It is with great sadness that we announce that Arlo Woolery passed away on February 28, 2002, at his home in Sun City West, Arizona.

Arlo brought zest, courtesy and unfailing curiosity to all of his endeavors over 82 years. Even before graduation from Luther College in Decorah, Iowa, in 1943, he turned his gift for public speaking to early success as a radio broadcaster. He provided play-by-play radio descriptions of baseball games, complete with sound effects for hits and cheering crowds, guided only by wire service score reports. Later he held several executive positions in radio and television, dealing both with broadcasting, equipment manufacturing and the first development of cable television networks.

He became an expert on public utility regulation and valuation, earning the Certified Assessment Evaluator (CAE) designation from the International Association of Assessing Officers and serving as chairman of its education committee. He was an expert witness in numerous utility valuation cases and taught in the annual Wichita State University program on railroad and utility valuation for many years. The Supreme Court of Utah reflected the respect with which he was regarded when it described him as a “well-educated, long experienced and highly qualified appraiser.” From 1967 to 1976 he served as director of the Property Tax Program for the state of Arizona, dealing with issues of valuation and tax administration and taking the lead in the development of computer-assisted mass appraisal.

Arlo was the first executive director of the Lincoln Institute of Land Policy, from 1974 to 1986, and upon retirement was named the Archibald M. Woodruff Fellow. He led the Institute’s move to Cambridge and its establishment as a center for education on land use and land-related tax issues. He organized and participated in numerous international symposiums on property taxation, land policy and computer-assisted valuation. He assisted in the development of the International Center for Land Policy Studies and Training (formerly the Land Reform Training Institute) in Taiwan and served on its Board of Directors from 1975 to 2000. He also wrote and edited many books, including The Art of Valuation (1978); Introduction to Computer Assisted Valuation (1985); Property Tax Principles and Practice (1989); and Valuation of Railroad and Utility Property (1992).

“Arlo’s legacy to the Lincoln Institute is its solid academic underpinnings,” notes Kathryn J. Lincoln, Chairman of the Board. “Even after his official retirement, Arlo remained involved with the Lincoln Foundation, and his continuing leadership and teaching at the International Center for Land Policy Studies and Training were instrumental in the development of that Lincoln program. We shall miss his wisdom and guidance.”

The interactions between land and property markets and the broader economy of cities and nations are central to the Lincoln Institute’s concerns. Two key objectives of our work in this area are (1) to raise awareness about the stakes of good land policy for creating well-functioning land and property markets and for improving the performance of financial markets, labor markets, the fiscal affairs of local and national governments, and ultimately the economic health of both cities and countries; and (2) to indicate the need for high quality data and an appropriate analytical framework to aid in understanding the importance of good land policy, monitoring the effects of land policies throughout the economy and facilitating policy reforms. In November 1997, the Lincoln Institute held a conference on the theme of “Land Prices, Information Systems, and the Market for Land Information” to explore these issues.

Land Values and Land Policy

How important are the stakes of good land policy? Hee-Nam Jung of the Korean Research Institute for Human Settlements reported on the importance of land markets in the economies of five countries (see Table 1). The value of land in mature economies such as Canada, France and the United States ranged from about one-third to three-quarters of GNP during the mid-1980s, and represented from 8 to 21 percent of estimated national wealth. In the more rapidly growing economies of Japan and Korea, land values were from three to six times as high as GNP in the 1980s, and represented half or more of estimated national wealth. In the mature economies these figures illustrate the importance of land as a source of wealth, but in rapidly growing economies land has an even more significant role in determining economic welfare and a host of incentives for the performance of the economy.

In Japan, for example, booming land and property values during the 1980s served as collateral to fund credit expansion throughout the economy and, indeed, throughout the world. Land prices in Japan’s six largest cities increased dramatically from 1980 to 1991, at a compound rate of about 12 percent annually (see Figure 1). By 1990, the estimated price of land being developed for residential purposes in Tokyo was estimated to be about $3,000 per square meter, compared to figures of roughly $110 in Toronto and Paris and $70 in Washington, D.C.

Between 1991 and 1996, however, Japanese land prices fell by nearly half, taking down the Japanese economy and a host of financial institutions in its wake. The cumulative losses of the Japanese banking system associated with the collapse of the property market and associated businesses are estimated around $1 trillion, making the U.S. Savings and Loan “crisis” seem comparatively insignificant. Analysis of Japanese land policy suggests some of the causes of the boom and bust cycle in land prices: policies that have severely restricted conversion of agricultural land to urban uses; an especially complex land development system that requires exceptionally long times for approvals; and a fiscal system that places little emphasis on the taxation of land and property values.

Land prices in Korea also rose at a tremendous rate during the 1980s-over 16 percent annually from 1981 to 1991. Remarkably, in most years nominal capital gains on Korean land were greater than Korea’s GNP. Jung explained that these gains had profound implications for the distribution of wealth and income in Korea, and for economic incentives. Not surprisingly, the recent collapse of Korean property markets has had tidal effects throughout the economy. As in the case of Japan, the Korean land policy framework has been seen as highly questionable. Government intervention in land and property markets over the years has been responsible for severely distorted markets that represent a major structural imbalance in the Korean economy.

Using Land Market Data for Policy Analysis

Other speakers at the conference presented information on the importance of land market performance for a variety of stakeholders throughout the economy: consumers and taxpayers; land developers and builders of residential and non-residential properties; banks and financial institutions; and both local and central governments. In the case of Cracow, Poland, Alain Bertaud from the World Bank indicated that policies embodied in master plans and zoning regulations were highly inconsistent with the nominal objectives of the regulations, and would lead to inefficient and costly spatial patterns within the city. His paper illustrated the value of having good data on land prices, regulations and the spatial distribution of the population in order to evaluate the effects of policies involving land use, infrastructure and property taxation.

Paul Cheshire from Oberlin College and Stephen Sheppard from the London School of Economics illustrated how data on land and housing prices, land and housing characteristics, and regulations can be used to evaluate the effects of government policies such as the preservation of urban open space. Jean-Paul Blandinieres of the French Ministry of Equipment, Transportation and Housing discussed an ambitious program of the French government to establish “Urban Observatories” to collect and analyze information on land and property markets and the effects of government policies.

Data Collection on Land and Property Markets

Recognition of the costs of land policy failures or, conversely, of the benefits associated with implementing good policies, has given rise to a number of systematic efforts to collect and analyze high quality data on land and property markets within various institutional settings. Pablo Trivelli discussed land and property information systems in Latin America that serve the needs of public and private stakeholders. Perhaps the most impressive of these is an effort in Brazil called EMBRAESP, which monitors key indicators of urban property market performance along with urban legislation, land regulations and major public works projects that might have an impact on the behavior of property markets. Data and analyses from EMBRAESP are of interest to many institutions throughout Brazil. The distribution of the information is self-sustaining through contracts with major newspaper chains, sales of periodic bulletins, disks containing standard data, and special reports responding to individual demands. Much of this information can also be accessed through the Internet.

Another major data collection and analysis effort was reported by David Dowall from the University of California-Berkeley. He developed the “Land Market Assessment,” a tool for analysis of land and housing markets that has been applied in over 30 developing countries and transitional economies. At comparatively modest cost, data are collected through aerial photos and satellite images, surveys of land brokers, and secondary sources on population, infrastructure and regulatory frameworks. Dowall’s analysis of the experience with these assessments documents a number of generic policy findings, especially concerning the costs of inappropriate land policies. His work also suggests that even more cost-effective versions of the tool can be developed that will illustrate the workings of land markets and beneficial policy reforms.

Romeo Sherko, David Stanfield and Malcolm Childress from the Land Tenure Center at the University of Wisconsin-Madison, addressed the issue of designing a strategy for the creation and dissemination of land information in transitional economies, where information has historically been tightly held, thus frustrating both the evolution of property markets and opportunities for policy analysis. Their conclusions regarding the role of the public and private sectors, the scope of data collection, and pricing and dissemination strategies help to explain why land market information is often not provided or is poorly provided by either the government or the private sector. On the other hand, their analysis suggests that the benefits of good land market information are considerable. Some of these benefits were illustrated by David Dale-Johnson from the University of Southern California and Jan Brzeski from Jagellonian University, Cracow, who discussed efforts to document rapidly evolving market prices of property in Cracow and to inform property tax reform efforts.

Samu Kurri, Seppo Laakso, and Heikki Loikkanen of the Finnish Government Institute of Economic Research discussed the land price information system in Finland, suggesting that it is only now beginning to catch up with the needs of many different potential users of the data. These users include those concerned with implementation of a new property tax and macro-economic and financial sector policymakers concerned with the interaction of the Finnish property market and national economic performance. Karl (Chip) Case of Wellesley College presented findings from a preliminary analysis of 100 years of land prices in Boston, which was designed, among other things, to highlight some of the methodological difficulties of measuring land prices in a way that facilitates policy analysis and reform.

Stephen K. Mayo is a senior fellow of the Lincoln Institute.

Land value is determined primarily by external factors, mainly changes that occur in the neighborhood or other parts of the city rather than by direct actions of the landowner. This observation is especially valid for small lots whose form or type of occupancy do not generate sufficiently strong externalities to increase their own value retroactively; that is, a small lot generally does not have a significant impact on those very external factors that could affect its own value. However, large urban projects (grandes proyectos urbanos or GPUs) do influence those factors, and also the value of the land that supports them. Herein lies the essence the Lincoln Institute’s interest in such projects.

We propose two perspectives for analyzing GPUs that complement and contrast with others that formerly predominated in this debate. First, these projects can be a stimulating force for immediate urban change that is capable of affecting land values, and therefore land use, for large areas if not an entire city region. This view is focused more on urban design or urbanism and stresses the study of the physical, esthetic and symbolic dimensions of large urban projects. A second approach, covering the field of regulation, attempts to understand the land value appreciation generated by the implementation and operation of these projects as a potential means for self-support and economic feasibility. It analyzes the role of GPUs in providing a new function for certain areas of the city. Both perspectives require a more holistic understanding that includes the diversity and levels of complexity of the projects, their relation to the city plan, the type of regulatory framework they require, the role of the public and private sectors in managing and financing them, land taxation and fiscal policies, and other factors.

These large projects are not new to Latin America. In the early twentieth century, many cities were impacted by programs that used public-private management arrangements, including outside players (national and international) and complex financial structures. Some projects had the potential to trigger urban processes capable of transforming their surroundings or even the city as a whole, as well as accentuating the preexisting socio-spatial polarization. Often the projects were layered over existing regulations, contributing to questions about the urban planning strategies in force at the time. Large urban developers and utility companies (English, Canadian, French and others) coordinated the provision of services with complex real estate development operations in almost all the major cities of Latin America.

Today large projects attempt to intervene in especially sensitive places to reorient urban processes and create new urban identities on a symbolic level. They also aim to create new economic areas (sometimes territorial enclaves) able to foster an environment protected from urban poverty and violence, and more favorable to domestic or international private investment. When describing the motives that justify these programs, the rhetoric focuses on their instrumental role in strategic planning, their alleged contribution to urban productivity, and their effectiveness in boosting their intercity competitive position.

In a context marked by transformations due to globalization, economic reforms, deregulation and the introduction of a new focus on urban management, it is not surprising that these programs have been the subject of much controversy. Their scale and complexity often spur new social movements; redefine economic opportunities; put into question urban development regulatory frameworks and land use rules; strain local finances; and expand political arenas, thus altering the roles of urban stakeholders. An additional complication is the long time frame for executing large urban projects, which usually exceeds the terms of municipal governments and the limits of their territorial authority. This reality presents additional management challenges and formidable dilemmas within the public and academic debate.

The Lincoln Institute’s contribution to this debate is to underscore the land component in the structure of these large projects, specifically the processes associated with urban land management and the mechanisms for land value capture or the mobilization of land value increments for the benefit of the community. This article is part of a broader, ongoing effort to systematize recent Latin American experience with GPUs and to discuss the relevant aspects.

A Wide Range of Projects

As in other parts of the world, large urban projects in Latin America comprise a wide range of activities: restoration of historic downtown areas (Old Havana or Lima); renovation of neglected downtown areas (São Paulo or Montevideo); redevelopment of ports and waterfronts (Puerto Madero in Buenos Aires or Ribera Norte in Concepción, Chile); reuse of old airports or industrial zones (the Tamanduatehy artery in Santo Andre, Brazil, or the Cerrillos airport in Santiago, Chile); expansion zones (Santa Fé, Mexico, or the former Panama Canal zone); residential or neighborhood improvement projects (Nuevo Usme in Bogotá or Favela Bairro in Rio de Janeiro); and so on.

Land management is a key component in all of these projects, and it presents diverse sets of conditions (Lungo 2004; forthcoming). One common trait is that the projects are managed by a government authority as part of a city project or plan, even though they enjoy private participation in several respects. Thus exclusively private programs, such as shopping centers and gated communities, are a different category of development project not included in this discussion.

Scale and Complexity

The minimum threshold of scale, in terms of surface area or amount of financial investment, for a project to meet the GPU criteria depends on the size of the city, its economy, social structure and other factors, all of which help define the complexity of the project. In Latin America projects often combine large scale and a complex set of players associated with key roles in land policy and management, including various levels of government (national, provincial and municipal), private entities and community leaders from the affected area. Even relatively small upgrading projects are often formidably complex with regard to the land readjustment component.

There is obviously a huge difference between a project proposed by one or a few owners over a large area (such as ParLatino, an abandoned industrial site in São Paulo) and a project involving the cooperation of many owners of small areas. The latter requires a complex series of actions capable of generating synergies or sufficient external economies to make each action economically viable. Most projects fall between the two extremes. They often involve the prior acquisition of rights over smaller parcels by a few agents in order to centralize control over the type and management of the development.

The key to analysis and design of GPUs in Latin America lies in the ability of the institutional organization in charge of project management to incorporate and coordinate scale and complexity appropriately. Governmental corporations have been created in some cases, but they operate autonomously (as in Puerto Madero) or as special public agencies attached to the central or municipal governments (as in the housing program being developed in the city of Rosario, Argentina, or the Nuevo Usme program in Bogotá). The case of the failed project to build the new Mexico City airport demonstrates the negative consequences of not correctly defining this fundamental aspect of GPUs.

Relationship of GPUs to the City Plan

What is the point of developing GPUs when the city has no comprehensive urban development plan or socially shared vision? It is possible to find situations where execution of GPUs may stimulate, enhance or strengthen the city plan, but in practice many such projects are established without any plan. One of the main criticisms aimed at GPUs is that they become instruments for excluding citizen participation in decision making about individual elements of what is expected or supposed to be part of an integrated urban project, as is normally provided for in a city’s master plan or land use plan.

This is an interesting debate within the framework of urban policies in Latin America, since urban planning itself has been criticized as being elitist and exclusionary. Some authors have concluded that urban planning has been one if not the main cause of the excesses of social segregation typical of cities in the region. In this context the recent popularity of GPUs can be seen as a reaction of the elite to redemocratization and participatory urban planning. Others may view GPUs as an advanced (and perverse) form of traditional urban planning; a yielding to the failures or ineffectiveness of urban planning; or even a lesser evil because at least they ensure that something is done in some part of the city.

There are many challenges for GPUs regarding their relationship to a city plan. They can help build a city plan where none exists, alter traditional plans, or do what we might call “navigating through the urban fog” if the former paths are not viable. In any case, land management proves to be a critical factor, both for the plan and for the projects, because it refers to the fundamental role of the regulatory framework covering urban land use and expansion.

Regulatory Framework

The preferred regulatory solution would be a two-part intervention: on one hand, maintaining general regulations for the whole city but changing the conventional criteria to be more flexible in absorbing the constant change taking place in urban environments; and on the other, allowing specific regulations for certain projects but avoiding regulatory frameworks that may contradict the stated goals of the city plan. Urban Operations, a specific and ingenious instrument devised under the Brazilian urban development legislation (Statute of the City Act of 2001), has been used widely to accommodate these dual needs. The city of São Paulo alone has 16 such operations in effect. Another version of this instrument is the so-called “partial planning” provision to readjust large tracts of land, which is included in Colombia’s equally innovative Law 388 of 1997.

Again in practice we see that exceptions are often granted in an apparently arbitrary manner, and regulatory restrictions are frequently ignored. The point is that neither type of regulation is submitted to any assessment of its socioeconomic and environmental value, thus losing a significant portion of its justification. Given the financial and fiscal fragility of cities in Latin America, what prevails is an extremely low capacity for public discussion of the requests made by the proponents of GPUs. The absence of institutional mechanisms that would make these negotiations transparent makes them more venal, insofar as they expose the capacity to discuss other, less prosaic legal challenges.

Public or Private Management and Financing

What is the desirable combination of public and private management of these projects? To guarantee that public management of a large urban project fulfills its function, land use must be monitored and regulated, although the degree to which the control should be exercised, and on which specific components of land ownership rights, is unresolved. Ambiguity in the courts and the uncertainties associated with the development of GPUs often result in public frustration over unanticipated outcomes favoring private interests. The proper balance between effective ex ante (GPU formulation, negotiation and design) and ex post (GPU implementation, management, operation and impacts) controls over land uses and rights is at the heart of the problem. Typically in the Latin American experience with GPUs there is a huge gap between original promises and actual outcomes.

In recent years the management of GPUs has been confused with the utility and feasibility of public-private partnerships, such as those set up in many countries to carry out specific projects or programs. Some stakeholders even propose the possibility of privatizing urban development management in general. If the private sector has complete control over the land, however, GPUs are severely limited in their ability to contribute to socially sustainable urban development, despite the fact that in many cases the projects contribute significant taxes to the city (Polese and Stren 2000).

The preferred public management system should call on the greatest social participation possible and include the private sector in the financing and implementation of these projects. The large urban programs that seem to contribute the most to the development of a city are those based on public management of the land.

Land Value Appreciation

There is consensus around the fact that GPUs generate an appreciation in land value. Differences emerge when we try to assess the real amount of this appreciation, if it is to be redistributed and, if so, how it should be shared and whom it should benefit, both in social and territorial terms. Again we have the public-private conundrum, wherein this redistribution formula often leads to the appropriation of public resources by the private sector.

The appreciation of land value as a resource that can be mobilized for self-financing the GPU or transferred to other areas of the city could be a way to measure whether or not public management of these projects is a success. However, we rarely have an acceptable estimate of this land value increment. Even in the Puerto Madero project in Buenos Aires, which is considered to be a success, to date there is no evaluation of the land value increment associated with either the properties within the project itself or those in neighboring areas. As a result, the discussion of possible redistribution has not gone beyond a few educated guesses.

GPUs conceived as instruments for achieving certain strategic urban goals are generally registered as successes when they are executed according to plan. The question regarding to what extent these goals were actually reached is not fully answered, and it is often conveniently forgotten. The hypothesis that best seems to fit Latin American experiences with GPUs is that the apparent lack of interest in goals has little to do with any technical inability to make the source of the increased value transparent. Rather, this inattention comes from the need to hide the role of public management in facilitating the private sector’s capture of the land value increment in general, if not its capture of public resources used to develop the construction project itself.

We are not feigning ignorance of or trying to minimize the difficulties in advancing knowledge about how land value appreciation is formed and in measuring its size and circulation. Indeed, there are many technical obstacles to overcome when faced with complicated land rights, the vicissitudes or permanent flaws in cadastres and property registers, and the lack of an historical series of geo-referenced real estate values. Even the smallest plan must distinguish between the appreciation generated by the project itself and that generated by urban externalities that almost always exist despite the scale of the project, the different sources and rates of appreciation, and so forth. Some encouraging work has been done on measuring and evaluating the land value increment associated with development, but technical obstacles seem to be less relevant than the lack of political interest in knowing how these projects are being managed.

When land value increments are created, they are usually distributed in the immediate project area or nearby. This principle is based on the need to finance a specific project within the area, to offset certain negative impacts, or to implement actions such as relocating precarious housing sited on the land or its surroundings that may detract from the image of the new project. Given the socioeconomic conditions found in the typical Latin American city, it is not hard to see that the preferred use of the captured value is to earmark it for projects of a social nature in other parts of the city, such as housing complexes. In fact a significant part of the generated land value increment results exactly from the removal of negative externalities produced by the presence of low-income families in the area. Needless to say, this strategy raises conflicting opinions.

There is certainly a need to devise better legislation and instruments to overcome the trade-off between socially mobilized land value increment and gentrification through displacement. Despite the lack of hard empirical studies, there are reasons to believe that a broader understanding of the impacts of these projects will show that some of the compensatory intracity transfers may actually prove to be counterproductive. For example, the resulting higher land price differences and social residential segregation may involve higher social costs that will need to be addressed by additional public resources in the future (Smolka and Furtado 2001).

Positive and Negative Impacts

On the other hand, the negative impacts caused by GPUs often obscure the varied positive impacts. The challenge is how to reduce the negative impacts produced by this type of urban intervention. It soon becomes clear, whether directly or indirectly, that the role of land management is critical to understanding the effects of large interventions in urban development, planning, regulation, socio-spatial segregation, and the urban environment and culture. Scale and complexity have a role as well, depending on the type of impact. For example, scale is more relevant to environmental and urban development impacts, while complexity is more critical in terms of social impact and urban policy.

As already mentioned, the gentrification that these projects generally produce encourages the displacement of the existing, usually poor, inhabitants from the new project area. However, gentrification is a complex phenomenon that requires further analysis of its own negative aspects, as well as how it could help to raise living standards. It could be more useful to move on from simple mitigation of unwanted negative impacts to better management of the processes that create these risks.

Any GPU can have positive or negative effects, depending on the way urban development is managed, the role of the public sector, and the existing level of citizen participation. We have emphasized that one of the central issues is management of the land and of the land value increment associated with these projects. Large urban projects can not be analyzed in isolation from the entire development of the city. Likewise, the land component must be evaluated with respect to the combination of scale and complexity that is appropriate for each project.

Mario Lungo is a professor and researcher at the Central American University (UCA José Simeón Cañas) in San Salvador, El Salvador. He formerly served as executive director of the Office of Planning for the Metropolitan Area of San Salvador.

Martim O. Smolka is senior fellow of the Lincoln Institute of Land Policy, cochairman of the Department of International Studies and director of the Program on Latin America and the Caribbean.

References

Lungo, Mario, ed. 2004. Grandes proyectos urbanos (Large urban projects). San Salvador: Universidad Centroamericana José Simeón Cañas.

Lungo, Mario (forthcoming). Grandes proyectos urbanos. Una revisión de casos latinoamericanos (Large urban projects: A review of Latin American cases). San Salvador: Universidad Centroamericana José Simeón Cañas.

Smolka, Martim and Fernanda Furtado. 2001. Recuperación de plusvalías en América Latina (Value capture in Latin America). Santiago, Chile: EURE Libros.

Polese, Mario and Richard Stren. 2000. The social sustainability of cities. Toronto: University of Toronto Press.