Exploring innovative strategies for local infrastructure financing through value capture. Potential application in a rezoned neighbourhood : Kilimani, Nairobi

Nairobi, the capital city of Kenya is divided into 20 planning zones. The history behind the development of these zones reveals segregative policies applied during the colonial period which separated land uses on the basis of race. These policies which are now over a century old are still reflected to this day only that the segregation is based on income levels i.e. high, middle and low-income zones. The point of departure of this research is a municipal re-zoning policy passed in 1987 which allowed for higher density of development in three predominantly high- income, and low-density zones known as zones 3, 4 and 5. The subsequent development that has occurred over the years in these three zones reveals that the level of development has not been matched with a commensurate upgrading of the infrastructure. This problem resulted in a suspension of change of user approvals in November 2005 pending a review of the policy guidelines particularly where infrastructure was concerned. This suspension has since been lifted and development continues to take place. The main objective of this research therefore is to study the potential application of innovative value capture mechanisms for financing the upgrading of infrastructure in Kilimani, a neighbourhood located in zone 4 of the city's planning zones. This necessitates a study on the theory of land rent as developed by three economists, namely David Ricardo, Henry George and Johan von Thⁿnen. These theories explain how land value is created and justify the capturing of land value increments to finance public obligations. Four case studies on innovative financing strategies based on value capture are then studied. These are chosen on the basis of their potential application in Kilimani. This potential is further examined by assessing the local context with regard to the development profile of Kilimani, the changes in land values since the rezoning policy was passed, the perceptions of developers, property owners in Kilimani, and municipal policy makers on their involvement in the infrastructure development and financing process and the institutional framework of the municipality. Data for this research is drawn from both primary and secondary sources. Primary sources include interviews with the relevant actors, key members of the just concluded policy review exercise and property and valuation agents. Secondary sources include newspaper articles, the internet, journals, policy minutes and reports. In concluding the research, the various financing mechanisms are applied to the local context where each tool is assessed on the basis of the circumstances within which each would be best suited for an area like Kilimani and the municipality's capacity to apply the tool. Based on the data collected and the respective analyses, developer-centred approaches stand out as the most appropriate tools for application in the local context. Finally, recommendations on the key policy issues to be considered for the ii Exploring Innovative Strategies for Local Infrastructure Financing through Value Capture successful implementation of innovative financing mechanisms are made. These touch on institutional reform, legal framework and building of partnerships.