ECONOMICS UNIQUENESS

A Dubious Alternative: Property Reclamation
INVESTING IN THE SENSE OF PLACE ■ 39
Many urban upgrading projects involve the reclamation of property to build
infrastructure, and a similar approach could be envisioned to handle architectural
preservation. In that case, the properties with architectural value to be
preserved according to the socially optimal decision could be purchased from
their owners, and their renovation be directly undertaken as part of the project
itself. Th is approach is appealing because it is less costly than providing incentives
for the owners to agree to the renovation, and it does not require that
their investments be monitored for compliance with architectural standards.
But property reclamation is fraught with problems in standard urban upgrading
projects, and the analytical framework in this chapter helps understand why
this is so. Th e same problems are bound to plague property reclamation for
architectural preservation.
Th ose problems have their roots in the terms under which the local population
is compensated in the event of property reclamation. In project jargon, those
terms are covered under the project’s “social safeguards,” which are an integral
part of any urban undertaking of this sort. Th e basic principle of social safeguards
is that residents are entitled to receive the full market price of the property
they occupy, regardless of whether they have legal rights to it. Th e market price
used for compensation under the basic safeguards principle is the one prevailing
before the project is implemented.
However, the analytical framework in this chapter makes it clear that the mar-
1 ket price of properties in the intervention area will increase by ΔV in the short
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term, and by ΔV* in the longer term (see fi gure 2.2). Local residents who are
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compensated by the project are bound to see this outcome—maybe not on their
own properties (if they are demolished to make way for infrastructure) but at
least on those of their neighbors. And the local residents whose properties have
been expropriated would not be totally wrong to think that whoever designed the
project (and its safeguards) was fully aware that this property appreciation was
bound to happen. Admittedly, part of the appreciation is a refl ection of additional
spending on the properties. But still, being compensated at the market price pre-
1 vailing before the project is implemented amounts to foregoing a profi t P in the
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short term, and P* in the longer term. It is not surprising, then, that so many
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urban upgrading projects lead to social confl ict concerning the amount of compensation
provided.
Th e same logic applies in the case of property reclamation for architectural
preservation, and it makes it easy to understand why this is less expensive than
providing incentives for local residents to renovate their properties. Indeed, if
the project undertakes the renovation of properties with architectural value and
H then sells them, or leases them on a long-term basis, it makes a profi t P on each
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