Land Use Planning Obstacles to Property Rights in the Philippines Arturo G. Corpuz September 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

1Consensus 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land Two conditions: Realize the value of land Current focus: Unlocking capital Removing obstacles, e.g. fake titles, outdated land laws, inefficient land transactions, etc. 2Development of the land according to designated land use or disposition of this right. Land ownership, administration and management

1Consensus 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 2Development of the land according to designated land use or disposition of this right. Two conditions: Land Use Plan Zoning 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 value or 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 Laguna Cavite Batangas Metro Manila Pop Density 1980 Pampanga Bulacan Rizal Laguna Cavite Batangas Metro Manila 2007 Pampanga Bulacan Rizal Laguna Cavite Batangas Metro Manila APGR Pampanga Bulacan Rizal Laguna Cavite Batangas Metro Manila

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 Laguna Cavite Metro Manila Metro Manila Density Gradients

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 Araneta San Lazaro North Triangle Old Bilibid FTI New Bilibid Pandacan Sta Ana Makati CBD

New Bilibid 400 ha Welfareville 72 ha Old Bilibid 8 ha FTI 120 ha Pandacan 30 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-2001 Metro 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-2001 Metro 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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