Urban infrastructure in Sub-Saharan Africa

Harnessing land values, housing and transport

Ian Palmer

20 July 2015

Land-based financing – Conceptual Framework

Lagos (Niaraland.com)

• What infrastructure?

• How is it funded?

• What is land-based financing?

• How does land based financing relate to property development?

The evolution of cities

Water,

sanitation,

electricity, roads,

transport

infrastructure;

landfills

Capital

assets

Movable

assets

(including vehicles

& IT systems)

Engineered

infrastructure

Buildings (top

structure)

private ownership)

Administration

buildings

Buildings

related to

public services

Built public

places

(squares etc)

So

cia

l

infra

stru

ctu

re

Infrastructure sub-division (capital items)

Buildings and

spaces

Capital

works

Public assets

Private assets

Resource development

Bulk

Connector

Internal

City operating activity

Am

ou

nt

per

ho

use

ho

ld

City investment activity

Am

ou

nt

per

ho

use

ho

ld

Progressive evolution of cities

Required operating expenditure

Revenue targeted at operating activity

Too little revenue to cover required expenditure

Surplus generated on operating account

Very limited capacity for City to invest

Can accumulate reserves, borrow and hence invest

Required capital expenditure

Revenue targeted at investments

Most Sub-Saharan African cities sit here

The financial viability transition of cities

Fiscal gap

Fiscal gap

Revenue for capital investment transition

Land-based financing

City’s own finance (use of reserves and borrowing)

Service provider funding (borrowing and equity)

Progressive evolution of cities

1. Transfers are shown hatched as there is such variation in the level of what can be achieved based on the state of the national economy and the commitment of national governments to support local government financially.

2. Weak national economy implies limits to revenue which can be raised by service providers (parastatals and PPPs) and used for infrastructure investments

3. Cities in earliest stage of development may not have sufficient property value for LBF to be effective

Notes

2

Ver

tica

l axi

s (b

lue

shad

ed)

rep

rese

nts

max

imu

m p

oss

ible

fo

r ea

ch in

stru

men

t at

eac

h s

tage

of

Cit

y ev

olu

tio

n

Transfers and donations

3

1

Development based instruments

Developer exactions (once off events)

‘In kind’ contributions by developers

Negotiated payments by developers

Development charges and impact fees based on cost of infrastructure

Land access related charges (once off payments but may have provision for scheduling over time)

Land sales

Land lease

Sale of development rights

Land re-adjustment

Tax-based instruments

Development charges not based on cost of infrastructure (once off payment)

Property tax (recurrent payment)

Betterment tax (recurrent or once off payment)

Tax increment financing (TIFs) (recurrent payment)

Range of Land-based financing instruments

Land-Based Financing Instruments

Progressive evolution of cities

Undeveloped

property Developed property

with basic services

Increased building

height and floor

area ratios

Developer ‘in

kind’ contribution

Impact fees;

development charges

Land sale,

land lease,

sale of

development

rights

Betterment

tax/levy

Property

tax, tax

surcharge

etc

Tax

Increment

Finance

(TIF)

City capital account

City operating account

Basic

infrastructure

serving individual

property

developments

Improved service

levels; higher

capacity

infrastructure

systems

Infrastructure

focused on

improved quality

of life

Advanced

infrastructure:

mass transit; CBD

upgrades; parks

etc

Focus on building

performance, green

space; recreation

City capital account

Negotiated

‘once off’

payments for

infrastructure

Dedicated investment account

Specific

infrastructure for

identified

properties

Water & wastewater

Electricity

Roads

Public transport infrastructure

All reticulated infrastructure

Bulk

Connector

Internal

Commercial & industrial

Residential (mid-high income)

Residential (low income)

Social & community infrastructure Social

Land

Buildings In

fras

tru

ctu

re

Pri

vat

e P

ub

lic

Infrastructure as part of a property development

Building

Internal infrastructure

Connector infrastructure

Bulk infrastructure

Social & community infrastructure

Cross subsidise infrastructure for poor households

Land

No land-based

financing

Extreme where all

building is subsidised

Land and/or internal

infrastructure subsidised

Fu

ll c

ost

of

pro

per

ty d

evel

op

men

t Maximum land based financing including

infrastructure for poor

households

Land based financing for

connector infrastructure, possibly other components

DIAGRAMATIC ILLUSTRATION OF LAND BASED FINANCE SPECTRUM

FOR MIDDLE TO HIGH INCOME RESIDENTAL AND COMMERCIAL

PROPERTY DEVELOPMENTS

City contributes to developer costs Developer contributes to City costs

-5 5

Rating 0

End

Urban infrastructure in Sub-Saharan Africa – harnessing land

values, housing and transport