hong and Bourassa 2003). This view, albeit legally a fiction, has engendered the expectation that any government’s attempt to exercise its rights as the landowner to retake land for public uses or to demand additional payments from lessees for enlarging or extending land use rights would constitute an infringement on private property.
This expectation has added conflict to government efforts to redistribute land and land value between private landholders and the state on behalf of the public. As Neutze (2003) argued, had the Canberra government provided enough public education about its leasehold system, it would have spared the Australian capital from many intractable disputes over land ownership.
The Chinese government has no immediate plan to give fee simple deeds to private landholders. Thus, if local governments continue to collect all leasehold charges up front and then levy the new property tax on both land and buildings, they may be at risk of creating the same mistaken expectations, that is, that land is privately owned. This may put the government and lessees at odds with each other when there is a later need to reallocate land from private to public uses. Designing a real property tax that will not add more complications to the already unsettling land tenure system is a critical task that policy makers should not overlook.
Land tenure reform is a long, controversial process, however, and the Chinese government would be ill-advised to delay the implementation of the new property tax system until land reform is completed. What the government needs is a transition system in which property tax reform can proceed as planned without interfering with its endeavors to restructure land ownership. Establishing a land rent system seems to be an option.
Land Rent System
Under a land rent system, leasehold charges would be paid in the form of an annual land rent, not a one-time leasing fee. Local land bureaus could continue to assign land use rights by public auction, but the bidding would be to determine the amount of annual land rent. Similarly for lands that were assigned to state agencies administratively, users would pay their conveyance fee for transferring land rights to other private parties in annual installments, which would be equivalent to the yearly rental payments. The land rent system has pros and cons (see Hong 2004 for a detailed discussion); four important advantages are discussed here.
First, collecting a land rent is the most straightforward way to characterize the landowner-tenant relationships between the state and lessees. More important, requesting lessees to make their rental payments annually would serve as a constant reminder of their leasehold relationships with the state.
Second, if leasehold charges were paid in annual installments, local officials would no longer be able to generate a large amount of cash instantly to cover short-term fiscal shortfalls. This in turn may lower their incentive to lease land rapidly—a major malady of the current land leasing system.
Third, research using the input-output (I/O) technique and the 1997 I/O Table of China found that collecting land rent could facilitate the transition to the new property tax system (Hong 2004). Had the central government required all land users to pay an annual land rent in 1997, rental income would have added 29.8 billion yuan (US$3.6 billion) to the government treasury, representing a 2.9 percent increase in total tax revenue (see Table 1). This revenue increase would represent a net gain over estimated tax revenue losses under the proposed property tax reform.
The land rent system, however, may generate a cash flow problem for local governments. When leasing fees are deferred and paid by lessees in annual installments, fewer funds would be immediately available for local governments to cover public expenditures. To resolve this problem, local jurisdictions may borrow money from the central government or other financial intermediaries, using perhaps the future land rent collections as collateral. Loans would then be repaid in annual installments by funds gathered from yearly rental payments made by lessees.
Had the government decided to keep the total tax revenue approximately the same, it could have set the new property tax rate at 4 percent, which is the same as the Building Tax rate for personal dwellings rented at market prices, and then discounted the land rent by as much as 47 percent (see Table 1). With a reasonable tax rate and a substantial reduction on rental payment, taxpayers would be less resistant to the reform.
Table 1 also shows several possible combinations of rent level and property tax rate to produce a revenue-neutral shift. If the government were to increase the new property tax rate to deepen the tax reform, it could lower the rent level to avoid antagonizing taxpayers. This approach would provide local governments with an array of options to adopt the new property tax system in stages and at a pace that suits their economies.
Fourth, the proposed land rent system could keep future tenure choices open. If the sociopolitical sentiment of the country favors public leaseholds, local governments could continue to levy the land rent and property tax at the ratio that matches local needs. Subsequent adjustments to the rent-tax ratio could also be made when new circumstances arise.
If central authorities, in response to popular demand, were to grant fee simple deeds to all lessees, it could order local governments to phase out the collection of land rent and raise the new property tax rate accordingly. As shown in Table 1, directing the reform toward either path would not create adverse effects on local government budgets.
This analysis shows that choices available to the Chinese government are not limited to privatizing land ownership and relying solely on real property taxation to recoup land value. Undeniably, the Chinese government may eventually choose to do just that because it is indeed an option, but there are many other possibilities as well. Why, then, should the government make such a decision now, when there may be other viable alternatives that can keep all options open? Recognizing that there are many choices could unleash the creative powers of policy makers and scholars to imagine a unique Chinese system to capture land value.
References
Director General of State Statistics Bureau. 1999. Input-output table of China, 1997. Beijing: China Statistical Press.
Hong, Yu-Hung. 2003. The last straw: reforming local property tax in the People’s Republic of China. Working paper. Cambridge, MA: Lincoln Institute of Land Policy.
_____. 2004. Assessing property tax reform in China. Report for the David C. Lincoln Fellowship Program. Cambridge, MA: Lincoln Institute of Land Policy.
_____ and Steven C. Bourassa. 2003. Why public leasehold? Issues and concepts. In Leasing public land: Policy debates and international experiences, Steven C. Bourassa and Yu-Hung Hong, eds., Cambridge, MA: Lincoln Institute of Land Policy.
Neutze, Max. 2003. Leasing of publicly owned land in Canberra, Australia. In Leasing public land: Policy debates and international experiences, Steven C. Bourassa and Yu-Hung Hong, eds. Cambridge, MA: Lincoln Institute of Land Policy.
Yu-Hung Hong is a fellow of the Lincoln Institute of Land Policy. This article reports on selected preliminary results of his research funded by the David C. Lincoln Fellowship in Land Value Taxation.
Urban regulations in Latin America that create benefits to landowners as increased gains are usually welcomed, especially by those who own land where more benefits have been concentrated; for example, when zoning plants authorize development in one area but restrain it in another, or when building codes stimulate a type of housing but condone the provision of infrastructure. But urban regulations impose charges on development, such as the provision of truck roads, the dedication of land for environmental purposes, the inclusion of social housing, the readjustment of land with neighbors, or the payment of special charges, generate strong resistance.
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Across the country, decision makers at the local and state levels increasingly are turning to new methods for resolving conflicts that arise during land use decision making processes. For disputes over permitting or enforcement of local and state land use regulations, mediation is considered a reasonable alternative to at least some litigation. Although mediation has successfully resolved many land use disputes, its use typically has been applied ad hoc as inclination and resources determine.
To better understand the use of mediation across a land use decision-making system within a single state, the Consensus Building Institute (CBI) and Green Mountain Environmental Resolutions (GMER) conducted an 18-month screening and evaluation study in Vermont.
Mediation and Land Use Disputes
Previous studies by the Lincoln Institute of Land Policy and the Consensus Building Institute have demonstrated that negotiation and mediation can be effective in resolving land use disputes. A successful mediation program requires selecting suitable cases for mediation at the right time in the process, and matching them with appropriate forms of mediation assistance.
Although mediation is widely used in some areas of law, such as family or employment cases, its application in land use law has been limited. There is no systematic program or set of programs that integrates mediation into the land use permitting process at all levels, from local planning boards to state courts. Increasing the use of mediation and integrating it into the land use permit application and appeal process can reduce the burden on valuable judicial resources, save the parties time and money, and, perhaps most important, resolve disputes that otherwise could divide a community into opposing camps. This study of Vermont aimed to identify lessons that can inform the land use decision-making process in other states.
Methodology
Vermont’s manageable size, its diversity of small cities and rural towns, and the frequent use of mediation, especially at the court level, made it an ideal laboratory in which to learn how mediation might be better integrated into different levels of land use decision making. Vermont also has a strong land use planning law, Act 250, passed in 1970 to protect the environment, balance growth and development needs, and provide a forum for neighbors, municipalities, and other interest groups to voice their concerns. Depending on the nature of a proposed development project, an applicant may need to obtain permits from a local board, a regional commission, various state agencies, or federal agencies.
As in most states, land use disputants in Vermont may utilize mediation via one of two routes: when there is consensus to try it, or in court when a judge orders mediation or a hearing officer suggests mediation at a prehearing conference.
This study investigated two methods for identifying cases that might be appropriate for mediation. First, we sought to better understand action at the state court level, after other opportunities for consensus building and mediation had failed. In collaboration with the Vermont Environmental Court, CBI developed a screening and evaluation process for 285 active land use cases in the court between July 1, 2006 and December 31, 2007. Judges were asked to fill out a form to identify why and how they screened each case for mediation, and the parties were asked to complete an evaluation form after the mediation ended.
Second, GMER and CBI developed a protocol to determine whether it was possible to identify cases appropriate for mediation at both local and Act 250 levels prior to the appeal stage. Over the 18-month study period, GMER screened 54 contested Act 250 permit applications. Most cases that make their way to the Act 250 and Vermont Environmental Court dispute systems start at the local level. However, despite many efforts by GMER to identify local-level cases to be screened, only 13 local cases were reviewed.
Nine Lessons Learned
1: Screening for mediation assists with settlement.
Mediation screening—that is, evaluation of the appropriateness of mediation for a particular case—prior to proceeding with traditional avenues of land use conflict resolution is an effective tool for encouraging settlement as a general approach; encouraging mediation specifically; and distinguishing among cases that are more amenable to resolution and those that require more formal quasi-judicial or judicial decision making. Given the current barriers to mediation—lack of knowledge about mediation, jointly finding a mediator, and simply communicating with the opposing party—screening is an effective tool to increase its use.
In the Act 250 cases, the act of screening itself seemed to encourage informal negotiations and settlement in some instances (figure 1). Many of the screenings were essentially informal phone mediations that included discussions of the parties’ interests and possible options to satisfy those interests.
2: Screening criteria are useful but not fully determinative.
There is no simple formula or correlation between key factors in a case and the parties’ willingness to mediate as a way to successfully resolve issues. However, the data on screening do suggest a few key criteria that are important in determining if a case is more likely to be recommended for mediation.
The data also suggest that some criteria are not important in determining whether mediation is appropriate for a specific case.
3: The screener’s qualifications and credibility do matter.
A mediation screener for land use disputes requires a specific skill set, knowledge base, and credibility. At the Environmental Court level, a judge’s expertise in land use issues, law, and regulatory structure allows a more informed assessment of cases amenable to mediation. Analysis of the court’s screening data concluded that the two most important factors in determining the appropiateness of mediation were the issue of law at stake and the judge’s “sense” of settlement potential. Both are professional judgments rather than more formulaic means of determining appropriateness. Furthermore, the judge’s authority gives the resulting determination legitimacy.
In a nonjudicial setting such as a permitting body, a screener without legal authority or stature can also be effective. Most parties will participate and take seriously the recommendations of the screener, as long as the screener has the express support and legitimacy provided by an official governing body.
4: Screening program design is also important for legitimacy.
As part of the research, we established and implemented the screening program for the District Commissions, entities that provide review under Act 250. This program was highly instructive because it raised several key issues. The primary question was whether screeners should be part of or separate and independent from an appropriate government agency (table 1). A secondary concern was whether a screener might also later mediate the case. Protocols can be used to avoid or minimize the perception of any potential conflict of interest.
A few survey respondents raised concern that the Act 250 screener was also available to mediate the cases screened, though the screener always provided the parties a roster of mediators from which to choose. The concerns were about ethics (Can one conduct a fair and neutral screening when one has both the economic and professional incentive to recommend mediation in order to then mediate?) and the marketplace (Is it fair to and competitive for other mediators if the screener has an “inside track” on certain cases?).
We assume that screeners as mediators may be influenced by the opportunity to mediate, if they are eligible. We would argue that this incentive is not merely financial, but also professional in the sense that one wishes to practice one’s craft. Nonetheless, countervailing arguments suggest that a strict separation of screening and mediation poses an equally difficult set of problems.
5: Land use mediation may be more effective in helping parties reach a settlement than in restoring relationships.
Data gathered through the court mediation evaluation forms offer a somewhat surprising reflection on how participants value their mediation experience. While mediation is often lauded for its contributions to improving relationships among parties, evaluation survey results suggest that parties valued mediation more for its ability to make them consider options than for its impact on their relationship with other parties.
Sixty-six percent of participants reported that the mediation process encouraged them to consider various options for resolving the dispute (59 percent [154] agreed and 7 percent [18] strongly agreed). On the other hand, 42 percent of respondents felt that at the end of the mediation process they were better able to discuss and seek to resolve problems with other parties on this project (39 percent [102] agreed and 3 percent [8] strongly agreed). While one might wish, optimistically, for a mediation program that restores relationships and rebuilds social capital, it seems that participants are more interested in exploring various options for settlement than in broader social or relational goals.
6: Land use mediation may not always result in satisfying agreements, but it generally results in satisfaction with the process.
Parties support mediation and are willing to participate again, despite indications by many that their most recent experience did not result in an agreement that satisfied them. Figure 2 shows that 40 percent agreed that mediation resulted in an agreement that was satisfying to them (88 agreed and 15 strongly agreed), while 35 percent disagreed (55 strongly disagreed and 36 disagreed).
Despite these findings, when asked if they would participate in a mediation again, respondents show more varied results (figure 3). More than 50 (131) agreed and 17 percent (45) strongly agreed to participate again, while only 19 percent (30) disagreed and 7 percent (19) strongly disagreed.
We interpret these data to mean that the agreement reached was tolerable, given their constrained choices. The mediation process more often than not seems to have offered enough benefits, cost or time savings, or some other advantage that many respondents would be willing to participate again.
The evaluation process did reveal some concerns about the role of pro se parties (who represent themselves without an attorney). Some pro se parties expressed frustration with the mediation process, which they felt did not provide an adequate forum for exploring and resolving the full range of issue that concerned them. Other parties expressed their own frustration with the pro se parties, whom they felt slowed down the process and demanded too much time from the mediator. Additional research on best practices for defining and communicating the role of pro se parties could improve overall satisfaction with the mediation process.
7: Mediation of particular issues does not relieve the larger burden on municipalities to make complex decisions on land use projects.
Lower levels of satisfaction were expressed by town officials than other parties, which suggests that mediation in and of itself is not assisting local officials to the extent one might hope. Town representatives were more likely to disagree or strongly disagree (56 percent) that the mediation resulted in an agreement that was satisfying to them than were applicants (36 percent), agencies (36 percent), and interested parties (35 percent).
By the time cases, especially enforcement cases, reach the Environmental Court, town officials may feel they have already tried to accommodate applicants and thus are less enthusiastic about mediation with parties who, in their perspective, have been “recalcitrant.” A court decision, even if it adopts a mediated settlement, may not resolve an entire dispute. Mediation may resolve issues pending before the court, but does not resolve all barriers to implementation of an agreement at the local level. This finding suggests that municipalities may need more assistance, not only in mediation of narrowed issues, but also in more comprehensive consensus building or public participation efforts.
8: Encouraging mediation at the municipal level remains challenging.
The research team was not successful in instituting any systematic local approaches to screening and mediation, despite an intensive outreach effort; a no-cost screening service; the support of mediation at the Act 250 and Court levels; a state generally amenable to alternative forms of dispute resolution; and a relatively vigorous development climate during the study.
Various factors may explain this resistance. The single largest obstacle on the local level is that in most cases the permitting bodies do not know if an application will be opposed until the hearing begins. Furthermore, most applications have only one hearing day, so there is little opportunity for mediation screening. Hearings that last multiple days clearly have other options.
Other obstacles include the fact that mediation as commonly understood may be introduced too early for parties wishing to see how they might fare in the standard administrative process. Local officials may view mediation as usurping their role. The status quo of existing administrative processes may simply be considered “good enough.” Town budgets may account for potential litigation, but not be flexible enough to fund mediation. Some officials may not know enough about mediation or simply be uninformed about its benefits. There may be too few cases in most municipalities in a rural state like Vermont to establish any programmatic approach.
In any case, this study reinforced the assumption that administering mediation at the local level is difficult, however promising the “idea” of mediation may be in assisting communities and their citizens.
9: The Environmental Court can influence attitudes toward mediation.
The Environmental Court’s embrace of mediation as a key tool to its proceedings appears to have an interesting effect on municipal land use decisions, despite the challenges at the local level. It is widely perceived (though inaccurately) among local and regional land use professionals across the state that if a case proceeds to the Environmental Court it “almost always” will be ordered into mediation. The court, in fact, is quite careful about referrals. During our study period, the court referred fewer than half of its cases to mediation.
This finding points to at least two interesting implications for a more rigorous, system-wide approach to mediation and dispute resolution. First, the data suggest that a powerful land use body’s support of mediation has a meaningful impact on perceptions of mediation across the system. Second, the active support of mediation by a body such as the court has likely salutary effects on settlements that can occur earlier in the process. This also suggests that when enough of a land use system’s regulatory bodies support and encourage mediation, a culture of settlement and dispute resolution may take hold.
Conclusions
This study supports the assertion that mediation is useful in land use conflicts. Upon evaluation of nearly 300 Vermont land use cases at the local, Act 250, and Environmental Court levels, this study found that mediation screening and actual mediation are effective tools for targeting and resolving many cases. As disputes become more complex, and resources, time, and money for resolving land use disputes become scarcer, it will be important to find efficient and reliable methods for settling cases. Mediation and mediation screening hold great potential for meeting those goals.
Related Publications
Susskind, Lawrence, Ole Amundsen, and Masahiro Matsuura. 1999. Using Assisted Negotiation to Settle Land Use Disputes: A Guidebook for Public Officials. Cambridge, MA: Lincoln Institute of Land Policy.
Susskind, Lawrence, Mieke van der Wansem, and Armand Ciccarelli. 2000. Mediating Land Use Disputes: Pros and Cons. Cambridge, MA; Lincoln Institute of Land Policy.
About the Authors
Patrick Field is managing director of the Consensus Building Institute in Cambridge, Massachusetts, as well as associate director of the MIT-Harvard Public Disputes Program and senior fellow at the Center for Natural Resources and Environmental Policy of the University of Montana in Missoula.
Kate Harvey is an associate at the Consensus Building Institute.
Matt Strassberg is an director of the Environmental Mediation Center and principal of Green Mountain Environmental Resolutions based in Moretown, Vermont.
This research was made possible by the generous support of the JAMS Foundation and the Lincoln Institute of Land Policy.
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La utilización de modelos computarizados en la planificación del uso del suelo y el transporte y para analizar los mercados de viviendas urbanas tiene una larga y variable historia. Una aplicación pionera de modelo computarizado a gran escala que relacionaba el uso del suelo con el transporte urbano fue el Estudio sobre el Transporte en el Área de Chicago de 1960. Este estudio utilizaba un modelo con desglose espacial que incluía una detallada red de transporte y abarcaba los clásicos pasos de uso del suelo, generación de viajes, elección de la modalidad y asignación de redes de toda la planificación de transporte urbano.
Un modelo de gran repercusión, con un enfoque más analítico para predecir patrones de uso del suelo, fue el formulado por Ira Lowry en 1964 para Pittsburgh, en el que se empleaba la teoría de base económica para distribuir la actividad económica orientada a la exportación. Luego se utilizó la distribución de residencias y empleo comunitario dentro del área metropolitana para obtener patrones de desplazamiento por razones de trabajo y compras.
A comienzos de la década de 1970 se prestó más atención a los modelos con desglose espacial para los mercados de viviendas urbanas, tales como el Modelo de Vivienda del Instituto Urbano (que representaba los cambios ocurridos en el mercado de la vivienda durante una década) y el Modelo de Simulación Urbana de la Oficina Nacional de Investigación Económica (un modelo microanalítico que proyectaba anualmente el comportamiento de los miembros de 85.000 hogares según el lugar de trabajo y la ubicación residencial). Ambos modelos se utilizaron para analizar el impacto de los programas de asignación de viviendas y se aplicaron más en el análisis de políticas que en la planificación.
A finales de la década de 1970, el énfasis se puso en el desarrollo y la aplicación de bocetos de modelos de planificación, en especial en los referidos al transporte. Aunque estos modelos seguían presentando un desglose espacial, utilizaban decenas (en lugar de centenas) de zonas de tránsito, y las redes de transporte se representaban con menor detalle. Estos modelos fueron adaptados para representar los resultados relacionados con el transporte más allá de los flujos de las redes, tales como emisiones vehiculares, exposición de la población a la contaminación del aire, kilómetros de viaje por vehículo y consumo de energía. En la década de 1980, estos modelos más pequeños pasaron a gestionarse desde computadoras centrales a computadoras personales, lo que facilitó su aplicación. Las necesidades de datos continuaban siendo muy importantes, pero muchos de los modelos utilizaban de manera más sistemática los datos provenientes de censos con desglose espacial que se encontraban disponibles, por lo que se vieron facilitadas la transferencia y la calibración de modelos entre los diferentes lugares.
En las dos últimas décadas, la llegada de sistemas de información geográfica (SIG) y el desarrollo de programas de representación visual de datos en tres dimensiones han ido transformando la manera en que se utilizan las computadoras a la hora de llevar a cabo una planificación. Los datos compatibles con SIG hoy están disponibles gracias a los satélites, las fuentes encargadas de realizar censos y las agencias gubernamentales. Los municipios locales se han adaptado rápidamente a fin de combinar sus datos catastrales con información sobre actividad delictiva, transporte y demografía, y dichos archivos de datos municipales con frecuencia se encuentran disponibles en Internet. Aunque resulta evidente que se ha incrementado la disponibilidad de datos provenientes de SIG, la gran variedad de formatos, definiciones y tipos de cobertura puede representar un desafío a la hora de combinar la información de diferentes fuentes en un conjunto unificado de datos para una región metropolitana.
La utilización de visualizaciones en tres dimensiones de datos con desglose espacial ha transformado la presentación de los datos y los resultados de los modelos. Estas técnicas, tales como los mapas en 3D a nivel metropolitano y la capacidad de “volar” a través de una calle o barrio a nivel del proyecto, facilitan la consulta popular. Además, resulta mucho más fácil para aquellos que no son especialistas comprender y participar en el proceso e interpretar los resultados de escenarios de planificación alternativos.
Junto con los avances en cuanto a los datos y a la presentación de los mismos, los programas de computación son en la actualidad más fáciles de usar y se encuentran cada vez más disponibles en plataformas de código abierto. Aunque los códigos de muchas de las primeras herramientas de planificación computarizadas han estado a disposición del público en general, la utilización de dichas herramientas generalmente ha requerido tener conocimientos avanzados de programación. A medida que una mayor cantidad de estas herramientas se presenten en formatos fáciles de usar e integradas a otros módulos, la utilización de métodos computarizados para comparar y contrastar escenarios de desarrollo alternativos se hará cada vez más accesible. De hecho, actualmente muchas agencias de planificación son capaces de usar las herramientas de planificación de escenarios con el fin de producir posibles futuros alternativos que brinden un fundamento para el debate y la consulta popular, con el objetivo de identificar cuáles son los resultados deseables y cuáles deben evitarse.
Tal como se informa en este número de Land Lines, el Instituto Lincoln apoya el uso de distintas herramientas de planificación para investigar y evaluar la efectividad de las políticas que apuntan a mejorar los resultados referentes al desarrollo del suelo.
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More than two decades have passed since a government-led megaproject set out to transform Puerto Madero, the oldest sector of the port district at the mouth of the River Plate in Buenos Aires, Argentina. Once a center of decay that was hastening decline in the adjacent downtown, Puerto Madero is now a tourist icon and hub of progress, drawing in residents and visitors alike to its park and cultural amenities, housing approximately 5,000 new inhabitants, and generating 45,000 service jobs. Home to a number of new architectural landmarks—including Santiago Calatrava’s Woman’s Bridge (Puente de la Mujer) and César Pelli’s YPF headquarters—the redeveloped port has contributed to the reactivation of the city center, influencing development trends throughout the Argentinean capital.
Encompassing 170 hectares near the downtown presidential palace (Casa Rosada), Puerto Madero was one of Latin America’s first urban brownfield renewal projects of this scale and complexity. The project was conceived as part of a wider strategy for city-center development that also included changes in land use regulations, building refurbishments, and social housing in heritage areas. This article draws on two decades’ worth of evidence and experience with the project to examine the extent to which Puerto Madero has achieved its central objectives: to contribute to the reversal of undesirable development patterns in the city, assert the downtown as the eminent center of Buenos Aires, stimulate the local economy, and improve the living conditions of all porteños.
The Port in Crisis
Puerto Madero was abandoned as a port at the beginning of the 20th century, when operations transferred to Puerto Nuevo. By the late 1980s, Puerto Madero had suffered several decades of neglect and underutilization. The federal General Administration of Ports owned the land, but the city and national governments both had jurisdiction over planning. Similarly, greater Buenos Aires—home to 35 percent of Argentina’s population and producer of 46 percent of its GDP—is governed by an overlapping set of institutions that often have trouble coordinating. To simplify this inter-jurisdictional governance, a public limited corporation, with shares divided equally between the national and city governments, was formed to manage the project. In 1989, the federal government transferred ownership of this sector of the port to the new corporation, CAPM (Corporación Antiguo Puerto Madero).
After receiving the federal land transfer, the role of CAPM was to develop the site plan, define a self-funded financial model, undertake the site improvements associated with the project, commercialize the land, and supervise the development process in accordance with the established time frames and guidelines of the master plan. Unlike similar ventures elsewhere in the world, which generally rely on substantial public financing or access to credit, CAPM by decree would receive no public resources besides the land transfer and would generate its own revenue to cover operating costs. The port redevelopment could not have happened otherwise, as the federal government was focused on fiscal recovery and job creation amidst a nationwide economic crisis.
Context and Chronology of the Megaproject
As in most Latin American cities, the displacement of activities from Buenos Aires’s traditional downtown had curtailed use of the public transit system and led to the slow decline of historical buildings, many of which had lapsed into substandard housing. The proposed redevelopment of Puerto Madero was part of the city’s broader strategy to protect heritage, promote downtown development, stimulate the local economy, and contribute to the reversal of these undesirable settlement patterns.
Development took place in four stages. During the first phase (1989–1992), CAPM sold the old docklands on the western end of the port, initiating the redevelopment process and covering initial project costs. In 1991, the city and Society of Architects signed an agreement to facilitate the Puerto Madero National Ideas Competition. In 1992, the three winning teams collaborated to create the Draft Urban Project for Puerto Madero. The redevelopment required a new subdivision geometry that would allow for construction without requiring the demolition of valuable landmark structures. Many of the historical port buildings, such as the warehouses, would be restored with new functions, thereby combining valuable historic patrimony with new development.
During the second phase (1993–1995), the winners of the Ideas Competition were awarded the master plan contract. The original proposal called for the development of 1.5 million square meters of floor area concentrated in a central location to help revive the downtown. With a 20-year horizon, the plan comprised commercial activities, cultural and recreational facilities, cafes, restaurants, amenities, professional studios, and medium-sized commercial activities (e.g. printing, packaging, and storage companies), which the 16 renovated former port warehouses could adequately accommodate. Provisions for green space, to compensate for an observed deficit in the extended city center, included a metropolitan central park, ecological reserve, and rehabilitated southern esplanade. Given the original assumption that office buildings would predominate, the number of anticipated dwelling units was to be fewer than 3,000. (Residential use experienced higher demand, however, leading to approximately 11,000 dwellings units today.)
During the third phase (1996–2000), most of the public works were built, and project expenditures peaked along with land sales. Throughout this phase, the cost per square meter of construction did not vary significantly, oscillating from around $150 to $300 per square meter up to the end of the decade. (Note: All prices are in U.S. dollars.) By this third phase, the investor profile had evolved from an initial pioneer group of small and medium firms that faced high levels of risk (1989–1993) to large firms that invested in proven products. By 2001, there was little public land left to sell, and the public corporation had enough liquid assets to complete the public works required by the project.
The fourth phase of development includes two segments, from 2001 to 2003 and from 2004 to today. Initially, the project suffered from the economic, financial, and political turmoil associated with the 2001 fiscal crisis propelled by the government’s default on its external debt payments. Throughout that period, CAPM faced high levels of governmental uncertainty, and land sales stalled. After the 2003 presidential elections, however, the country resumed international negotiations, restructured its external debt, and significantly improved economic conditions. Simultaneously, CAPM was able to resolve litigation on some parcels, which it then proceeded to sell, using the revenues to complete the public works on site.
As the land in Puerto Madero became scarce, developers looked to the surrounding downtown areas as alternative investment locations. The scale and complexity of the port redevelopment attracted investors with closer links to national and international financial markets. Many developers chose to invest downtown instead of in the suburbs. Thus the project succeeded in redirecting market trends to align with urban policy priorities—a shift that would not have happened without state intervention.
Project Achievements
Now the project is almost complete, with approximately 1.5 million square meters of floor area as planned. From start to finish, project funds were derived entirely from land sales and concessions.
By 2011, CAPM had sold approximately $257.7 million worth of property and invested $113 million in public works, with an overhead of about $92 million, including management fees and other operating expenses. Land prices escalated from $150 in the early 1990s to $1,200 per square meter today, and the project has attracted considerable private investment in addition to the state’s land transfer.
The project added four major bodies of water totaling 39 hectares and 28 hectares of green space to the city’s parks system. It also facilitated the opening of the ecological reserve and enabled renewed access to the southern esplanade, the Costanera Sur, designed at the beginning of the 20th century by Jean-Claude Nicolas Forestier, who designed Paseo de Prado in Havana, Cuba. The adjacent downtown again serves as the undisputed reference point for public office and high-level administrative, financial, and commercial activity.
Puerto Madero spurred local economic growth, which has ultimately translated into higher tax revenues. As a state initiative, it triggered more than $2.5 billion of private investment, with a present value exceeding $6 billion. Although a full accounting is not available, revenues from corporate income taxes are estimated at $158 million, and taxes paid by the public corporation are $19.86 million. The new property owners pay approximately $12.4 million per year in property taxes to the city government. Once construction is complete, property tax revenues are expected to reach $24.3 million per year.
The project also stimulated job market growth. To date, private construction in Puerto Madero involved about $450 million in labor costs—the equivalent of 900,000 months of work or 3,750 jobs per year distributed over 20 years. The project investments in public works created 313 jobs per year for 20 years plus 26,777 administrative jobs as of 2006 and 45,281 services jobs by 2010. These figures demonstrate the vital role the project has played in stimulating the local economy.
Diminished Returns
Despite the overall success of Puerto Madero, its social outcomes are considered unsatisfactory by many observers. Largely to blame was the fast sale of big land parcels during the most dynamic sales period, from 1996 to 1999. Some of these parcels were the size of an entire city block and are now occupied by towers that function in some ways like vertical gated communities. Furthermore, large, fully equipped firms were needed to perform the tremendous volume of construction, which excluded smaller and medium-sized companies. Thus, the morphology of large land parcels essentially defined the types of businesses and products being offered as well as the social profile of prospective buyers.
Moreover, the marketing strategy of private developers colored the general project discourse, diluting socially inclusive public policy objectives in favor of creating an exclusive neighborhood. Wealthy citizens and high-end entrepreneurs covet Puerto Madero’s residential and commercial spaces. CAPM has difficulty protecting the public character of even the district’s new open spaces, such as the ecological reserve, as affluent port district residents strongly discourage entertainment and sport activities that would appeal to all porteños citywide. In this regard, CAPM limited itself to articulating the interests of private entrepreneurs and current residents and ignored policies designed to benefit many inhabitants of the city. Affordable housing and other elements that would have ensured diversity in the residential demographics were not part of CAPM’s mandate. Several social programs with this objective were planned as part of the broader downtown strategy, but they did not materialize, isolating Puerto Madero as an elite development area.
The project scale of Puerto Madero, which would have been risky and unmanageable for private investors at the time, proves that the public sector can assume a leading role in developing the city. It also demonstrates, however, that socially progressive standards are difficult to maintain once a project becomes prestigious and rising land values increase the pressure from private developers. Puerto Madero’s ability to self-finance was a double-edged sword. On the one hand, it enabled a state-led development process without incurring government costs. Because the public corporation could defer the payment of dividends to shareholders, it was able to capitalize on the proceeds of land sales and reinvest in site works and public amenities. The open and accessible neighborhood, dotted with public infrastructure and open space, largely protected the public interest. Furthermore, the project stimulated economic activity and contributed to a more efficient overall development pattern citywide, fulfilling two important public policy objectives.
Outcomes would have improved if financial support from multilateral agency loans had been available, to better pace the rhythm of sales and enable long-term decisions that would enhance the public benefit of the project. Flexible bidding requirements on large plots in the second half of the 1990s increased sales but ensured that the majority of the incremental land value from the last increase in real estate prices accrued to the large investors who commited early.
In 2011, CAPM transferred the maintenance of all developed areas to the city and determined to complete the remaining public works by 2013. Today, CAPM’s income and expenditure are balanced; income is limited to rents from the piers and the parking lots. Corporate assets include several properties (offices, lots) whose proceeds constitute the company profit and whose market value is estimated at $50 million. These profits could seed new capital ventures or be transferred to shareholders when they decide to dissolve CAPM. The soundness of CAPM’s financial statements is verified, though the criticism it inspired during the development of Puerto Madero may cost it access to new ventures from the government.
The initial public investment in Puerto Madero was $120 million, including the land (originally assessed at $60 million) and a set of intangible services such as project design, expertise, and consulting. Total land sales amounted to $257.7 million with a general cost (administration, taxes) of around $92 million (excluding start-up costs, which did not involve monetary transactions), which leaves a modest rate of return. Although prices should have been promotional during the initial stage of development, sale values could have increased over time, if sales had been timed to take advantage of increased market prices. Higher rates of return would have required higher average sales value, better paced land sales, and more modest public works commitments, such as infrastructure, public space, and parks. CAPM could have saved considerably if construction of bridges and walkways had not extended beyond the project perimeter, under municipal jurisdiction.
The results of the project would have differed greatly had the land been sold unimproved or had it landed in the hands of private developers. In this regard, it is important to note that at the time of project inception the risk was generally considered high, and the scale of investment surpassed the capacity of local private investors. Similarly, international investors would have been unwilling to take on such a high level of risk without major concessions on the part of the government. Furthermore, private developers were interested in promoting large projects with access restricted almost exclusively to owners. A number of final project attributes, such as the public space contributions and holistic character of the development, were guaranteed by the control exercised by the government via the public corporation to ensure benefits for the community.
Conclusion
The original objectives of the project—to stimulate economic activity, affirm the role of the city center, contribute to the reversal of undesirable development patterns, and improve living conditions—have arguably been met. Puerto Madero created jobs, stimulated the local economy, and brought higher levels of investment and complexity downtown, contributing to its supremacy and leading to improvements in the surrounding area. It created high-quality open space, enhanced the metropolitan park system, and improved the overall development pattern in Buenos Aires.
However, the relaxation of quality controls, wide scope of the projects, and rapid pace of land sales at certain times reduced potential project revenues accruing to the public sector and reduced the initiative’s redistributive capacity. Access to credit would have strengthened CAPM’s position and allowed the careful staging of land sales and site improvements. It is encouraging that residential occupancy has greatly exceeded original projections, consolidating a trend to repopulate the city center, though the project should have included a percentage of affordable housing.
These results reveal the complexity of undertaking multiple initiatives to achieve a balanced social outcome. Puerto Madero fell short of incorporating a greater social mix, because other strategies for the downtown, including the rehabilitation of heritage buildings, were unrealized. Future urban project management initiatives should contemplate factors that would ensure the continuity of policies. Within this framework, it is important to encourage participation among the beneficiaries of specific interventions, such as affordable housing, as their involvement and commitment is the strongest guarantor of policy continuity.
Finally, Puerto Madero indicates the state’s capacity to proactively lead the urban development process. In this case, the state stepped out of a regulatory role and took charge of a significant redevelopment initiative. CAPM demonstrated a capacity to sustain a complex urban regeneration project over a long period of time and stay afloat through a turbulent political climate and severe economic crisis. The creation of the public corporation represents a creative innovation in urban management, as it offers an example of how to achieve project self-financing and interjurisdictional cooperation in urban governance. In this regard, the Puerto Madero experience serves as a convincing model for interjurisdictional urban management and reaffirms the positive role that the state can play in city planning initiatives.
About the Authors
Alfredo Garay was secretary of planning in Buenos Aires when the Puerto Madero megaproject began, and he still serves on the board of CAPM. An architect and chair professor at the University of Buenos Aires, he has received numerous national and international awards for urban management and the assembly of large interventions.
Laura Wainer is an architect and urban planner in Buenos Aires. In 2012, she received a Fulbright Scholarship, the Delta Kappa Gamma International Fellowship, and the President’s Scholarship from the New School in New York. Contact: wainer.laura@gmail.com
Hayley Henderson has worked as an urban planner in Buenos Aires and Brisbane, Australia. She is now a PhD candidate in urban planning at The University of Melbourne, Australia. Contact: hayleyhen@gmail.com
Demian Rotbart is an architect, urban planner, and assistant professor of urban planning at the University of Buenos Aires. Contact: demian.rotbart@gmail.com
