Getting value out of urban land

Prof Innocent Chirisa
An unplanned space does not usually fetch much in the market and serious investors in land and space will shun it.

In 2014, I was part of a team of researchers assigned to look into the issue of land value.

The project was initiated by DfID and spearheaded by the University of Cape Town, to understand the dynamics of urban land in Sub-Saharan Africa, with specific focus on Addis Ababa, Harare and Nairobi.

Evidence from Latin America shows that urban areas have a lot of financial wealth that can be used for development.

The insights from Latin America are storied, beginning with the works of Peruvian economist Hernando de Soto in “The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Elsewhere”.

De Soto says there is over US$9,3 trillion of untapped financial resources globally; what he calls  dead capital.

Land gets value through a chain of processes.

It usually begins as a green field (a virgin open space, a forest or a farm land). This land is useful to the farmer, but has far less value than urban land.

When a town or city is expanding, it gets land from abutting rural areas, a process we call urban land incorporation.

Before the enactment of the 2013 National Constitution, urban local authorities could identify and acquire land as and when they needed it.

With the new Constitution, boundaries cannot be changed willy-nilly; they can only be changed after 10 years in keeping with electoral processes.

This is the elephant in the room for local authorities.

Ideally, urban local authorities should apply for such land and keep it for future use, what we call land banking.

Land banking is imperative but has many hurdles around it.

That is why we hear that land for urban expansion is difficult to come by and local authorities give this as the reason why they fail to provide housing and related services.

Local authorities must be innovative and work with what they have.

In the past 15 or so years, the issue of infilling has been common. Infilling involves individuals identifying pieces of land which they think are idle within the existing built environment. They apply for it, buy it, and get permission from council to develop it.

Before the Fast-Track Land Reform Programme, local authorities were stuck in getting new land for urban development.

Most peri-urban farms were not ready to release their land, albeit it being bought from them.

The other aspect that made the process very cumbersome was the involvement of many institutions in the process.

After land is acquired, the process of subdivision or other can happen.

Subdivision involves dividing the tract of land acquired into small lots or stands with various uses being defined.

The planner makes reference to the planning standards which spell out how land should be parcelled.

A good subdivision plan will ensure that space is assigned for residential, commercial (shops and offices), institutional (schools, health facilities, security or administration), recreational and industrial).

The plan must also show circulation in the proposed space. Circulation includes roads, communication, and power and sewer reticulation.

In traditional land economics, there is an important factor or variable of concern, which is location.

A good location attracts positive gains to that space hence positive externalities which, in turn, pull demanders for the land.

Urban planning is a continuous process that is instrumental in creating positive externalities.

An unplanned space does not usually fetch much in the market and serious investors in land and space will shun it. Sometimes places become run-down and investors and users will diminish.

We call that urban decline or blight.

Blighted areas are usually problematic in managing and attract a lot of vices, nuisances and misdemeanours including crimes of drug dealing, uncalled for congestions and a general ecology of fear. There are a number of places in various towns and cities where you will not feel comfortable to be in. This is because you can easily be mugged or fall prey to thieves and robbers.

Planning have a role to ‘breathe’ life into dilapidated places.

The Kopje area in Harare is one such place.

Local Priority Plan No 17 is an attempt to revitalise the area as a step initiated through Special Development Order (Kopje Area) of 1986.

Before the idea to build the New Parliament Building was taken to Mt Hampden, the project was to be housed at the Kopje Area of Harare.

Already some tall building had begun to emerge around the area, for example the NetOne Building.

The plan for revitalisation was premised in the idea that with development of new business and activity in the area, that would ‘drive away’ the urban maladies that were becoming the order of the day in this zone.

As light drives away darkness, so would revitalisation drive away the pathology of a bad city in the area. To date, not much ground has been covered in the intended direction but the obvious reason and core of the matter is that economy that has never really ticked since the 1990s.

Bad policies of the former Government also explain the drag.

Good plans in a context of poverty, disinvestment and bad policy are as good as not having plans at all. They are deemed utopian, fantasies, if not, nightmares.

Infrastructure provisioning into a planned area is called servicing.

It is a value creation venture and town planning is at the centre of it.

Once the value is created, the evaluator comes in tell the value that has been created because of the improvements to the land.

Different areas in a city have different values. What the council bills is a reflection of the value of your property alongside the services that you are getting (including water and waste collection).

Residents have sometimes complained that they were getting a raw deal from the council.

For example, there are some areas in Harare that continuously get bills reflecting water charges, when they were not getting the water.

These people have a standpipe (tap), but the liquid called water is not flowing in the pipe.

How did they get piece of infrastructure on their stand?

The most probably answer is that the municipality, through borrowing powers enshrined in the Urban Councils Act (or Rural District Councils Acts, in the case of rural areas) borrowed a loan from a bank, which it is servicing.

Isn’t is correct, therefore, that even without the service, you are paying for the infrastructure already installed (even on your plot/stand)?

Remember, infrastructure is the conduit that brings a service (e.g. water), to your doorstep. I know this may open a Pandora ’s Box (or rather a can of worms), but it is the truth.

I remember one facilitator in a Land Management and Informal Settlement Regularisation course that I took at the Institute of Housing and Urban Development in Netherlands in 2009 emphatically saying: ‘Urban areas are not for free’.

We pay for the infrastructure that has been laid up in it.

If you are renting a housing or room, you pay rent to your landlord.

The landlord has to pay what we call property tax or rates to the municipality and paying for land is the modus vivendi of dwelling in an urban area.

It is reported that, in South Africa, the arrival of the Gautrain has seen the rising of land values especially around a number of train stations.

This is because a rational train user will like to stay near the rail station.

The preponderance of the so many users pushes the price of rentals in the space they are all clamouring to dwell upon.

Landlords then get a windfall of the land prices in the form of rent.

Because the ‘profit’ has been created, it is the duty of the municipality to negotiate (on behalf of central government) with the landlords to share with it the profits.

We call this land value capture (LVC).

If harnessed, it can be used to further infrastructure developments in the city.

In the Regional, Town and Country Planning Act, this comes in the form of the endowment fee.

Our DFID/UK-AID 2014 study with the City of Harare, however, established that the endowment money was being used, not for infrastructure development, but something else.

This is quite unfortunate, of course, a reflection of the bad times compounding the local authority.

If that money was available, imagine the grandiose benefits that would do for the city – improved water augmentation, paved streets, improved street lighting, and meaningful garbage management, to name these few.

Urban planning is the precursor of proper urban development. It creates value in land. It is this value that makes the urban, urban!

Squatters and slum/shack dwellers are usually free riders.

Property values will drop if land invasions happen. Perhaps, it is only in Zimbabwe, where this effect is not directly immanent; because the bad times induces a lot of land speculation.

Land speculation happens when one decides to hoard land because they are anticipating a better price of it in future.

Speculation is when you get value on a piece of property that you have not improved. Let’s rest the case here. It is a subject of another day.

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