Chile
Land value capture in Chile
The most common land value capture instruments are charges for development rights, especially in large cities, and land readjustment projects in urban expansion areas or sparsely built land. The levy for road and pavement works is less common, since it yields small revenues to municipalities. The lack of adequate legal frameworks and the lack of technical local capacity are obstacles to the use of the levy. Developer obligations are part of the regular procedure for planning approval and in this sense are always used for new developments. Strategic land management, recently adopted, is in the process of consolidation.
Enabling framework
Chile is a unitary country with two tiers of subnational government: 16 regions and 345 municipalities (comunas) (OECD/UCLG, 2019, p. 453[1]). A reform enacted in 2013 transferred to municipalities tools, capacities and financial resources to improve their autonomy and performance (OECD/UCLG, 2019, p. 453[1]). The country is also divided into 54 provinces for administrative reasons (OECD/UCLG, 2019, p. 453[1]).
Chile has an advanced urbanization process and an important concentration of the population living in metropolitan areas. Since 2017, the housing deficit increased, and so have informal settlements. The right to access to the city and the right to housing are some of the main issues under discussion for the new Constitution.
The main planning instruments at the national level are the General Law of Urbanism and Building (Ley General de Urbanismo y Construcción, DFL 458/1976), and the National Urban Policy (Política Nacional de Desarrollo Urbano), enacted in 2014. Regions and municipalities must follow the general provisions and principles of these two laws in their policy process.
All levels of government are responsible for the legal framework of land value capture.
Developer obligations
Municipalities always implement developer obligations, which are part of the regular planning practice. In all urbanization, that is, the process of parceling and servicing urban land, developers must provide free land for green areas, mobility, public equipment, sports and recreational activities. Developers make these in-kind contributions to offset the impacts that their project has on local infrastructure. The land given as contribution may not exceed 44% of the total land to be developed (art. 70 of DFL 458/1976).
Municipalities use the received land to develop local infrastructure and public equipment. However, if the location is not considered suitable, municipalities may opt to exchange or sell the land and install the corresponding facilities in a more suitable location.
In 2020, the national government created a new type of developer obligation, associated with infrastructure of urban mobility, called contributions to public space (General Law of Urbanism and Building). Developers must compensate the impacts of a project of urban expansion or densification by making contributions to public space and mobility infrastructure. The contributions may be fulfilled elsewhere in the jurisdiction.
The contributions may be provided in-kind (mitigación directa), through the implementation and operation of transportation infrastructure and related services, such as exclusive bus lanes, terminals, signaling, bicycle lanes and road improvements or adaptations. For projects that contribute to urban densification, developers may be required to pay the obligation in cash (aportes al espacio público), as defined in municipal ordinances or intercommunal plans.
Contributions to public space have not been systematically implemented across municipalities, since first they must be included in local Mobility and Spatial Infrastructure Investment Plans (Planes de Inversión en Infraestructura de Movilidad y Espacio, PIIMEP). This is the main obstacle to the adoption of contributions.
Charges for development rights
State and local governments frequently adopt charges for development rights and collect the revenues. Developers that make a request to build at higher density or to benefit from rezoning or change in building parameters have to pay the charge. The charges are associated with specific land use parameters, and cannot be transferred or resold to other locations.
The charge may be due in cash or in-kind. If in cash, the charge is paid when the project is complete or deferred until the land sale. In-kind contributions must be executed during project development and may consist of the provision of land, creation of public spaces, construction of affordable housing units, or of a combination of cash and in-kind provisions.
In the Zones of Conditioned Urban Development of the municipality of Santiago, development outside the urban limits is admitted against a compensation in cash or in-kind, such as construction of roads and the provision of green areas and parks. The construction of social housing units, albeit foreseen, was never achieved.
In the Valparaiso region, the Controlled Urban Development Plans (Planes de Desarrollo Urbano Controlado, PDUC), approved in 2003, contain a similar provision than in Santiago: building rights beyond the baseline might be granted if the developer compensates the corresponding impacts. Differently from Santiago’s zones, the charges have no specific location and are authorised in successive stages.
The collected funds are earmarked for public improvements, such as public spaces, roads or parking, local infrastructure and affordable and social housing. The funds must be spent within the jurisdiction collecting the charge. Notwithstanding, if the project is of metropolitan interest, a portion of the funds may be redirected to other local or regional jurisdictions.
The most important challenge to implementation is the lack of legal frameworks at the regional and local levels. Up to this date, only the Metropolitan Regions of Valparaiso and Santiago have regulated charges for development rights.
Infrastructure levy
Municipalities sometimes charge an infrastructure levy for road and pavement works conducted by public entities. Called contribución de pavimentación, this instrument exists in the national legal framework since 1949, through the Law 8.946, whose latest modification dates from 2006.
The levy is collected from property owners benefiting from the public improvement that have capacity to pay. The levy includes the cost of 5 meters of road pavement width and the total cost of the sidewalk in front of the property. The levy is collected before project completion, and the payment scheme takes into consideration the capacity to pay of benefitting property owners. Social housing projects or houses whose value falls below a threshold may be exempt from payment.
In 1994, the Ministry of Housing (MINVU) enacted the Participative Pavement Programme, under which benefitting property owners and municipalities enter into a legal arrangement with private construction firms similar to a public-private partnership. In this arrangement, benefitted property owners contribute 5 to 25% of the cost of the paving project, regardless of their capacity to pay, and the municipality pays up to 25% of the cost. The rest is financed by the Ministry of Housing, and the construction firms are responsible for the road and sidewalk works.
The main challenges to implementation are low levels of revenue collection and low social acceptance. Low-income and elderly residents lack the financial capacity to pay the levy. Residents of central areas have often resisted the levy, arguing that deterioration of pavement is caused by heavy traffic rather than by residents themselves.
Land readjustment
Land readjustment is frequently used to repurpose vacant or sub-utilized land plots, such as deactivated public equipment or unexploited vineyards. Private landowners and public entities may pool and readjust underused lots for the purposes of urban expansion, development and renewal, as well as for brownfield regeneration and farmland consolidation.
The executing entities may be private landowners and regional and local governments. Nonetheless, only local governments are entitled to receive the revenues from cash compensations, which are paid by landowners after receiving the readjusted land plots.
Previously to the project, the executing entities must carry out a consultation process with landowners and interested third parties, in order to define the uses and limits of the project (General Law of Urbanism and Building and Citizenship Participation Law). Landowners must consent to the realization of the project. Participation of resisting landowners is enforced through land expropriation. Because expropriations are effective, land readjustment projects are typically always executed.
The public sector builds public equipment – school, health center, justice center and others – from which landowners will benefit. After readjustment, landowners receive a plot with an area proportional to their original holdings. Instead of their original plot of land, they may receive a residential or commercial unit in another location, based on the value and surface area of the new land. If the reallocated plots do not satisfy the landowners, they may exchange them for cash.
Land readjustment projects are typically always executed. The fact that most projects take place in empty or abandoned land facilitates landowners’ participation. Moreover, when there is resistance, expropriation successfully enforces their participation. In all, the remaining challenges to implementation are the lack of adequate legal frameworks and the low levels of technical capacity at the subnational level.
Strategic land management
The national, regional and local governments may acquire and retain land in advance of needs, for the purposes of future land consolidation or development projects and to control urban growth and land price fluctuations. The acquired land may be retained either to raise revenues or to allow private or public entities to conduct projects of public interest. Strategic land management is, in all, only moderately used. This picture may change in the upcoming years, given that, in 2020, the Ministry of Housing put land banking into evidence in the Management Plan for Land Use.
The government may sell, offer for lease, concede or assign use to public lands. The government typically rezones and develops land before selling, alone or through public-private partnerships. Development includes basic land preparation and servicing, construction of public space, roads, parking, public utilities, and, in some cases, housing units. The developed land is then sold to the highest bidder in a public auction or at market price. Alternatively, for the purpose of housing policy, land is sold to the project that best incorporates social housing into the public equipment. The government recovers investments by selling developed land at higher prices.
There is no significant amount of land available to lease and no policy of public land lease. Public land leasing, although scarce, may be used to generate public revenues, facilitate development with public purposes, e.g., social housing, and facilitate urban growth. There is no typical lease length. The ground rent can be paid upfront or through recurring payments. Public entities or non-profit entities may be exempted from paying the rent.
Challenges to the implementation of strategic land management include lack of administrative capacities, lack of financing for land acquisition and lack of co-ordination between the relevant public entities.
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.