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Land Based Taxes and Land Regularization

Explore land-based financing, theory of land value capture, historical context, tools for land value capture, and applying these to land regularization, considering public and private sector roles.

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Land Based Taxes and Land Regularization

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  1. Land Based Taxes and Land Regularization Presentation by: David Amborski, Centre for Urban Research and Land Development Ryerson University, Toronto, Canada To: UN Habitat/ Jamaica Date: December 12, 2018

  2. Seminar Outline • Land Based Financing and Land Value Capture • Theory (Economic) of Land Value Capture • History of Land Value Capture • The Range of Land Value Capture Tools • Applying Land Value Capture Tools to Land Regularization • Summary and Conclusions • Provisos

  3. Land Based Financing and Land Value Capture • Land Based Financing Success depends on strong increasing land values • Consequently, revenue opportunities can be enhanced by increasing land values • What are the conditions or policies that support increasing land values • Land based tools can be used to capture the values

  4. Theory of Land Value Capture • Methods to Capture “Unearned Increments” • Theory underling ‘Unearned Increments” identified by neoclassical economist David Ricardo • Ricardo and “economic rents” • 19th Century Policy Controversy

  5. US and Canadian Context • Legislation Regulating Urban Areas is undertaken at the sub-national levels of government • United States: 50 States • Canada: 10 Provinces • State or Provincial Legislation • City Charters or Planning Documents • Public Involvement at the Local Level

  6. Actors in the Policy Process • Government (Local and-or Provincial) • Development-Building Industry • Municipalities (via their municipal associations) • Public (individual or groups) • Business Organizations (Chamber of Commerce)

  7. Two Aspects of Land Value Capture • Land Value Creation • Land Value Capture

  8. Land Value Creation and Capture • Creation • Supply • Enhancing the Public Realm • Infrastructure Investment • Demand • Increasing Population and Incomes Increasing Population and Incomes • Capture • By either the Public or Private Sector • Public Sector Capture requires use of “the tools” • Increasing Population and Incomes

  9. Why Use Land Value Capture? • Theoretically Sound ! • Application of the ‘Benefit Principle’ • Generates revenue for the Public Sector • Example: The Henry George “single tax movement”…… “Site Value Taxation”

  10. Overview of Land Based Financing Tools • Property Tax Applications • Site value taxation • Tax Increment Financing • Betterment Taxes • Developer Exactions • Development Charges/Impact Fees • Density Bonuses/ Linkage Fees • Inclusionary Zoning/Housing • Special Assessments/Taxes (Transit)

  11. Overview of Land Based Financing Tools continued • Other Applications • Transfer of Development Rights • Public Land Leasing • Community Land Trusts • Land Readjustment • Public Private Partnership/ Joint Development • Sale of density/building rights

  12. Objectives of Land Regularization • To provide residents with long term security of tenure for their homes • To ensure that the homes/communities have adequate urban services

  13. Long Term Security of Tenure • Fee Simple Ownership • Long Term land Leases • In each case different land based financing tool may be used to help finance services

  14. Provision of Urban Services • Provided by Local Municipalities • Which services are essential/most important? • Hard Services…… Property Related Services • Soft Services……..People Related • When will they be provided? • Which Services are necessary as soon as possible/essential? • Which Services can be phased in over time? • Implications for Financing • How will they be Financed?

  15. How will services be financed? • Contributions by local municipalities • Contributions by senior levels of government • The use of land based/land value capture tools to help finance the services • Different tools to be applied depending on the form of security of tenure • Fee simple ownership • Long term land leases

  16. Ownership: Land Based Tools • Property Tax • Special Assessments • Capital Gains/Betterment Type Taxes

  17. Property Tax • Property Tax = Assessment x Tax Rate • Tax Rate: Political Decision Annually • Rates may vary by property type or use • Assessment System: Policy Decision • A number of options for assessment base

  18. Assessment Base Options • Property Characteristic Based • “Unit Value” Assessment • Property Value Based • Market Value (of Property) Assessment • Split Rate (land and improvements_ • “Site Value Assessment” (Land Only)

  19. Special Assessments • Based on the Benefit Principle • Imposed on Benefiting property once services are installed • Questions must be addressed upon the quantum and structure of the assessment/charge • The revenue generated should be used to defray the cost of the services provided

  20. Capital Gains/Betterment Taxation • A tax could be imposed upon sale of a property • This would be based on the increased value of the property • Government permission and services contributed to the increased value • A percentage of the increased value would be earmarked to pay for service provision (repay bonds)

  21. Security Via Land Leasing • Public Land Leases • Community Land Trusts • Government Owned Land • Owned by NGO

  22. Public Land Leasing • The land is retained in government ownership • The government may issue bonds to finance the provision of services • The lease revenue is then used to repay the bond • Lease rates and terms are determined by the government agency: term, rates, increase, etc.

  23. Public Land Leasing: MassPort (Boston) • Massachusetts State Agency had surplus land in the waterfront • They issued bonds to finance the provision of infrastructure in the area • The bond was secured and repayment based on future lease revenue • Very successful, Non-residential and residential property

  24. Community Land Trusts • Two Options/models • Government owned and managed • Similar to Public Land Leasing except registration of land • Managed by an NGO • Community owned and more democratic • In both cases financial contributions may be required to help finance services

  25. Community Land Trusts • Broadly used in the US and growing interest in Canada • There are many variations on the model • Community Based Process to set up • Democratic Management ( Board) • Fees can be required for numerous purposes including repayment for services

  26. Summary/Conclusions • Land Based Financing Tools have the potential to support service provision for land regularization. • Each tool is a generic name that can be applied in a variety of ways and jurisdictions • Each tool must be considered in the context of it legal basis, market conditions and political context

  27. Summary/Conclusions continued • Land based financing is not a “silver bullet” in this application, it can help support/finance regularization objectives • The financial contribution will relate the to “ability to pay” of the property owners/occupants • An important part of the context is the senior government policy disposition toward supporting regularization including financial support

  28. Summary/Conclusions continued • Also important in the context is the local municipalities fiscal capacity to subsidize and/or front end the financing of services

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