Woodrow Wilson International Center for Scholars

1. Programa para a America Latina e o Caribe Woodrow Wilson International Center for Scholars Comparative Urban Studies Project Access to Urban Land Losing Ground? Alternatives to informality Martim O. Smolka Washington DC , September 14, 2006 Martim Smolka - msmolka@lincolninst.edu

2. Not doing such a good job in conveying sufficient supply of serviced land for the urban poor at affordable prices; Regularization, and other subsidies programs, etc. seem also short legged in addressing the problem; Setting the stage Market: Public policy Thus the magnitude, persistence (and even expansion) of informality Martim Smolka - msmolka@lincolninst.edu

3. Outline • Loosing ground: Informality growing faster than • urban population, and … of • urban poverty • Revisit regularization – from curative to preventive • Not resolving! … may actually be contributing to problem • Rules of the urban land markets … untouched! • A ‘third path’? – mobilizing land value increments • Beyond the subsidy and the 100 % tolerance models. • The Usme and the Social Urbanizer experiments Martim Smolka - msmolka@lincolninst.edu

4. Loosing ground on informality Martim Smolka - msmolka@lincolninst.edu

5. Loosing ground: Informality growing faster urban population < Source: IBGE – Brazilian census Bureau *Defined as a set of 51 or more housing units occupying currently or in a recent period, public or privately owned land by third parties, in a dense and un-orderly fashion and lacking basic and public services. Martim Smolka - msmolka@lincolninst.edu

6. Growing % of informality Number of ‘Barriadas’ and Population in Metropolitan Lima Source – Julio Calderon Mercado de Tierras Urbanas Propiedad y Pobreza. Lima, Peru: Lincoln Institute of Land Policy and SINCO Editores ,2006 p 102 – Elaborated with data from INEI 1997 and for 2002 from COFOPRI Significant increase in last decade in spite of regularization programs! Martim Smolka - msmolka@lincolninst.edu

7. Informality beyond poverty • Non poor in informal areas • 3% in favelas > 10SM family income! (Abramo 2005) • Rents in certain favelas > Minimum Wage ($100) • Poor in non informal areas • 64% of poor outside ‘favelas’ (IPP – on Census 2000 IBGE) Informal Poor Martim Smolka - msmolka@lincolninst.edu

8. Causes of informality • Conventional • Poverty • Excessive regulation – hard to comply • Absence of social programs • Informality begets informality! • Higher profitability – unfair competition • Signals from curative (regularization) programs • High prices for serviced land • Insufficient supply of serviced land at affordable prices Martim Smolka - msmolka@lincolninst.edu

9. Revisit regularization programs Martim Smolka - msmolka@lincolninst.edu

10. Regularization: arguments in favor • Not regularizing not a political option • Social/humanitarian reasons • Negative externalities (?) • Urban violence • Health/epidemics etc. • Aesthetic reasons • Existing structures – housing etc. • Convenience: cheaper than new developments (?) Martim Smolka - msmolka@lincolninst.edu

11. Informal Settlements:Revisiting costs • Bad quality of housing • Most self produced – inappropriate for living! • Densities much too high (for what it is) • Barrios en Caracas 251 hab/ha vs. Copacabana 305 hab/ha! • Hidden operation and maintenance costs in services and infrastructure of ‘alternative solutions’ • e.g mail delivery, condominium sewage, garbage collection! • Inadequate location • e.g. environment risk Unanticipated effects! Martim Smolka - msmolka@lincolninst.edu

12. Unanticipated effects of Regularization:Titling • Limit access to credit • Peru: only 3.93% of 1,332,482 duly registered plots received a loan (average US$ 5,596) - Riofrio 2006 • Low priority • Ranked below 7th priority - in survey among ‘favelados’ in Rio. • Small valorization • About 20% (Dowall 2003, Calderon 2002) • More informality! • When granted before up-grading – may increase transaction cost for ‘sub-standard formal land’ ! – ref vacancy chain. Titling: after process of improvements Martim Smolka - msmolka@lincolninst.edu

13. Unanticipated effects of Regularization: up-grading • Signals updating of prices; • Sub-dividers charging a premium according to the expectations of public coming in to ‘fix it’! • Opportunity costs; • Regularization (curative) vs. new urbanization (preventive) • The attraction of in-migration; • Date of arrival vs. some (public) up-grading – ref Evidence from Menna-Barreto 2000 • The‘ day after.’ • Average appreciation in the Favela-Bairro – 28.52% ! vs. value increment in new urbanization >100%! • Settlements stigmatized as irregular, even after 15 years! Need more/better studies Martim Smolka - msmolka@lincolninst.edu

14. In Sum: Regularization does not necessarily contribute to: • Price reduction; • Improve the capacity of the public administration to provide serviced land; • Disincentive additional land occupations; • Capitalize residents/beneficiaries. Need to find alternative solutions Martim Smolka - msmolka@lincolninst.edu

15. Revisiting the ‘arguments’ Martim Smolka - msmolka@lincolninst.edu

16. A Third Path? Martim Smolka - msmolka@lincolninst.edu

17. Conventional models to provide serviced land for the urban poor The subsidy model Land value increment Informality Policies Capitalization expectations The ‘tolerance’ model Higher land prices Martim Smolka - msmolka@lincolninst.edu

18. Alternative models Informality Land value increment mobilization Shared Policy Lower land prices Sanctions Certainty Negotiation with sub-divider Urbanization Martim Smolka - msmolka@lincolninst.edu

19. Stylised facts (1) Profit margins by informal is underestimated since the ‘plot-area ratio’ is higher (2) To be shared with landowners joining - USME land trust or sub-divider in SU (3) Weighted average of price per sqm – ranging from land to commercial use at 70/m2 to In effect price for Social Housing lower (4) Only includes the infrastructure investment internal to the project itself. Martim Smolka - msmolka@lincolninst.edu

20. Social urbanizer and Operation Nuevo Usme - Tools: • Land acquisition mechanism • At ‘non-contaminated’ prices • Value-capture - Mobilization of land value increment, from: • Rural-urban conversion • Selling of building rights • Urban infrastructure provision • Land readjustment • Urban Operation – special zoning • Special regulations for designated areas • Negotiations • Recognition of sub-dividers expertise • Partnerships – Public-Private • Public investing in private developments Martim Smolka - msmolka@lincolninst.edu

21. 3rd Path Alternative – competitive to informal sub-dividers Government Occupants Sub-dividers Sharing land value increments - among Base: Predictability Pre-defined beneficiaries Economies of scale Cost reductions Martim Smolka - msmolka@lincolninst.edu

22. Recognition of • Significant land value increments generated in urbanization process; • Cost of curative higher than preventive; • Being informal is expensive for society and the occupants; Martim Smolka - msmolka@lincolninst.edu

23. Martim Smolka - msmolka@lincolninst.edu

24. Martim Smolka - msmolka@lincolninst.edu

25. Conclusions Current policies not sufficient Informality has to do with the functioning of urban land markets Need to change the rules of the game for the property market Value Capture? Existing latent resources Martim Smolka - msmolka@lincolninst.edu

26. Thanks for your attetion Questions? Martim Smolka - msmolka@lincolninst.edu

27. Martim Oscar Smolka • Senior Fellow and Director of the • Latin America and the Caribbean Program • Lincoln Institute of Land Policy • 113 Brattle Street • Cambridge, MA 02138, USA • Phone direct : 1- (617) 503 2155 • or 661-3016 ext. 155 • Fax: 1- (617) 661-7235 • e-mail: msmolka@lincolninst.edu • http:\\www.lincolninst.edu Martim Smolka - msmolka@lincolninst.edu

28. Hyperlinks Martim Smolka - msmolka@lincolninst.edu

29. Usme operation Martim Smolka - msmolka@lincolninst.edu

30. Usme project Martim Smolka - msmolka@lincolninst.edu

31. Social Urbanizer: Public-private partnership • Public • urban norms and regulations more flexible, • speed up the licensing process, • reduce the legal requirements, and • recognize progressive, step-by-step urbanization. • transfer of development rights as a stimulating mechanism for private developers. • access to specific lines of credit • direct public investments in urban infrastructure • Private – sub-divider • share land value increment • lower land prices for low-income buyers Martim Smolka - msmolka@lincolninst.edu

32. Social Urbanizer A Social Urbanizer is a real estate developer registered with the municipality who is interested in developing in areas identified by the government as suitable for low-income housing, and who agrees to operate according to certain negotiated terms, including the affordability of the serviced plots Eligible Social Urbanizer Martim Smolka - msmolka@lincolninst.edu

33. Eligible Social Urbanizer • Registered real estate developers, • Contractors already working in the informal market, • Landowners and • Self-managed cooperatives. Martim Smolka - msmolka@lincolninst.edu

34. A signal that raises prices: premium/overpricing The expectation that an parcel will eventually be regularized allows the subdivider to speculate on its value. • Ref. POA – Purchase and Sale Agreement... The prominent buyer is aware that a settlement is not urbanized, and that urbanization should be pursued together with the municipal government through participatory budgeting... Martim Smolka - msmolka@lincolninst.edu

35. The opportunity costs of regularization New urbanization (preventive) Regularization (curative) • Favela in Rio de Janeiro: US$ 4,000 per family • Guarapiranga (11 favelas) Sao Paulo US$ 7,962.10 per plot (average 52m2) • ECIA urbanized plot • <US$ 130 per m2 • SMU/Rio de J urbanized plot • US$ 55 - m2 ... unsubsidized US$80 per m2 US$153 per m2 In Bogotá, the cost of correction is 2.7x times the cost of urbanization in planned areas (Aristizabal and Gomez 2001). Martim Smolka - msmolka@lincolninst.edu

36. Regularization: Opportunity cost • ‘Repairs’ costs of irregular settlements • 2.7 times that in new planned areas (Aristazabal y Gomez 2001) • Guarapiranga program – US$ 153.- /m2 (Rocha et al. 2001) • Average cost of about US$ 40 to 70.- /m2 • 14 projects (Favelas in 7 cities in 5 States of Brazil) – US$ 3,400.- average (Caicedo & Izar 1999), or • Favela-Bairro in RJ (1st phase) – US$ 3,500 to 4,000.- • Caracas US$ 57.20 /m2 (ref. CONAVI) • Cost of fully servicing land in new development • US$ 15 to 35.- /m2 (ref. Latin American data) • In general: Loose accounting and negligent records about real costs! Martim Smolka - msmolka@lincolninst.edu

37. The expectation of regularizationis a factor in irregularization • Irregular land occupations and elections. • Miguel Arraes, Roriz, etc. • Date of arrival in settlements. • Evidence of H. Menna Barreto (2000). • Temporary settlements become permanent. • Riofrio 1991. • Peru – irregularity from 17% (1961), to 38% (2000) (Calderón 2001) Martim Smolka - msmolka@lincolninst.edu

38. Dates families arrived vs. regularization programs (favelas Santa Lúcia II and Esmeralda) Up-grading Martim Smolka - msmolka@lincolninst.edu

39. Dates families arrived vs. regularization programs(Areas: V. Olinda and Barão de Uruguaiana) Up-grading Martim Smolka - msmolka@lincolninst.edu

40. The ‘day after’ regularization (ref Abramo). • Average appreciation in the Favela-Bairro – 28.52% ! • (from 15.3% in Caminho do Job to 42.5% in Parque Royal). • => value increment R$ 4,000.00 (28% of value (ex-ante) of R$ 14,000.00. • Contrast with value increment in new urbanization >100%! • Market does not recognize upgrading! • Settlements stigmatized as irregular, even after 15 years! • Higher turnover (> 8%?) • Cashing • Filtering up or down? Few available studies! Martim Smolka - msmolka@lincolninst.edu

41. Belem • Informal housing occupying 25% of the area and 1/3 of the population • 93 favelas (Censo 2000), in 1990 they were ‘just’ 20! • Population growth (ref. Ipea, 1999) • Total = 2,2 % per year. • Informal areas = 6,8%. • No access to sewage network in 95% of the city! Martim Smolka - msmolka@lincolninst.edu

42. Usme Project (tools) • Land acquisition mechanism • At ‘non-contaminated’ prices • Value-capture • Participación en plusvalías • Rural-urban conversion • Selling of building rights • Contribución de Valorización • On urban infrastructure provision • Land readjustment • POZ and Plan Parcial Martim Smolka - msmolka@lincolninst.edu

43. Social Urbanizer (tools) • Urban Operation • Special regulations for designated areas • Land value increment – ear-marked to area • Value-capture – • (Selling of) Building rights (CODC) • Negotiations • Recognition of sub-dividers expertise • Partnerships – Public-Private • Public investing in private developments Martim Smolka - msmolka@lincolninst.edu