Land Use Planning Obstacles to Property Rights in the Philippines Arturo G. Corpuz September 2008 Economic Freedom Network Annual Conference.

Land Use Planning Obstacles to Property Rights in the Philippines

Arturo G. CorpuzSeptember 2008

Economic Freedom Network Annual Conference

Outline

• Establishing and Realizing the Value of Property Rights

• Obstacles internal to the Planning Process

• External Obstacles: Conflicting Development Policies

• Market Pressures Towards Higher Intensity and Higher Density Uses: Makati CBD

• Summary and Conclusions

Introduction

• Key message: Land use planning process is an integral component of property rights and obstacles to the process affect how property rights are exercised.

• Land is a foundation of economic activity and property rights to land.

• Property rights are meaningful only to the extent that land can be utilized and value extracted from it.

• Land use directly affects the value of land.

• Property rights reflect the value that the market places on land by virtue of its productive potential.

Introduction

1 Consensus on the value of land through a formal land use planning process.

Establishing and Realizing the Value of Property Rights

Establish the value of land

Two conditions:

Realize the value of land

Current focus: Unlocking capital

Removing obstacles, e.g. fake titles, outdated land laws, inefficient land transactions, etc.

2 Development of the land according to designated land use or disposition of this right.

Land ownership, administration and management

1 Consensus on the value of land through a formal land use planning process.

Establishing and Realizing the Value of Property Rights

Establish the value of land

Right to use land in a specific manner (land use)

Potential value to be derived from the land

2 Development of the land according to designated land use or disposition of this right.

Two conditions:

Land Use PlanZoning Ordinance

• Monopolistic land market

Establishing and Realizing the Value of Property Rights

Some Additional Points:

Location is unique.

No two parcels of land can occupy the same location.

• Land use plan > Land valueor

Land value > Land use plan

A land use plan determines the value of a parcel of land by designating what can take place in it.

But land uses with similar values typically take place near each other—existing land values determine the land use plan.

Establishing and Realizing the Value of Property Rights

Some Additional Points:

• Impact of Land Use Plan on Property Rights

1. Motivation to acquire land/property right influenced by current or potential land use.

2. Obstacles to land use planning can delay/ subvert exercise of property rights.

− Obstacles in identifying and designating land use

− Obstacles in land use plan implementation

• Lack of planning data/information

• Lack of planning resources and expertise

• Conflicts within the local planning-investment programming-budgeting- implementation process

Internal Obstacles

External Obstacles:

Conflicting Development Policies

Urban Expansion vs Food Security

Land Conversion: Drivers

• Existing high densities

• Rapid population growth

• High urban productivity and employment opportunities vs rural

• Lack of infra (to absorb growth in urban areas and to support rural productivity)

Pampanga

Bulacan

Rizal

LagunaCavite

Batangas

MetroManila

Pop Density 1980Pampanga

Bulacan

Rizal

LagunaCavite

Batangas

MetroManila

2007

PampangaBulacan

Rizal

LagunaCavite

Batangas

MetroManila

APGR 1990-2000

PampangaBulacan

Rizal

LagunaCavite

Batangas

MetroManila

2000-2007

External Obstacles: Conflicting Development Policies

Property Rights Impacts

Land conversion

• 2X-10X increase in value of converted properties

• Decrease in agri land• Urban land prices?

No land conversion

• Constrained urban land supply and dependent activities and services

• Maintain agri land inventory• Domestic food supply?• Urban land prices?

Rizal

LagunaCavite

MetroManila

0

1

2

3

4

5

6

7

0 20 40 60 80 100

Distance from Pop Center (km)L

n D

ensi

ty

Metro Manila Density Gradients

1980 20001990 2007

Market Pressure: Makati CBD and Deed Restrictions

• Market pressure to redevelop land towards higher intensity and higher density uses leads to conflicts that affect the exercise of property rights.

• Redevelopment: a logical response to (a) continuing demand for urban space and (b) diminishing supply of vacant or underutilized land.

– Potential gross value resulting from

redevelopment ~ P50k/sqm

• Strongest in and around Makati CBD

– Highest demand for high intensity and high density use

– Limited land supply– Deed restrictions

Fort Bonifacio

Rockwell

Alabang Stock Farm

Villamor Air Base

AranetaSan Lazaro

North Triangle

Old Bilibid

FTI

New Bilibid

Pandacan

Sta Ana

Makati CBD

New Bilibid400 ha

Welfareville72 ha

Old Bilibid8 ha

FTI120 ha

Pandacan30 ha

Market Pressure: Makati CBD and Deed Restrictions

Deed Restrictions

• Contractual agreement between land developer and lot buyer governing land use, density, building form, governance, etc.

• Ex. Along Ayala Avenue– Office use only– FAR 16 density– Build flush to front and side boundaries– Membership in estate association

• Ex. Residential villages– Single family residence– Two storey building – Building setbacks– Membership in village association

Areas rezoned to higher intensity/ density land uses

Areas subject to deed restrictions

Market Pressure: Makati CBD and Deed Restrictions

National level regulations

Local zoning ordinance

Deed restrictions

Hieararchy of Regulations• Principle: most stringent

provision prevails

Ideal for local enforcement: • local = deed restrictions

Inconsistent with hierarchy: • local < deed restrictions• deed restrictions not allowed

Market Pressure: Makati CBD and Deed Restrictions

National level regulations

Local zoning ordinance

Deed restrictions

Pre-2001Metro Manila zoning ordinance: • No height or density

restrictions

Post 2001• Ideal for enforcement: • local = deed restrictions

?

Proposed due to market pressure: • Increase density/intensity• Render deed restrictions

invalid• Force property owners to allow

increase in density

?

Market Pressure: Makati CBD and Deed Restrictions

National level regulations

Local zoning ordinance

Deed restrictions

Pre-2001Metro Manila zoning ordinance: • No height or density

restrictions

Post 2001• Ideal for enforcement: • local = deed restrictions

?

Proposed due to market pressure: • Increase density/intensity• Render deed restrictions

invalid• Force property owners to allow

increase in density

Deed restrictions do not violate stringency principle

Violates property rights

• Land use planning establishes the value embodied in property rights to land.

• Obstacles to land use planning and its implementation affects property rights.

• Obstacles can be internal or external—involving technical shortcomings or conflicting policies and regulations.

• In Makati CBD, obstacles can be:– Positive: lead to higher value redevelopments that lead to windfall gains and

additional local revenues.– Negative: prevent exercise of property rights as originally intended, compromise

environmental integrity.

• Implications: Need to build up local planning capability, reconcile conflicting development policies and regulations, integrate deed restrictions with land use plans and zoning ordinances, recognizing the principle that the most stringent provisions (from an environmental integrity point of view) prevail.

Summary and Conclusions

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