Italy
Land value capture in Italy
Italy uses land value capture systematically (Table 2.30). However, given the absence of national guidelines and since regional regulations differ across regions and leave high discretion to local regulations, land value capture’s use and impact vary widely across local governments. At the same time, such discretion for regions and local governments has allowed to test new instruments. For example, recently some local governments introduced inclusionary zoning policies for affordable housing provision by private developers. Else, many cities use transferable development rights for environmental protection under regional regulations despite the lack of national-level legislation. Italy experienced several failed reforms but these attempts made important contributions to subsequent regional reforms and the current planning system. The main obstacles for land value capture’s broader use are the lack of political will to use some of the instruments due to their unpopularity and local governments’ lack of administrative capacity. If land value capture charges are not aligned with local market conditions and are too expensive they may generate resistance. Moreover, some urban areas’ cadastres are not up to date, accurate or complete.
Enabling framework
Italy is a unitary state with four levels of government: the national level, 20 regions, 14 metropolitan cities and 7,904 municipalities (OECD, 2022[3]). Though Italy is a unitary state, its land-use planning system follows a model generally observed in federal countries, with regional laws outlining the planning process – although national law from 1942 is still in force. Regional laws define the structure and processes local authorities follow to prepare statutory land-use plans. Regional provisions can vary from each other. Despite this high degree of regional autonomy, planning systems are similar across the country. The national government is in charge of infrastructure of national importance as well as of environmental and heritage preservation.
Actual land-use decisions are made by municipalities. Municipalities with fewer than 5,000 inhabitants can form inter-municipal cooperations to conduct their land-use planning. The exact nature of the planning process and municipalities’ responsibility differs from region to region (OECD, 2017, p. 134[2]).
According to Article 42 of the Constitution, the state may limit private property to ensure its social function and make it accessible to all. The national, regional and local government levels create the legal framework for land value capture.
Developer obligations
Developers are subject to obligations to obtain approval for new development or densification. The obligations consist of cash or in-kind payments or a combination of both. They are designed to compensate the cost of stronger public infrastructure and services use resulting from private development. The legal basis dates back to 1967. Local governments implement the obligations and receive the revenues. They always use them as follows:
1. For any building permit, developers must pay monetary charges (oneri di urbanizzazione and contributo al costo di costruzione) towards the public infrastructure and services their developments require.
2. In addition to those monetary charges, for building permits in local detailed plans for single development areas (piani di lottizzazione convenzionata), developers must directly provide the public infrastructure and services their developments require, for example roads and basic infrastructure, as well as land for such infrastructure and for facilities like schools, libraries, parks and affordable housing.
Developments that provide a social benefit that outweighs their impact on existing infrastructure may be exempt from payment. Some local governments grant discounts for developments with a high environmental performance.
The monetary charges are calculated using a fixed formula, based on developments’ size, type (residential, commercial or industrial), location and quality. The charges follow regional criteria and local regulations. Since regional criteria differ across regions and leave high discretion to local regulations, the charges vary widely across local governments. In general, they cover a low share of the public costs private development generates. In 2018, the charges recovered EUR 1.8 billion. The average monetary charge per newly built residential unit of 100 m2 is EUR 23,000 in Milan, 20,000 in Bologna and Naples, and less than 10,000 in Como, for example.
The in-kind contributions in local detailed plans are based on national and regional requirements for minimum infrastructure and public space that must be guaranteed to every citizen (standard urbanistici). Since in local detailed plans developers both pay the monetary charges towards the public infrastructure their developments require and provide land as well as infrastructure directly, the obligations usually cover the total public costs for roads and utilities. However, other public facilities, like schools, libraries, affordable housing and parks, are not sufficiently covered.
If local detailed plans require affordable housing, developers typically have to build it inside their project sites. They may negotiate on a case-by-case basis to build affordable housing outside their project sites or pay in cash instead. Though the location might differ, affordable units are comparable to market-rate units in terms of design standards and amenities. National law sets the ‘affordability’ period at minimum eight years. Local governments may negotiate with developers that units remain ‘affordable’ for longer periods. Regional, metropolitan or local agreements between owners and tenants’ organisations regulate the rent.
To increase affordable housing construction, some local governments use density bonuses in local development plans (piani regolatori generali) or tax incentives for developers. Moreover, recently some local governments have introduced inclusionary zoning policies in local development plans: a compulsory quota of affordable housing and land in all predominantly residential private development projects. For example, Milan’s 2012 local development plan may require up to 30% of private projects’ land for affordable housing. Currently, Emilia-Romagna is the only region with a legal basis for inclusionary zoning.
In addition to the above ‘regular’ obligations, local governments have, due to public budget cuts, progressively adopted regulations to obtain an extra contribution from developers for major development or renewal projects. Green areas as well as affordable housing inside or outside project sites are the main matters of negotiations.
Moreover, since 2014 national law allows local governments to charge 50% or higher of the land value increase development approvals generate (contributo straordinario per la plusvalenza). Local governments and developers negotiate this contributo straordinario, which is proportional to private profits. Economic feasibility studies should demonstrate the land value increase.
However, being discretionary and with regional regulations mostly missing, the contributo straordinario has hardly been used in practice. As the negotiation process can take a long time (sometimes up to 20 years for large developments), the original agreement may not be aligned with market conditions once it is finalised. Occasionally, its amount has caused conflict between local governments and developers. Moreover, local governments lack administrative capacity to estimate the land value increase development approvals generate or to negotiate the contributo straordinario with developers.
Charges for development rights (and transferable development rights)
Local development plans set maximum density building rights and may rezone land to a higher use. Landowners who want to develop their plots to meet the new plan – beyond the baseline development rights but within the maximum density or land use – must pay a cash and in-kind charge for such development rights. This charge is on top of the developer obligations to obtain a building permit (see section above) and also applies to owners who transfer the baseline development rights attached to their plots to other plots local development plans designate as better suited to higher density (see perequazione below).
Local development plans establish in advance the baseline development rights and maximum density or land use. Landowners may have to pay in cash; provide land, public infrastructure or services; build affordable housing (see developer obligations section above as the procedures are similar); or provide a combination of these. As the charge is set locally, it widely differs across local governments.
The majority of recently approved local development plans (piani regolatori generali) also include the instrument perequazione (‘equalisation’), a form of charges for development rights and transferable development rights. Perequazione is a fundamental part of current planning practices and works as follows. Local development plans grant all plots the same baseline development rights regardless of their designated use. However, not all plots can be developed. This is to reserve some areas for public uses, such as environmental protection, affordable housing and public facilities. Owners whose plots cannot be developed can transfer the baseline development rights attached to their plots to other plots local development plans designate as better suited to higher density.
Therefore, perequazione allows to:
1. Distribute equally among landowners the advantages and disadvantages plans generate, since all landowners get the same baseline development rights.
2. Obtain areas for public uses and achieve plan objectives without expropriation’s costs, since owners of plots that local development plans designate for public uses de facto grant their land to local governments. In fact, perequazione was introduced as an alternative to expropriation (see strategic land management section below) through which local governments can recover some of the value the planning system generates. Transferable development rights compensate owners whose plots cannot be developed.
The legal debate about perequazione started in 1980. In 1995, the National Institute of Urban Planning (INU) proposed the main reform at the national level, albeit unsuccessfully. Other proposals have arrived in Parliament ineffectively since then. However, the lack of national-level legislation has not prevented perequazione’s broad use at the local level under regional regulations. Large cities, like Rome, Milan and Turin; medium-sized cities, like Bologna and Ravenna; as well as many smaller cities mostly in Northern and Central Italy use the instrument successfully. Local governments implement transferable development rights and receive the benefits.
The main obstacles for perequazione are the low demand for new private development or densification and local governments’ lack of administrative capacity to draw up plans with baseline, maximum and transferable development rights as well as with associated charges for such development rights.
Land readjustment
Land readjustment is used for urban development or renewal, the conversion of rural to urban land and post-disaster reconstruction. The legal basis dates back to 1942 and the current national legislation was introduced in 1967. Local governments, private landowners and private developers implement land readjustment. They frequently use it.
Local governments and private landowners can initiate a readjustment project through a local detailed plan (piano di lottizzazione convenzionata). Landowners in the readjustment area as well as local citizens participate in consultations. The consent of landowners whose plots are worth at least 51% of the readjustment areas’ value is required. Land is valued based on the cadastral taxable value at the time of presentation of the readjustment plan. Once the required consent level is met, landowners who do not consent can be expropriated at market rate based on plots’ original value. This allows recovering the increase in land values readjustment projects generate. However, expropriation is rarely necessary. Landowners are compelled to participate in readjustment projects with a public purpose.
Land readjustment is financed through charges for development rights and transferable development rights (see section above). Landowners must provide a share of their plots for public infrastructure and services, such as public transport, roads, utilities, parks, affordable housing, schools, universities, hospitals, sports facilities, administrative buildings and services, churches, etc. The land provisions must at least meet the standard urbanistici: national requirements for minimum public space that must be guaranteed to every citizen. Local development plans (piani regolatori generali) may set higher requirements for local detailed plans. In recent plans, landowners often had to provide up to 50% of readjustment areas for public infrastructure and services. There is no limit to the share of readjustment areas the government can demand. Land readjustment provides approximately 500 hectares of land yearly for public infrastructure and services. The investment in infrastructure and services increases the value of land in readjustment areas.
After readjustment, landowners receive plots (superficie fondiaria) where they can transfer their building rights attached to the land they granted for public infrastructure and services. They can exchange reallocated plots for cash. Third party investors can buy readjusted plots.
The main obstacle can be the length and bureaucracy to strike an agreement between landowners and the local government, which is needed for land readjustment.
Strategic land management
Strategic land management is not used due to political unpopularity and the lack of resources for land purchases. Developable land’s scarcity and brownfields’ high cost deter possible purchases. The instrument is not in the political agenda.
Up to 1980 expropriation was the main tool to obtain land for public infrastructure and services. The Riforma Sullo in 1962 tried to support expropriation of land at pre-development prices – to recover land value increments from development – for public infrastructure and services provision. It was not approved and was abandoned due to criticism by the political opposition and the public, but it contributed to the creation of the instrument Piani di Edilizia Economica e Popolare with the same mechanism specifically for affordable and social housing. Local governments could expropriate unserviced land at pre-development prices, rezone the land, service it and build affordable and social housing. This allowed recovering the increase in land values the zoning change, servicing and housing investment generated. Local governments could also lease their land for affordable and social housing construction by entitled providers, such as cooperative associations and the Institute for Public Housing (IACP). The lease length was minimum 60 years and maximum 99 years. Local governments were in charge of the instrument’s implementation. The revenues were earmarked for affordable and social housing. The instrument, which is still legally in force, was largely applied before being progressively abandoned because expropriation costs have been paired with market values.
Since 1990, public infrastructure and services as well as affordable and social housing provision shifted from expropriation-based approaches to contributions by landowners in exchange for development approval or transferable development rights (see developer obligations and charges for development rights sections above).
Infrastructure levy
The infrastructure levy (contributi di miglioria) is not in force and has no up-to-date legal basis. The principle of the levy dates back to the first law on urban planning in 1865, a few years after Italy’s unification in 1861. The levy was introduced as a formal fiscal instrument in 1931. However, local governments did not use it much due to political unpopularity. It was removed and replaced by several real estate taxes that do not distinguish between increases in value from specific public infrastructure or planning decisions as well as between land or buildings:
The Imposta sugli Incrementi di Valore delle Aree Fabbricabili (tax on the increase in value of developable land) in 1963;
The Imposta sull’Incremento di Valore degli Immobili, INVIM (tax on the increase in property value) in 1972;
The Imposta Comunale sugli Immobili, ICI (municipal property tax) in 1992;
The Imposta Municipale Unica, IMU (single municipal tax) in 2012.
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.