PPT - World Bank Conference on Land and Poverty

“The unearned increment resulting from the rise in land values resultingfrom change in use of land, from public investment or decision, or due tothe general growth of the community must be subject to appropriaterecapture by public bodies (the community).”Lawrence WaltersBrigham Young University<strong>World</strong> <strong>Bank</strong> <strong>Conference</strong> on Land and PovertyWashington, DCApril, 2012

Land Value Capture in practice• Land Value Capture is approached from twoperspectives• Recovering the cost of specific infrastructureinvestments• Sharing in community-created increased land values• The “unearned increment” spoken of in the UN’s VancouverAction Plan• Capitalized value

Cost recovery vs.Taxing incremental valueCost Recovery• Detail relevant costsassociated with specificproject• Identify affected land• Assign costs to land based onlevel of project benefits• Collect the levyTaxing “unearned increment”• Land values must increase asa result of public action• Identify the amount ofchange and adjust taxablevalues• Apply a tax rate sufficient tocapture desired share ofincreased value• Collect the tax

Mechanisms currently in use• Developer exactions• Impact fees, development charges, requiredinfrastructure investments, required land transfers, etc.• Betterment levies• Three cases:• Colombia• United Kingdom• India

Colombia• Contribución de Valorización (1921):• Cost recovery through betterment charge• Participación en Plusvalías (1997):• Broader value capture

United Kingdom• Multiple attempts to nationalize development value• All have failed• Community Infrastructure Levy (2011):• Cost recovery through betterment levy

India• “Betterment charge and cost recovery are the same inIndia”

An alternative approach to LandValue Capture• Re-conceptualize annual land tax• Tax on improvements = benefit tax• Tax ≈ cost of providing services• Tax on land = land value capture• Tax ≈ share of private value community wishes to capture• Implication: Tax land and improvements differently

Calculating appropriate annualLand Value Capture rates• If land values are generally increasing due to• Population increases• Changing economic conditions• If specific land values increase due to• Change in approved land use• Infrastructure investment

Similar concept: Hyderabad, India• Greater Hyderabad Municipal Corporation (GHMC)• Identified nearly 800 “peripheral neighborhoods”• Infrastructure requirements were evaluated by engineers• Findings were confirmed by local elected officials andpublic• Phased construction plan developed• 600 crore (US$115 million) in phased loans obtainedfrom banks• Loans to be repaid over ten years through 5% propertytax increment, imposed when construction completedin each neighborhood

Summary• Be clear on the land value capture goal• Cost recovery for specific projects• Taxing “unearned increment” in land value• Secure public support in advance!

• Cost recovery• Developer exactions• Betterment levies similar to Bogotá• Taxing “unearned increments” more difficult• Consider taxing land and improvements at differentrates• See paper for details:LWALTERS@BYU.EDU