Financing Affordable Housing and Infrastructure in Cities Towards Innovative Land and Property Taxation

7/28/2019 Financing Affordable Housing and Infrastructure in Cities Towards Innovative Land and Property Taxation

1/74

name of the chapter

CONFERENCE REPORT

Sponsored by Global Land Tool Network (GLTN)

with funds from the Governments

of Norway and Sweden

Warsaw, Poland

1516 October 2009

Financing affordable housingand infrastructure in cities:

towards innovative land andproperty taxation


2/74

Financing affordable housing andinfrastructure in cities:towards innovative landand property taxation

Warsaw, Poland

1516 October 2009

CONFERENCE REPORT

Sponsored by Global Land Tool Network (GLTN)with funds from the Governments of Norway and Sweden

Organized under the patronage of the Ministry of

Infrastructure, Government of the Republic of Poland

April 2010


3/74

Published by:

UN-Habitat Warsaw Officeul. Krucza 38/4200-512 Warsaw, PolandTel: +48 22 661 97 23Fax: +48 22 661 97 24

E-mail: [email protected]: www.unhabitat.org.pl

Global Land Tool Network (GLTN)UN-HabitatP.O. Box 30030 Nairobi 00100, KenyaE-mail: [email protected]: www.gltn.net

Cover Photos from the top to the bottom:

Yulia Korysheva (2009), Katarzyna Romanowicz (2009), Claudio Acioly (2006), Remy Sietchiping (2008), Gwendoline Mennetrier (2008), Remy Sietchiping (2007)

DISCLAIMER

The designations employed and the presentation of the material in this report do not imply the expression of any opinionwhatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city of area,or of its authorities, or concerning delimitation of its frontiers or boundaries, or regarding its economic system or degree ofdevelopment. The analysis, conclusions, and recommendations of this report do not necessarily reflect the views of the UnitedNations Human Settlements Programme or its Governing Council.

ACKNOWLEDGEMENTS

Principal Authors: Gwendoline Mennetrier, Katarzyna RomanowiczAdditional Editorial Input: Remy Sietchiping, Krzysztof Mularczyk, Clarissa AugustinusDesign and Layout Coordination: Yulia Korysheva

Sponsor: Global Land Tool Network (GLTN) with funds from the Governments of Norway and SwedenDesign, Layout and Printing: Studio Grafiki A-4, www.a4studiografiki.pl


4/74

3

CONTENTS

Contents

EXECUTIVE SUMMARY

INTRODUCTION

Background

Attendance

Opening of the Conference

Objectives of the Conference

Structure of the report

PART I LAND AND PROPERTY TAXATION: POLICY, LEGAL AND INSTITUTIONAL FRAMEWORKS

Summary of presentations

Housing sector reform in Central and Eastern Europe: regulatory framework and policy development, Claudio

Acioly, Housing Policy Section, UN-Habitat

Can the unearned increment in land values be harnessed to supply affordable housing?, Rachelle Alterman,

Center for Urban and Regional Studies, Israel

Taxing Public Leasehold Land in Transitional Economies, Yu-Hung Hong, Lincoln Institute of Land Policy, USA

Land Value Tax as an Investment Mechanism for Public Transport Assets, Francesca Medda, University College

London, UK

An increase in the value of land as a prerequisite for imposing adjacency levies a critical analysis, Mirosaw

Gdesz, Administrative Court, PolandUNECE Working Party on Land Administration, Ariel Ivanier, UNECE Environment, Housing and Land Management

Division

More than a tax: some ethical implications of land value taxation, Richard Lawrence Giles, Association for Good

Government, Australia

Public space and its appropriation in light of the theory of externalities recommendations and directions for

building an intervention system by public authorities, Tadeusz Markowski, Lodz University, Poland

Summary of discussions

Summary of key ideas and findings

PART II LAND AND PROPERTY TAXATION IN PRACTICE


Innovations in the Property Taxation System in India, Debolina Kundu, National Institute of Urban Affairs, India

Taxation and its effects on sustainable development with reference to the UK, Greg McGill, Planning and

Development Consultant, UK

Land and property taxation in the countries of former Yugoslavia with a particular focus on Montenegro, Yvonne

Mller, German Technical Cooperation GTZ, Montenegro

Improving public-value capture in urban development, Demetrio Muoz Gielen, Radboud University Nijmegen,

the Netherlands

Property tax and informal property: an essay on the challenge of the Third World, Martim O. Smolka, Lincoln

Institute of Land Policy, USA

Urban planning, land taxes and levies the German experience, Janina Kopietz-Unger, Karlsruhe University,Forum for cross border cooperation in Europe, Germany

Summary of discussions


5

8

9

9

9

10

13

14

17

19

21

23

25

27

29

31

31

33

34

36

38

40

42

44

46

46


5/74

4

CONFERENCE REPORT

PART III LAND AND PROPERTY TAXATION AND VALUATION: TOOLS AND IMPLEMENTATION LESSONS


Land and property tax: financing towards equality in access to housing, serviced land and infrastructure in post-

apartheid South Africa, Moegsien Hendricks, Development Action Group, South Africa

Land Value Capture: Case Studies, Policy Implementation, and GIS Land Value Mapping, Alanna Hartzok, Earth

Rights Institute, USA

Space Syntax as a Tool to Assess Land Value, Ahmed A. H. Saeid, Wroclaw University of Technology, PolandSummary of discussions


PART IV CONCLUSIONS AND RECOMMENDATIONS

Summary of key issues/ challenges/ lessons

Contribution of the Conference to the debate on land and property taxation

Recommendations and way forward

Closing remarks

ANNEXES

Annex 1. Programme of the ConferenceAnnex 2. List of participants

Annex 3. List of Acronyms

TABLE OF BOXES

Box 1: Participants expectations at a glance

Box 2: Examples of mechanisms for capturing land value in the context of mass transit systems

Box 3: A chronological account of the history of Adjacency Levies in Poland

Box 4: The case of Australia and New Zealand

Box 5: Bangalore: Bruhat Bangalore Mahanagar Palike (BBMP)

Box 6: Ahmedabad: Ahmedabad Municipal Corporation (AMC)

Box 7: Certainty in Spain

Box 8: Certainty in England

Box 9: Benefits of LVT

Box 10: The case of Harrisburg

Box 11: The case of Allentown

Box 12: Components of a good value capture system

Box 13: Proposals for the way forward at a glance

TABLE OF FIGURES

Figure 1: The context of housing policy

Figure 2: Multi-Family high-rise accommodation

Figure 3: Structure of the capitalized land value of accessibility

Figure 4: House prices and Fundamentals

Figure 5: House prices wage and inflation over time

Figure 6: Graphs showing characteristics of Assessed Properties in Ahmadabad and per capita revenue receipts of AMC

Figure 7: Land market and real estate in Montenegro

Figure 8: Von Thunen Land-Rent Curves

Figure 9: Space Syntax Methodology

TABLE OF TABLES

Table 1: Comparative statistics

Table 2: Privatisation in CEETable 3: Valuation methods and tax ranges for property tax

Table 4: Summary of degree of certainty in Spain, England and the Netherlands

Table 5: Myths about informality

49

50

52

5456

56

59

60

60

61

61

65

6668

72

10

22

23

28

34

35

41

41

51

52

53

53

62

14

14

21

27

27

35

39

53

55

15

1538

40

42


6/74

5

EXECUTIVE SUMMARY

The International Conference on land and property taxationand financing of infrastructure and housing developmentin urban areas, organized jointly by the Warsaw Officeof the United Nations Human Settlements Programme(UN-Habitat), the Global Land Tool Network (GLTN) andthe Ministry of Infrastructure of the Republic of Poland,took place on 1516 October 2009 in Warsaw, Poland.

The Conference was aimed to enhance and share

knowledge and experiences, disseminate lessons learntfrom the region and other countries/ regions on policiesand instruments of land management and land andproperty taxation, and also to generate further synergiesand networks amongst participants and countries in theregion and beyond.

Over 60 participants from around the World, representingvarious stakeholders in the field, attended the event.Seventeen papers exploring policies and instruments forimproving equitable, affordable and sustainable land andproperty taxation, charges and fees, were presented andled to stimulating discussions and exchanges.

Participants at the Conference acknowledged that therewas no one-fits-all solution. Most of them called for abalance between taxes on property and land and otherinstruments, while others advocated taxation of landvalue only in order to capture the socially generated landrent. Presentations and discussions covered an array ofinnovative approaches to land and property taxationpolicies, reforms and tools for a range of purposes,including revenue generation for new investmentand for further financing of urban infrastructure anddevelopment, and integrated urban planning and

management.

Participants expressed their concern that some currenttaxation policies hindered harmonious and sustainableurban development. It was noted that inadequate landand property taxation systems could indeed lead to

speculation in land and on the housing market, thusincreasing prices, making them unaffordable for lowincome households in cities.

Presentations emphasised that land taxation policiescould encourage land and property owners to developor improve land and housing to the full extentwarranted by its value, or to make way for others whowill. Consequently, building lots are used efficiently;

dilapidated inner-city areas and buildings are returned togood use, which reduces urban sprawl and decay.

In the financial turmoil which we have witnessed, withits consequences for equitable and sustainable urbandevelopment, the Conference brought into the forefrontinnovative taxation policies and practices for improvedurban land and property management that could furtherinspire urban decision-makers and, in the future, expandthe tax base targeted at urban development.

Finally, the Conference demonstrated the need forfurther dialogue and exchange of experiences in the area

of land and property taxation both at global and regionallevels, to capitalize and build on the range of pertinentknowledge, tools and practices which were discussed.Specific proposals were put forward in that vein.

As a follow-up to the Conference, UN-Habitattogether with interested partners intends to produceand disseminate a series of publications for variouskey actors, to capture the array of land and propertytaxation policies, tools and instruments, e.g. the Landand Property Taxation Policy Guide and the WarsawConference proceedings.

Partners dedicated involvement will be crucial forany further efforts to promote innovative approachesto land and property taxation and sustainable urbandevelopment, in addition to UN-Habitats commitmentto continue to facilitate the cooperation process.

Executive summary


7/74

Port-au-Prince

(Hai

ti)Sietchiping

(2008)


8/74

INTRODUCTION


9/74

8

CONFERENCE REPORT

Social justice, urban renewal and development, theprovision of decent dwellings-and healthy conditionsfor the people can only be achieved if land is used inthe interests of society as a whole [] Public controlof land use is therefore indispensable to its protectionas an asset and the achievement of the long-termobjectives of human settlement policies and strategies.

To exercise such control effectively, public authoritiesrequire detailed knowledge of the current patterns of useand tenure of land; appropriate legislation defining theboundaries of individual rights and public interest; andsuitable instruments for assessing the value of land andtransferring to the community, inter alia through taxation,the unearned increment resulting from changes in use,or public investment or decisions, or due to the generalgrowth of the community [] Taxation should not beseen only as a source of revenue for the community butalso as a powerful tool to encourage development ofdesirable locations, to exercise a controlling effect on

the land market and to redistribute to the public at largethe benefits of the unearned increase in land values.Vancouver Action Plan, 19761

BackgroundLand and property taxation is the practice of generatinglocal and/or state revenue from land and property holdersor users. A well-managed land and property taxationcan benefit low-income groups via i.e. cross subsidiesin infrastructure, services, affordable housing, landprovision, etc. Without land and property tax there isa vast amount of speculation on the land and housingmarket, which pushes the prices sky high and makes

them unaffordable for low-income earners in cities. Thisis especially important for Central, Eastern and South-Eastern Europe, where many countries, with economiesin transition, have recently initiated land and propertytaxation policies and instruments. At the same time,several countries in the region are committed to improvingand integrating their housing and urban planning andmanagement.

Land and property taxation has taken the central stagein the countries of Eastern Europe, particularly thosetransitioning to market-oriented economies with private

ownership. In the region, new/innovative and variedapproaches to land and property taxation policies,reforms and instruments have been experimented withfor a range of purposes, including revenue generation tofinance urban infrastructure and development, supportdecentralization, ensure affordable housing, maintainurban infrastructures and investments. Those innovationsin land property taxation should be documented forknowledge-sharing and lesson-learning, especiallywith a view to improving urban land and propertymanagement.

1 The Vancouver Action Plan for human settlements contains 64Recommendations for National Action. It was approved at the UnitedNations Conference on Human Settlements (first Habitat Conference),in Vancouver, Canada, in June 1976.

In this context, the UN-Habitat Warsaw Office wasestablished in October 2006 with the support of theGovernment of Poland to further operational activitiesin Central, Eastern and South-Eastern Europe in orderto effectively address human settlement concerns inthe region2. In 2007, the UN-Habitat Warsaw Officeconvened two special ministerial-level Advisory Council

meetings which offered a platform for enhancedcooperation and knowledge-sharing and a mechanismto keep housing and urban management challengeshigh on the agenda. Both Advisory Council meetingsdemonstrated the need for exchanges at the regionallevel, including on land administration systems, andrecommended to the Warsaw Office to further supportthe dissemination of concepts, tools, and relevantexperiences for the region. The Conference on Financingaffordable housing and infrastructure in cities: towardsinnovative land and property taxation was organised inresponse to that request.

The Conference was organised together with the GlobalLand Tool Network (GLTN3), as part of its mandate toimprove the general dissemination of knowledge on land,improve and develop pro poor land management andland tenure tools, contribute to poverty alleviation and theMDGs4 through land reform, improved land managementand security of tenure. The Network approaches land andrelated development objectives through consultations,knowledge exchange and cooperation at the global,regional and national levels, while tool developmentand documentation are handled at the national andlocal levels in various participating countries. The project

goals of the Global Land Tool Network focus on thedevelopment of pro poor, gendered and large scale landtools. Once identified and sufficiently supported, thoseland tools will unlock current development obstacles andenhance delivery of the MDGs.

Land Value Capture is one of the five5 core themes inthe land sector that the Network and its partners haveidentified.

2 The Warsaw Office organizes international conferences, publications

and is responsible for managing projects that assist central and localgovernments in the region.3 The GLTN originated in response to requests made by MemberStates and local communities world-wide to the United Nations HumanSettlements Programme (UN-HABITAT), who initiated the network incooperation with the Swedish International Development CooperationAgency (Sida), the Norwegian Ministry of Foreign Affairs and the WorldBank, in 2006. The GLTN has developed a global partnership on landissues, pulling together global partners as well as many individualmembers. Those partners include international networks of civil society,International Finance Institutions, international research and traininginstitutions, donors and professional bodies. The GLTN Secretariat ishandled by UN-Habitat.4 Millennium Development Goals (MDG) number 7 (on the environmentand slums), number 3 (relating to womens land, housing and property

rights) and number 1 (on food security).5 The five core themes of GLTN are: (1) Land right, records andregistration, (2) Land use planning, (3) Land management,administration and information, (3) Land law and enforcement, and(5) Land Value Capture.


10/74

9

INTRODUCTION

The call for papers pertaining to three thematic areaswas launched in early 2009. More than fifty abstractswere received addressing (1) land and property taxationpolicies, legal and institutional frameworks, (2) landand property taxation as a means to provide affordable

housing, serviced land and infrastructure (3) tools foroperationalising land and property taxation and lessonsfor implementation. Eighteen contributions were pre-selected and related papers commented on by the ReviewCommittee. Seventeen papers were finally selected forpresentation at the Warsaw Conference.

AttendanceThe Conference brought together over 60 participantsfrom around the World, representing the academic/research sector; central and local authorities; Non-Governmental Organizations, the private sector as wellas international cooperation organizations.

The list of participants is included in annex 2.

Opening of the ConferenceThe Conference was opened with welcoming remarksby Krzysztof Mularczyk, Director of the Warsaw Office ofUN-Habitat. He presented briefly the scope of activitiesof UN-Habitat in the region and stressed the role ofUN-Habitat in collecting and analyzing the lessonslearned from successful experiences in Poland and othercountries, and in documenting and disseminating theexamples of good practice. He stressed that finance

was the key and innovation was a must, if progresswas to be made on urban infrastructure and affordablehousing. In that context, he said that the Conferencewould certainly be a step forward in experience andknowledge-sharing on land and property tax andsustainable urban development in the region and beyond.He also repeated his acknowledgement of the supportthe GLTN had provided in sponsoring and co-organizingthe Conference, and commended the Government ofPoland for having patronised the event. He hoped thatthe Conference would be used as a forum for a verydiverse and open debate.

Clarissa Augustinus, Chief, Land, Tenure and PropertyAdministration Section/ GLTN, UN-Habitat, remarkedthat the GLTN was established in 2006 with the supportof the Governments of Norway and Sweden as a global

partnership to address land reform issues and to assistMember States at a global level in implementing landpolicies that are pro-poor, gender sensitive and to scale.While the work of GLTN partners is still relatively new,it has already made important contributions, such asrecognition of the need to move beyond titling towardpromoting a range of land rights and placing gender

at the centre of the global land agenda. As an attemptto create a comprehensive global focus to move theland agenda forward, the GLTN strongly promotesdialogue and debates among partners with the aim tofurther share knowledge and experiences, documentand disseminate innovative land management tools.She said that the Conference would surely constitutea great opportunity to identify and discuss a range ofinnovative land and property taxation tools and, and alsoto enrich the work undertaken by the GLTN partners onLand Value Capture (and land taxation, in general), oneof the five core themes of the GLTN.

H.E. M. Grabowski, the Undersecretary of State at thePolish Ministry of Finance welcomed that initiative as away to exchange good practises and stimulate innovativesolutions. He stated that changes presently affectingcurrent real estate taxes in Poland would require furtherchanges in the whole taxation system and confirmedthe Governments strong interest in introducing newmethods of financing sustainable urban development.He emphasised that the debate over land and propertytaxation had been ongoing in Poland for the best part ofthe last two decades. It has not ended and Conferencessuch as this one still have an opportunity to make a real

impact on long-term outcomes.

H.E. O. Dziekonski, the Undersecretary of State at thePolish Ministry of Infrastructure, explained that the PolishGovernment was currently in the process of rethinkingits housing and urban planning policies, of which thedevelopment of sustainable and affordable infrastructurewas a key element. In this context, it becomes crucial todetermine who should contribute to the developmentof new infrastructure and its maintenance: beneficiaries,central authorities, local authorities, etc., and how. ThisForum may provide valuable inputs into the options

currently under discussion in Poland. The minister hopedthat the deliberations and outcomes of the Conferencewould make a contribution to the efforts of the Ministryof Infrastructures working group on financing urbandevelopment, which had recently been created. Hestressed that several members of that group togetherwith civil servants from the ministry were participatingin the Conference.

Objectives of the ConferenceRemy S ietchip ing, Land Tenure and PropertyAdministration Section/GLTN, UN-Habitat, introducedthe objectives of the Conference, as follows:

To share experiences and innovative practices on landmanagement and land and property tax approaches/tools and its contribution to financing of affordablehousing, serviced land and infrastructure.

UN-HabitatWarsaw

Office(2009)


11/74

10

CONFERENCE REPORT

To debate and learn from each other about variousrealities, approaches and options/ solutions.

To generate further networking among participants

and the countries represented. To draw key lessons on what works/ what does notwork and to map the way forward accordingly.

Participants were also briefed on the programme of work: Three main thematic sessions focused around

presentations and discussion, respectively on:- Land and property taxation: policy, legal and

institutional frameworks.- Land and property taxation: practices and

countries experiences.- Land and property taxation: implementation and

tools.

One plenary discussion aimed at outlining the mainlessons that emerged from the two-day presentationand discussion as well as a possible way forward.

Furthermore, the introductory session was an opportunityto summarize and share participants expectations fromthe Conference6. Recurrent expectations are highlightedin Box 1.

BOX 1. Participants expectations at a glance

To share knowledge, experiences and innovativepractices in Central and Eastern European countriesand beyond and to compare solutions.

To learn and have a better understanding of variousopportunities/ instruments/ tools to finance affordablehousing and infrastructure.

To get acquainted with approaches to reconcilingsocial and market aspects.

To better comprehend the role of taxation inredistribution of resources.

To network and initiate new collaborative actions andpartnerships.

To get ideas for local actions. To agree on a common agenda. To debate for and against land (value) taxation.

Structure of the report

The report is organized into four chapters, e.g. thefirst three chapters recapitulate the presentationsand discussions held during thematic sessions andthe fourth chapter underlines main conclusions andrecommendations for the way forward, produced bythe Conference.

6 Before the start of the conference, participants had been asked tolist (up to three) their expectations from the conference.

UN-HabitatWarsawOffice(2009)


12/74


13/74

Riga

(La

tvia)Korysheva

(2009)


14/74

PART I

LAND AND PROPERTY

TAXATION: POLICY,LEGAL ANDINSTITUTIONALFRAMEWORKS


15/74

14

CONFERENCE REPORT

With the shift to an open market economy initiated in1989, the role and responsibility of the post-communiststate evolved with regard to infrastructure and housingprovision. Large scale privatisation and the retreat ofthe state have especially had a significant impact onhousing stocks. Shifts of ownership, unaccompanied bya transformation of policy and institutional mechanisms,have left the existing housing stocks in poor repair. In mosttransitional countries, the housing sector faces severe

challenges, including with regard to safety, quantity andliveability; however the gravity of the problem varies fromcountry to country. Acioly provided an insight into hiswork with governments of transitional countries, withregard to policies prevalent under the new regime. Heexamines the legal, regulatory, institutional and policyenvironments, and how they have adapted to the newcontext. A call is made for introducing some form ofproperty tax and homeownership maintenance fees tofinance maintenance of the housing stocks.

Understanding the Housing SectorInstitutional, legal and regulatory frameworks, within

the housing sector, work together to form a specifichousing market context. The context of housing policy isthus affected by numerous social, economic and politicalfactors which impact the supply and demand of housingstocks and hence their affordability (Figure 1). This processentails an interplay of labour, finance, infrastructure, landand building materials.

The context of housing in transitional countries isunique, especially due to large scale changes with

regard to ownership, the role of the state and macro-economic conditions. There are three main sectorspertaining to housing, that need to be mentioned;

these are: the ownership sector, the private rentalsector and the public rental sector; all have undergonemajor transformations in the last two decades; in manyinstances, those changes are still on-going, often to thedetriment of the condition of housing stocks. Aciolyunderlined the importance of the public rental sectorin the context of transitional countries, which has seenan erosion of its role on the housing market. In mostcases, governments stimulate homeownership, andexisting housing stocks are often put to privatisation.The newly emerged ownership sector demands newresponsibilities for homeowners who are required

to contribute to the maintenance of housing stocks.Property maintenance companies are often hired tofulfil this new role. In the case of rental sectors, thisprocess is more challenging; here housing associationsplay an important role, often with poor results.

Housing stocks:owner vs. renter occupancyMulti-family high rise housing, known as superblocks(Figure 2), the product of modernist ideas in architectureand urban planning, are an important form of housingin Central and Eastern European (further CEE) countries.In CEE countries 53% of housing stocks are multi-family

buildings and 29% are high rises, compared to theEU15 countries, where these figures stand at 45% and14%, respectively. In Hungary, Poland, Slovakia, around20% of housing stocks are made up of multi-family

15/10/2009 Claudio Acioly Jr. / UN-HABITAT 6

Market

The Context of Housing PolicyThe Context of Housing Policy

"Prices"

SUPPLY

HOUSING AFFORDABILITY

DEMAND

Affected by

availability of:

land

Infrastructure

Building Materials - BM

Organisation BuildingIndustry

Skilled & ProductiveLabour

Self-reliance BMproduction

affected by regulatory,affected by regulatory,

institutional & policy frameworksinstitutional & policy frameworks

Affected by:

Demographicconditions

Rate of urbanisation

New householdformation

Property rights regime

Housing Finance

Fiscal Policies Subsidies

Macro-economicconditions OUTCOMESOUTCOMES

FIGURE 1. The context of housing policy

Source: Acioly, 2009

FIGURE 2. Multi-Family high-rise accommodation


Housing sector reform in Centraland Eastern Europe: regulatoryframework and policy developmentClaudio Acioly


16/74

15


high-rise housing, with Spain and Ukraine leading atalmost 30%.

As mentioned earlier, after the 1989 economic reforms,ownership in CEE countries underwent significantchanges. Table 1 shows some international comparativeresearch data regarding housing occupancy. Since 1989,

85% of Eastern European housing stocks have been owneroccupied. Latvia is a case in point of this transformation;here owner occupied accommodation rose from 19%pre-1989 to 79% after the open-market policy waslaunched. Currently, the private sector accounts for anaverage of 95% of housing stocks in the CEE countries;this means virtually no public sector involvement in theprovision of housing (Table 2). This fast-paced changehas brought many challenges.

Understanding the housing challenge:maintenance and management

According to Acioly, the housing problem has its rootsin fast-paced transformations and results from legaldifficulties, management shortcomings or simply badpolicy. Currently, in Europe there is a housing backlogvalued at 4 trillion Euros; it is estimated that it may takebetween 40 to 100 years to solve. Due to such a highdemand, it is very likely that high rise housing will havean important function in the years to come.

Generally, owners have little knowledge about theirrights and obligations in relation to their property;there is a huge degree of ignorance about regulatoryframeworks. Consequently, the repair and maintenance

of buildings is often unattended to, contributing to theirdilapidation and deterioration of the living environment.After the fall of the communist regime, an emphasis hasbeen put on owners participation in housing stockmanagement; however, the novelty of this conceptand lack of clear understanding of what it entails, hasmeant that management is often fragmented andinefficient, with owners facing difficultly with organizingcollective responsibility. There have been no practicalarrangements put in place to support owners to managetheir flats, consequently they are unable to fulfill theirobligations as owners; at least not in the same sense that

homeowners in western capitalist economies contributeto housing management. Very often, a large proportion ofhomeowners have little disposable income to contributeto management needs. According to Acioly, the poorfinancial situation of owners and the need for investmentin their properties will not be sustainable for the housingstocks in the long term.

The strategy: multi-sector approachThe resolution of the housing problem will demandinteraction between the central government, financialinstitutions, development corporations, municipalgovernments, NGOs and the private sector, whichshould seek to engage with homeowners throughhomeowners associations. Acioly underlined theimportant role that the government needs to play; itshould set the rules but at the same time it must havethe capacity to enforce the law and a strategy to makeit work. The state and municipalities should create anenvironment in which communal ownership of housing

should be treated as a private sector, with the ownershaving clear rights and obligations. The state shouldhave the role of an enabler, and if owners are unableto meet their obligations, then they should be offeredan alternative. This essentially means that maintenanceof owner occupied housing stocks should be theresponsibility of owners; however, governments shouldhelp facilitate the process.

Conclusion and relevanceto affordable housingAcioly presented a comprehensive picture of the state

of housing stocks in Central and Eastern Europe afterthe post 1989 economic transformations. The transitionto a new regime of homeownership brings along newresponsibilities for homeowners, who need to partake inmanagement of their properties through homeownersassociations, housing agencies and property managementcompanies. Nevertheless, homeowners do not always


EU15 NL EU10 EE LV LT

% owner occupied


17/74

16

CONFERENCE REPORT

fulfil their obligations, which leads to deterioration ofhousing stocks. Even though the problem of housingmanagement is endemic in post-communist countries,there are similar problems in more mature capitalisteconomies; for instance, the formation of ghettos, in theFrench banlieux. Nevertheless, the essence of the Centraland Eastern European problem lies in the shortcomings

of its fiscal, legislative and regulatory capacity after theownership shift. To solve the problem an interactionbetween multiple players is needed, which, according tothe presenter, requires a strong enabling state. However,the housing problem will continue to pose a challengefor CEE countries, where huge housing backlogs haveaccrued over the years.


18/74

17


Affordable housing is increasingly becoming a gapinghole. Alterman emphasised the growing problem ofexclusion and lack of housing affordability, which ispersistent not only in developing countries but alsovery visible in developed economies, such as theUnited States. It is thus thought that the unearnedincrement, the rise in land values, could be used tofinance affordable housing and other public servicesand infrastructure. Alterman stresses the importance of

the rationales for capturing value, ultimately leading toa specific set of policies depending on the institutionalenvironment. Various direct and indirect value capturemechanisms are analysed. Even though the idea ofland value capture is not new, few countries haveadopted it in its pure form; since its original conceptionby Henry George, the idea of land value taxation hasmorphed into various degrees and forms of the originalconcept. Experimentation with different instruments isstill at its embryonic stage. Alterman analyzes the U.K,represented as the worlds laboratory with regard totaxation policies.

Affordable Housing: The gaping holeAffordable housing resources have decreased substantiallyin recent years; Alterman linked this to:

The retreat of governments and reduction of publicfinance.

Reluctance of citizens to pay higher taxes. Privatisation or semi-privatisation of existing social

public housing stocks. Regulation which has caused an erosion of the

existing affordable housing stocks. Regeneration of cities with the omission of

affordable housing.

Exclusionary zoning and gated communities.

There is an ensuing need to research instruments otherthan direct taxes to finance or incentivize affordablehousing. Such instruments are generally associated withplanning regulation and land policy.

The unearned increment:Direct and Indirect ValueCapture mechanismsThe issue of dealing with changes in land values causedby planning and zoning is problematic. The questionis to whom should the added increment go to and

how heavily it should be taxed. In the case of a valuedecrease, should landowners be compensated? Theseissues remain in policy planning today. There are twotypes of value capture mechanisms direct and indirect.

The concepts are often confused; however, they needto be understood as two different entities as they arisefrom different rationales.

Rationales for value capture

Direct value capture mechanisms refer to an increasein the value of land of private owners through actionsundertaken by public authorities or by the generalcommunity. The rationale for capture is thus the fact

that the increase in value was not caused personally byan individual and hence should be shared with a broadercommunity. That type of mechanism has generally beenslow to catch on.

Direct Value Capture mechanisms

Betterment ( in contrast to compensat ion,aggravation): the rise in land values caused directlyby a planning or public works decision. Used in UKand former colonies.

Unearned increment: any rise in land values, whether due to public decisions or to the generaleconomy; stressing the fact that the rise is not dueto landowners own initiatives and efforts. Usedinternationally. Plus-value: or value increase asabove, but a more ideologically neutral term. Usedinternationally.

Windfalls (in contrast to wipe-outs): Coined in theUSA.

Givings (in contrast to takings): an esoteric take ofthe reverse US concept.

Source: based on Alterman 2009

Indirect value capture mechanisms are used increasinglyby various countries and local governments. Theyresult from different legal and policy environmentswhich generally make the use of direct value capturemechanisms problematic. The rationales for these capturemechanisms also tend to differ from the traditionalrationales. Alterman described those alternativerationales as concentrated on the anticipated impactsof development. These might include the need to helprecover development costs that would otherwise beimposed on public budget; however the local authorityshould not exact mitigation from the developer in the

case of windfalls, as this would constitute a directcapture mechanism. These capture mechanisms areusually more complex and less well defined. Altermanreferred to these as developer obligations.

Can the unearned increment in land valuesbe harnessed to supply affordable housing?Rachelle Alterman


19/74

18

CONFERENCE REPORT

Indirect value capture concept and instruments

Developer obligations (exactions (USA), planningobligations, planning gain (UK), participation (France)cost recovery (Netherlands): variety of mechanismsused by planning authorities to transfer some or all ofthe burden of supplying public services, amenities, orenvironmental mitigation obligations, from the publicauthority to the developer.

Infrastructure levy: the oldest type of obligationsbased on betterment rationale; limited to cost ofconstruction.

Impact fees or linkage: Preset levels and rules ofdeveloper obligations.

Developer agreements: Discretionary obligationsnegotiated case by case at various levels and for avariety of purposes.

Incentive zoning: (USA) Pre-set two-tier system asan incentive for developers to provide a specific public

good e.g. Affordable Housing. Transfer of Development Rights: based on theability to transfer the plus value of one developmentto another so as to compensate those whos planningand development rights have been reduced. However,not usually suited for affordable housing.

Source: based on Alterman 2009

Additional rationales for the capture of the unearnedincrement listed by Alterman include:

Reduction of the (political) temptation to misuse

planning decisions to enrich individuals. Reduction of land speculation by reducing its

gains. Increasing the trust in governments planning

decisions. Reduction of a growing public objection to new

development (affordable housing in particular). Provision of a financial resource to compensate those

whose property values decline due to planning.

Capture mechanisms in practiceThe difficulty in designing and implementing direct

unearned increment instruments arises from multipledimensions that need to be considered. Firstly, theundertaking needs to be anchored legally. Additionally,the taxable cause that created the rise needs to bedefined as well as its incidence point. Furthermore themethod of payment and the plus value rate need to beagreed upon. This brings the problem of who receivedthe proceeds, and how this revenue is used.

Alterman conducted a twelve country review of directvalue-plus capture via the use of betterment taxes. It wasfound that the concept of betterment taxes still rests intheory rather than practice. The study revealed that the

mechanism has only been fully operative in Israel, wherethe betterment level is high. Spain was pointed out as acountry with a partial low-rate quasi-betterment tax. InPoland the betterment tax is newly introduced and at the

moment it is inoperative as it needs further revision. Ingeneral, capital gains tax was mentioned as a commonway of capturing the unearned increment, existing inthe UK, the US and the Netherlands. The researcher alsonoted a distinctive rise in the use of indirect mechanisms,such as impact fees, linkage, development agreementsand incentive zoning.

The UK can be regarded as a world laboratory with regardto experimentation with value capture instruments.A plethora of different modes have been tested,however, they were often removed or changed with theadvent of a new government. The rates for recoupmenthave varied greatly, reaching as high as 100% in thePost War 1947 Act; however they never continued forlong enough to enable good evaluation of their benefits.Since 1980, there has been a resounding no to directbetterment capture in the UK. The chronological accountof the betterment capture mechanisms illustrates

how a system wrought with political and ideologicalcomplication can lead to an ultimate failure of this typeof tax application.

Tentative lessons, conclusionsand relevance to affordable housingThe analysis of the cross-country study provides sometentative lessons and conclusions, which can be useddirectly in relation to affordable housing. First andforemost, sustainable political support is essential inorder to implement the capture mechanism, especiallyfor its long lifespan. Implementation of a directmechanism is difficult as it requires national legislation,

which is a politically charged issue, especially if thedebate has high public exposure. Additionally, a purelydirect tax has high administrative costs. With regard tothe use of proceeds from captured value, affordablehousing is only one of the competing needs. Affordablehousing is a contentious issue; part of the problem isthat affordable housing is disliked due to its negativeconnotation and thus more difficult to obtain sustainedpolitical support as opposed to other public services.The lack of flexibility of the current national laws makesit more difficult to cater to the changing needs ofaffordable housing.

Due to their more flexible nature, indirect instrumentscan perhaps offer an alternative means of financingaffordable housing; their level can be adjusted accordingto needs. They can indirectly retrieve the plus-value.Nevertheless, the introduction of such instruments isnot straightforward; it requires a high level of skill fromlocal government professionals. In order to make itsustainable, a level of trust in the government and lowlevels of corruption are necessary.

Concluding, targeting affordable housing is morechallenging than targeting traditional public services.

The instruments that have been reviewed point to theneed of periodic evaluation in order to suit the politicaland social environment. This is true of both developingand developed nations.


20/74

19


The revenue generated from taxing land and buildings isbecoming an increasingly important source of finance foreconomies in transition. Nevertheless, due to specificitiesof land ownership, transitional economies face a uniquecontext. This makes it more difficult to implementwestern models of property taxation which generally relyon the premise of private ownership of land. In order toovercome this obstacle Hong suggested three solutions.To simply impose a land tax on publicly-owned land andtreat it like private land could distort the newly emerging

privately-owned real estate market. In this context, Honganalysed the appropriateness of those solutions by askingthree main questions:1. To what extent would the idea of imposing a property

tax on land that is not private property be acceptableto would-be taxpayers in transitional economies?

2. When interests in land are shared between agovernment lessor and a lessee under a publicleasehold system, who shoulders the final economicburden of the property tax?

3. When a uniform tax is imposed on both land andbuildings, to what extent would the varied durationsof land leases complicate the process of valuing

property for tax purposes?

Hongs account provided a context-specific analysis ofhow taxation systems with regard to leaseholds have thepotential to contribute toward future affordable housingand public infrastructure development.

Understanding LeaseholdsThe main premise of leasehold systems is the fact that landis generally owned by the state. It has been thought that ataxation system could be devised to raise funds to financeservices and infrastructure. Due to the heterogeneity of

leasehold systems, any alteration or implementation ofa taxation system needs to carefully consider individualcharacteristics of leaseholds because of the varying results

it might yield. The most important characteristics are thenature of the lease term and the lease value.

With the onset of a market economy, the practicality of thecurrent system is doubtful as payment for the use of landis generally close to nil. However, due to the fact that landis state-owned under leasehold systems, the acceptabilityof imposing a tax on land that is not privately-owned andfor which lessees have already paid, is in question.

AcceptabilityHong pointed to the fact that applying a tax to non-private land tenure arrangements is a complex issue.Would-be taxpayers do not feel that they should pay forland that they do not own, and compliance problemsmight ensue. Hence three solutions are being putforward:

Privatization of land

If land is privatised then the issue of ownership as anobstacle to the imposition of land taxation would beovercome. With the embracement of the open doorspolicy, it was thought that countries would implement

a dual system of ownership, which would be phasedout as land ownership becomes privatised. Nevertheless,due to the fact that land rent is usually cheaper thanproperty tax, this transformation has been ratherslow. The government has to raise taxes to increase itsproperty tax base, which discourages would-be propertyowners from acquiring property. The social and politicalimportance of communal land tenure has also been anobstacle, privatisation would be seen as acting againstnational ideologies and customs.

Treatment of Public leasehold rights

as private propertyIn order to overcome the objections to taxing publicleaseholds, it has been suggested that public leaseholdrights be taxed. However, this approach would requirea constitutional amendment, which is difficult to obtaindue to legal, political and social circumstances; it is anespecially contentious issue in post-communist countrieswhere the public-private debate is highly charged. Futuretaxpayers and public officials might mistakenly assumethat on account of paying property tax, their leaseholdis actually a freehold and that in reality they are the defacto land owners. Education is thus crucial in order notto cause further complications.

Labeling land and building taxes separately

Hong warned that the name on the label needs to becorrect. This is because it determines the public reaction

Taxing Public Leasehold Landin Transitional EconomiesYu-Hung Hong

A leasehold is a type of property tenureship. It can beunderstood as a bundle of rights, whereby a party canbuy the rights to the land: the right to transfer, developor lease the land. Unlike a freehold, the right to the landis set for a certain amount of time. Lease durations areusually between 50 and 99 years.

Land Premium (leasing fee): a lump sum payment madeto the government, called a Premium System.

Annual Land Rent: annual land rent fees called a LandRent System.


21/74

20

CONFERENCE REPORT

which is of political importance. In the case where theowner of land and a building is not that same, it isimportant to differentiate between the two taxes-property tax on buildings and use tax on land. This wouldmean having a tax on land use rights and another onimprovements. However, the valuation process of thetwo entities could be arduous.

Economic IncidenceIn any tax system it is crucial to understand who bearsthe tax burden. Hong pointed out that in the short run,if leasehold rights are fixed it would be the governmentlessor who bears the burden of tax; this is because futuretax liabilities of land users would decrease the demandfor land rights and thus decrease the lease revenue.However, if capitalisation of tax payments does takeplace, it would result in inter-departmental shifts inpower (Land bureau tax agency) and in a change infiscal relationships within government structures.

Despite the decreased lease revenue created by landtax, if capitalisation of public expenditures is turnedinto increased land values then the decrease wouldbe compensated for. However, it is crucial that therevenue be used to fund services and infrastructurein order to boost the demand. Once the net balanceof capitalisation is zero, the revenue generated fromland tax will no longer have a detrimental impact onlease income.

Tax assessmentProperty valuation is an important issue that needs to be

considered when implementing a tax system, especially ina public leasehold system. Nevertheless, tax assessmentis a complex process and it is difficult to obtain accuratevalues; Hong pointed out several factors that need to betaken into account. The value of land depends on thelease term and conditions as well as the nature of activitytaking place on the site. Hong emphasized the durationof the lease as one of the most important factors.

For long-production cycles a long-term lease is preferable,this is because it is in the economic interest of the ownerto invest heavily in the production cycle, which results inan increased land value. On the other hand, if the landlease were short the owner would limit his investment dueto the possibility of having to relocate which would befinancially burdensome and which consequently would

decrease the land value. Conversely, if the productioncycle is short then a short-term lease is probably moreprofitable and would result in higher land value. Suchintricacies need to be understood for purposes of massvaluation techniques, however, this field is still severelyunder-researched.

Another method to appraise leaseholds is based on rentalvalue. However, one must be aware of the discrepanciesthat could exist between fair market value and contractualrent. The contractual rental price may be significantlybelow the market price for rental of the same property, if

not adjusted periodically. In transitional countries, whererental charges are particularly low, it would be difficultto overcome the unwillingness of taxpayers who mightput up a legal and political fight.

Policy Implications and relevanceto affordable housingDespite the above mentioned difficulties, propertytaxation in leasehold systems is still plausible in transitionalcountries. If a suitable taxation system is put in place ithas a potential to be an important means of fundingfor services and infrastructure. The method applied(privatisation, treatment of property rights as private

property or separation of taxation on land and building)depends on the context of each individual country.Assessment of leasehold value is an essential componentof a workable tax system but it is one of the biggesthurdles to be overcome, and valuation techniques arestill under-researched. The important point to be madeis that the design and implementation of a property taxsystem needs to go hand in hand with land reforms.


22/74

21


The provision of efficient and sustainable transportsystems is increasingly important in countries experiencingurban growth. This need is especially pressing in mega-cities of the developing world, in which automobilesremain the dominant form of transportation. This has,directly and indirectly, resulted in pollution, growth ofslum settlements, crime and congestion. The provision ofmass transit systems, which act as a public good due totheir carrying capacity and service competitiveness, such

as an underground transport system (metro), is expensive.Hence, there is a need to look into innovative systemsof financing transportation; this requires a conceptualshift in funding mechanisms in order to encourageinvestor confidence, thus stimulating investment andovercoming institutional barriers. Medda suggested twotypes of financial tools that could be used to fund publictransport: 1) Land value capture taxation, 2) Tax basedon accessibility.

The motivation behind Meddas research is the realisationthat there is a shortage of funds going to public transport,with international agencies, such as the World Bank

indirectly supporting the use of private automobiles. Thisis reflected, for instance, in the fact that between 20012006, 80% of investment in the transport sector by theInternational Bank for Reconstruction and Developmentand the International Development Association focusedon road sector projects. In addition, 58% of urbanprojects concentrated on roads and streets.

Land value captureand accessibilityThe main idea behind land value capture is that anincreased land value created due to transport investment

could be captured and used to finance transport systems.The main components of land value capitalisation dueto accessibility are: access to urban externalities (naturalamenities), social infrastructure (public services, schooletc.) and development infrastructure (highways,sewerage systems and water supply) (Figure 3). Theprovision of a transport system will have a varied impacton access to social and development infrastructure. Cost

recovery is thus complicated, especially in the case ofsocial infrastructure; the appropriate mechanisms of costrecovery will depend upon the urban context.The different mechanisms of capturing land value in thecontext of mass transit systems, according to Medda,are betterment tax, tax finance increment (TIF) and jointdevelopment mechanisms. Box 2 provides practicalexamples of the use of each of these mechanisms.

Betterment taxThis capture mechanism is seen as a simple and efficientlevy meant to recover the increased value of privateassets. Betterment tax captures the increased value ofland due to increased accessibility, reduced pollutionand congestion directly resulting from investmentin transport. The added benefit of this tax is that itreduces land speculation, leading to higher densityurban development. The negative aspects include theevaluation of impacts, difficult collection of taxes due toincomplete registration and displacement of the asset-rich and the cash-poor.

Tax finance increment (TIF)This capture mechanism is essentially a developmentincentive package. It is used to capture a portion ofthe absolute value added to a discretely defined taxbase via an increased tax rate for agents benefiting fromthe original investment. In this way a portion of theprivate benefit accrued from a public investment can berecovered by the investing authority and used to financethe original expenditure. Thus, the public investment canbe met with a repayment which targets more justly thosewho have directly benefited from it. This will usuallytake the form of increased property, land or commercial

values as a result of public investment, which can thenbe recovered by the local authority. Additionally, there isan inherent implication that the investment by the localauthority would be reduced if the rate of return of thedeveloper exceeds a certain target. Nevertheless, theTIF is controversial due to the fact that it impacts upondistrict funding by the government and thus financingthrough TIF often increases taxes.

Land Value Tax as an InvestmentMechanism for Public Transport AssetsFrancesca Medda

FIGURE 3. Structure of the capitalised land value of accessibility

Source: Medda (2009)

Capitalised LandValue ofAccessibility

= + +

Capitalised Land

Value of Access toUrbanExternalities

Capitalised Land

Value of Access toSocialInfrastructure

Capitalised Land

Value of Access toDevelopmentInfrastructure


23/74

22

CONFERENCE REPORT

Joint development mechanisms (JDMs)

This mechanism relies on the cooperation between publicand private sectors. The profitability of an investment isincreased by encouraging property development in agiven area. The advantage of this capture mechanism,as compared to the previous two, is that there is noneed to differentiate between direct and indirect impacts

since construction costs are shared. Both the private andpublic sectors are winners- increased accessibility favoursthe private developer and the public sector is aided inthe financing of the project. JDMs are straightforwardin implementation since they do not use taxationmechanisms.

Taxes based on accessibilityThe increase and improvement in accessibility are oftenseen as the main priorities of transport investments.If this is the case, then there is a need to considerthe different levels of accessibility that are achieved.

Accessibility should, however, not be confused withmobility. Transport accessibility should be treated asa merit good, meaning that a greater socio-economicview should be taken into consideration in the decision-making process. A railway will have a greater merit goodthan a road because it is more accessible to all thana road system, which requires a automobile. There isthus a greater equality of accessibility.

A proactive transport policy approach would encourageresidents to settle in areas closer to a transport system viathe design of a differentiated accessibility-based tax. The

tax rate in a district with greater accessibility would hencebe lower than in a district with lower accessibility. Taxrevenue can be earmarked for transport investment inareas of low accessibility, which have higher tax rates.

Policy Outlook and relevance tourban infrastructure (transport)

The development of public transport systems suffersa constant shortage of funds; however, it is increasinglyimportant to cater to mobility needs of populations.Well-designed transport investments not only increaseaccessibility but have the added value of decreasingcongestion and pollution. Both the mechanisms, landcapture taxation and accessibility taxation, despite havingdifferent conceptual foundations, have the potentialof becoming viable tools for financing investments,especially in times of economic turmoil. They providea sound means due to their flexibility and adaptabilityand creation of incentive structures. An important

pre-requisite for introducing land value capturemechanisms is to be aware of the profitability of thetransport investment. Ultimately, in the context of soundsustainable development, Medda suggested that it wouldbe important for public transport and land developmentplanning to forge closer ties. Meddas account providedsolutions to increase accessibility via sustainable andappropriate transport investment, which still remainsa major problem, especially for poorer citizens wholive on fringes of settlements. A good transport systemwould thus offer them more opportunities and increaseproximity to the job market.

BOX 2. Examples of mechanisms for capturing land value in the context of mass transit systems

Betterment Tax: Hong Kong metro system

The case of the Hong Kong metro is a well-known example of using betterment tax to finance public infrastructure.

The land in station areas is leased to the MTR Corporation by the Hong Kong government under different restrictions.

The land can be developed and is usually leased for a renewable period of 50 years. The betterment tax is based on the

full market value. The amount of revenue accumulated by MTR Corporation from non-fares accounts for 35% of the total

revenue. These are proceeds from land rent (direct betterment tax), station commercial and related businesses, such as

advertisement (Indirect betterment tax) and other public transport investments.

Tax Increment Finance (TIF): Arlington Heights, Chicago

In Illinois, the lifespan of a TIF is about 23 years. Arlington Heights is one of Chicago areas 130 TIF suburbs. It used to

be a small residential suburb with only 150 inhabitants in 1985, however it redeveloped its downtown and increased the

population 10-fold to 1500 residents as a result of a sound commuter rail station investment that used TIF as a funding

source. The value of the property in the area increased sevenfold.

Joint Development Mechanisms: Bus Rapid Transit (BRT) in Brisbane

The Mater Hill station, part of Brisbanes BRT system, is a well known case of a joint development project. The bus transfer

station has had a hospital built on top of it. The station thus has multiple uses; it is used for commercial activities of the

private sector but it also forms part of the public service. Nevertheless, the use of stations as places for commercial activities

has not been welcomed by all authorities. There is fear that the systems reputation might be tainted by advertisements

and degradation of the physical environment.


24/74

23


As a lawyer by profession, Gdesz offered the case ofPolands land taxation system, which is based on the advalorem formula. He provided a chronological accountof the evolution of infrastructure charges from 1929 to1998, pointing out different legislative influences on thetaxation system and analysed how it could impact themeans of financing public infrastructure. The currenttype of regulation is assessed in order to understandwhether it provides a suitable means of engaging private

owners and developers for purposes of financing publicinfrastructure. The main argument provided by Gdeszwas the need to impose a new type of infrastructure fee,the implementation of which would also entail givingmore power to local authorities. This is difficult sincelocal authorities, still recuperating from decentralisationwhich resulted in significant transformations and shiftsin power, do not have the capacity to deal with legaland administrative challenges that have arisen. Withthe current system in place, Gdesz argued that havingaffordable housing in Poland remains a challenge.

In order to analyse the suitability of the adjacency levy

as a useful means of financing public infrastructureby private owners and developers, it is important tounderstand how it is calculated and how it has evolvedin the Polish system. An adjacency levy is imposed onproperty owners when there is an increase in the valueof land. This may occur as a result of provision of publicservices, when a plot is subdivided or when plots merge.The evolution of adjacency levies is shown in Box 3.Due to its impact on infrastructure development, Gdeszlabelled 1990 as the most difficult year for Poland as itresulted in the prohibition of land dedication. In realitythis means that people have to pay when they give their

land to be used for infrastructure development.

Calculating adjacency levies:means and challengesThe increase in value of land is generally caused bydevelopment or improvement of local infrastructure;however, windfalls can also occur as a result of grantingplanning permissions to developers. Gdesz pointed outthe three different types of levies that are often conflated:the planning gain levy, the subdivision adjacency levy andthe new infrastructure adjacency levy. The demarcation

between adjacency levies and planning gains/fees isdifficult as isolating the increased value factor fromother factors can be problematic. The increase in valueof property due to infrastructure provision itself posesdifficulties for local authorities as the linkage betweenthe increased adjacency levies, resulting from the increasein property prices and the construction of e.g. a road, isnot fully understood and accounted for.

An increase in the value of landas a prerequisite for imposingadjacency levies a critical analysisMirosaw Gdesz

BOX 3. A chronological account of the history of

Adjacency Levies in Poland

1929: Introduction of infrastructure fees (fixed tariff).

1990: Prohibition of compulsory land dedication as

a result of plan approval.

1991: Assessment revolution: the increase in value is

introduced as a base for levies assessment.

1994: Introduction of planning gain levy.

1998: No further introduction of infrastructure type of

adjacency levies (subdivision levies).

Source: Based on Gdesz (2009)

As it currently stands, when calculated, the adjacency levyshould not exceed 50% of the property value increasedas a result of infrastructure provision and should notexceed 30%, when property value increases due toparcel consolidation or subdivision. The decision on thelevy rate is made by the mayor and the municipal council.However, calculating the increase in value is problematicand can be manipulated by assigning different degreesof importance to individual characteristics of the plot.This, in turn, may be used to benefit the interests of

different stakeholders.

Another problem is that the calculation is based on plotsize, meaning that the rates that are used for calculationare the same in Warsaw and in rural areas of Poland.Thus, Gdesz proposed that other factors should betaken into account in the calculation. For instance, thecharacter of the built environment as well as the plotslocation should be reflected in the calculation.

These flaws in the current adjacency levy system in Polandundermine its usefulness as a mechanism to encouragedevelopers contribution into public infrastructure

financing. Based on his knowledge of AdministrativeCourt rulings, Gdesz proposed elimination of adjacencylevies as a percentage of the value of development.He further suggested that more discretion should be

Adjacency Levy: is a levy that is imposed on propertyowners when there is an increase in the value of land.This may occur as a result of provision of public services,when a plot is subdivided or when plots merge.


25/74

24

CONFERENCE REPORT

given to local governments, who at the moment lack inpower. A development agreement should thus lead to acompulsory levy. Adjacency levies and planning windfalllevies, together making up an overall windfall tax, shouldideally act as a means of cost recovery for the provisionof infrastructure.

Conclusion and relevance tourban infrastructureUltimately, Gdesz asserted that the current regulationon assessing adjacency levies which is based on theincrease in land value (ad valorem formula) is not anappropriate tool to ensure private owner and developerparticipation in the financing of public infrastructure.The methodology used to calculate the increase in valueneeds to be modified, hence Gdesz proposed a newtype of infrastructure fees. While not addressing directlythe provision of affordable housing (the presenter

concentrated on public infrastructure specifically),he contributed to the general understanding of howadjacency levies in Poland can work both as a failure andan advantage as a means of financing public goods.

Warsaw(Poland)Korysheva(2009)


26/74

25


UNECE Working Partyon Land AdministrationAriel Ivanier

The UNECE Working Party on Land Administration (WPLA)is part of the Environment, Housing, Land ManagementDivision within the Office of the Executive Secretary.It works to provide guidelines and sustainable policy designat the national level to help overcome the most pressingland management challenges. Ivanier provided an outlineof the WPLA findings with regard to land and real estatemass valuation systems in the UNECE region. The aim ofthe research was to provide summarised data on the legal

and practical approaches employed in mass valuationfor taxation purposes. Those findings could benefitgovernments and local administrators as well as real estaterepresentatives involved in valuation. The overall findingssuggest a need for increased partnerships between publicand private entities if sound land administration for thepurposes of sustainable development is to be achieved.Ultimately, it is necessary to disseminate the social andeconomic benefits of sound administration systemsamong the most vulnerable groups.

Study on Mass ValuationThe rationale of the study rested upon the need to

enhance knowledge of mass valuation techniques whichcould be used by governments to administer propertytax. Property valuation would ideally be done en masse.Statistical analysis would be performed systematicallyon real estate units. This would save time and keep thecost of implementation low. Currently, in the UNECEregion, mass valuation in land and real estate systemstends to operate as either part of land administrationor fiscal regimes.

The methodology adopted for purposes of the studyinvolved circulation of a questionnaire about systems of

mass land and real estate valuation for tax purposes to allrelevant authorities in the UNECE region. The aim was toincrease the understanding of the current practices andthe legislation involved. The countries that took part inthe study included Armenia, Austria, Azerbaijan, Belarus,Belgium, Bosnia and Herzegovina, Cyprus, Denmark,Estonia, Finland, France, Georgia, Germany, Hungary,Iceland, Italy, Latvia, Lithuania, Malta, Netherlands, Norway,Romania, Russian Federation, Slovenia, Slovak Republic,Spain, Sweden, Switzerland, and United Kingdom (UK).

FindingsThe mass valuation study provided an interesting insight

into the valuation techniques in the UNECE region, andthe findings may potentially be used to learn and improvevaluation systems within and outside of the region. Someof the findings of the study were the following:

72% of the countries reported that they adoptedsystems of mass valuation of land for taxationpurposes.

14% of the countries reported that they were inthe process of developing it.

Land administration authorities at the national levelare usually those responsible for mass valuation.

From a historical perspective, mass valuation is atwentieth century phenomenon.

The main difference across the region was withunderstanding the term land; it was understoodas either solely the surface of the earth but inmost cases it also included improvements attachedto it.

55% of the countries fund their valuation activitiesfrom the central budget.

In the majority of the countries re-evaluationsare generally done every 45 years. Over half ofthe countries perform an indexation during eachperiod.

41% of the countries make valuation data opento the public.

The data are also used to calculate transfer taxesand compensations related to land reform andconsolidation.

The majority of the countries use the market valueapproach for valuation purposes.

Conclusion, policy outlook andrelevance to urban infrastructureWPLAs challenging goal is to achieve sound andsustainable land administration systems; this requirespromotion of the security of tenure and calls for a needto modernise the cadastre and registration systems.

Furthermore, the deepening and the expansion of real

UN-HabitatWarsawOffice(2009)


27/74

26

CONFERENCE REPORT

estate markets are considered necessary, along with thedevelopment of an effective network of public officialsin the region, in order to overcome current land admini-stration challenges. In the context of the ongoing worldrecession, there is an even greater need to create a morestable economic environment, which will most probablyremain a priority for land administration in the years to

come.

If adequately developed, administration systems couldensure fair distribution of wealth through collection oftaxes on land and real estate, which could subsequently

be used to finance public infrastructure and affordablehousing. Alternatively, subsidies could be given out tothe poorest socio-economic groups to help promoteaffordable housing. That is why accurate and reliablevaluation for taxation purposes is a critical pre-requisite.Shared valuation standards are also useful for purposes ofmarket transactions, equitable tax policies and mortgage

access. The WPLA thus emphasises the need for moreresearch and knowledge exchange through capacitybuilding activities and workshops, given that transparencyand free access to information are fundamental principlesof valuation systems.


28/74

27


More than a tax: some ethicalimplications of land value taxationRichard Lawrence Giles

Giles argued for higher land taxes for the purposes offinancing public infrastructure and affordable housing.According to the presenter, the problem of shrinkingfunds is especially apparent in the current economic worldrecession. Drawing upon the work of Henry George,Giles explained how Georgist beliefs could be used asa remedy to defeat the current recession. As a startingpoint, it was stressed that if the fundamentals are wrongthen the tools used to overcome the problems will also

be wrong. As the first fundamental, a fiscal reform isproposed. However, weaved into the presentation wasa constant reminder of the purpose of taxes; the needto address the link between progress in terms of povertyalleviation and the use of taxation, the bigger picture,which is often forgotten. Giles shone light on the ethicalperspective of land value taxation, which should notbe thought of solely in terms of a fiscal argument butshould also be considered in moral dimensions. Subjectto debate is thus the argument of whether land valuesare private or public. The evolution of land value taxationin New Zealand and Australia over the last century hasbeen mapped, pointing out to the impact that it has

had on issues such as speculation and equality andsubsequently, access to housing.

Fiscal Measures: Land value taxationLand value taxation (LVT) is a useful mechanism as itprovides a positive feedback; the more that land valuetax is used to reinvest in the community the morethe land values rise; Its application enhances the taxbase. A fiscal reform with regard to taxation is seenas convenient as it does not involve any compliancecosts. LVT curbs speculation and breaks the increase

of land prices. Hence, it leads to a more efficient andequitable use of land. However, a conflict may often arisebetween the government and land owners as to landvalues and taxes. By taking more of the land value, thegovernment acts in a way that reduces the land price(which is a disadvantage for land owners), making itmore affordable for future home owners.

Studying Australia, Giles asserted that the lack of LVThas resulted in a large increase in the price of land dueto a greater demand for speculation. This has meant thathouse prices are on average equivalent to 8.5 times thehousehold income in Australia and are largely classified asseverely unaffordable in the majority of New Zealandsmarkets. Box 4 explains the tax systems in both Australiaand New Zealand. Figures 4 and 5 illustrate the chronichousing unaffordability by pointing to the growing gap

Henry George is considered to be the most famous advocate for land rents, known as the single tax. He believed thatwealth was created through increased social and technological improvements, profit from which remains in the hands ofland owners. This unearned wealth, should not be concentrated in a few rich land owners, but should be redistributedfor the use of everyone. This, according to George, would be more just and equitable as he believed that land belongedto everyone. Restricting access to natural resources is thus one of the causes of poverty. One of the economic argumentsis that if a sufficient tax were placed on land value, then there would be no need for other forms of taxation. It wasbelieved that a single tax could improve the workings of a free market as it does not burden the economy. The ideologyis called Georgism.

FIGURE 4. House prices and Fundamental

FIGURE 5. House prices, wages and inflation over time

Source: Giles (2009)

Source: Giles (2009)


29/74

28

CONFERENCE REPORT

between incomes and real house prices. However, thereal issue is landunaffordability as opposed to housingunaffordability.

Taxes and EquityThe purpose and the benefit of taxes need to be placedin a larger context. Giles pointed to the need to linkthe use of taxation to poverty alleviation; equity and

redistribution being one of the purposes of the tax.Nevertheless, the public often sees land values as privatewealth and as a consequence ethical implications ofland value taxation are sidelined. A moral and ethicaldimension thus needs to be added to the fiscal argument,which requires analysis from a more social perspective.There is hence a need to shift the economic argument

that land tax is harmful for first time buyers and housingconstruction.

With regard to equity, Giles pointed to the importance ofland value to any community. There is fierce competitionfor land, in which the community is often pitched againstthe investor. (Nominal value capitalized value). It isthus necessary to lower the price of land for poorersocio-economic groups in order make it affordable.To overcome this hurdle, not only is a fiscal reformneeded but more importantly, a social reform shouldbe considered. Giles sees the issue of land value taxation

as a great moral question, comparable to slavery.

Conclusion and relevanceto affordable housingTwo major arguments were put forward by Giles, a fiscalargument followed by a moral dimension. The advantagesof land value taxation are enumerated, including breakingthe increase in land values, which curbs speculation andmakes land more accessible to poorer socio-economicgroups. Attempts with the taxation mechanism havebeen examined based on Australia and New Zealand.However, the major overwhelming argument put forwardby Giles was the moral and ethical value of taxation. As

a Georgist follower, the presenter argued that propertyconstitutes only a produced entity, everything that ispart of the natural sphere i.e. land, should belong toeveryone. That is why land value taxation revenue shouldbelong to the public. If implemented, the single tax dueto its simplicity has a potential to serve as a main sourceof finance for public infrastructure and as a means tomake housing more affordable.

BOX 4 The case of Australia and New Zealand

Land Tax

In 1952 the Australian government imposed a LandTax in six states. The highest revenue comes fromCentral Business District (CBD) areas of major cities it is estimated that in 2007, $262 billion was collected

in total revenue. However, the benefits of land valuetaxation are offset by exemptions, differential rates andthresholds. In a recent Review of State Taxation it wasfound that land tax was ranked third after income taxand tax on hired labour. In Australia, land tax collectioncontributes only to about 0.57% of federal governmentrevenue. In New Zealand the fate of the tax was evenworse. It was applied between 1891 and 1920, andaccounted for 10% of overall revenue. After 1990, itscontribution fell significantly.

Local Rate

Local rating is often seen as more important than Land

Tax. It was an especially important source of revenuefor the States of New South Wales and Queensland inAustralia. In 2007 local rates accounted for one-third oflocal government revenue. Nevertheless, the land valuecomponent of tax rates has been shrinking since the1970s. The introduction of rate-pegging reduced localrevenue from taxes and user-charges took over as themajor contributor to local government revenue. In NewZealand, the local rating of land value is still used andcurrently stands at roughly 60% of local governmentrevenue.


30/74

29


Public space and its appropriation inlight of the theory of externalities recommendations and directions for buildingan intervention system by public authorities

Tadeusz Markowski

Public space, particularly in cities, plays an importantrole with regard to functioning and order. Markowskipresented a theoretical approach to the way publicspace is understood, by focusing on the notion ofpublic and private goods in relation to the theory ofexternalities. Public space is thus analysed from aneconomic perspective; Markowski believes that thereis currently a lack of a comprehensive study of theoperation of market systems in the context of public

space. Consequently, solid understanding of the theoryof public goods and externalities associated withpublic space as public good leads to a cogent meansof regulating their consumption and construction.Effective management of public space though facesmany difficulties- due to manifold externalities that aredifficult to define and involve multiple stakeholders. Theplanning process is thus complicated by the need to takeinto account legal, restrictive and economic instruments.Ultimately, public space must be structured in such a wayas to reflect the maximum merits of a public good, andthat is a challenge for current policy makers.

The nature of goods: public vs. privateIn practice, most public goods, despite carrying thelabel public, acquire with time the characteristics ofa mixed good, meaning that some people are excludedfrom their utilisation. In order to obtain a public good,the consumer is often required to incur a cost, whichintroduces the aspect of exclusion. Markowski thusdistinguished between two groups of public goods:

Goods which do not involve an obtainment cost e.g.a road. These goods are referred to as accessibleoptional goods.

Goods which do involve obtainment costs for their

use. The cost will depend on the spatial distancebetween the potential user and the service. Thecosts incurred may be one-off, or recurring. Thesegoods are referred to as localised optional goods.

Public goods nearly always result in externalities, meaningthat other benefits or costs are indirectly associatedwith it. An understanding of public goods in relationto the types of externalities sheds light on the way thatexternalities are understood.

Public Space and externalitiesUsing the theory of public goods, only space that is

undeveloped by man is considered a free good. If on theother hand it is the product of mans activity, it means thatcosts were incurred during its production. Consequently,public space in its pure form no longer exists in the

majority of developed

Documents

Financing Affordable Housing and Infrastructure in Cities Towards Innovative Land and Property Taxation