Land Use Planning Obstacles to Property Rights in the Philippines

1. Land Use Planning Obstacles to Property Rights in the Philippines Arturo G. Corpuz September 2008 Economic Freedom Network Annual Conference

2. Introduction Outline • Establishing and Realizing the Value of Property Rights • Obstacles internal to the Planning Process • External Obstacles: Conflicting Development Policies • Market Pressures Towards Higher Intensity and Higher Density Uses: Makati CBD • Summary and Conclusions

3. Introduction • Key message: Land use planning process is an integral component of property rights and obstacles to the process affect how property rights are exercised. • Land is a foundation of economic activity and property rights to land. • Property rights are meaningful only to the extent that land can be utilized and value extracted from it. • Land use directly affects the value of land. • Property rights reflect the value that the market places on land by virtue of its productive potential.

4. Realize the value of land 2 Development of the land according to designated land use or disposition of this right. Current focus: Unlocking capital Removing obstacles, e.g. fake titles, outdated land laws, inefficient land transactions, etc. Land ownership, administration and management Establishing and Realizing the Value of Property Rights Two conditions: 1 Consensus on the value of land through a formal land use planning process. Establish the value of land

5. Establishing and Realizing the Value of Property Rights Two conditions: 1 Consensus on the value of land through a formal land use planning process. Establish the value of land Right to use land in a specific manner (land use) Potential value to be derived from the land 2 Development of the land according to designated land use or disposition of this right. Land Use Plan Zoning Ordinance

6. A land use plan determines the value of a parcel of land by designating what can take place in it. But land uses with similar values typically take place near each other—existing land values determine the land use plan. • Land use plan > Land value or Land value > Land use plan Establishing and Realizing the Value of Property Rights Some Additional Points: • Monopolistic land market Location is unique. No two parcels of land can occupy the same location.

7. Establishing and Realizing the Value of Property Rights Some Additional Points: • Impact of Land Use Plan on Property Rights • Motivation to acquire land/property right influenced by current or potential land use. • Obstacles to land use planning can delay/ subvert exercise of property rights. • Obstacles in identifying and designating land use • Obstacles in land use plan implementation

8. Internal Obstacles • Lack of planning data/information • Lack of planning resources and expertise • Conflicts within the local planning-investment programming-budgeting- implementation process

9. Pop Density 1980 2007 Pampanga Pampanga External Obstacles: Conflicting Development Policies Bulacan Bulacan Rizal Rizal Metro Manila Metro Manila • Urban Expansion vs • Food Security • Land Conversion: Drivers • Existing high densities • Rapid population growth • High urban productivity and employment opportunities vs rural • Lack of infra (to absorb growth in urban areas and to support rural productivity) Cavite Cavite Laguna Laguna Batangas Batangas APGR 1990-2000 2000-2007 Bulacan Bulacan Pampanga Pampanga Rizal Rizal Metro Manila Metro Manila Cavite Cavite Laguna Laguna Batangas Batangas

10. Metro Manila Density Gradients Rizal Metro Manila 1980 1990 2000 2007 Cavite Laguna External Obstacles: Conflicting Development Policies • Property Rights Impacts • Land conversion • 2X-10X increase in • value of converted • properties • Decrease in agri land • Urban land prices? • No land conversion • Constrained urban land supply and dependent activities and services • Maintain agri land inventory • Domestic food supply? • Urban land prices?

11. Market Pressure: Makati CBD and Deed Restrictions • Market pressure to redevelop land towards higher intensity and higher density uses leads to conflicts that affect the exercise of property rights. • Redevelopment: a logical response to (a) continuing demand for urban space and (b) diminishing supply of vacant or underutilized land. • Potential gross value resulting from redevelopment ~ P50k/sqm • Strongest in and around Makati CBD • Highest demand for high intensity and high density use • Limited land supply • Deed restrictions North Triangle San Lazaro Araneta Old Bilibid Sta Ana Rockwell Pandacan Fort Bonifacio Makati CBD Villamor Air Base FTI Alabang Stock Farm New Bilibid

12. Welfareville 72 ha New Bilibid 400 ha OldBilibid 8 ha Pandacan 30 ha FTI 120 ha

13. Areas rezoned to higher intensity/ density land uses Market Pressure: Makati CBD and Deed Restrictions Deed Restrictions • Contractual agreement between land developer and lot buyer governing land use, density, building form, governance, etc. • Ex. Along Ayala Avenue • Office use only • FAR 16 density • Build flush to front and side boundaries • Membership in estate association • Ex. Residential villages • Single family residence • Two storey building • Building setbacks • Membership in village association Areas subject to deed restrictions

14. Ideal for local • enforcement: • local = deed restrictions • Inconsistent with • hierarchy: • local < deed restrictions • deed restrictions not allowed Market Pressure: Makati CBD and Deed Restrictions National level regulations Local zoning ordinance Deed restrictions • Hieararchy of Regulations • Principle: most stringent provision prevails

15. Post 2001 • Ideal for enforcement: • local = deed restrictions • Proposed due to market • pressure: • Increase density/intensity • Render deed restrictions invalid • Force property owners to allow increase in density ? Market Pressure: Makati CBD and Deed Restrictions National level regulations Local zoning ordinance Deed restrictions • Pre-2001 • Metro Manila zoning • ordinance: • No height or density restrictions ?

16. Post 2001 • Ideal for enforcement: • local = deed restrictions Market Pressure: Makati CBD and Deed Restrictions National level regulations Local zoning ordinance Deed restrictions • Pre-2001 • Metro Manila zoning • ordinance: • No height or density restrictions ? Deed restrictions do not violate stringency principle • Proposed due to market • pressure: • Increase density/intensity • Render deed restrictions invalid • Force property owners to allow increase in density Violates property rights

17. Summary and Conclusions • Land use planning establishes the value embodied in property rights to land. • Obstacles to land use planning and its implementation affects property rights. • Obstacles can be internal or external—involving technical shortcomings or conflicting policies and regulations. • In Makati CBD, obstacles can be: • Positive: lead to higher value redevelopments that lead to windfall gains and additional local revenues. • Negative: prevent exercise of property rights as originally intended, compromise environmental integrity. • Implications: Need to build up local planning capability, reconcile conflicting development policies and regulations, integrate deed restrictions with land use plans and zoning ordinances, recognizing the principle that the most stringent provisions (from an environmental integrity point of view) prevail.

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