Publication: Unlocking Land Values to Finance Urban Infrastructure : Land-Based Financing Options for Cities
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2008-08
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2012-08-13
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Raising capital to finance urban infrastructure is a challenge. One solution is to 'unlock' urban land values - such as by selling public lands to capture the gains in value created by investment in infrastructure projects. Land-based financing techniques are playing an increasingly important role in financing urban infrastructure in developing countries. They complement other capital financing approaches, such as local government borrowing, and can provide price signals that make the urban land market more efficient.
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“Peterson, George E.. 2008. Unlocking Land Values to Finance Urban Infrastructure : Land-Based Financing Options for Cities. Gridlines; No. 40. © World Bank. http://hdl.handle.net/10986/10599 License: CC BY 3.0 IGO.”
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Publication Unlocking Land Values to Finance Urban Infrastructure(Washington, DC : World Bank, 2008)Urban growth throughout the developing world has created a challenge for financing infrastructure. Investment in infrastructure is needed to provide basic services for newly developed parts of urban areas. It is needed to meet the demand for a safer and more reliable water supply, higher standards for the removal and treatment of wastewater and solid waste, and the transportation requirements of a population whose expectations of mobility rise with household incomes. Infrastructure investment also is essential to the economic productivity of cities. This book examines an important additional option for local infrastructure finance: capturing land value gains for public investment. Land values are highly sensitive to infrastructure investment and urban economic growth. Public works projects such as road construction, water supply, and mass transit investment produce benefits that are immediately capitalized into surrounding land values. Many cities in developing countries have underused public lands that would be more valuable if sold and converted into infrastructure assets. Tapping land values was a large part of the investment strategy of Western countries in financing urban infrastructure during the 19th century, when cities were growing most rapidly. As part of the overall financing mix, using land assets for infrastructure finance has several advantages. Most instruments of this type generate revenues upfront, making it easier to finance lumpy investment projects. Mobilizing finance from land transactions also generates price signals that increase the efficiency of urban land markets and help rationalize the urban development pattern.Publication Unlocking Land Values for Urban Infrastructure Finance : International Experience--Considerations for Indian Policy(World Bank, Washington, DC, 2013-10)Despite strong economic growth, investment in basic urban infrastructure -- water supply, wastewater removal and treatment, roads, and other capital-intensive systems -- has failed to keep pace with urban growth, leaving a critical urban infrastructure deficit. At the same time, urban lands in these many developing countries are among the most expensive in the world. Much of this land is owned by public authorities. Significant parts of it lie vacant, unused for public service provision or inappropriate for conversion to higher-valued economic activity. 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This study contributes to the consultative process underway in India to consider strategies to unlock public land values to help finance urban infrastructure investment.Publication Land Administration and Management in Ulaanbaater, Mongolia(Washington, DC, 2015-01)The City of Ulaanbaatar (UB) is undergoing a historic transformation toward market-driven urban development. This growth remains strongly influenced by city policy decisions that affect the supply and location of land for public and private uses. Private investment is concentrated in well-serviced land located in the central portion of the city and along major transportation corridors, which represent a small part of the total built area of the city. Mongolian law allows UB residents free access to land for residential use, which is commendable because it can reduce a substantial portion of the overall cost of housing. 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Land assets, often with billions of dollars per transaction, rival and sometimes surpass subnational borrowing or fiscal transfers for capital spending. While reducing the uncertainty surrounding future debt repayment capacity, the use of land-based revenues for financing infrastructure can entail substantial fiscal risks. Land sales often involve less transparency than borrowing. Many sales are conducted off-budget, which makes it easier to divert proceeds into operating budgets. Capital revenues from sales of land assets exert a much more volatile trend and could create an incentive to appropriate auction proceeds for financing the operating budget, particularly in times of budget shortfalls during economic downturns. Furthermore, land collateral and expected future land-value appreciation for bank loans can be linked with macroeconomic risks. It is critical to develop ex ante prudential rules comparable to those governing borrowing, to reduce fiscal risks and the contingent liabilities associated with the land-based revenues for financing infrastructure.
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