The case for a basic FAR with property rights

A very good paper on land value capture in Latin America by Martim Smolka.

He makes a very compelling case for limiting building rights to a basic FAR and having people purchase the rest,

Are building rights a private or public asset? If they are private, the implication is that changes affecting those rights and the utility emanating from them must be compensated. But government can consider development rights a public asset because its ability to use those rights depends on conditions established by the collective entity that the government represents. In other words, land use regulations are public conditions external to the bundle of landowner rights. In practice, this means that the public may “concede, confer, bestow” building rights at a price reflecting their market value... The legitimacy of the charge is grounded in two ideas: the implicit understanding that in order to support the additional building rights or higher land uses the public has to provide investments in urban infrastructure and services; and second, the principle that the public cannot favor one property over others when granting additional building rights or new land uses.

Besides being economically efficient, it is also progressive. The poor and low-income invariably utilise only a very small share of the total permissible FAR on their land. But the richest consume all their FAR, and inflict social externalities whose costs are borne by everyone. So limiting property right to a basic FAR development right is also fair.

This about how Sao Paulo adopted this provision is very relevant to others, 

Since 2014, the basic FAR for the whole city of São Paulo has been set in 1, after a long transition since 2002 when the city initiated the process of reducing the existing FARs that varied from zone to zone from 1 to 3 to a now universal Basic FAR of 1, with the Maximum FAR ranging from 1 to 4. By reducing the Basic FAR in some zones allowing for the Maximum to go above the previous FAR (before 2002) of the zone, the city managed to split developers and land interests, thus practically eliminating major legal appeals to this initiative.

This should be an important urban planning reform for India. Not only should there be much higher FAR, but it should be accompanied with a reform to bundle a basic FAR with property right and have the rest purchased at cost. 

The paper also has a graphic that nicely captures the power of land re-adjustment.

Several of the arguments covered in the paper are also covered in my paper with Dr TV Somanathan here.