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Home » May 2009

Governance and urban land markets

Stephen Berrisford takes a look at the importance of governance in the quest to make land markets work better for the poor.

Why is governance important for urban land markets, and especially for making them work better for the poor?

Urban land as a commodity has special features.

Firstly, as land it is endowed with all the legal attributes of 'immovable property'. The law does not look at land - whether it be in Benoni, Botshabelo or Baardskeerdersbos - in the same way as it looks, for instance, at shares on the stock exchange, agricultural produce or manufactured goods. Land, at least in South Africa, must be registered with the Registrar of Deeds, for a fee. It must be surveyed by the Surveyor General, also for a fee. This is required in terms of both ancient common law and more modern Acts of parliament. Land cannot be bought or sold simply by way of an agreement between a buyer and a seller, at least if the parties want the transaction to be recognised by a South African court. Instead that transaction - once it has been concluded by the buyer and the seller - has to be processed by a specialised lawyer, known as a conveyancer. The land parcel to be bought or sold also has to have been surveyed at some point by a registered land surveyor. The seller also has to have settled any outstanding municipal property rates that might be owed by him or her in respect of that land. Land, unlike most other commodities, cannot be used or disposed of by the people who own or hold it as they wish. A complex set of laws govern the way in which land may be used or developed. In the South African legal system some of these laws date back to Ancient Rome and have travelled over the centuries into our law via the laws of the Dutch province of Holland. Most of the laws governing use and development of land, however, are contained in Acts of parliament, provincial laws or municipal bye-laws that were enacted to implement town planning and environmental protection.

Secondly, urban land in South Africa has a number of unique features. Historically, urban land in South Africa was racially zoned, with different types of land tenure arrangements in place depending on which race zone a particular piece of land fell into. This historical legacy continues to shape the way in which urban land is seen and governed by all three spheres of government as well as the private sector. Also part of this historical legacy has been the after-effects of 'influx control' measures, which for many years under colonialism and apartheid sought to restrict access of any sort by black African people to urban land. With the demise of racial zoning and influx control and the subsequent provision of fully subsidised housing by the State, a new pattern of behaviour has emerged in relation to urban land. The supply of urban land - by the State, through the formal procedures described above - has failed to match the demands of a rapidly urbanising society. Consequently the urban land market has largely split into two parts. One operates largely in the formal manner, and limits participation to those people who are able (and willing) to cross the considerable legal, bureaucratic and financial barriers to entry that the law prescribes. Inevitably these are the better-off people. Inevitably too their assets, acquired in this manner, enjoy a high level of legal protection. Consequently they tend to hold their value, within the context of market fluctuations. The other part of the urban land market operates among those people and businesses that are unable or unwilling to cross the barriers to entry presented by the formal market. This doesn't stop them buying or selling or otherwise transacting with urban land, but it does mean that they do so under different sets of rules. Their urban land assets also don't enjoy the level of legal protection afforded by the formal system. They are able to transact much more easily but the value of their assets is much more precarious.

When we look at the different ways in which the State governs the asset - or resource - of urban land as well as the market transactions carried out in relation to it, we can identify the various ways in which the State's activities affect the supply and demand for urban land, and so the price. The State cannot determine a price. Nor, for that matter, can the private sector. Prices are reached through the particular balance, at a point in time, between supply and demand. The State however, through the numerous powers at its disposal, can influence both supply and demand for urban land, and so can also influence prices. Urban LandMark aims to demonstrate how the State - local, provincial and national - can change the way it exercises these powers in ways that make the urban land market work better for the poor. The three types of such State power that Urban LandMark will be targeting are:

  • The power to regulate the use and development of land, primarily through 'town and regional planning' legislation;
  • The power to tax land value, primarily through municipal property rates; and
  • The power of the state to transact in land through both acquisition and disposal.

Over the next two years, Urban LandMark will be exploring how the State can make immediate changes to the exercise of these powers in order to achieve greater access to and more secure tenure for poor households and businesses in the urban land market. Clearly, each of the different aspects of governance described here has a different potential impact on the market - some are able to influence either supply or demand more directly or more dramatically. What Urban LandMark has determined though is that in all three areas, South Africa as a country is not realising the possible benefits that could be obtained for a pro-poor urban land market. Through this newsletter we will keep you up to date on progress.

An example: the draft Land Use Management Bill

Since 2001 the national government has worked on the formulation of a national Land Use Management Bill (LUMB). In 2008 the draft bill was dropped by the House of Assembly after a series of hearings before the Portfolio Committee for Land & Agriculture. The process leading up to the abandonment of that draft of the bill had been long and difficult for all stakeholders. Hanging over the entire process had been the underlying problem that it is not unambiguously clear which sphere of government has the constitutional competence to make laws dealing with land use and spatial planning.

However, that difficulty aside, from Urban LandMark's vantage point the overriding weakness in the draft bill was that it failed in any way to address - or even acknowledge - the impact that any law of this sort has on the land market. The supply of rights to use and develop land is directly determined by the legal processes created in terms of planning laws. Each time a farm is rezoned and subdivided for urban development the supply of urban land is increased. Each time a planning authority declines an application to develop such a farm, the supply of land is effectively constrained. In both cases there is a direct impact on land prices, and so on the extent to which poor people are able to access urban land. Each time an 'urban edge' is established around a town or city in terms of an Integrated Development Plan, the supply of urban land is immediately curtailed and, in the absence of a simultaneous increase of development rights within the urban area (for instance through densification) the overall price of land in that town or city goes up. Existing land owners within the urban area benefit from rising land values and those who do not hold such land are less able to access it. These two examples show how decisions which may well be well-motivated in 'planning' terms have a negative impact on poorer people's access to land. In both cases it is quite possible to mitigate those negative impacts but if the law does not require such mitigation it's highly unlikely to happen.

Another illustration of the way in which the application of planning laws affects urban land markets relates to the rules contained in such laws governing compensation to land owners whose land values might have dropped as a result of a planning decision. In South Africa these rules tend to protect the landowners very effectively, with the result that the rezoning and development of land for low-income housing on well-located land inevitably fails as a result of protest and objection from surrounding land-owners who claim that this development will lower their land values. For Urban LandMark it is essential that new laws are made that clarify unambiguously that nobody's land value is a right. The value of land is determined by the balance between supply and demand for that land, within a market that is highly regulated. Historically that regulation has been directed towards the protection of values enjoyed only by a privileged few. Now and in the future we need to redirect the purpose of that regulation so that it achieves outcomes that rather enable people excluded from that market altogether to enter it.

In relation to these possible market outcomes of land-use management regulation, the 2008 draft of the LUMB is silent. It effectively provides no concrete or binding pressure on decision-makers to ensure that the outcome of their planning decisions positively affect poor people's access to urban land. Indeed, at the parliamentary hearings when Urban LandMark raised these concerns, the Department of Land Affairs' officials replied that they could not adopt such an approach as then 'they'd have the anti-Expropriation Bill lobby on their backs'. For Urban LandMark it is essential that we build the arguments to refute the protestations of that lobby. It is precisely the dominant position - entrenched by the current laws - that makes the urban land market work so badly for the poor. Urban LandMark will therefore be working under its 'governance' theme to ensure that new planning laws have a directly pro-poor impact on urban land markets. We are now providing both technical and financial support to the inter-ministerial reference group, coordinated by the Presidency, which is tasked to guide the drafting of a new, more effective, legally stronger and more pro-poor national land-use management law.