New Report Details Use of Value Capture in Latin America

CAMBRIDGE, Mass., June 21, 2013 /PRNewswire-USNewswire/ -- The increasing use of value capture in Latin America provides many lessons for financing urban infrastructure and services and promoting urban development in general, in the U.S. and around the world, according to new research published by the Lincoln Institute of Land Policy.

Implementing Value Capture in Latin America: Policies and Tools for Urban Development, by Martim O. Smolka, director of the Lincoln Institute's Program on Latin America and the Caribbean, examines several applications of value capture including property taxation and betterment contributions, direct charges for building rights or for transferring development rights, managing public land, and auctioning building rights.

Value capture is based on the recognition that public investments such as infrastructure, or government actions such as a zoning change, produce major increases in land and property value that accrue to private landowners. The identification of specific increases in land value due to these actions or investments enables governments to seek a commensurate financial contribution from the beneficiaries.

Many countries in Latin America, notably Brazil and Colombia, have passed legislation that supports value capture principles, and some jurisdictions have applied this potentially powerful financing mechanism by using a variety of locally adapted tools and instruments.

Implementing Value Capture in Latin America examines three categories of voluntary and compulsory applications of tools affecting existing, new, or changing land uses in property development projects: property taxation and betterment contributions; exactions and broader charges for building rights or for the transfer of development rights; and large-scale approaches such as development of public land through privatization or acquisition, land readjustment, and public auctions of entitlements for additional building rights.

The report reviews some historical precedents for the use of value capture in Latin America and elsewhere around the world, and illustrates its many forms and longstanding presence on the urban planning agenda. The increasing popularity of value capture in Latin America, where urbanization has resulted in strong demand for redevelopment, social housing, and the supply of serviced land, is due to increased regional economic stability and fiscal decentralization; more progressive strategies for urban planning and management; re-democratization, increased social awareness, and demands for equitable public policy responses; and pragmatic efforts to raise funds for local community needs.

Although in most places revenues are still low, the applications of betterment contributions in Bogota and of building right entitlements (CEPACs) in Sao Paulo have generated revenues in excess of a billion dollars for those cities.  While there is still much to learn about the implementation of value capture policies, existing experience offers many promising lessons.

At the same time, the broader dissemination of both domestic and international experience with these instruments is often resisted by powerful stakeholders, notably landowners, opinion leaders, and academics all along the ideological spectrum, due to a lack of understanding of the theoretical rationale and basic operational issues involved in the implementation of value capture policies and tools.

Implementing Value Capture in Latin America recommends improving the understanding of value capture by:

Learning from implementation experiences: While theory tells us that value capture charges are neutral regarding land use and should fall entirely on landowners, in practice successful implementation demands management skills to deal with complex factors and diverse stakeholders. Success also requires proper understanding of land market conditions; comprehensive property monitoring systems; a fluid dialogue among fiscal, planning, and judicial entities; and the political resolve of local government leaders.

Increasing knowledge about theory and practice: Conducting research, documenting and disseminating implementation experiences, and providing evidence about how value capture policies work on the ground are essential to overcome the disjunction between rhetoric and practice and to change the behavior and attitudes of public officials, landowners, and the community at large.

Promoting greater public understanding and participation: Land value increments are captured more successfully from landowners and other stakeholders who perceive they are receiving greater benefits from the application of value capture than from business as usual. Furthermore, value capture tools are more likely to succeed when used to solve a locally recognized problem.

A Spanish translation of Implementing Value Capture in Latin America will be published later this year.

About the Author

Martim O. Smolka is senior fellow and director of the Program on Latin American and the Caribbean, and co-chairman of the Department of International Studies at the Lincoln Institute of Land Policy.

Implementing Value Capture in Latin America: Policies and Tools for Urban Development
Martim O. Smolka
2013 / 68 pages / Paper / $15.00
ISBN: 978-1-55844-284-9 / Code: PF035

The Lincoln Institute of Land Policy is a leading resource for key issues concerning the use, regulation, and taxation of land. Providing high-quality education and research, the Institute strives to improve public dialogue and decisions about land policy.

SOURCE Lincoln Institute of Land Policy