Cities in Latin America and the Caribbean are growing at breakneck speed. The million-dollar question is– how should they manage and finance their sustainable development so they can continue to expand and at the same time optimize the use of space and be a comfortable place to live in?
The key to renovate some areas, densify others, preserve the public heritage and enable new building locations could be in capturing the increases in property value. This could help cities manage their resources more efficiently and reduce their dependence on central governments, according to a new study released by the Inter-American Development Bank (IDB) titled Expanding Land Use and Value – Capturing Property Value Increases in Latin America and the Caribbean (only in Spanish).
The authors define “value increase capture” as municipalities’ ability to benefit from the real estate value rise that results from infrastructure improvements (access to highways, road paving, public lighting, sewers, etc.) or the implementation of new land-use rules (e.g., from rural to urban, or from residential to commercial). Typically, these increases, although they depend on public actions, benefit only private property owners.
The study stresses that there is no one formula to tackle all the different needs of the region’s cities. “We have found that resource capture mechanisms can vary dramatically, not just from country to country but also among cities within a same country,” says Andrés F. Muñoz, IDB specialist of Fiscal and Municipal Management Division.
Different capture formulas identified by the study include taxes, improvements fees, regulations, and construction rights sales:
The study, authored by Andrés G. Blanco, Andrés F. Muñoz and Vicente Fretes Cibils, surveyed 17 projects in nine cities from five countries in the region: Argentina, Brazil, Colombia, Ecuador and Uruguay.
“Urban land value capture is already reaching maturation point in Brazil and Colombia, where it has been in use for nearly 30 years; it is in a developing phase in Argentina and Uruguay, where some innovative experiences have already taken place; and is still in its initial stages in Ecuador, although the city of Cuenca is already making a systematic and effective use of special compensation for public investments,” indicates Andrés G. Blanco, IDB senior specialist of Housing and Urban Development Division.
Value capture is also expected to free up funds for social housing development, a feature still in its preliminary stages but already visible in cities like Bogota and Quito.
The study can be accessed and downloaded free on www.iadb.org/suelos
The Inter-American Development Bank is a leading source of long-term financing for economic, social and institutional projects in Latin America and the Caribbean. Besides loans, grants and guarantees, the IDB conducts cutting-edge research to offer innovative and sustainable solutions to our region’s most pressing challenges. Founded in 1959 to help accelerate progress in its developing member countries, the IDB continues to work every day to improve lives.
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