The sale of development rights as a land value capture tool in Ecuador

The following research was done around the implementation of the Sale of Development rights as a land value capture instrument in Ecuador, more specifically in the Metropolitan District of Quito. In general terms, the Sale of Development Rights is the concession to a landowner, or developer, of building rights beyond what is established in de zoning plan, as a mechanism to capture increase in value of land by the government. This tool is fairly new in the country, and its implementation in Quito began on the year 2012; therefore, an assessment on the first years of operation of the instrument seems necessary in order to generate recommendations for a more efficient and effective execution towards the achievement of its objectives. This research intends to expose how the instrument has been applied in Quito by analyzing it through 4 dimensions: the economic dimension that refers to the land market environment and the factors that affect land values; the legal aspects that enable the instrument to be implemented; the financial outcomes of the instrument as a result of its design; and, the social validity of the instrument in terms of the achievement of the objective of redistribution and infrastructure financing. The methodology used in this exploratory research is the single-case study, where both, qualitative and quantitative data was collected and analyzed. The data was collected, during fieldwork on the months of June and July of 2013, from primary and secondary sources in the form of field documents, databases provided by the municipality of Quito, interviews with private, and public sector actors, etc. Qualitative semi-structured interviews were conducted as a triangulation strategy in order to ensure the validity of the research. The results of this study showed that in the Ecuadorian legal context land value capture tools are supported by the principles of the social and environmental property of property and equitable distribution of benefits and costs of the urbanization process, stated in the Constitution and all its supporting documents at the national and local level. In relation to the land market, although there is a clear increment in land values in Quito over the last decade, the research does not show conclusive results in relation to the impact of the possibility of purchasing additional density, through the payment of a fee, in these values. In reference to the financial aspects of the instrument’s implementation, theoretically, the local government captures the entire increment in land value due to the increment in density; however, this depends on how well cadastral values reflect market values of land, given that cadastral values are the base for the calculation of the fee for the additional density rights. In that respect, the research revealed discrepancies between market values and cadastral ones; where this occurs, this discrepancy allows the private party to retain a portion of the increment in the value of land. Finally, in relation to the accomplishment of its objectives, the instrument does not have a significant impact on the densification of served areas, given the fact that its design allows the purchase of development rights only up until 2 additional stories beyond what was previously established by zoning. Additionally, not enough cases have occurred in order to achieve real densification. In terms of raising revenue, the instrument had collected around 6 million USD in one and a half year, which in comparison with the total budget does not have an significant impact; however, considering that the implementation of the instrument does not require additional investments to support the extra density, and considering that the instrument is related to expenditures in infrastructure for services, this amount seems more substantial.