Key message 1 – Urban land rights need to be not only secure, but also marketable and legally enforceable.
Effective use of urban land requires rights that are secure, marketable, and legally enforceable.
Secure land rights, provided formally or informally, ensure certainty over future ownership, which is essential for investment. However, in many developing cities, security of land tenure does not come from governments, but from costly private activity. Individuals are forced to spend resources and time guarding their property, whereas security can be provided more effectively and legitimately by the government. In Lima, for example, a largescale land titling programme increased the rate of housing investments by over 60%, whilst at the same time giving owners the security to leave their homes and travel to different parts of the city to find work (Field, 2005, 2007).
Whilst the importance of tenure security for investment has been well documented, marketable and legally enforceable land rights that allow for urban transformation are equally crucial for rapidly developing cities.
Marketable and legally enforceable land rights that allow for urban transformation are equally crucial for rapidly developing cities.
Marketable land rights facilitate the transfer of land to its highest value use. This provides the foundation for urban transformation; farmland can be converted to housing blocks, and housing blocks to skyscrapers. Where land is exchanged for credit on financial markets, this also unlocks its use as collateral for large-scale loans and mortgage markets (De Soto, 2000). Currently however, 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 on land prices. Without marketable land rights, cities sprawl outwards while prime central land remains either vacant or underdeveloped. In Harare and Maputo, for example, more than 30% of land within five kilometers of the central business district is unbuilt (Lall et al., 2017).
A recent estimate prices the welfare cost of poorly functioning informal land markets in central Nairobi at $16,000 – 17,000 per household.
A recent estimate prices the welfare cost of poorly functioning informal land markets in central Nairobi at $16,000 – 17,000 per household (Henderson et al., 2017).
For security and marketability to work in practice, land rights must be legally enforceable by courts, police, and public records. Without this, there is significant scope for corruption. In Nairobi, unclear property rights in the Kibera slum area have left a vacuum for a minority of well-connected bureaucrats to claim ownership over much of this land. Making land rights legally enforceable does not just benefit the private sector; it also enables governments to impose obligations on landowners for the public good through taxation and planning requirements.
Informal systems of land rights can provide an important degree of tenure security, particularly where they are based on long-standing ownership claims. However, they struggle to generate open land markets and are challenging for governments to enforce. Delivering marketability and enforceability often requires a stronger role for the government in formalising land rights. Freehold or long-term leasehold titles are the gold standard for this.
Overcoming challenges to formalising land rights
Shifting to formalised tenure systems is a financially and politically costly process. In Tanzania, for example, complex surveying processes inflate titling costs to over $3,000 per individual land parcel – well above average annual per capita incomes (Ali et al., 2014). Unsurprisingly, many low-income residents choose not to follow this process. Simultaneously, the same piece of land is often claimed by a number of different occupants and quasi-legal owners, making registration subject to strong resistance from those who stand to lose out.
Rwanda’s 2009 – 13 Land Tenure Regularisation Programme offers a useful example of how countries can grapple with these challenges. To survey land, local para-surveyors demarcated plot boundaries in the presence of the whole community, and recorded plots using satellite and aerial photographs. Almost all land in the country was formally registered in one large-scale process, at a cost of only $6 per parcel. By encouraging entire communities to participate in resolving boundary disputes, competing claims were resolved openly and cost-effectively. Such low-cost programmes may be less precise in establishing exact plot boundaries, but can provide a decent basis for taxation, planning, and land sales.
Even once registers are established, effective legal institutions and administrative systems are needed to govern and maintain them. In Buenos Aires, even though a large-scale land titling programme in the 1980s unlocked significant investment and property tax revenues, 78% of property transfers since registration have taken place informally. This is the result of high costs involved in registering transfers (Galiani and Schargrodsky, 2016).
Overcoming the challenges of land right formalisation is an investment in the future of a city. By formalising land, the government can leverage rising land values to finance urban infrastructure, and the private sector can use land as a platform for the city’s productivity. Formal registration of land in Rwanda meant that the government was able to increase its land-related revenues five-fold from 2011 – 13 (World Bank, 2014), and significantly enhance its investment environment.