Section V. Land Management Methods and Tools

The Use of Land Value Capture Instruments for Financing Urban Infrastructure in Zimbabwe

Introduction

Developing countries like Zimbabwe have been facing the challenge of rapid urbanization. The rapid urbanization rate has far outstripped low levels of economic growth. Rapid urbanization has resulted in a situation where sub-Saharan African countries have been experiencing enormous pressure from the demand for urban infrastructure and services (Ukaid, 2015; Berrisford, Cirolia, and Palmer, 2018; UN-HABITAT, 2012). The problems manifest in huge urban infrastructure deficits. This accounts, partially at least, for the slowed economic growth throughout the region (UN-HABITAT, 2014). Most African cities have not been able to fund infrastructure and services for people living in urban areas (Kihato, 2012; Berrisford, Cirolia, and Palmer, 2018; UN-HABITAT, 2012. Brown- Luthango, 2011; Turok, 2016; White and Wahba, 2019). High levels of poverty and inequality on the one hand, and constrained fiscal decentralization on the other, have limited the resources available to African cities to fulfill expanding functions and to address urban growth. Resources to invest in capital development have been particularly lacking (Berrisford, Cirolia, and Palmer, 2018).

Traditional methods of urban infrastructure finance, such as capital transfers from national governments, capital finance provided by parastatals, the private sector, and contributions from donors have been constrained by the downturn in national economies. Thus, in most African cities, urban development has been accompanied by minimal, if any, investment in infrastructure, a situation that has not been sustainable from economic, social, and environmental perspectives. The dire urban finance situation in most African cities highlights the importance of finding new and innovative methods of capital finance, with land value capture dealt with in this chapter requiring specific attention.

This chapter examines how land value capture has been used to finance urban infrastructure and services in Zimbabwe. It also looks into how the more effective use of land value capture instruments could contribute to responsible and smart urban land management in the country. Land management is “the science and practice related to the conceptualization, design, implementation and evaluation of socio-spatial ‘interventions’, with the purpose to improve the quality of life and the resilience of livelihoods in a responsible, effective, efficient, consensual and smart manner” (de Vries and Chigbu, 2017, p.66). Land value capture is a concept for collective methods and approaches used to collect and obtain revenues from land owners and private developers as a result of the increment in their land and property values due to public investment in infrastructure (El-Nagdy, El-Borombaly, and Khodeir, 2018; Suzuki et al., 2015). It has been an important mechanism for financing urban infrastructure in European, Latin American, and Asian countries; and if effectively used in Zimbabwe, can potentially become a sustainable, robust, adaptable, and reliable source of revenue for urban infrastructure finance, thereby contributing to responsible land management.

Theoretical Framework

Land value refers to how much a parcel of land is worth. Since the 16th century in Portugal, a kind of income which constantly tends to increase without any exertion or sacrifice on the part of the landowners has been observed. Where an increase in land value is as a result of public investment or decision, the general consensus has been that the increment should be shared between the private land owner and government (Ingram and Hong, 2012; United Nations, 1976; UN-HABITAT, 2012; El-Nagdy, El-Borombaly, and Khodeir, 2018; Berrisford, Cirolia, and Palmer, 2018). The general argument has been that private landowners are not entitled to retain increments resulting from such public initiative because they are “unearned” (Ingram and Hong, 2012; Kitchen, 2013; Mathur, 2013; Walters, 2012; Walters, 2016; Munshifwa, 2017; Fainstein, 2012; Liu et al., 2018). An unearned increment is any rise in land values, whether due to public decisions or the general economy, where the rise is not due to the landowners’ own initiatives and efforts (Alterman, 2012).

The land value capture concept arose out of the idea that landowners should share some of the increased value of their land with society (Alterman, 2012; Hendricks et al., 2017). Land value increase can be brought about a variety of factors, such as public investment in infrastructure, land use regulation, demographic changes, and economic development. The general application of the land value capture concept has been in cases where public investment in roads, water supply, sanitation, or local amenities such as streetlights results in increased real estate values. Thus, out of all the factors, the greatest attention has been paid to the effect of public infrastructure investment on land value (UN-HABITAT, 2012; Suzuki et al., 2015: Ingram and Hong, 2012; El-Nagdy, El-Borombaly, and Khodeir, 2019; UCLG/Committee on Local Finance for Development, 2012).

A comprehensive definition of land value capture is provided by Suzuki et al. (2015). Land value capture is defined as a public financing method by which governments a) trigger a rise in land values through regulatory decisions, e.g. change in land use and/or infrastructure investments, such as rapid transit; b) institute a process to share this increase in land value by capturing part or all of the increment; and c) use of land value capture proceeds to finance infrastructure investments such as the subsidization of public transportation or other improvements required to offset impacts related to rapid urbanization, e.g. improving water and sanitation.

Figure 17.1 shows the land value capture process. It provides a useful conceptual framework for land value capture. The process begins with the creation of land value. As can be seen from the diagram, this can involve public action in the form of construction of a highway, regulatory decisions

The land value capture process. Source

FIGURE 17.1 The land value capture process. Source: Siba and Sow, 2017.

(e.g. change in land use), and payment of subsidies to developers. Gains in land value resulting from public action are derived from the collectivity and the benefits need to be enjoyed collectively.

The created value is captured through a range of instruments, with the most commonly used being the betterment tax or levy (Sietchiping, 2011). Betterment tax is based on imputed increases in property value due to public investment or changes in property rights. Value capture can involve land acquisition and re-sale based on increase in property value due to changes in property rights. It can also involve indirect capture mechanisms, such as developer exactions, that shift the costs of public services onto developers.

The captured value is given back to society through investment in urban infrastructure and services. Land value capture proceeds can be used to improve the road network and water supply and subsidize the public transportation system, as well as implement public policies to promote equity (e.g. provision of affordable housing to alleviate shortages). The reinvestment of captured value effectively redistributes income in society while creating a potentially sustainable cycle of public financing.

 
Source
< Prev   CONTENTS   Source   Next >