Land value taxation and land speculation

Land has become an increasingly important and scarce resource in fast urbanizing cities. Urbanization pressure triggered some landowners to speculate with their land, withholding it from the market or evaluating their land's market value at its future value, hence vesting it presently with an assumed future development potential. Land speculation is the main cause of leapfrog development, leading to urban sprawl, loss of resources, as well as higher real estate prices. Recognizing its adverse effects, many public authorities have designed instruments to discourage speculation with land. One of such instruments is land value taxation. However, not everyone agrees with the link between land value taxation and land speculation and the impact that the former can have on the latter. Hence, the main research objective of this study is to investigate how land value taxation, focusing on IPTU progressive in time in São Paulo, affects land speculation. This research objective was approached by investigating understand how land speculation is manifested in a megacity such as São Paulo and evaluating how efficient was the implementation of IPTU progressive in time in Sao Paulo. The research strategy adopted for this study is that of a mixed method, with Desk Research being the primary source of data, backed up by interviews and insite observations. The main findings indicate that land speculation is manifested in different land sizes depending on the location: it can be reflected with smaller scale land holdings given a more advanced development stage of the city. Similarly, large landholdings are present in the abandoned industrial sites or land in the periphery which is yet undeveloped or surrounded by informal/irregular developments. Moreover, the spatial manifestation of land speculation in Sao Paulo stems from urbanization and land market dynamics during the last century in the city. This phenomenon is also present in areas where special land regulation policies such as ZEIS or urban transformation projects have been undertaken. In some instances, land speculation is accompanied with provisional uses, such as parking, or storage space serving another bordering land use. The pattern of landownership indicates of a situation similar to that of Market Power, where 66% of surface area the notified Vacant Land is owned by Real Estate Companies or owners of such companies. Moreover, IPTU progressive in time in Sao Paulo is efficient in terms of encompassing a wide tax base. The tax rate is a progressive one, which doubles for every year that the notified owner fails to fulfil his/her obligations. This tax rate is significant compared to other countries where Vacant Land tax is applied. The efficiency of application of IPTU progressive in time been reduced due to this tax’s governance and administration. The biggest challenges in terms this tax’s implementation are faced when it comes to the Consistency of enforcement. Adopting a “scale of operation” approach can be an effective way to identify speculative behaviour, however it should be accompanied with a strategic workplan. Special attention should be devoted to tax governance and administration. Land value tax, when used as an instrument to discourage land speculation, succeeds on cumulative effects, therefore consistency in its implementation and time is required.