Key message 2 – Land policy is needed to coordinate investment and settlement. The private sector cannot do this alone.

Land markets alone do not ensure efficient land use in a city. There is an essential role for government coordination to provide an anchor for private activity. This is particularly important in developing cities. At early stages of urban development, private firms face a coordination problem: often no one firm is willing to make risky large-scale investments without assurance that others will do the same. Where investments are made, they can also have significant negative effects on surrounding activity. Households face a similar coordination problem: unplanned settlements regularly obstruct the provision of public infrastructure that could provide connectivity and services for residents. When built on floodplains, these settlements can put whole cities at risk.

Governments have three tools with which to achieve coordination: urban ‘master plans’, infrastructure investment, and land use regulation.

Urban ‘Master Plans’

Spatial planning for a city is essential so that both city authorities and firms know what to expect for future development. Yet in many low-income contexts, the pace of urbanisation has far outstripped the city authority’s planning capacity. This is particularly severe in sub-Saharan African cities. For example, settlement without planning has resulted in only 10% of urban land being devoted to roads – compared to around 30% in cities in other parts of the world (Collier and Venables, 2016). Poor planning today stores up costly problems for the future. Retrofitting infrastructure after settlement has already occurred is up to three times more expensive than installation alongside housing construction (Fernandes, 2011). Also, it is difficult to retrofit infrastructure on a large scale without significant slum clearance.

Proactively planning for the rapid growth of cities can prevent them from becoming locked in low trajectory growth patterns. One low-cost way of doing this is through demarcating land for arterial roads and other core infrastructure on the urban periphery before settlement occurs. This was the approach adopted by the City of New York in their 1811 Commissioners Plan. This plan mapped and demarcated a grid system of roads on undeveloped agricultural land in Manhattan, anticipating a seven-fold expansion of the city’s footprint. As the city expanded, demarcated land was acquired for roads, enabling structured and connected urban development. The same grid system created by these plans carries New York’s traffic today, with water and sewerage infrastructure built underneath.

However, for firms and households to use them as a basis for long-term investments, plans need to be credible and realistic. This is not the case in many developing cities. Proposals are regularly based on imported designs or colonial land use, and include plans for multistorey buildings and wide roads unfit for current purposes. In Harare, for example, urban land use plans were originally designed for families with a much higher level of income than was realistic. The result is that these plans are largely ignored.

Infrastructure investment

Beyond planning on paper, city authorities often need to go a step further in anchoring expectations by actually building the key infrastructure that defines the shape of a city. By putting in place the roads, electricity grids, and water supply that firms and households need to operate and survive, governments can effectively incentivise activity according to urban plans. Infrastructure as a signal for future development is particularly important for large firms making risky investment decisions. Concentrating large-scale infrastructure for transport and power in high-connectivity industrial zones not only supports the process of firm clustering, but also enables effective use of limited resources to build such infrastructure.

Signalling these investments can be done in a way that doesn’t require significant resources and time. In the Colombian city of Valledupar, for example, a future grid system has been demarcated by planting trees on acquired land, along the sides of future roads. This provides a visible and popular signal of future transport links to limit costly and disruptive resettlement in the future.

The grid system laid down by the 1811 Commissioners Plan (left) is still in place in New York to this day (right). Left source: History of Architecture CCA, 2009. Right source: Getty

Land use regulations

Regulation can be a powerful tool to address some of the negative externalities that result from development. Zoning regulations, for example, are often needed to prevent households from settling in unsafe areas, and to prevent polluting industrial firms from locating near households that could be adversely affected.

However, in many cases, land use regulations can do more harm than good, particularly where they seek to restrict density levels in a city. Regulations on minimum lot sizes or maximum floor area ratios are widespread in developing cities. In theory, these can be useful in coordinating land use for firms and households with their infrastructural needs. In practice, however, density regulations are often too stringent, paralysing the formal property market. In Dar es Salaam, for instance, the minimum lot size is 375 square metres – as compared to 30 square metres in Philadelphia’s early stages of development (Lall et al., 2017). As a result, the vast majority of the city cannot afford to comply with such a regulation, and so are priced out of the formal market. Low-income housing is effectively criminalised. The result is informal, unplanned urban sprawl. Evidence suggests that lifting height restrictions in Bangalore, India, would result in a 17% reduction in city size, reduce commuting costs, and increase household savings by between 1.5% and 4.5% of earnings (Bertaud and Brueckner, 2005).

Low density urban sprawl in Dar es Salaam, 2009, Source: bbmexplorer, Flickr