The importance of secure, legally enforceable and marketable land rights

Secure

Secure land rights enable investment by landowners. Evidence from across the developing world has shown that perceived tenure security, be it provided through informal or formal institutions, gives the certainty of future ownership that is essential if owners are to make substantial residential or commercial investments. In Lima, for example, a large-scale titling programme increased the rate of housing investments by over 60%1, whilst at the same time giving owners the security to leave their homes and travel to different parts of the city to find work.2

Legally enforceable

Legally enforceable land rights enable governments to impose obligations on landowners for the public good. Without legally enforceable land rights, governments and utility companies cannot identify who is liable for service payments and taxation of land and property, and are unable to coordinate land use planning through regulation on owners. Where such land rights are registered, governments are able to tax increases in land and property values that are in part the direct result of public investment. These taxes enable a virtuous cycle where appreciating urban land and property values finance the public investments that make the city more productive. In Rwanda, for example, large-scale registration of the country’s lands has unlocked a five-fold increase in land-related tax revenues from 2011-13.3

The legal definition of private rights over land also enables a fair and transparent process of establishing public rights over land. The ability of governments to acquire land for public purposes where necessary is an essential part of urban development. Without legally enforceable land rights to determine who is liable for compensation, land acquisition can be frustrated by opportunistic compensation claims by new settlers or companies lodging quasi-legal ownership claims.

Marketable

Where land can be bought and sold on an open market, this facilitates the transfer of land to its highest value use. Land markets enable firms to buy up land to form productive clusters, and allow land use to remain dynamic, in line with the changing needs of a rapidly developing city.

Currently, in many low-income cities, land rights are not easily marketable. This is largely due to the absence of formalised land records that allow legal recognition of new owners and generate publicly available information over land prices.4 When urban land markets cannot function properly, the result is inefficient land use. In Harare and Maputo, for example, more than 30% of land within five kilometres of the central business district remains unbuilt.5 In Nairobi, the low-rise informal settlement of Kibera originally formed in the early 20th century now occupies prime central land.

Since central land is difficult and expensive to transact, many firms and property developers therefore choose to locate in ‘leapfrog’ patches in cheaper areas of the city. Cities therefore become fragmented and disconnected, with firms dispersing across the city to offer predominantly local services, rather than forming productive clusters.

Beyond buyer to seller marketability, where land can be used as an asset that can be exchanged for credit on financial markets, this unlocks its use as collateral for large-scale loans and in particular for mortgage markets. This is particularly important in African cities, where only 3% of households can access mortgages.6 Generating a widespread mortgage market will be crucial in changing the patterns of urban informal sprawl that currently characterise many developing cities.

Footnotes

  • 1 Field, E. (2005). “Property Rights and Investment in Urban Slums”, Journal of the European Economic Association 3(2-3): 279-290.
  • 2 Field, E. (2007). “Entitled to work: Urban Property Rights and Labour Supply in Peru”, Quarterly Journal of Economics, 122 (4): 1561-1602
  • 3 World Bank, Rwanda Land Governance indicators, April 2014. These figures concern land lease fees, property tax, rental income tax, transaction fees including notary fees, issuance of building permits etc.
  • 4 Gulyani, S., E. Bassett and D. Talukdar, (2012) “Living conditions, rents and their determinants in the slums of Nairobi and Dakar”, Land Economics, 8, 251-74.
  • 5 “Lall, S. V. Henderson, V. J. Venables, A. J. (2017) “Africa’s Cities : Opening Doors to the World.” Washington, DC: World Bank. CC BY 3.0 IGO.
  • 6 Collier, P. (2016), “African Urbanization: an Analytic Policy Guide”, International Growth Centre