Sweden
Land value capture in Sweden
Several land value capture instruments are used in Sweden (Table 2.52). However, their use and the revenues raised differ strongly across local governments. Some manage to recover an important share of the public infrastructure cost while others recover none. The main obstacles are smaller local governments’ lack of administrative capacity and legal restrictions on the type of public costs local governments can recover.
Enabling framework
Sweden is a unitary state with two subnational levels of government: 21 counties and 290 municipalities (OECD, 2022[3]). The national government is responsible for the framework legislation that defines the land-use planning system and provides the guidelines that municipalities have to follow in their plan-making process. It also defines the building code (OECD, 2017, p. 197[2]). Municipalities are responsible for local planning. They prepare spatial and land-use plans. They also issue building permits based on those plans and other relevant regulations (ibid). Local officials have high discretion when issuing planning permits. Municipalities have the possibility to form inter-municipal associations to jointly take care of these responsibilities (ibid). The national government level creates the legal framework for land value capture.
Developer obligations
Developers are subject to obligations (exploateringsavtal) to obtain approval for new development or densification. The obligations consist of in-kind payments. They are designed to compensate the cost of stronger use of public infrastructure and services resulting from development. The current legislation was introduced with the 2010 Planning and Building Act, but developer obligations have been applied in a similar way for more than 50 years. The principle of developer obligations dates back to the early 1900s. Local governments implement and receive the revenues from the obligations. They frequently use them.
Local governments and developers decide the obligations through negotiated agreements. The obligations must not exceed the increase in land values development approvals generate. Developers must provide land for public roads, parks, water and sewerage facilities or other public space, or provide this public infrastructure directly. No developer is exempt.
The land and infrastructure developers must provide usually cover the total public costs their developments generate for local public roads, utilities and public space, as a minimum within the development areas. Developers are not required to pay for larger construction works for health care, education or nursing care, which local governments provide.
There are no obstacles to developer obligations apart from these restrictions on the type of public costs local governments can recover.
In 2017, the Planning and Building Act allowed local governments to negotiate a monetary compensation from developers when local governments co-finance national infrastructure such as roads and railways that make new development possible. However, this has not been used so far.
Infrastructure levy
Landowners pay a levy (gatukostnadsavgift) for infrastructure built adjacent to their land by the government and from which they specifically benefit, for example public roads and public space. The infrastructure levy has existed for at least 50 years, but is only used occasionally. Local governments implement it and receive its revenues. Even if the national government funds public works, it is local governments that recover the land value increase.
A detailed development plan identifies landowners who will benefit from public works and be charged. Landowners are involved in consultations for the public works’ planning. The levy can amount up to the estimated total cost of public works, but local governments often subsidise part of it. The extent to which the levy covers the cost of public infrastructure varies strongly across local governments: some charge the total cost while others do not charge landowners. If the actual cost of public works differs from their estimated cost, the amount of the levy can be adjusted.
Landowners then pay the levy according to a fixed formula, based on the size, quality and use of their properties. In addition, landowners are usually charged a uniform basic fee. No landowner is exempt.
The levy is charged upon completion of public works. The payment modalities, for example whether the levy is paid through a lump sum or instalments, depend on the payment capacity of landowners. If infrastructure is not provided as originally planned or within the due date, the money is returned to landowners.
The main obstacles are landowners’ resistance and local governments’ lack of administrative capacity, for example to estimate the cost of public infrastructure.
Strategic land management
Strategic land management (kommunal markpolitik) is used to redevelop urban areas and control urban growth patterns. However, it is rarely used. Local governments implement it and receive the revenues.
Usually, local governments buy land available on the market and suitable for urban development. They may expropriate land in their territory. If they do, the compensation is the market value plus 25%.
Land is typically retained for ten years although there is no limit to the length of retention, and rezoned, which raises land prices. Local governments then sell the land at market price to the highest bidder; through auctions where developers make monetary bids to buy it together with development rights; or through public tenders that involve criteria beyond the sales price, such as environmental criteria and tenure forms. Local governments can also lease their land, but only rarely do so. They recover investments in land purchase through the sale or lease of rezoned plots.
The amount of land accumulated and revenues raised through land sales vary strongly across municipalities. The main challenges are the lack of resources for land purchases and local governments’ lack of administrative capacity.
Land readjustment
The Act on Development Collaboration introduced legislation on land readjustment (exploateringssamverkan) in 1987 but was repealed in 2011. Landowners had to provide a share of their plots for public improvements and services, such as streets, parks and water and sewerage facilities. They received readjusted plots with building rights according to the value of their original land. Land readjustment was infrequent due to complicated legal and land valuation procedures.
References
[3] OECD (2022), “Subnational government structure and finance”, OECD Regional Statistics (database), https://doi.org/10.1787/05fb4b56-en (accessed on 13 January 2022).
[8] OECD (2021), “Subnational government structure and finance”, OECD Regional Statistics (database), https://doi.org/10.1787/05fb4b56-en (accessed on 25 November 2021).
[2] OECD (2017), Land-use Planning Systems in the OECD: Country Fact Sheets, OECD Regional Development Studies, OECD Publishing, Paris, https://doi.org/10.1787/9789264268579-en.
[1] OECD/UCLG (2019), 2019 Report of the World Observatory on Subnational Government Finance and Investment - Country Profiles, OECD/UCLG.