A comprehensive study of land rent, value capture and local government finance

The question of who is going to get the value generated by means of urbanization is a critical one related to distribution of wealth in urban areas. It is also the basic motivation of value capture approach. This study replaced value capture as the core aspect and tried to develop a perspective that pursues a link between rent and own resource generation for local governments via value capturing. Firstly, in the light of land rent theories, the problematic process was elaborated, and depicted as one starting with policy decisions and planning actions, triggering urbanization process which goes hand in hand with externality and rent formation. It has been identified that urban policy decisions and planning actions basically result in differential rent-1, differential rent-2 and monopoly rent; which has unearned character for individuals. After the elaboration of problematic process, some possible remedies were sought in the second section of theoretical chapter. It was stated that this problem was a concern of urban land policy; and the basic motivation of value capture instruments. Value capture was identified as a means of land policy which specifically deals with returning socially developed value to society. It was also acknowledged that value capture should theoretically serve all three land policy objectives which are efficient allocation of resources, raising public revenue and ensuring equity. Case studies helped to grasp better the value capture approach. It was remarked that there are some practices that comply with theory and serve all three objectives of land policy, yet, not without problems. On the other hand, for some cases, it was realized that the ambiguity in the objectives yielded undesirable outcomes from a value capturing point of view. Thus, the overall problem was stated as multiplicity and ambiguity of objectives for an instrument. At this point, Tinbergen rule1 provided a useful framework to develop some suggestions. It was recommended that instruments be designed according to the objectives they are meant to serve, and different instruments be used in an integrated and coordinated manner to achieve multiple objectives. Additionally, the importance of cultural, historical, political and economic context was acknowledged in the design of instruments. An effective value capturing practice is just a means to ends. Therefore, with a forward looking approach, the implication of value capturing for sound local government finance were sought. It was concluded that, in an era of rapid urbanization and decentralization, it is vital for local governments to increase their own-resources and improve their financial structures. Given the rent is an inner dynamic and an ever existing characteristic of cities, value capturing is highlighted as a sustainable own resource for sound local government finance.