The Sunday Mail
Professor Innocent Chirisa
Last week, I briefly touched on speculation as a problem in urban land value.
In effect, it is a pathological condition that exists in land and is a serious cancer in many cities and towns, especially in developing countries.
When planners put together their ideas on paper, their hope and desire is to have them functional and bring gains to the intended community.
The idea is not to create land-uses that go unused or disused.
Disuse arises when there is neglect or abandonment of the created function or land-use.
If one goes at some rural business centre, the common sight is of shop buildings, which either were once functional and now are closed, or buildings which were never completed in terms of construction of the superstructure.
As such, the buildings have become an eyesore in the space; they are occupying space, but no value is accruing both to the owner and the local authority.
At one point, the City of Johannesburg in South Africa, as a local authority, had to battle what was called a Bad Buildings’ Programme, which it then later changed to Better Buildings’ Programme.
Most of the abandoned buildings in Johannesburg were in the central business district.
There are various reasons to abandoned building projects: One could be that the owner died and no one could take over the project.
Or, the owner became so indebted that they could no longer handle the project further.
In some cases, the owner failed to foresee the other costs of the projects, where the cumulative costs became unbearable over time; hence, experienced some cost overruns.
There are so many cases where a building project of, for example, $2 million ended up being $4 million or more.
In financial economics, a dollar today is not the same as a dollar tomorrow.
By a method of discounting and taking into consideration factors like inflation and changing interest rates, one can estimate the actual amount of value that would have been lost through time.
It is possible that at the time an investor puts across their expression of interest to develop or build, delays to the process may lead to serious losses to the value of the money.
Prices of building materials in the market may change drastically.
From the institutional economists’ perspective, when investing, it is crucial for one to take into account what they refer to as “transaction costs”.
Transaction costs include the price of processing a deal, including commissions to be paid to brokers and the cost of waiting for the local authority to process a plan.
Urban development corporations were created in the late 1970s in Britain by the government of Margaret Thatcher.
The Iron Lady was unhappy with the way local authorities were conducting their business.
They were always unnecessary delays to development in the name of following bureaucratic procedure.
UDCs were then a safety valve away from local authority red tape.
Of course, Zimbabwe being a darling of Britain in the maiden days of her independence also ended up creating its own Urban Development Corporation (UDCORP).
That problem had not been noted seriously on the ground, but it was just fashionable to do so. We call that “plunging into an error of the third type”, which is simply about solving a problem which is not there or which one is speculating could be there; solving the wrong problem.
In other words, this is when a child is crying to be fed, but one takes it to bed.
UDCs were meant to bring a private sector approach to service delivery by local government. In my lecture, I likened them to the Biblical Joseph, the favoured one, putting on a coat of many colours which, metaphorically, also meant that he was the rightful first-born to Jacob.
Of course, the real first-born was there. Would he willingly let his birth right be snatched by some Johnny-come-lately without any record or experience of delivery?
In conflict management, competition is a strategy to escalate conflict, with the primary aim of squeezing the best out of the players.
For the Zimbabwean UDCORP, there has been much rivalry between it and the local authorities it has to collaborate with.
Some even call it “Kasukuwere’s company”. (Saviour Kasukuwere was Minister of Local Government, Public Works and National Housing until November 2017).
Zimbabweans are good at using labels; if you were a dog and were biting a bone, they will label the bone until you drop it if you are not strong.
UDCORP has many projects countrywide, but having them implemented is not a stroll in the park.
Speculation arises because sometimes the local authority fails to process and approve plans on time.
A thoughtful investor may hoard as many plots as they can with the idea to sell them when they increase in price, even without being serviced.
Then they sell the stand or plot at double or treble its original value.
It cannot be speculation if the new price is a reflection of value addition to the stand or plot. A speculator plays his or her cards close to his her chest. They have to hide the true value to the buyer.
They keep the land undeveloped, only to get the most out of investing nothing to it except holding it.
Meanwhile, the local authority gets little to nothing.
Apart from the piece of land being an eyesore in the local area, sometimes, if wholly unattended, it becomes a hideout of muggers and thieves.
It adds to the paraphernalia of spaces that induces fear to passers-by and people of the neighbourhood.
The following is an excerpt from a book titled “Landscapes of Fear” by Yi-Fu Tuan.
“It is deeply ironic that the city can often seem a frightening place. Built to rectify the apparent confusion and chaos of nature, the city itself becomes a disorienting physical environment in which tenement houses collapse on their inhabitants, fires break out, and heavy traffic threatens life and limb.
“Although every street and building – and indeed all the bricks and stone blocks in them – are clearly the products of planning and thought, the final result may be a vast, disorderly labyrinth.”
According to Yi-Fu Tuan, planned areas can equally be topophobic spaces, spaces where fear is brewed.
I want to add that holding even serviced land in speculation is a cause for concern, not only to the neighbours, but also to the local authority.
Although, it is the part of the mandate of the local authorities to make places under their jurisdiction habitable through routine maintenance, it is quite costly when the intended beneficiaries are not in their place.
Goods and services must be consumed when they are provided.
It reminds me of my high school, Harare High.
When it was completed and it opened its door for the black population in 1958 in Salisbury (now Harare), Harare High failed to get students.
There were many narratives created in the African townships. Some said whites wanted to turn them into their tails, while others speculated that it was a ploy to further colonise Africans.
So, this was a good step initiated by the white government to have blacks educated within the precinct of the city.
It became a ladder without rungs. In Shona, the whisper was ‘Danho rashaya makumbo” (The ladder has no steps).
Services, unless consumed, become white elephants.
Speculation changes what were supposed to be assets into liabilities. They will be high maintenance costs with no return to the investment.
Apparently, there seems to be no harm accruing to the speculator.
But we are also alive to the fact that one may fail to raise sufficient funds to build on the land they have managed to acquire.
In Zimbabwe, mortgage markets are currently dysfunctional.
What appears to be working are some short to medium-term loans, and not everyone can afford them.
Those in the Diaspora are sometimes better-placed because it can be possible for one to get a mortgage at 3 percent interest from a Swiss Bank, invest it in a Zimbabwean housing market and amortise it over a period of 25 to 30 years.
In the local financial market, there are many bottlenecks, especially for the not-well-to-do classes.
The valuation and conveyancing fees are so displacing that the poor continue in homelessness.
If they decide to move out of homelessness, they find themselves in a places where the plan has been drawn but the servicing has not been done.
Yes, they have a roof over their head, but they do not have paved roads. They have to do with a deep well.
They have also to do with a pit latrine because sewer reticulation is awaiting better times to come. When? No one knows.
Local authorities prevent speculation by putting a charge on the land, even when it has not been developed.
This is the route that Zimbabwe’s Government chose to use after it had seen that most people were holding land speculatively, yet those who had done improvements to land were being charged.
Now, the piece of land accumulates charges and by the time one intends to sell it off, they are indebted.
Apart from fiscal measures, local authorities can also enforce legal action.
Litigation has its limits and always brews animosity between the builder and the local authority.
Ideally, UDCs could help and create, in little time, the desired townscapes, and make beneficiaries pay over time.
Without politicising the process, the avenue can breathe life to many plans and urban land value becomes a critical asset for local authorities.
In the coming weeks, we intend to cover other pathologies in urban space in a bid to discuss their possible cures.
Professor Innocent Chirisa wrote this article for The Sunday Mail