South Africa
Land value capture in South Africa
Several land value capture instruments are used in South Africa (Table 2.50). Instruments are used for urban renewal, redevelopment, and brownfield regeneration, to guide spatial planning, and to provide affordable housing and local service delivery. The main obstacles that limit the broader use of land value capture include a lack of legal framework or administrative capacity, landowner resistance, inadequate resettlement sites, and the need to protect vulnerable populations.
Enabling framework
South Africa is a quasi-federal state with two subnational levels of government: 9 provinces and 257 municipalities (including metropolitan, local, and district) (OECD/UCLG, 2019[1]). The authorisation of local government is enshrined in the 1996 Constitution, prior to which local government had no legal constitutional backing. The social function of property is included in South Africa’s Constitution.
All three levels of government provide the legislative framework that enables land value capture instruments. The provincial level is responsible for regional planning, and the local level is responsible for urban and land use planning. However, there is no legal definition of land value capture.
Developer obligations
Development charges have existed in some form in South Africa for over a century. During the 20th Century they were legislated through provincial laws. However, with the country's new constitutional dispensation achieved in 1994, municipal bylaws became the primary instrument, causing vast disparities in the ways that different municipalities make and implement such bylaws. There is also a strong legal principle that additional development rights should only be allocated for planning reasons, not as a quid pro quo between a municipality and a developer. These charges must go toward a specified municipal purpose related to infrastructure investment, but like any other payment to a public authority may fuel corruption within the municipal system.
Developers in South Africa are frequently charged to compensate for their impact on adjacent infrastructure when seeking approval for new developments, when building denser or higher, or when seeking exemptions from planning regulations that will impose additional loads on existing infrastructure networks. Developers are charged regardless of whether their development impacts the immediate surrounding neighbourhood, as the impacts of every development are felt at a city-wide scale.
There is no explicit legal basis for developer obligations at the national level although there is implicit authority in the Spatial Planning and Land Use Management Act, thus charges are levied through municipal bylaws. Some municipalities don't charge them at all, preferring to cover infrastructure costs through property taxes and tariffs on water and electricity. Weaker municipalities don't charge them because they lack the capacity and see very little development.
Charges are calculated using established rules set by each municipality, based on the cost incurred by the jurisdiction due to the developer’s impact on infrastructure, as well as the size and type of development.
Developers can be exempt from such charges if the development provides social benefits that outweigh its impact on infrastructure. Charges are typically paid before or at the moment a development receives approval. Payments can take the form of cash or the provision of public improvements and services to the municipal infrastructure networks, such as roads, sewers, water, and electricity.
Local governments issue development approvals, receive the revenues from charges, and do not need approval from higher levels of government. They have a high level of discretion when issuing approvals, setting charge rates, negotiating with developers, and re-investing collected funds.
Developers sometimes appeal against charges. The main obstacles to developer obligations include unclear development norms and land use regulations, the lack of administrative capacity among public entities, and that revenues raised through charges do not justify the administrative cost.
As of 2021, the national government intended to rectify via new legislation the wide discrepancies in developer obligations charged by different municipalities through the introduction of uniform national principles and rules which have been completed after many years of consultation. Final legislative approval has not yet been given though.
Strategic land management
Strategic land management is used to transform moribund property into productive use, control urban growth patterns, and guide spatial planning. The legal framework governing the disposal of public land however is very restrictive and onerous, mainly as a result of provisions designed to curb corruption.. Due to historical patterns of distribution and ownership according to race, land is a contentious political issue in South Africa. Innovative public-private arrangements to develop land are difficult to implement, especially for municipal government. Implicit in the legislation is a particular mistrust of local councillors' capacity to execute strategic land transactions in the public interest.
A potential legislative reform concerning strategic land management, The Expropriation Act, is under review and will be amended to identify criteria for when compensation can be below market value or, in specific cases, nothing. The intention is to enable the state to acquire more land in order to achieve national strategic objectives (primarily urban and rural land reform).
Land acquired for strategic management is predominantly vacant, abandoned, or unused, because the state cannot afford land situated in a more valuable location or zoned for development. Such land is either acquired at market price or transferred from a governmental agency.
The government cannot freeze land prices before announcing public investment or rezoning to buy the land at that price. Strategic land management may therefore only result in land value capture if the government expropriates the land well in advance of public investment or rezoning plans becoming public knowledge. However, the government or an authorized public entity does rezone land after its acquisition for strategic land management, and develop it before it is sold. There is no time limit for retaining land.
Development of land acquired through strategic land management is typically financed directly by the government. Developed land is then either sold through public tender to fulfil social needs such as affordable housing or transferred to a municipality that solicits proposals for developments that include subsidised housing. The country’s flagship housing programme, begun in the mid-1990s was effectively a strategic land management scheme that provided up to 4 million “housing opportunities”, either on a small parcel of urban and peri-urban land or via informal settlement regularisation, on land which was acquired and handed over to households earning below a prescribed monthly income.
All levels of government acquire, retain and dispose of land, and receive subsequent revenues. Subnational governments do not need permission from a higher level of government to acquire or dispose of land, but they must adhere to the relevant legislation.
The government also has the ability to lease its land to generate public revenue and facilitate development that benefits the public, e.g. affordable or social housing. However, land owned by the government is seldom leased in practice. This is in large part because publicly owned land is very difficult to dispose of. In urban areas, different government agencies often hold public land hopes in order to meet a future need for the expansion of public facilities.
Obstacles that hinder the practice include a lack of legal framework, administrative capacity, or coordination among public entities, a lack of financing for the acquisition of land, and that revenues raised through strategic land management do not justify the costs.
Land readjustment
Land readjustment in South Africa is used for urban development, urban renewal, and brownfield regeneration, though the legal basis is not provided by national law. However, it is usually executed by private landowners on an ad hoc basis in order to increase the value of their land. In the absence of any enabling legal framework or active encouragement from city officials, land readjustment as commonly understood internationally does not happen often in South Africa. Rather, it occurs if private landowners decide that their mutual interests are best served by a readjustment exercise.
In order to secure the necessary planning and subdivision approvals, private landowners ensure that certain land parcels are identified for public improvements (parks, public transport facilities, roads, etc.). With the recent commitments to inclusionary housing in some major cities, it is likely that this land may also be identified for affordable housing. However, this outcome is generally considered incidental to landowners seeking the best outcome for themselves.
After the pooling and readjustment of plots, landowners receive a plot with a value proportional to their original holdings and can exchange their reallocated plots for cash. Third party investors can also receive adjusted plots in exchange for investing in a project.
Landowners may receive readjusted plots on or close to their original land, or in a different place within the readjustment area. They may also receive jointly owned plots, or may receive a residential or commercial unit in lieu of their original plot of land. If readjusted plots are more valuable than their original ones, landowners are not required to pay compensation.
Obstacles to land readjustment include the lack of any adequate framework or administrative capacity among public entities, the cost or controversy related to expropriation, the lack of resettlement alternatives for affected parties, and the need to protect marginalised populations impacted.
Infrastructure levy
There is no legal basis for infrastructure levies provided by national law, and jurisdictions rarely issue them. However, property owners in certain areas, after a consultative process among landowners there, can be charged a fee if they benefit from public safety enforcement, waste management, and urban beautification. Provincial legislation covers these processes, as well as municipal bylaws. These levies and services are often conducted by Business Improvement Districts, known in South Africa as Community Improvement Districts (CIDs) or Voluntary Management Initiatives (VMIs). Though not executed by the public sector, CIDs have a land value capture component by levying fees in exchange for the provision of such services that increase property value. In this context, local landowners organise themselves to invest in the improvement of the area at their own expense, within a quasi-legal structure.
Public improvements and services are typically executed by private property owners in the area, who also share the cost. Costs are assigned using a calculated score based on floor area, type of land use, and the socioeconomic status of the property owners. Poor households can be exempt from the cost of public improvements or services. Fees levied on property owners are paid on an ongoing basis, collected through instalments.
Local governments are typically responsible for levying such fees, but private entities receive the revenues generated. Property owners paying the fee partake in the consultation process, but if the expected improvement or service is not provided, money is not returned. The national government does not interfere in the recovery of land value increases.
Property owners sometimes appeal against fee requirements. Obstacles that hinder infrastructure levies include resistance by property owners, property owners’ inability to pay, and the lack of an adequate legal framework.
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.