September 14, 2006 Martim Smolka - [email protected] 1
Woodrow Wilson International Center for Scholars
Washington DC , September 14, 2006
Martim O. Smolka
Losing Ground? Alternatives to informality
Programa para a Programa para a America Latina e o CaribeAmerica Latina e o Caribe
Programa para a Programa para a America Latina e o CaribeAmerica Latina e o Caribe
Comparative Urban Studies ProjectAccess to Urban Land
September 14, 2006 Martim Smolka - [email protected] 2
Setting the stage
Not doing such a good jobin conveying sufficientsupply of serviced landfor the urban poor ataffordable prices;
Regularization, and othersubsidies programs, etc.seem also short legged inaddressing the problem;
Thus the magnitude, persistence (and even expansion) of informality
Thus the magnitude, persistence (and even expansion) of informality
Market:Market:Market:Market: Public policyPublic policyPublic policyPublic policy
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Outline Loosing ground: Informality growing faster than
urban population, and … of urban poverty
Revisit regularization – from curative to preventive
Not resolving! … may actually be contributing to problem
Rules of the urban land markets … untouched! A ‘third path’? – mobilizing land value increments
Beyond the subsidy and the 100 % tolerance models. The Usme and the Social Urbanizer experiments
September 14, 2006 Martim Smolka - [email protected] 4
September 14, 2006 Martim Smolka - [email protected] 5
Loosing ground: Informality growing faster urban population
Population BrazilIn Sub-normalsettlements*
1991 146.825.475 4.482.637
2000 169.799.170 6.535.634
Annual growth rate 1.64% 4.32%
*Defined as a set of 51 or more housing units occupying currently or in a recent period,
public or privately owned land by third parties, in a dense and un-orderly fashion
and lacking basic and public services.
Source: IBGE – Brazilian census Bureau
<
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Growing % of informality Growing % of informality Number of ‘Barriadas’ and Population in Metropolitan Number of ‘Barriadas’ and Population in Metropolitan
LimaLima Period
# of Barriada
Population % in Lima
1920-1955 39 119,140 10.0
1956-1959 115 236,716 14.0
1960-1970 122 761,755 25.0
1971-1976 82 1,113,000 27.0
1977-1981 89 1,329,600 28.8
1982-1984 190 1,617,786 32.2
1985-1993 549 2,188,415 34.4
1994-2002 3653 3,843,230 46.8Source – Julio Calderon Mercado de Tierras Urbanas Propiedad y Pobreza. Lima, Peru: Lincoln Institute of Land Policy and SINCO Editores ,2006 p 102 – Elaborated with data from INEI 1997 and for 2002 from COFOPRI
Significant increase in last decadein spite of regularization programs!
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Informality beyond poverty
Non poor in informal areas 3% in favelas > 10SM family income! (Abramo
2005) Rents in certain favelas > Minimum Wage ($100)
Poor in non informal areas 64% of poor outside ‘favelas’ (IPP – on Census
2000 IBGE)
InformalInformal PoorPoor
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Causes of informality
ConventionalConventional PovertyPoverty Excessive regulation – hard to complyExcessive regulation – hard to comply Absence of social programsAbsence of social programs
Informality begets informality!Informality begets informality! Higher profitability – unfair competitionHigher profitability – unfair competition Signals from curative (regularization) programsSignals from curative (regularization) programs
High prices for serviced landHigh prices for serviced land Insufficient supply of serviced land at affordable prices Insufficient supply of serviced land at affordable prices
September 14, 2006 Martim Smolka - [email protected] 9
September 14, 2006 Martim Smolka - [email protected] 10
Regularization: Regularization: arguments in favorarguments in favor
Not regularizing not a political option Social/humanitarian reasons Negative externalities (?)
o Urban violenceo Health/epidemics etc.o Aesthetic reasons
Existing structures – housing etc. Convenience: cheaper than new developments
(?)
Not regularizing not a political option Social/humanitarian reasons Negative externalities (?)
o Urban violenceo Health/epidemics etc.o Aesthetic reasons
Existing structures – housing etc. Convenience: cheaper than new developments
(?)
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Informal Settlements:Informal Settlements:Revisiting costsRevisiting costs
Bad quality of housing Most self produced – inappropriate for living!
Densities much too high (for what it is) Barrios en Caracas 251 hab/ha vs. Copacabana 305 hab/ha!
Hidden operation and maintenance costs in services and infrastructure of ‘alternative solutions’
e.g mail delivery, condominium sewage, garbage collection! Inadequate location
e.g. environment risk
Bad quality of housing Most self produced – inappropriate for living!
Densities much too high (for what it is) Barrios en Caracas 251 hab/ha vs. Copacabana 305 hab/ha!
Hidden operation and maintenance costs in services and infrastructure of ‘alternative solutions’
e.g mail delivery, condominium sewage, garbage collection! Inadequate location
e.g. environment risk
Unanticipated effects!
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Unanticipated effects of Regularization:
Titling
Limit access to credit Peru: only 3.93% of 1,332,482 duly registered plots
received a loan (average US$ 5,596) - Riofrio 2006 Low priority
Ranked below 7th priority - in survey among ‘favelados’ in Rio.
Small valorization About 20% (Dowall 2003, Calderon 2002)
More informality! When granted before up-grading – may increase transaction
cost for ‘sub-standard formal land’ ! – ref vacancy chain.
Limit access to credit Peru: only 3.93% of 1,332,482 duly registered plots
received a loan (average US$ 5,596) - Riofrio 2006 Low priority
Ranked below 7th priority - in survey among ‘favelados’ in Rio.
Small valorization About 20% (Dowall 2003, Calderon 2002)
More informality! When granted before up-grading – may increase transaction
cost for ‘sub-standard formal land’ ! – ref vacancy chain.
Titling: after process of improvements
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Signals updating of prices; Sub-dividers charging a premium according to the
expectations of public coming in to ‘fix it’! Opportunity costs;
Regularization (curative) vs. new urbanization (preventive)
The attraction of in-migration; Date of arrival vs. some (public) up-grading – ref Evidence
from Menna-Barreto 2000 The‘ day after.’
Average appreciation in the Favela-Bairro – 28.52% ! vs. value increment in new urbanization >100%!
Settlements stigmatized as irregular, even after 15 years!
Signals updating of prices; Sub-dividers charging a premium according to the
expectations of public coming in to ‘fix it’! Opportunity costs;
Regularization (curative) vs. new urbanization (preventive)
The attraction of in-migration; Date of arrival vs. some (public) up-grading – ref Evidence
from Menna-Barreto 2000 The‘ day after.’
Average appreciation in the Favela-Bairro – 28.52% ! vs. value increment in new urbanization >100%!
Settlements stigmatized as irregular, even after 15 years!Need more/better studies
Unanticipated effects of Regularization: up-grading
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In Sum: Regularization does not In Sum: Regularization does not
necessarily contribute to:necessarily contribute to:
Price reduction;
Improve the capacity of the public
administration to provide serviced land;
Disincentive additional land occupations;
Capitalize residents/beneficiaries.
Price reduction;
Improve the capacity of the public
administration to provide serviced land;
Disincentive additional land occupations;
Capitalize residents/beneficiaries.
Need to find alternative solutions
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Revisiting the Revisiting the ‘arguments’‘arguments’
Conventional wisdomConventional wisdom Re-qualificationsRe-qualificationsPeople are poor cannot pay for urbanization
Is already paying!(cost of being informal, land prices etc.)
Need to subsidize urbanization for the poor
Most subsidies models ex-ante or ex-post feed into the vicious circle of informality
External resources - should come from society as a whole
Already existing - latent resources in process itself of urbanization
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Conventional models to provide serviced land for the urban poor
The subsidy model
The ‘tolerance’ model
InformalityLand value increment
Capitalization
expectations
Policies
Higher land prices
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Alternative modelsAlternative models
Sanctions
InformalityInformality
Lower land pricesPolicyPolicy
Land value increment mobilization
Negotiation with sub-divider
UrbanizationUrbanization
Shared
Certainty
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Stylised factsInformal
Formal‘popular’
UsmeSocial
Urbanizer
Net land 70% 50% 48% 50%
Land2
Ag use8
Urban2
(sanction)5
Negotiated
Infrastructure 9
Minimal21Full
174
(limited)18
Flexible
Mark-up (profit ratio)
11(58%)1
26(47%)
52
(15%)52
(18%)
Final price 26 55 243 28
(1) Profit margins by informal is underestimated since the ‘plot-area ratio’ is higher
(2) To be shared with landowners joining - USME land trust or sub-divider in SU
(3) Weighted average of price per sqm – ranging from land to commercial use at 70/m2 to In effect price for Social Housing lower
(4) Only includes the infrastructure investment internal to the project itself.
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Social urbanizer and Operation Nuevo Usme - Tools:
Land acquisition mechanism At ‘non-contaminated’ prices
Value-capture - Mobilization of land value increment, from:
Rural-urban conversion Selling of building rights Urban infrastructure provision Land readjustment
Urban Operation – special zoning Special regulations for designated areas
Negotiations Recognition of sub-dividers expertise
Partnerships – Public-Private Public investing in private developments
Land acquisition mechanism At ‘non-contaminated’ prices
Value-capture - Mobilization of land value increment, from:
Rural-urban conversion Selling of building rights Urban infrastructure provision Land readjustment
Urban Operation – special zoning Special regulations for designated areas
Negotiations Recognition of sub-dividers expertise
Partnerships – Public-Private Public investing in private developments
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3rd Path
Alternative – competitive to informal sub-dividers
Alternative – competitive to informal sub-dividers
Government OccupantsSub-dividers
Predictability
Pre-defined beneficiaries
Economies of scale
Sharing land value increments - among
Cost reductions
Base:
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Recognition of Significant land value increments
generated in urbanization process; Cost of curative higher than
preventive; Being informal is expensive for
society and the occupants;
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Land occupation Comparisons by alternative processes (1)
Formal Informal ‘Third Path’
Area to be occupied
Designated for development
Unfit for the formal market
Appropriate and encouraged for
occupation
Urban infrastructure provision
Prior to occupation
Long after the occupation – and
often only partially provided!
Concomitant – with occupation or with
predictable planning
Land Use norms and Regulations
Compliance with standard master plans definitions
Established informally by occupants
Flexible, adjusted to the type of area and
occupants
Role of public administration
Fiscal regulation of licensed project
Tolerance of irregularity or
omission.
Sponsored from conception to
implementation.
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Land occupation Comparisons by alternative processes (2)
Formal Informal ‘Third Path’
Occupants/target groups
Able to purchase with full credit credentials.
Groups with no other alternatives
Previously registered and approved for
participation
Lot prices/affordability
Market based, usually for those above
middle-income level
Based on lot size and type of services, not
price per se.
Negotiated with sub-dividers in advance
Competitive to informal
Funding/financing
Private banking system and/or self-
financing by developers
Cost borne by occupants paying up
front
Mobilization of land value increment from
urbanization
Relations among actors/agents
Competitive market relations
Complicity through illegal transactions
Negotiated partnerships with
clear liabilities
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Conclusions
Current policies not sufficientCurrent policies not sufficient
Need to change the rules of the game for the property market
Need to change the rules of the game for the property market
Existing latent resourcesExisting latent resources
Informality has to do with the functioning of urban land markets
Informality has to do with the functioning of urban land markets
Value Capture?
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September 14, 2006 Martim Smolka - [email protected] 27
Martim Oscar SmolkaSenior Fellow and Director of the Latin America and the Caribbean Program
Lincoln Institute of Land Policy113 Brattle StreetCambridge, MA 02138, USAPhone direct : 1- (617) 503 2155
or 661-3016 ext. 155Fax: 1- (617) 661-7235e-mail: [email protected]:\\www.lincolninst.edu
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Hyperlinks
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Has %
Land for expansion (Plan de Ordenamiento Zonal POZ) 795 100
Land object of the operation 701 88
Net Urbanizable area 601 76
Usable area (AU) 379 48
Usable area for Social and priority Housing VIS y VIP 247 31
Expected population 285,000
Total - housing units 63,300
Density of housing per Ha (gross) 126
Usme operation
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Usme project
$ Per sqm
Assessed land value for raw land $1.91
Fully urbanized land value $24.00
Cost of investment internal do the project $17.11
Net value to be shared among landowners
$5.98
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Social Urbanizer: Public-private partnershipPublic-private partnership
Public urban norms and regulations more flexible, speed up the licensing process, reduce the legal requirements, and recognize progressive, step-by-step urbanization. transfer of development rights as a stimulating
mechanism for private developers. access to specific lines of credit direct public investments in urban infrastructure
Private – sub-divider share land value increment lower land prices for low-income buyers
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A Social Urbanizer is a real estate developer registered with the municipality who is interested in developing in areas identified by the government as suitable for low-income housing, and who agrees to operate according to certain negotiated terms, including the affordability of the serviced plots
A Social Urbanizer is a real estate developer registered with the municipality who is interested in developing in areas identified by the government as suitable for low-income housing, and who agrees to operate according to certain negotiated terms, including the affordability of the serviced plots
Social Urbanizer
Eligible Social Urbanizer
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Eligible Social Urbanizer Registered real estate developers, Contractors already working in the
informal market, Landowners and Self-managed cooperatives.
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A signal that raises prices: A signal that raises prices: premium/overpricingpremium/overpricing
The expectation that an parcel will eventually be regularized allows the subdivider to speculate on its value.
The expectation that an parcel will eventually be regularized allows the subdivider to speculate on its value.
Ref. POA – Purchase and Sale Agreement...
The prominent buyer is aware that a settlement is not urbanized, and
that urbanization should be pursued together with the municipal government
through participatory budgeting...
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The opportunity costs of The opportunity costs of regularizationregularization
Regularization (curative)
New urbanization(preventive)
Favela in Rio de Janeiro:
US$ 4,000 per familyGuarapiranga (11 favelas) Sao Paulo
US$ 7,962.10 per plot (average 52m2)
US$80 per m2
•ECIA urbanized plot <US$ 130 per m2
•SMU/Rio de J urbanized plot US$ 55 - m2 ... unsubsidized
US$153 per m 2
In Bogotá, the cost of correction is 2.7x times the cost of urbanization in planned areas (Aristizabal and Gomez 2001).
In Bogotá, the cost of correction is 2.7x times the cost of urbanization in planned areas (Aristizabal and Gomez 2001).
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Regularization: Opportunity Regularization: Opportunity costcost
‘Repairs’ costs of irregular settlements 2.7 times that in new planned areas (Aristazabal y Gomez 2001) Guarapiranga program – US$ 153.- /m2 (Rocha et al. 2001) Average cost of about US$ 40 to 70.- /m2
o 14 projects (Favelas in 7 cities in 5 States of Brazil) – US$ 3,400.- average (Caicedo & Izar 1999), or
o Favela-Bairro in RJ (1st phase) – US$ 3,500 to 4,000.-o Caracas US$ 57.20 /m2 (ref. CONAVI)
Cost of fully servicing land in new development US$ 15 to 35.- /m2 (ref. Latin American data)
In general: Loose accounting and negligent records about real costs!
‘Repairs’ costs of irregular settlements 2.7 times that in new planned areas (Aristazabal y Gomez 2001) Guarapiranga program – US$ 153.- /m2 (Rocha et al. 2001) Average cost of about US$ 40 to 70.- /m2
o 14 projects (Favelas in 7 cities in 5 States of Brazil) – US$ 3,400.- average (Caicedo & Izar 1999), or
o Favela-Bairro in RJ (1st phase) – US$ 3,500 to 4,000.-o Caracas US$ 57.20 /m2 (ref. CONAVI)
Cost of fully servicing land in new development US$ 15 to 35.- /m2 (ref. Latin American data)
In general: Loose accounting and negligent records about real costs!
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The expectation of The expectation of regularizationregularizationis a factor in irregularizationis a factor in irregularization
Irregular land occupations and elections. Miguel Arraes, Roriz, etc.
Date of arrival in settlements. Evidence of H. Menna Barreto (2000).
Temporary settlements become permanent. Riofrio 1991.
Peru – irregularity from 17% (1961), to 38% (2000) (Calderón 2001)
Irregular land occupations and elections. Miguel Arraes, Roriz, etc.
Date of arrival in settlements. Evidence of H. Menna Barreto (2000).
Temporary settlements become permanent. Riofrio 1991.
Peru – irregularity from 17% (1961), to 38% (2000) (Calderón 2001)
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Dates families arrived vs. regularization programs (favelas Santa Lúcia II and Esmeralda)
0
5
10
15
20
25
30
35
antes de1970
entre 1970e 1974
entre 1975e 1979
entre 1980e 1984
entre 1985e 1989
entre 1990e 1994
entre 1995e 1998
pe
rce
nta
ge
m d
o t
ota
l d
as
fa
míl
ias
mo
rad
ora
s
Sta Lucia Esmeralda
Up-grading Up-grading
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Dates families arrived vs. regularization programs(Areas: V. Olinda and Barão de Uruguaiana)
0,00
5,00
10,00
15,00
20,00
25,00
30,00
35,00
40,00
45,00
50,00
antes de1970
entre 1970 e1974
entre 1975 e1979
entre 1980 e1984
entre 1985 e1989
entre 1990 e1994
entre 1995 e1998
pe
rce
nta
ge
m d
o t
ota
l d
e f
am
ília
s m
ora
do
ras
V. Olinda Uruguaiana
Up-grading Up-grading
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The ‘day after’ regularizationThe ‘day after’ regularization
Average appreciation in the Favela-Bairro – 28.52% ! (from 15.3% in Caminho do Job to 42.5% in Parque Royal). => value increment R$ 4,000.00 (28% of value (ex-ante) of
R$ 14,000.00. Contrast with value increment in new urbanization >100%!
Market does not recognize upgrading! Settlements stigmatized as irregular, even after 15 years! Higher turnover (> 8%?)
Cashing Filtering up or down?
Average appreciation in the Favela-Bairro – 28.52% ! (from 15.3% in Caminho do Job to 42.5% in Parque Royal). => value increment R$ 4,000.00 (28% of value (ex-ante) of
R$ 14,000.00. Contrast with value increment in new urbanization >100%!
Market does not recognize upgrading! Settlements stigmatized as irregular, even after 15 years! Higher turnover (> 8%?)
Cashing Filtering up or down?
Few available studies!
(ref Abramo).
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Belem Informal housing occupying 25% of the
area and 1/3 of the population 93 favelas (Censo 2000), in 1990 they
were ‘just’ 20! Population growth (ref. Ipea, 1999)
Total = 2,2 % per year. Informal areas = 6,8%.
No access to sewage network in 95% of the city!
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Usme Project (tools) Land acquisition mechanism
At ‘non-contaminated’ prices Value-capture
Participación en plusvalíaso Rural-urban conversiono Selling of building rights
Contribución de Valorizacióno On urban infrastructure provision
Land readjustmento POZ and Plan Parcial
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Social Urbanizer (tools) Urban Operation
Special regulations for designated areas Land value increment – ear-marked to area
Value-capture – (Selling of) Building rights (CODC)
Negotiations Recognition of sub-dividers expertise
Partnerships – Public-Private Public investing in private developments