Policy recommendations

Cities can be the greatest drivers of economic growth, creating jobs, raising productivity and constructing decent housing. Yet many cities fail to make the investments (public and private) that are necessary to achieve their potential. If it is difficult to move around, the benefits of economic density will not be achieved. If there are high costs for business, the city will not attract new activities or reap economies of scale. If land and capital markets function poorly, then buildings will be constructed to a low standard. Making the city work requires a combination of effectively functioning land markets, appropriate regulation, good public services (especially transport infrastructure), adequate public finance, and a credible plan of future city development. If the private sector is to undertake investments in a fastchanging city environment, it needs both the market opportunities (such as access to land and finance) and confidence in the future development of the city. In order to reap the benefits of this new urbanisation, governments and city administrators will need to follow this set of recommendations to get the city urbanisation policy chain right.

  1. All areas of government need to plan now. Urbanisation is already happening across the developing world – there will be 2.25 billion more urbanites in South Asia and Africa by 2050. Planning for this influx requires a coordinated approach across all areas of government.
  2. Public investments matter, particularly the provision of a functioning transport system. Not only do these investments confer benefits on users, they establish market confidence for potential private investors.
  3. A local tax base is important. It is particularly effective to target urban land for taxation. It has a powerful ethical basis, and it is relatively easy to collect once a comprehensive land registry is in place.
  4. Urban land markets must be free to play the role of allocating land efficiently. Land should be able to be developed by those best able to get the highest value – private and social – from the site.
  5. Efficient land use and investment in structures requires clarity and security of land tenure. This needs to be complemented with improvements in the reliability and speed of dispute resolution through the courts.
  6. Regulation needs to be appropriate. It should control negative externalities, provide information and signal to investors the likely shape of the city. But it must avoid setting standards that are not affordable.
  7. The capital market and financial intermediation needs to provide ways of saving for house purchase and financing loans for both residential and commercial construction.

Urbanisation will occur in coming decades, regardless of policy. This makes it all the more important that it is done right, harnessing the potential advantages of cities to generate economic growth. It will require smart policy that is joined-up across all parts of the urban agenda.