600E210

I - XIV

ANNAMALAI UNIVERSITY
DIRECTORATE OF DISTANCE EDUCATION

M.Sc. Real Estate Valuation

Second Year

URBAN LAND ECONOMICS

CHAPTERS : I – XIV

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(For Private Circulation Only)
 M.Sc. REAL ESTATE VALUATION
Second Year
Urban Land Economics

Editorial Board

Members
Prof. B. Palaniappan
Dean
Faculty of Engineering and Technology
Annamalai University
Annamalainagar

Dr. A. Murugappan Dr. P. Kantha Bhabha

Professor and Head Professor and Head
Dept. of Civil Engineering Engineering Wing
Faculty of Engineering and Technology Directorate of Distance Education
Annamalai University Annamalai University
Annamalainagar. Annamalainagar.
Internals
Mr. A. Prabaghar Mr. K. Srinivasan
Associate Professor of Structural Engg. Assistant Professor
Engineering Wing Department of Civil Engineering
Directorate of Distance Education Annamalai University
Annamalai University Annamalainagar
Annamalainagar
Externals
Dr. V. Arutchelvam Mr. P. Sivarajan
Professor Assistant Professor
Department of Civil Engineering Department of Civil Engineering
Faculty of Engineering and Technology Faculty of Engineering and Technology
Annamalai University Annamalai University
Annamalainagar Annamalainagar
Lesson Writer
Dr. G. Ravi
Professor
Department of Economics
Faculty of Arts
Annamalai University
Annamalainagar
 i
M.Sc. REAL ESTATE VALUATION
Second Year
Urban Land Economics
SYLLABUS

Features of growth: geographical area of settlement-Migration population and

density- occupational pattern.
Uses of urban land: factors in supply: effects of zoning and development
control.
Urban infra-structure : bulk delivery of civic services: communication and
transportation.
Real-estate market : investments in real estate
Development decisions: agencies for decisions
Factors affecting urban land value
Land prices in the major cities: determining forces: comparative variation:
globalization and its effect.
References
1. Fredrick Gibbered, Town Design, Architecture Press (2002), London
2. Richard U. Ratchiff, Urban Land Economics, Mc Graw Hill Publishing
Company Pvt. Ltd, (2009), Singapore.
3. A. W. Evan, An introduction to Urban Economics, Macmillan Publishing
Company Pvt. Ltd, (2006) 1221 Avenue of the Americas, New York 10020.
4. E.M.Mills & B.A., Hausiltor, Land resource economics, Prentice Hall (2007),
New York
5. J.V. Henderson, Economic theory and Cities, Academic Press (2000), New
York.
 ii
M.Sc. REAL ESTATE VALUATION
Second Year
Urban Land Economics
CONTENTS

Chapter Title Page

No. No.

I Urban Economics 1

II New Urbanism 4

III The Welfare Economics of Land Use Planning 12

IV Urban Planning 26

V Urban Land Policy 40

VI Urban Infrastructure 61

VII Economic Characteristics of Urban Land 71

VIII The Market for Residential Leaseholds 77

IX Uncontrolled Urban Settlements 83

X Unlocking Land Values to Finance Urban Infrastructure 94

XI Urban Development and Planning Regulations in Selected 100

Asian Cities

XII Urban Mobility 107

XIII Urban Real Estate Market 113

XIV Urban Land Use and Zoning 122

 1
CHAPTER – I
URBAN ECONOMICS
1.1 INTRODUCTION
Urban economics is broadly the economic study of urban areas. As such, it
involves using the tools of economics to analyze urban issues such as crime,
education, public transit, housing, and local government finance. More narrowly, it is a
branch of microeconomics that studies urban spatial structure and the location of
households and firms.(Quigley 2008)
Much urban economic analysis relies on a particular model of urban spatial
structure, the monocentric city model pioneered in the 1960s by William Alonso,
Richard Muth, and Edwin Mills. While most other forms of neoclassical economics do
not account for spatial relationships between individuals and organizations, urban
economics focuses on these spatial relationships to understand the economic
motivations underlying the formation, functioning, and development of cities.
Since its formulation in 1964, William Alonso's monocentric city model of a disc-
shaped Central Business District (CBD) and surrounding residential region has served
as a starting point for urban economic analysis. Monocentricity has become weaker
over time due to changes in technology, particularly due to faster and cheaper
transportation (which makes it possible for commuters to live farther from their jobs in
the CBD) and communications (which allow back-office operations to move out of the
CBD).
Additionally, recent research has sought to explain the polycentricity described in
Joel Garreau's Edge City. Several explanations for polycentric expansion have been
proposed and summarized in models that account for factors such as utility gains from
lower average land rents and increasing (or constant returns) due to economies of
agglomeration.(Strange 2008)
Urban economics is rooted in the location theories of von Thünen, Alonso,
Christaller, and Lösch that began the process of spatial economic analysis (Capello &
Nijkamp 2004:3–4). Economics is the study of the allocation of scarce resources, and
as all economic phenomena take place within a geographical space, urban economics
focuses of the allocation of resources across space in relation to urban areas (Arnott &
McMillen 2006:7) (McCann 2001:1). Other branches of economics ignore the spatial
aspects of decision making but urban economics focuses not only on the location
decisions of firms, but also of cities themselves as cities themselves represent centers
of economic activity (O'Sullivan 2003:1).
Many spatial economic topics can be analyzed within either an urban or regional
economics framework as some economic phenomena primarily affect localized urban
areas while others are felt over much larger regional areas (McCann 2001:3). Arthur
O’Sullivan believes urban economics is divided into six related themes: market forces
in the development of cities, land use within cities, urban transportation, urban
problems and public policy, housing and public policy, and local government
expenditures and taxes. (O'Sullivan 2003:13–14)
 2
1.2 OBJECTIVES
 To make understand about Urban Economics and its policy.
1.3 CONTENTS
1.3.1 Market forces in the development of cities
1.3.2 Land use
1.3.3 Economic policy
1.3.4 Transportation & Economics
1.3.5 Housing & Public Policy
1.3.6 Government Expenditures Taxes
1.3.1 Market Forces in the Development of Cities
Market forces in the development of cities relates to how the location decision of
firms and households causes the development of cities. The nature and behavior of
markets depends somewhat on their locations therefore market performance partly
depends on geography (McCann 2001:1). If a firm locates in a geographically isolated
region, their market performance will be different than a firm located in a concentrated
region. The location decisions of both firms and households create cities that differ in
size and economic structure. When industries cluster, like in the Silicon Valley in
California, they create urban areas with dominant firms and distinct economies.
By looking at location decisions of firms and households, the urban economist is
able to address why cities develop where they do, why some cities are large and others
small, what causes economic growth and decline, and how local governments affect
urban growth (O'Sullivan 2003:14). Because urban economics is concerned with
asking questions about the nature and workings of the economy of a city, models and
techniques developed within the field are primarily designed to analyze phenomena
that are confined within the limits of a single city (McCann 2001:2).
1.3.2 Land Use
Looking at land use within metropolitan areas, the urban economist seeks to
analyze the spatial organization of activities within cities. In attempts to explain
observed patterns of land use, the urban economist examines the intra-city location
choices of firms and households. Considering the spatial organization of activities
within cities, urban economics addresses questions in terms of what determines the
price of land and why those prices vary across space, the economic forces that caused
the spread of employment from the central core of cities outward, identifying land-use
controls, such as zoning, and interpreting how such controls affect the urban economy
(O'Sullivan 2003:14).
1.3.3 Economic Policy
Economic policy is often implemented at the urban level thus economic policy is
often tied to urban policy (McCann 2001:3). Urban problems and public policy tie into
urban economics as the theme relates urban problems, such as poverty or crime, to
economics by seeking to answer questions with economic guidance. For example, does
the tendency for the poor to live close to one another make them even poorer?
(O'Sullivan 2003:15).
 3
1.3.4 Transportation and Economics
Urban transportation is a theme of urban economics because it affects land-use
patterns as transportation affects the relative accessibility of different sites. Issues that
tie urban transportation to urban economics include the deficit that most transit
authorities have, and efficiency questions about proposed transportation developments
such as light-rail (O'Sullivan 2003:14).
1.3.5 Housing and Public Policy
Housing and public policy relate to urban economics as housing is a unique type
of commodity. Because housing is immobile, when a household chooses a dwelling, it
is also choosing a location. Urban economists analyze the location choices of
households in conjunction with the market effects of housing policies (O'Sullivan
2003:15).
1.3.6 Government Expenditures and Taxes
The final theme of local government expenditures and taxes relates to urban
economics as it analyzes the efficiency of the fragmented local governments presiding
in metropolitan areas (O'Sullivan 2003:15).
1.4 REVISION POINTS
1. To know about when we called urban and elements of Economics
1.5 INTEXT QUESTIONS
1. What is land use pattern
2. State about commuter zone.
1.6 SUMMARY
1. This chapter explained about market forces in the development of cities, landuse
and their policies.
1.7 TERMINAL EXERCISES
1. The element of economics are labour, material of _______.
1.8 SUPPLEMENTARY MATERIALS
1. www. Urban economics.com
1.9 ASSIGNMENTS
1. Explain the market forces in the development of cities.
1.10 SUGGESTED READING/ REFERENCE BOOKS /SET BOOKS:
1. A.W. Evan, An Introduction to urban Economics, Mac millan publoishing
company Pvt. Ltd, (2006) 1221 Avenue of Americas, New York 10020.
1.11 LEARNING ACTIVITIES
Group discussion (during PCP days)

1. To discuss about different land use pattern

1.12 KEYWORDS
Market Forece- Land use – Urban growth

 4
CHAPTER – II
NEW URBANISM
2.1 INTRODUCTION
New Urbanism is an urban design movement, which promotes walkable
neighborhoods that contain a range of housing and job types. It arose in the United
States in the early 1980s, and has gradually continued to reform many aspects of real
estate development, urban planning, and municipal land-use strategies.
New Urbanism is strongly influenced by urban design standards that were
prominent until the meteoric rise of the automobile in the mid-20th Century; it
encompasses principles such as traditional neighborhood design (TND) and transit-
oriented development (TOD). It is also closely related to Regionalism,
Environmentalism and the broader concept of smart growth. The movement also
includes a more pedestrian-oriented variant known as New Pedestrianism, which has
its origins in a 1929 planned community in Radburn, New Jersey.
The organizing body for New Urbanism is the Congress for the New Urbanism,
founded in 1993. Its foundational text is the Charter of the New Urbanism, which says:
We advocate the restructuring of public policy and development practices to
support the following principles: neighborhoods should be diverse in use and
population; communities should be designed for the pedestrian and transit as well as
the car; cities and towns should be shaped by physically defined and universally
accessible public spaces and community institutions; urban places should be framed
by architecture and landscape design that celebrate local history, climate, ecology, and
building practice.
New Urbanists support regional planning for open space, context-appropriate
architecture and planning, and the balanced development of jobs and housing. They
believe their strategies can reduce traffic congestion, increase the supply of affordable
housing, and rein in suburban sprawl. The Charter of the New Urbanism also covers
issues such as historic preservation, safe streets, green building, and the re-
development of brownfield land.
2.2 OBJECTIVES
To understand the defining elements of new urbanism.
2.3 CONTENTS
2.3.1 Back ground
2.3.2 Defining Elements
2.3.3 United states
2.3.4 Other Countries
2.3.5 Organisations
 5
2.3.1 Background
Until the mid 20th century, cities were generally organized into and developed
around mixed-use walkable neighborhoods. For most of human history this meant a
city that was entirely walkable, although with the development of mass transit the
reach of the city extended outward along transit lines, allowing for the growth of new
pedestrian communities such as streetcar suburbs. But with the advent of cheap
automobiles and favorable government policies, attention began to shift away from
cities and towards ways of growth more focused on the needs of the car. Specifically,
after World War II urban planning largely centered around the use of municipal zoning
ordinances to segregate residential from commercial and industrial development, and
focused on the construction of low density single family detached houses as the
preferred housing option for the growing middle class. The physical separation of where
people lived from where they worked, shopped and frequently spend their recreational
time, together with low housing density, which often drastically reduced population
density relative to historical norms, made automobiles indispensable for efficient
transportation and contributed to the emergence of a culture of automobile
dependency.
This new system of development, with its rigorous separation of uses, became
known as "conventional suburban development"[5] or pejoratively as urban sprawl,
arose after World War II. The majority of U.S. citizens now live in suburban
communities built in the last fifty years, and automobile use per capita has soared.
Although New Urbanism as an organized movement would only arise later, a
number of activists and thinkers soon began to criticize the modernist planning
techniques being put into practice. Social philosopher and historian Lewis Mumford
criticized the "anti-urban" development of post-war America. The Death and Life of
Great American Cities, written by Jane Jacobs in the early 1960s, called for planners to
reconsider the single-use housing projects, large car-dependent thoroughfares, and
segregated commercial centers that had become the "norm." Rooted in these early
dissenters, New Urbanism emerged in the 1970s and 80s with the urban visions and
theoretical models for the reconstruction of the "European" city proposed by architect
Leon Krier, and the "pattern language" theories of Christopher Alexander.
In 1991, the Local Government Commission, a private nonprofit group in
Sacramento, California, invited architects Peter Calthorpe, Michael Corbett, Andrés
Duany, Elizabeth Moule, Elizabeth Plater-Zyberk, Stefanos Polyzoides, and Daniel
Solomon to develop a set of community principles for land use planning. Named the
Ahwahnee Principles (after Yosemite National Park's Ahwahnee Hotel), the commission
presented the principles to about one hundred government officials in the fall of 1991,
at its first Yosemite Conference for Local Elected Officials.
Calthorpe, Duany, Moule, Plater-Zyberk, Polyzoides, and Solomon founded the
Chicago-based Congress for the New Urbanism in 1993. The CNU has grown to more
 6
than 3,000 members, and is the leading international organization promoting New
Urbanist design principles. It holds annual Congresses in various U.S. cities. New
Urbanism is a broad movement that spans a number of different disciplines and
geographic scales. And while the conventional approach to growth remains dominant,
New Urbanist principles have become increasingly influential in the fields of planning,
architecture, and public policy.
2.3.2 Defining Elements
According to husband-and-wife town planners Andrés Duany and Elizabeth
Plater-Zyberk, two of the founders of the Congress for the New Urbanism, they
observed mixed-use streetscapes with corner shops, front porches, and a diversity of
well-crafted housing while living in one of New Haven's Victorian neighborhoods.
1. The neighborhood has a discernible center. This is often a square or a green
and sometimes a busy or memorable street corner. A transit stop would be
located at this center.
2. Most of the dwellings are within a five-minute walk of the center, an average of
roughly ¼ mile or 1,320 feet (0.4 km).
3. There are a variety of dwelling types — usually houses, rowhouses, and
apartments — so that younger and older people, singles and families, the poor
and the wealthy may find places to live.
4. At the edge of the neighborhood, there are shops and offices of sufficiently
varied types to supply the weekly needs of a household.
5. A small ancillary building or garage apartment is permitted within the
backyard of each house. It may be used as a rental unit or place to work (for
example, an office or craft workshop).
6. An elementary school is close enough so that most children can walk from
their home.
7. There are small playgrounds accessible to every dwelling — not more than a
tenth of a mile away.
8. Streets within the neighborhood form a connected network, which disperses
traffic by providing a variety of pedestrian and vehicular routes to any
destination.
9. The streets are relatively narrow and shaded by rows of trees. This slows
traffic, creating an environment suitable for pedestrians and bicycles.
10. Buildings in the neighborhood center are placed close to the street, creating a
well-defined outdoor room.
11. Parking lots and garage doors rarely front the street. Parking is relegated to
the rear of buildings, usually accessed by alleys.
12. Certain prominent sites at the termination of street vistas or in the
neighborhood center are reserved for civic buildings. These provide sites for
community meetings, education, and religious or cultural activities.
 7
13. The neighborhood is organized to be self-governing. A formal association
debates and decides matters of maintenance, security, and physical change.
Taxation is the responsibility of the larger community.
2.3.3 United States
New Urbanism is having a growing influence on how and where metropolitan
regions choose to grow. At least fourteen large-scale planning initiatives are based on
the principles of linking transportation and land-use policies, and using the
neighborhood as the fundamental building block of a region. Miami, Florida, has
adopted the most ambitious New Urbanist-based zoning code reform yet undertaken by
a major U.S. city. More than six hundred new towns, villages, and neighborhoods in
the U.S. following new Urbanist principles are planned or under construction.
Hundreds of new, small-scale, urban and suburban infill projects are under way to
reestablish walkable streets and blocks. In Maryland and several other states, New
Urbanist principles are an integral part of smart growth legislation.
In the mid-1990s, the U.S. Department of Housing and Urban Development (HUD)
adopted the principles of the New Urbanism in its multi-billion dollar program to
rebuild public housing projects nationwide. New Urbanists have planned and
developed hundreds of projects in infill locations. Most were driven by the private
sector, but many, including HUD projects, used public money.
The Cotton District
The Cotton District in Starkville, Mississippi, was the first New Urbanist
development, begun in 1968 long before the New Urbanism movement was organized.
The District borders Mississippi State University, and consists mostly of residential
rental units for college students along with restaurants, bars and retail. The Cotton
District got its name because it is built in an area that surrounds an old cotton mill.
Seaside
Seaside, Florida, the first fully New Urbanist town, began development in 1981 on
eighty acres (324,000 m²) of Florida Panhandle coastline. It was featured on the cover
of the Atlantic Monthly in 1988, when only a few streets were completed, and has
become internationally famous for its architecture, and the quality of its streets and
public spaces. Seaside is now a tourist destination and appeared in the movie The
Truman Show. Lots sold for $15,000 in the early 1980s, and slightly over a decade
later, the price had escalated to about $200,000. Today, most lots sell for more than a
million dollars, and some houses top $5 million
Stapleton
The site of the former Stapleton International Airport in Denver, Colorado, closed
in 1995, is now being redeveloped by Forest City Enterprises. Stapleton is expected to
be home to at least 30,000 residents, six schools and 2 million square feet
(180,000 m²) of retail. Construction began in 2001. Northfield Stapleton, one of the
development's major retail centers, recently opened.
 8
San Antonio
In 1997 San Antonio, Texas, as part of a new master plan, created new
regulations called the Unified Development Code (UDC), largely influenced by New
Urbanism. One feature of the UDC is six unique land development patterns that can be
applied to certain districts: Conservation Development, Commercial Center
Development, Office or Institutional Campus Development, Commercial Retrofit
Development, Tradition Neighborhood Development, Transit Oriented Development.
Each district has specific standards and design regulation. The six development
patterns were created to reflect existing development patterns.
Mountain House
Mountain House, one of the latest New Urbanist projects in the United States, is a
new town located near Tracy, California. Construction started in 2001. Mountain
House will consist of 12 villages, each with its own elementary school, park, and
commercial area. In addition, a future train station, transit center and bus system are
planned for Mountain House.
Mesa del Sol
Mesa del Sol, New Mexico — the largest New Urbanist project in the United States
— was designed by architect Peter Calthorpe, and is being developed by Forest City
Enterprises. Mesa del Sol may take five decades to reach full build-out, at which time it
should have 38,000 residential units, housing a population of 100,000; a 1,400-acre
(5.7 km2) industrial office park; four town centers; an urban center; and a downtown
that would provide a twin city within Albuquerque.
Haile Plantation
Haile Plantation, Florida, is a 2,600 household (1,700 acre) development of
regional impact southwest of the City of Gainesville, within Alachua County. Haile
Village Center is a traditional neighborhood center within the development. It was
originally started in 1978 and completed in 2007. In addition to the 2,600 homes the
neighborhood consists of two merchant centers (one a New England narrow street
village and the other a chain grocery strip mall). There are also two public elementary
schools and an 18-hole golf course.
Disney's Celebration, Florida
In June 1996, the Walt Disney Company unveiled its 5,000 acre (20 km²) town of
Celebration, near Orlando, Florida. Celebration opened its downtown in October 1996,
while Seaside's downtown was still mostly unbuilt. It has since eclipsed Seaside as the
best-known New Urbanist community, but Disney shuns the label, calling Celebration
simply a "town."
Celebration's Downtown has become one of the area's most popular tourist
destinations making the community a showcase for New Urbanism as a prime example
of the creation of a "sense of place".
 9
Jersey City
The construction of the Hudson Bergen Light Rail in Hudson County, New Jersey
has spurred transit-oriented development. In Jersey City, two project are planned to
transform brownfield sites, both of which have required remediation of toxic waste by
previous owners. Bayfront, once site of a Honeywell plant is a 100 acre site on the
Hackensack River, and is nearby the planned West Campus of New Jersey City
University. Canal Crossing, named for the former Morris Canal, was once partially
owned by PPG Industries, and is a 117 acre site west of Liberty State Park.
2.3.4 Other Countries
New Urbanism is closely related to the Urban village movement in Europe. They
both occurred at similar times and share many of the same principles although urban
villages have an emphasis on traditional city planning. In Europe many brown-field
sites have been redeveloped since the 1980s following the models of the traditional city
neighbourhoods rather than Modernist models. One well-publicized example is
Poundbury in England, a suburban extension to the town of Dorchester, which was
built on land owned by the Duchy of Cornwall under the overview of Prince Charles.
The original masterplan was designed by Leon Krier. A report carried out after the first
phase of construction found a high degree of satisfaction by residents, although the
aspirations to reduce car dependency had not been successful. Rising house prices and
a perceived premium have made the open market housing unaffordable for many local
people.
The Council for European Urbanism (C.E.U.), formed in 2003, shares many of the
same aims as the U.S.'s New Urbanists. C.E.U.'s Charter is a development of the
Congress for the New Urbanism Charter revised and reorganised to relate better to
European conditions. An Australian organisation, Australian Council for New
Urbanism has since 2001 run conferences and events to promote New Urbanism in
that country. A New Zealand Urban Design Protocol was created by the Ministry for the
Environment in 2005.
There are many developments around the world that follow New Urbanist
principles to a greater or lesser extent:
 Vancouver, Canada, in general is a very walkable city with some luxury
subdivisions like Yaletown being even more so
 Orchid Bay, Belize, is one of the largest New Urbanist projects in Central
America and the Caribbean.
 Val d'Europe, east of¨Paris, France. Developed by Disneyland Resort Paris, this
town is a kind of European counterpart to Walt Disney World Celebration City.
 McKenzie Towne is a New Urbanist development which commenced in 1995 by
Carma Developers LP in Calgary and has an expected completion of 2011.
 The structure plan for Thimphu, Bhutan, follows Principles of Intelligent
Urbanism, which share underlying axioms with the New Urbanism.
 10
 Jakriborg, in Southern Sweden, is a recent example of the New Urbanist
movement.
 Cornell, within the town of Markham, Ontario, was designed with walkable
neighborhoods, density to support public transit, a variety of housing types
and retail.
 Other developments can be found in the Netherlands, at Heulebrug, part of
Knokke-Heist, in Belgium, and Fonti di Matilde, Italy.
There are several such developments in South Africa. The most notable is Melrose
Arch in Johannesburg. The first development in the Eastern Cape, one of the lesser
known provinces in the country, is located in East London. The development,
announced in 2007, comprises 30 hectares. It is made up of three apartment
complexes together with over 30 residential sites as well as 20,000 sq m of residential
and office space. The development is valued at over R2 billion ($250 million).
2.3.5 Organizations
The primary organization promoting the New Urbanism in the United States is the
Congress for the New Urbanism (CNU). The Congress has met annually since 1993
when they held their first meeting in Alexandria, Virginia, with approximately 100
attendees. By 2008 the Congress was drawing 2,000 to 3,000 attendees to the annual
meetings. The Congress began forming local and regional chapters circa 2004 with the
founding of the New England and Florida Chapters. While the CNU has international
participation, sister organizations have been formed in other areas of the world
including the Council for European Urbanism (CEU), the Movement for Israeli
Urbanism (MIU) and the Australian Council for the New Urbanism.
By 2002 chapters of Students for the New Urbanism began appearing at
universities including the Savannah College of Art and Design, University of Georgia,
University of Notre Dame, and the University of Miami. In 2003, a group of younger
professionals and students met at the 11th Congress in Washington, D.C. and began
developing a "Manifesto of the Next Generation of New Urbanists". The Next Generation
of New Urbanists held their first major session the following year at the 12th meeting of
the CNU in Chicago in 2004. The group has continued meeting annually as of 2009
with a focus on young professionals, students, new member issues, and ensuring the
flow of fresh ideas and diverse viewpoints within the New Urbanism and the CNU.
Spinoff projects of the New Generation of the New Urbanists include the Living
Urbanism publication first published in 2008.
The CNU has spawned publications and research groups. Publications include the
New Urban News and the New Town Paper. Research groups have formed independent
nonprofits to research individual topics such as the Form-Based Codes Institute, The
National Charrette Institute and the Center for Applied Transect Studies.
In the United Kingdom New Urbanist and European urbanism principles are
practised and taught by the The Prince's Foundation for the Built Environment. Other
organisations promote New Urbanism as part of their remit, such as INTBAU, A Vision
of Europe, and others.
 11
The CNU and other national organizations have also formed partnerships with
like-minded groups. Organizations under the banner of Smart Growth also often work
with the Congress for the New Urbanism. In addition the CNU has formed partnerships
on specific projects such as working with the [United States Green Building Council]
and the National Resources Defense Council to develop the LEED for Neighborhood
Development standards and with the Institute of Transportation Engineers to develop a
Context Sensitive Solutions (CSS) Design manual.
Film
The 2004 documentary The End of Suburbia: Oil Depletion and the Collapse of the
American Dream argues that the depletion of oil will result in the demise of the sprawl-
type development. New Urban Cowboy: Toward a New Pedestrianism, a feature length
2008 documentary about urban designer Michael E. Arth, explains the principles of his
New Pedestrianism, a more ecological and pedestrian-oriented version of New
Urbanism. The film also gives a brief history of New Urbanism, and chronicles the
rebuilding of an inner city slum into a model of New Urbanism.
2.4 REVISION POINTS
1. New Urbanization in united states
2.5 INTEXT QUESTION
1. How New Urbanism is related to village in Europe
2.6 SUMMARY
1. This chapter explained about various defining elements of new orbanism in U.S.
and other countries.
2. State about Hail Plantzation.

2.7 TERMINAL EXERCISES

1. The new Urban development in cotton district is at _______.

2.8 SUPPLEMENTARY MATERIALS

1. www. New urbanisim.org.
2.9 ASSIGNMENTS
1. Explain in detail about defining elements of new orbanism in United States.
2.10 SUGGESTED READING/ REFERENCE BOOKS /SET BOOKS
1. Fredrick Gibbered, Town Design, Architecture Press (2002), London.
2.11 LEARNING ACTIVITIES
Group discussion (during PCP days)
1. To discuss about development of new urbanization.

2.12 KEYWORDS
Defining Elements – Organisation – Film.

 12
CHAPTER – III

THE WELFARE ECONOMICS OF LAND USE PLANNING

3.1 INTRODUCTION
Economic research concerning land use planning has been focused primarily on
the expected consequences determined within a theoretical model1 or empirical
evaluations of the costs of these widely used policies. In this paper we undertake to
provide an analysis that quantifies some of the benefits of land use planning, which
come in the form of environmental amenities provided to residents, and compares
these with the costs of land use planning, which come in the form of increased land
and housing costs from restrictions on the availability of developable land. Thus we
provide estimates of the net benefits of land use planning in an urban area facing
strong pressure for development. By examining how these benefits and costs are
distributed over households, we are able to illustrate the distributional consequences
of land use planning.
We find that land use planning produces benefits of considerable value. We also
find that the cost of producing these benefits is high. In the context of an urban area
facing a restrictive regulatory regime, the net effect is substantially negative, and it
appears that welfare would be improved by permitting more development. We identify
specific policy changes that could produce improvements in welfare, and examine how
the costs and benefits are distributed across income groups.
While the application of modern land use planning in Britain developed at about
the same time as in North America (the movement against ‘ribbon development’ in the
UK had its first legislative success in 1932), the British laws had from the beginning
the containment of ‘sprawl’ as a principal concern. More recently, the movement
against sprawl has spread to other countries, although the policies have been criticised
as a blunt instrument with which to tackle significant market failures. Land use
planning serves a variety of purposes: control of the spatial structure of residential
development can reduce the cost of providing some local public goods and serve to
isolate land uses which are likely to generate costly external effects; regulation of
building types can serve to limit the deadweight loss from property taxation; regulation
of land use can be a method of providing valued public goods such as neighbourhood
quality; and amenities such as open space by fiat rather than through taxes and direct
public sector production. The absence of taxes, however, does not imply the absence of
costs. The central question of this paper is: what are the magnitudes of the benefits
and of the costs associated with these policies, and how are they distributed over
different groups within an urban area?
3.2 OBJECTIVES
To understand different approaches of welfare economics of land use planning.
 13
3.3 CONTENTS
3.3.1 Outline approach
3.3.2 Structure of demand
3.3.3 Benefits of Planning amenities
3.3.4 Net costs of land use planning
3.3.5 Distributional Impacts
3.3.1 Outline Approach
The analysis proceeds through a series of steps:
Select an urban area with restrictive land use planning that otherwise
approximates the assumptions of classic urban economic theory; Collect sample
housing market data in this urban area (price, structure characteristics, land, location,
neighbourhood amenities, household composition, and incomes);
3. Estimate the structure of hedonic prices for land and other attributes;
4. Using the implicit prices from the hedonic equation, household income and
composition, estimate a household demand system that includes land and amenities
produced by the planning system (as well as other structure and neighbourhood
attributes);
5. Use the demand system to determine a utility level for each household
associated with the status quo;
6. Use this initial utility level along with observed incomes, urban population, and
the value of land at the urban periphery to estimate using the standard urban
equilibrium condition the share of land made available for private residential
consumption within the urban area;
7. Use the initial utility level combined with the estimated demand and
expenditure function as the basis for the welfare analysis;
8. To measure gross benefits:
(a) For amenities generated by land use planning, use the demand system to
calculate the reservation price (or the price that would obtain in the absence of land
use planning);
(b) For each household, calculate the income compensation required to maintain
status quo utility when the amenity price is raised to the reservation price (so
household demand for the amenity is zero);
9. To measure net benefits:
(a) Estimate the change in land available for private residential consumption
associated with land use planning;
(b) Estimate the new urban land market equilibrium and household utility levels
associated with changes in land use planning and the associated increase in private
residential land consumption;
 14
(c) For each household, calculate the variation in income that would be equivalent
to achieving the utility level associated with this new equilibrium, accounting for the
reduced (or eliminated) availability of the regulation-produced amenity. In the analysis
of both gross and net benefits, it is possible to consider a wide variety of possible
alterations in the regulatory regime. Below we consider only a few specific alterations
that indicate the likely range of benefits and net costs associated with feasible changes.
Since we estimate a gross and net benefit for each household, we also present an
evaluation of how these impacts vary with household income. This permits an analysis
of the extent to which land use planning might be said to exacerbate or mitigate
inequality in an economy.
The estimated land prices determined and analysed below may be interpreted as
in a standard urban model. It is the price of land as pure space with accessibility to an
employment centre. The market price of ‘vacant’ land within an urban area reflects the
supply of amenities and local public goods available at each location in addition to the
value of the land as pure space with accessibility.
For this reason, the price of land as pure space can only be estimated within an
hedonic framework. Land use planning determines the quantity of several amenities
available at any location and also influences the overall supply of land as pure space.
The use of a housing market hedonic to estimate the underlying value of land is
not entirely novel. Jackson et al., for example, utilise a polynomial that varies with
location in a hedonic to estimate urban land values. The approach is justified by a
simple observation about the hedonic price function: in equilibrium the hedonic price
of an attribute is equal to both the marginal bid price for the attribute and the
marginal cost of provision. Assuming adjustment to equilibrium, the marginal cost of
providing additional land with a house is the value of land as pure space.
Alternative answers to measuring amenity value are available in simpler
situations. Black, for example, whose focus is the value of education, uses a method
based on generating ‘comparables’ of nearby properties located in different school
catchment areas. This effectively standardises so far as possible for all individual
characteristics except school quality. The present analysis requires valuations of
several environmental and social amenities, and of land itself. Land values vary
throughout the urban area and therefore require a comprehensive hedonic approach.
The estimation of both the gross and net benefits of land use planning proceeds
by using expenditure functions. It would be associated with the household preferences
if the household face constant prices. In a housing market, this is an approximation
since the prices of structure and neighbourhood characteristics depend on the quantity
consumed. In principle, the accuracy of our approximation might be improved but only
at the cost of greatly complicating an already difficult procedure.
 15
3.3.2 Structure of Demand
The present analysis largely builds upon obtained estimates of hedonic prices and
the structure of demand for housing and neighbourhood characteristics.
Hedonic Price Function and Land Rents
The implicit prices of characteristics are obtained using the estimated coefficients
of a ‘Box–Cox’ hedonic price function. There are three different ‘transformation
parameters:’ one for the structure price, one for land area, and one for all other non-
dichotomous variables. The final hedonic price function to be estimated is given by

where p is the rentalised price of structure; qi , qj are the structure or location

specific characteristics; K, βi , βj , ψ, λ, ξ are the parameters to be estimated; L is the
quantity of land included with structure; D is the set of indices of characteristics which
are dichotomous; C is the set of indices of characteristics which are continuously
variable; r(x, θ) is the land rent function defined below;
ψ, λ, ξ are the standard parameters of the Box–Cox functional form.
Since land rents are critical in what follows, the land rent function warrants
particular notice. The land rent function used here has the following form: r(x, θ)= β1 ·
ex·(β2+β3·sin(n·θ−β4)), (3.2)
where x is the distance from town centre; θ is the angle of deflection from East; βi
are the parameters to be estimated; and n is an integer which determines the number
of radial asymmetries.
This possesses the advantage of considerable flexibility but requires the
estimation of only five parameters. The function also allows estimation of asymmetries
in the land rent surface due to transport networks or topography. Multiple
asymmetries are possible (and were tested for) although multiple asymmetries are
constrained to be radially symmetric. As fitted, however, the asymmetries closely
tracked the main access routes. The form does not require that land rents decrease
from the urban centre. It is ‘monocentric’ only in the sense that along any linear path
from the city centre land rents will increase or decrease at a constant rate.
Neighbourhood characteristics are formulated to include the main local amenity
outputs produced by the planning system, specifically limitations on industrial land
use and provision of open space. Clearly, the planning system provides a variety of
other public goods such as coordination of infrastructure provision with urban
development. Such services tend to accrue to the community as a whole rather than as
local amenities, and are therefore not separately indentifiable in the hedonic function.
Our analysis does not deal with the benefits and costs of these other activities, and
focuses on the local amenities produced by land use planning. Estimates of the
rentalised hedonic price of structure and neighbourhood characteristics as well as land
 16
were obtained from these functions. The estimated structure price from the hedonic
equation, _P, is a function of the vector of observed characteristics and location
Almost Ideal Demand System
The almost ideal demand system developed by Deaton and Muellbauer is well
suited as a tool for implementing step 4 of our methodology for two reasons. First, it
provides a flexible and theoretically well-grounded framework within which to analyse
individual demand data. Second, because it is derived explicitly from a particular
expenditure function whose parameters are estimated as part of the estimation of the
demand system, it provides for simple implementation of the welfare analysis. Once the
demand system is estimated, an expenditure function is obtained that can be used to
determine the equivalent variation in income associated with changes in land prices.
Making use of the linear approximation of the budget share equations suggested
by Deaton and Muellbauer, their model can be adapted to the present circumstances
and a budget share equation derived of the form

where wi is the expenditure share on characteristic i ; pj , pk are the prices of

characteristics; D is the set of indices of dichotomous characteristics; C is the set of
indices of continuous characteristics; M is the income; I ∗ is the Stone’s price index,
defined by ln I ∗ =_i wi lnpi ; αi , α0, δi , γi,j , γi,k are the parameters to be estimated.
This basic demand system is modified in two further ways: first, to account for the
fact that there is no within-sample variation in the implicit prices of dichotomous
characteristics, so that all such prices must be absorbed into the constant term; and
second, to provide for the estimation of the impacts of household structure (the
number of adults and the number of children in the household) on the demand for
structure attributes and neighbourhood characteristics.
Using the hedonic prices obtained by differentiating (3.1), Eq. (3.3) is adapted to

where _P is the structure value predicted from the hedonic price function; .αi = (αi
− δiα0) +_k∈D γi,k · lnβˆk ; γ.i = (1 − ψˆ ) ·_k∈D γi,k ; A is the number of adults in the
household; B is the number of children in the household; βˆk , ψˆ are estimated
parameters from the hedonic price function. Although the prices of dichotomous
variables are absorbed into the constant term, it is possible to estimate budget share
equations for the dichotomous variables using the same functional structure as used
for the continuous variables. The addition of demographic effects is somewhat in the
 17
spirit of the specification adopted in Alessie and Kapteyn. Intuitively, this approach
makes the level of required ‘subsistence’ expenditure depend on the size and
composition of the household, and the estimated parameters υai and υbi determine the
magnitude of this dependence. This differs from Alessie and Kapteyn, where family size
alone is used, and required subsistence expenditures increase by the same amount for
an additional adult or an additional child. In the context of modeling expenditure on
housing and neighbourhood quality, it seems sensible to allow for the impact of adults
and children to be unequal.
The estimated budget share equations used here vary slightly from those reported
in Cheshire and Sheppard because of the incorporation of the demographic variables.
While neither of these is statistically significant, both are correctly signed and produce
reasonable results. Overall, the estimated budget share equations perform well. While
some individual parameters are estimated with high standard errors (and are not
statistically significant) this is at least in part due to collinearity between
characteristics’ prices. Furthermore, it is to be expected that not all prices will affect
demand for a particular characteristic in a significant way.
Estimation of the Demand System and Price Endogeneity
Estimation of the demand for structure attributes and neighbourhood amenities
begins with estimation of the hedonic price function. This determines the implicit
prices of the attributes, which are then taken as (stochastic) regressors in the second
step. In the second step attribute demand is estimated as a function of income, the
attribute prices, and household structure. The estimation is only possible, of course, if
there is some variation in the prices which confront the households. This variance
arises naturally because the data determine a non-linear hedonic price function. This
helpful nonlinearity, however, creates another potential problem: errors in the quantity
of attributes (whether they arise as part of the household’s choice or the analyst’s
measurement) will generate variations in the measured hedonic prices. This
‘endogeneity’ of attribute prices destroys the independence from the model error term
which the prices (as regressors) must exhibit for attribute demand to be consistently
estimated. The endogeneity problem was first discussed by Freeman, and subsequently
by, amongst others, Brown, Murray, McConnell, Epple, and Bartik. The appropriate
response to such price endogeneity is to find or construct other variables which are
correlated with the hedonic prices faced by the household but not correlated with the
error terms of the demand functions. It is useful to note that the problem is not one of
a truly simultaneous equation system. Each household is a small part of the overall
market, and reasonably takes the structure of the hedonic price function as
exogenous. Murray makes a variety of interesting suggestions concerning possible
instruments, one of which was employed in Cheshire and Sheppard. The estimates
used in this paper are based on a similar procedure: use as instruments the attribute
prices estimated for the two houses that are located nearest each observation in
geographic space, or that are ‘most similar’ to the observation (using a measure of
 18
similarity that considers both the geographic distance and the difference in measured
structure and neighbourhood attributes). Since our results depend particularly upon
the estimated demand for residential land and for open space, the validity of the
constructed instruments for estimating these demands was verified using a test
proposed by Gourieroux and Monfort. Based upon this test, the instruments were
admissible and performed well in the case of the critical variables.
Planning Restrictiveness and Equilibrium Utilities
Land use planning produces a variety of local amenities. It regulates industrial
land use and separates it from residential land uses. It ‘produces’ open space, by
preserving or creating open spaces that are formally open to the public (such as public
parks, school playing fields or neighbourhood commons) or by compelling land to be
used in such a way that open spaces are preserved although public access may not be
available such as land in agricultural use within the suburbs or at the urban
periphery, or green spaces surrounding office developments. The demand system
presented in the preceding section includes these three local amenities produced by
the planning system: the control of industrial land use relative to residential use, the
availability of open space accessible to the public either through public ownership or
extensive rights of public access, and the availability of open space which is
inaccessible, but nevertheless valuable for visual amenity and for containing the
spread of the built-up area. We expect the value of the two types of open space to
differ, since in addition to a visual amenity and reduced density, publicly accessible
open space offers recreational opportunities. This expectation is validated by the
estimated hedonic price functions. A further difference between the two types of open
space arises in the possible means of provision. The planning system is central to the
provision of both types of open space, although the proportion of locally available open
space that is accessible to the public varies throughout the urban area. Thus at the
urban periphery the predominant type of open space is inaccessible farmland or
woodland. Such spaces are preserved almost exclusively via regulation of allowed land
use rather than purchase of the land using tax revenues. Urban containment using
growth boundaries can produce benefits by making the urban area more compact so
that such amenitites are locally available to a larger number of residents.
To estimate the value of these benefits and the costs associated with the
constraints we use the estimated demand system to parameterise and determine a
status quo utility level for households in the existing equilibrium, and determine the
prices that would be faced by households under alternative policies. This process also
allows us to use the properties of land market equilibrium to characterise the extent of
planning restrictiveness. The demand system presented in Section 3 above could in
principle be used to investigate how the costs of land use planning would vary if the
urban area were comprised of households having a variety of demographic structures.
Preliminary analysis (reported more completely in Cheshire and Sheppard indicates
that the impact of demographic structure on the costs and benefits is relatively
 19
modest, so the results below concentrate on urban equilibria for the sample mean
household type, and cost and benefit measures for actual household demographic
structure.
While the assumption that observed prices and consumption levels and choices
are at equilibrium values may be standard, it may be cause difficulties if high
transactions costs and durability of structures result in slow adjustment processes. An
evaluation was undertaken to check the sample for apparent violations of optimising
household behaviour by searching for violations of the Weak Axiom of Revealed
Preference. This analysis revealed that the mean ‘efficiency’ of household expenditures
was 97.7%, suggesting that even if households could costlessly adjust to new
residential locations the savings would average only 2.3% of income, a deviation well
within normal margins of error.
3.3.4 Benefits of Planning Amenities
Gross Value of Benefits
To obtain an estimated value of the ‘gross benefits’ of planning amenities, a
comparison is undertaken between the status quo consumption of amenities
attributable to the land use planning system and the consumption that would be
available in the absence of land use planning. For each household the variation in
income that would be equivalent to this change is determined. Table 5.1 lists the
comparisons undertaken to measure the value of planning amenities. The idea behind
these comparisons is to identify a feasible though extreme characterisation of what the
urban structure would be in the absence of any land use planning. For both publicly
accessible and inaccessible open space, the evaluations presented compare the status
quo to a situation where incomes, population, and preferences remain unchanged but
the quantity of both types of open space is reduced to zero. In the case of accessible
open space, it may be conjectured that none of the amenity would be provided in the
absence of the sort of collective, public action that land use planning exemplifies.
Although some inaccessible open space may be available to the few residents at the
urban periphery in the absence of planning, it is unlikely to be available in the exurban
‘village’ settings that characterise much of the enjoyment of such amenities under the
present planning regime.
Table – 1: Amenities available in the absence of land use regulation
Amenity Amount available in absence of planning
Accessible open space Zero accessible open space
Inaccessible open space Zero inaccessible open space
Industrial land use quantity
47% of all land in industrial use throughout urban
area

The case of industrial land use is less straightforward, since one might
characterise the planning system as both constraining the overall quantity of industrial
 20
land use as well as its distribution within the urban area. Much of the distribution
within the urban area is properly thought of as endogenously determined by political
and economic forces. The analysis below instead concentrates on what might be
characterised as the benefit from control of the overall level of industrial land use. A
comparison is offered between the status quo and a scenario where every part of the
urban area has industrial land use equal to the maximum observed in the data
collected. This may represent an extreme situation where there is no regulation of
either the placement of industry, or the overall level of industrial land use. The price at
which demand for each amenity would be reduced to zero (or any other level) can be
determined using the demand system evaluated for the household. For each amenity,
the following procedure was used: let p1 denote the vector of prices in which all
characteristics including land and amenities have prices equal to the hedonic prices
observed in the sample. Let p2 denote the vector of prices in which all prices remain
the same except that the price of the amenity in question is adjusted for each
household to achieve the quantity assumed to prevail in the absence of land use
planning outlined in Table 5.1. Then for each household, the gross benefit from the
given amenity is c(u1, r1,p2)− c(u1, r1,p1), (5.1) where the utility level u1 is obtained for
each household via Eq. (4.2). The estimates adjust for actual household size and
structure in two ways: first, the effective amenity price that is associated with the
absence of planning amenities is determined by the household demand structure and
is therefore sensitive to the actual number of adults and children present in the
household. Second, the calculation of the gross benefits themselves uses the
expenditure function that, as shown in Eq. (4.1), depends on the demographic
structure of the household. Table 5.2 presents the results for each planning amenity
averaged over all households. The second column of the table lists the mean value of
estimated gross benefits18 for each amenity, followed by the standard deviation (over
all households in the sample). The final column provides the concentration
coefficient19 with respect to household income, to measure the distributional incidence
of the benefits.
Table – 2: Value of benefits from planning amenities
Amenity Mean £s C
Accessible space £2424.45 1745.05 0.1269
Inaccessible space £1029.65 1223.90 0.2312
Industrial land quantity £1092.00 600.96 0.2171

Overall, the estimated values of gross benefits are sensible. Accessible open space
provides a variety of recreational amenities not provided by inaccessible open space,
and therefore we would expect the value of the benefits to be higher. The value of
benefits of limiting industrial land use are also plausible, although the value of this
amenity may be sensitive to the type o industries active in the urban area and the
magnitude of disamenities they might be allowed to generate. The value of gross
benefits is large relative to household income. This, however, is not surprising given
 21
that the value measures the amount of additional income a household would require to
maintain its utility level after removal of the amenity. For important amenities, this
value can indeed be large relative to income. We turn next to consider the way these
benefits are distributed over households.
Distributional Consequences
We focus on two separate issues regarding the distributional consequences of land
use planning. The first concerns the equity with which the benefits are distributed. The
second concerns the impacts of planning policies on the distribution of welfare in
society. The natural way to approach these questions is to consider the distribution of
the estimated benefits over households in the sample. The measured benefits (and later
net costs) are money metric measures of the changes in household welfare estimated to
result from activities carried out within the land use planning system. The level of
income inequality in the sample is less than that observed in the entire UK population.
The Gini coefficient for after-tax income in the Reading sample is 0.205. For this time
period the index for after-tax income for the entire UK was approximately 0.381. The
difference may be attributed to two factors: the sample is of owner-occupiers only,
which (to an approximation) represents the upper two-thirds of the income
distribution. Second, the measure of income derives from a survey in which
households reported the range which contained their after-tax income. This has the
effect of reducing the measured income inequality in the sample. The last column of
Table 5.2 presents the concentration coefficient for the distribution of the gross benefit
with respect to after-tax household income. Since for this sample the Gini coefficient of
after-tax income is 20.52, we are able to reach an important conclusion: limitations on
industrial land use and provision of inaccessible open space tend to increase inequality
while provision of accessible open space tends to reduce inequality.
Figure shows how the benefits from the amenities are distributed between income
quintiles within the sample (with quintiles defined on income after taxes but exclusive
of any imputed planning benefit). The bars indicate the distribution of income, showing
the percentage that accrues to each quintile within the sample. The lines indicate the
distribution of gross benefits from accessible open space (thick solid line), inaccessible
open space (dashed line), and control of industrial land use (thin solid line). Thus, for
example, benefits from accessible open space go disproportionately to the poorest
quintile, with this ‘transfer’ being paid for by
 22

Fig. 5.1. Distribution of benefits from land use planning

Table – 3: Percent change in Gini from planning amenities

the fourth and fifth quintiles getting less than their income share. For control of
industrial land use, Fig. 5.1 reveals that the poorest and the wealthiest quintiles
receive benefit shares larger than their income shares. It is of interest to compare the
distributional consequences of amenities produced by the planning system with other
benefits produced by the public sector in Britain. Analysis of some of these other
benefits is reported in CSO [31,32], which covers a variety of benefits, including state
education, the national health service and transport subsidies. Collectively, these lower
the Gini coefficient of income after direct and indirect taxes by about 10.11%. A
different picture emerges from an evaluation of the distributional impacts of planning
amenities, as indicated in Table, which presents the percentage change in the sample
Gini that occurs when the monetary value of different planning amenities is added to
household income. The calculations indicate that although different amenities vary in
their distributional impact, the combined effect of providing amenities through land
use planning is regressive. There is a 3.1% increase in the Gini resulting from all
amenities combined. The gross benefit estimates for the planning amenities are large,
and from a political economic perspective help to explain the widespread support given
to the constraints imposed by land use planning. Such regulation produces amenities
highly valued by a large number of residents. Since planning amenities are capitalised
into the price of houses, a reduction in amenities caused by relaxing land use planning
would produce a capital loss for existing house owners (even if it would be consistent
with increasing overall community welfare). The estimates further show that planning
 23
benefits are not distributed equally, and taken together increase inequality in the
distribution of effective income.
3.3.4 Net Costs of Land Use Planning
The analysis provided estimates of the value of amenities produced by the
planning system. We have not yet considered the value of these amenities relative to
the costs, which is central to the question of the efficiency of the amount of amenities
provided. The costs arise because of restrictions on the amount of land available for
residential development. This increases equilibrium land values and increases the cost
of housing. These distortions must be estimated and their impact on welfare compared
with the value of the amenities provided. In this section we provide estimates of the net
costs of land use planning, taking into account both the value of benefits provided and
the increased land costs resulting from regulation. Estimates of the net costs of the
status quo are provided for three alternative regulatory scenarios. The first estimates
the net impact on welfare of a plausible relaxation of the constraint on available
internal land supply. The second adds the impact of a modest relaxation in
‘containment policy’ (which limits the boundary of urban growth). Finally, a
comparison is made with a regulatory regime that allows both a plausible internal
relaxation and a substantial extension of the urban growth boundary.
3.3.5 Distributional Impacts
Each of the changes in regulatory constraints presented above would generate net
benefits (or the removal of net costs) for all income quintiles. Figure shows the
distribution between income quintiles of the net benefits (reduction in net costs)
associated with a relaxed internal constraint (solid thin line), modest relaxation of the
urban growth boundary (dashed line) and significant relaxation of the urban growth
boundary (solid thick line). Each of these is plotted above bars that indicate the share
of after-tax income received by each quintile in the sample.
While each quintile gains from each of the changes in planning constraints
considered, in general the gains resulting from relaxing the urban growth boundary are
distributed roughly in proportion to income. Such reforms therefore increase aggregate
welfare and have only minimal impact on the overall distribution of welfare. The reform
of internal space constraints generates benefits that are less equally distributed, with
disproportionately large shares going to the fourth and fifth quintiles.
A central question in the analysis of these policies can be simply put: overall, is
land use planning progressive? Table presents an analysis of the distributional impacts
along the lines discussed in Lambert. The column labeled CX−T presents the
concentration coefficient for after-tax income net of the costs of land use planning. The
next column presents the Gini coefficient for such ‘after regulation’ income. The
column GX is the Gini coefficient for household income after tax but before the
regulatory burden is considered, while CT gives the concentration coefficient of the net
cost itself. The final column indicates the impact on income inequality.
While the distribution of the planning benefits is ‘regressive’ in the sense that it
increases inequality, evaluation of the net costs of land use planning including the
 24
burden of the land value distortions associated with providing the amenities reveals a
pattern that is almost distributionally neutral, at least within the class of owner
occupiers. Overall the process of land use planning generates very slight reductions in
inequality. For example, the significant relaxation of the planning constraint would
increase the effective Gini coefficient in the fourth decimal place, or less than three
tenths of one percent. Unfortunately, this small reduction in inequality is purchased at
a very considerable cost. Relative to the least constrained scenario, the status quo
generates £32,595,000 annual net costs, equivalent to a tax on incomes of 3.9%.
The estimates of the welfare effects of land use planning presented in this paper
have obvious limitations. They relate to only one urban area and are based on the
characteristics, behaviour and preferences of owner occupiers in that city. Since owner
occupiers made up approximately two thirds of all households this may not be critical
but it certainly restricts the generality of the analysis of the distributional impacts. The
estimates also depend on a monocentric urban model and involve the comparison of
alternative equilibria. One of these is observed; the others are those that are estimated
would apply once the effects of the hypothesised policy changes had fully worked
themselves through. In the context of durable structures such as housing this might
take a considerable time, although some adjustments can be made in a relatively short
period by reconverting houses that have been subdivided, extending existing structures
and by amalgamation. The methodology employed here involves several complex steps
in which utility levels are determined for both an average household and for individual
households, demands are used to calculate changes in attribute prices, and equivalent
variations in income are calculated. The complexity of the procedure is primarily due to
the complexity of the urban land market. It is not possible simply to estimate changes
in consumer surplus from land demand by considering how the price of land changes
in response to land use planning. Determination of how the land price function
changes is the primary source of the complexity in the analysis above. Once the
impacts on equilibrium land prices are calculated, it would be possible to use an
approximation of the welfare costs but such an approach would provide little
simplification. Our demand system estimates make an explicit expenditure function
available, and since determination of the impacts on equilibrium land prices has
provided other required information, it seems more appropriate to provide direct
calculations of benefits and costs. The estimates obtained in this study are likely to be
indicative of the situation in many cities in southern England. The net costs are
apparently significant, as much as 3.9% of annual household incomes. Furthermore,
the analysis suggests interesting differences between the various components of land
use planning. Provision of open space that is generally accessible to the public
generates benefits that are significant and tend to reduce inequality. Provision of open
space that is inaccessible to the public (largely located at the urban periphery)
generates benefits that are very unequally distributed, and tend to increase inequality.
Overall, the benefits produced by the planning system appear to be distributed in a
way that favors those who are already favored with higher incomes, so that including
the value of the benefits in a measure of income increases measured inequality. These
benefits are not produced at zero cost. They are effectively paid for through the
distortions in land prices that make housing in Britain relative to incomes some of the
 25
most expensive in the world. The net effect is a system of valuable benefits, and very
high costs, that combines for a net effect that is almost distributionally neutral.
A variety of extensions to the research might be pursued. It would be useful to
verify that there are not other benefits produced by land use planning which have not
been measured in this study and which might alter the estimated net costs. It would be
of further interest to embed the analysis within a more comprehensive general
equilibrium model, as done by Hazilla and Kopp . The analysis presented here
concentrates on the costs that arise through operation of the market for residential
land which comes as part of owner-occupied properties. Land use planning obviously
affects other sectors of the economy as well. The methods developed are
computationally feasible and could be widely applied. They do, however, require data
which provide information on residential structure values and characteristics,
including land and location as well as the incomes of the households occupying the
sample of houses. Given such data, the analysis could be of benefit to planners and
policy makers who seek to measure the benefits and costs of land use planning or
other ‘smart growth’ policies. Smart growth over 50 years of British experience appears
to have imposed substantial net costs.
3.4 REVISION POINTS
1. To know about various approaches of welfare economics
3.5 INTEXT QUESTIONS
1. Expalin the benefits of planning amenities
2. State about distributional imputs?
3. Different steps of outline approach?
3.6 SUMMARY
1. This chapter explained different approaches (with example) of welfare economics
of land use planning.
3.7 TERMINAL EXERCISES
1. Land use planning produces a variety of local _______.

3.8 SUPPLEMENTARY MATERIALS

1. WWW.Britaninca.com
3.9 ASSIGNMENTS
1. State about outline approach.
3.10 SUGGESTED READING/ REFERENCE BOOKS /SET BOOKS
Richard U. Ratchiff, Urban Land Economics, Mc Graw Hill publishing company
pvt. Ltd., (2009), Singapore.
3.11 LEARNING ACTIVITIES
Group discussion (during PCP days)
3.12 KEYWORDS
Outline approach – structure of demand – benefits – net cost.


 26
CHAPTER – IV
URBAN PLANNING
4.1 INTRODUCTION
Urban, city, and town planning integrates land use planning and transportation
planning to improve the built, economic and social environments of communities.
Regional planning deals with a still larger environment, at a less detailed level. Urban
planning can include urban renewal, by adapting urban planning methods to existing
cities suffering from decay and lack of investment.
History
In the Neolithic period, agriculture and other techniques facilitated larger
populations than the very small communities of the Paleolithic, which probably led to
the stronger, more coercive governments emerging at that time. The pre-Classical and
Classical periods saw a number of cities laid out according to fixed plans, though many
tended to develop organically. Designed cities were characteristic of the Mesopotamian,
Harrapan, and Egyptian civilizations of the third millennium BCE (see Urban planning
in ancient Egypt).
Distinct characteristics of urban planning from remains of the cities of Harappa,
Lothal, and Mohenjo-daro in the Indus Valley Civilization (in modern-day northwestern
India and Pakistan) lead archeologists to conclude that they are the earliest examples of
deliberately planned and managed cities. The streets of many of these early cities were
paved and laid out at right angles in a grid pattern, with a hierarchy of streets from
major boulevards to residential alleys. Archaeological evidence suggests that many
Harrapan houses were laid out to protect from noise and enhance residential privacy;
many also had their own water wells, probably for both sanitary and ritual purposes.
These ancient cities were unique in that they often had drainage systems, seemingly
tied to a well-developed ideal of urban sanitation.
The Greek Hippodamus (c. 407 BC) has been dubbed the "Father of City Planning"
for his design of Miletus; Alexander commissioned him to lay out his new city of
Alexandria, the grandest example of idealized urban planning of the ancient
Mediterranean world, where the city's regularity was facilitated by its level site near a
mouth of the Nile. The Hippodamian, or grid plan, was the basis for subsequent Greek
and Roman cities.
The ancient Romans used a consolidated scheme for city planning, developed for
military defense and civil convenience. The basic plan consisted of a central forum with
city services, surrounded by a compact, rectilinear grid of streets, and wrapped in a
wall for defense. To reduce travel times, two diagonal streets crossed the square grid,
passing through the central square. A river usually flowed through the city, providing
water, transport, and sewage disposal.[5] Many European towns, such as Turin,
preserve the remains of these schemes, which show the very logical way the Romans
designed their cities. They would lay out the streets at right angles, in the form of a
 27
square grid. All roads were equal in width and length, except for two, which were
slightly wider than the others. One of these ran east–west, the other, north–south, and
intersected in the middle to form the center of the grid. All roads were made of carefully
fitted flag stones and filled in with smaller, hard-packed rocks and pebbles. Bridges
were constructed where needed. Each square marked by four roads was called an
insula, the Roman equivalent of a modern city block.
Each insula was 80 yards (73 m) square, with the land within it divided. As the
city developed, each insula would eventually be filled with buildings of various shapes
and sizes and crisscrossed with back roads and alleys. Most insulae were given to the
first settlers of a Roman city, but each person had to pay to construct his own house.
The city was surrounded by a wall to protect it from invaders and to mark the city
limits. Areas outside city limits were left open as farmland. At the end of each main
road was a large gateway with watchtowers. A portcullis covered the opening when the
city was under siege, and additional watchtowers were constructed along the city walls.
An aqueduct was built outside the city walls.
The collapse of Roman civilization saw the end of Roman urban planning, among
other arts. Urban development in the Middle Ages, characteristically focused on a
fortress, a fortified abbey, or a (sometimes abandoned) Roman nucleus, occurred "like
the annular rings of a tree", whether in an extended village or the center of a larger
city. Since the new center was often on high, defensible ground, the city plan took on
an organic character, following the irregularities of elevation contours like the shapes
that result from agricultural terracing.
The ideal of wide streets and orderly cities was not lost, however. A few medieval
cities were admired for their wide thoroughfares and orderly arrangements, but the
juridical chaos of medieval cities (where the administration of streets was sometimes
passed down through noble families), and the characteristic tenacity of medieval
Europeans in legal matters prevented frequent or large-scale urban planning until the
Renaissance and the early-modern strengthening of central government
administration, as European (and soon after, North American) society transited from
city-states to what we would recognize as a more modern concept of a nation-state.
Florence was an early model of the new urban planning, which took on a star-
shaped layout adapted from the new star fort, designed to resist cannon fire. This
model was widely imitated, reflecting the enormous cultural power of Florence in this
age; "the Renaissance was hypnotized by one city type which for a century and a half—
from Filarete to Scamozzi— was impressed upon utopian schemes: this is the star-
shaped city". Radial streets extend outward from a defined center of military,
communal or spiritual power.
Only in ideal cities did a centrally planned structure stand at the heart, as in
Raphael's Sposalizio (Illustration) of 1504. As built, the unique example of a rationally
planned quattrocen to new city center, that of Vigevano (1493–95), resembles a closed
space instead, surrounded by arcading.
 28
Filarete's ideal city, building on Leone Battista Alberti's De re aedificatoria, was
named "Sforzinda" in compliment to his patron; its twelve-pointed shape,
circumscribable by a "perfect" Pythagorean figure, the circle, took no heed of its
undulating terrain in Filarete's manuscript.[8] This process occurred in cities, but
ordinarily not in the industrial suburbs characteristic of this era, which remained
disorderly and characterized by crowding and organic growth.
Following the 1695 bombardment of Brussels by the French troops of King Louis
XIV, in which a large part of the city center was destroyed, Governor Max Emanuel
proposed using the reconstruction to completely change the layout and architectural
style of the city. His plan was to transform the medieval city into a city of the new
baroque style, modeled on Turin, with a logical street layout, with straight avenues
offering long, uninterrupted views flanked by buildings of a uniform size. This plan was
opposed by residents and municipal authorities, who wanted a rapid reconstruction,
did not have the resources for grandiose proposals, and resented what they considered
the imposition of a new, foreign, architectural style. In the actual reconstruction, the
general layout of the city was conserved, but it was not identical to that before the
cataclysm. Despite the necessity of rapid reconstruction and the lack of financial
means, authorities did take several measures to improve traffic flow, sanitation, and
the aesthetics of the city. Many streets were made as wide as possible to improve traffic
flow.
During the Second French Empire, Haussmann transformed the medieval city of
Paris into a modern capital, with long, straight, wide boulevards. The planning was
influenced by many factors, not the least of which was the city's history of street
revolutions. Many Central American civilizations also planned their cities, including
sewage systems and running water. In Mexico, Tenochtitlan was the capital of the
Aztec empire, built on an island in Lake Texcoco in what is now the Federal District in
central Mexico. At its height, Tenochtitlan was one of the largest cities in the world,
with over 200,000 inhabitants. Shibam in Yemen features over 500 tower houses, each
rising 5 to 11 storeys high,[11] with each floor being an apartment occupied by a single
family.[10] The city has some of the tallest mudbrick houses in the world, some over 100
feet (30 meters) high.
Between 1853 and 1870 (though work continued until the end of the 19th), the
Haussmann's renovation of Paris gave the city its present form; its long straight, wide
boulevards with their cafés and shops determined a new type of urban scenario and
have had a profound influence on the everyday lives of Parisians. Haussmann's
boulevards established the foundation of what is today the popular representation of
the French capital around the world, cutting through the old Paris of dense and
irregular medieval alleyways into a more rationally-designed city with wide avenues
and open spaces which extended outwards far beyond the old city limits. The project
encompassed all aspects of urban planning, both in the centre of Paris and in the
 29
surrounding districts: streets and boulevards, regulations imposed on facades of
buildings, public parks, sewers and water works, city facilities, and public monuments.
Beyond aesthetic and sanitary considerations, the wide thoroughfares were
constructed to facilitate troop movement and prevent easy blocking of streets with
barricades, and their straightness allowed artillery to fire on rioting crowds and their
barricades.
In the 1990s, the University of Kentucky voted the Italian town of Todi as the ideal
city and "most livable town in the world", the place where man and nature, history and
tradition, come together to create a site of excellence. In Italy, other examples of ideal
cities planned according to scientific methods are Urbino, Pienza, Ferrara, San
Giovanni Valdarno, and San Lorenzo Nuovo.
In the developed countries of Western Europe, North America, Japan, and
Australasia, planning and architecture can be said to have gone through various
paradigms or stages of consensus in the last 200 years. Firstly, there was the
industrialised city of the 19th century, where building was largely controlled by
businesses and wealthy elites. Around 1900, a movement began for providing citizens,
especially factory workers, with healthier environments. The concept of the garden city
arose and several model towns were built, such as Letchworth and Welwyn Garden
City in Hertfordshire, UK, the world's first garden cities. These were small in size,
typically providing for a few thousand residents.
In the 1920s, the ideas of modernism began to surface in urban planning. Based
on the ideas of Le Corbusier and using new skyscraper-building techniques, the
modernist city stood for the elimination of disorder, congestion, and the small scale,
replacing them with preplanned and widely spaced freeways and tower blocks set
within gardens. There were plans for large-scale rebuilding of cities in this era, such as
the Plan Voisin (based on Le Corbusier's Ville Contemporaine), which proposed clearing
and rebuilding most of central Paris. No large-scale plans were implemented until after
World War II, however. Throughout the late 1940s and 1950s, housing shortages
caused by wartime destruction led many cities to subsidize housing blocks. Planners
used the opportunity to implement the modernist ideal of towers surrounded by
gardens. The most prominent example of an entire modernist city is Brasilia in Brazil,
constructed between 1956 and 1960.
4.2 OBJECTIVES
To understand about Urban Planning
4.3 CONTENTS
4.3.1 Reaction
4.3.2 Application
4.3.3 Aspects
4.3.4 Sub Urbanization
4.3.5 Environmental factors
 30
4.3.1 Reaction
By the late 1960s and early 1970s, many planners felt that modernism's clean
lines and lack of human scale sapped vitality from the community, blaming them for
high crime rates and social problems.
Modernist planning fell into decline in the 1970s when the construction of cheap,
uniform tower blocks ended in most countries, such as Britain and France. Since then
many have been demolished and replaced by other housing types. Rather than
attempting to eliminate all disorder, planning now concentrates on individualism and
diversity in society and the economy; this is the post-modernist era.
Minimally planned cities still exist. Houston is a large city (with a metropolitan
population of 5.5 million) in a developed country without a comprehensive zoning
ordinance. Houston does, however, restrict development densities and mandate
parking, even though specific land uses are not regulated. Also, private-sector
developers in Houston use subdivision covenants and deed restrictions to effect land-
use restrictions resembling zoning laws. Houston voters have rejected comprehensive
zoning ordinances three times since 1948. Even without traditional zoning,
metropolitan Houston displays large-scale land-use patterns resembling zoned regions
comparable in age and population, such as Dallas. This suggests that non-regulatory
factors such as urban infrastructure and financing may be as important as zoning laws
in shaping urban form.
Sustainable Development and Sustainability
Sustainable development and sustainability influence today's urban planners.
Some planners argue that modern lifestyles use too many natural resources, polluting
or destroying ecosystems, increasing social inequality, creating urban heat islands,
and causing climate change. Many urban planners, therefore, advocate sustainable
cities. However, sustainable development is a recent, controversial concept.[16] Wheeler,
in his 1998 article, defines sustainable urban development as "development that
improves the long-term social and ecological health of cities and towns." He sketches a
'sustainable' city's features: compact, efficient land use; less automobile use, yet better
access; efficient resource use; less pollution and waste; the restoration of natural
systems; good housing and living environments; a healthy social ecology; a sustainable
economy; community participation and involvement; and preservation of local culture
and wisdom. Because of political and governance structures in most jurisdictions,
sustainable planning measures must be widely supported before they can affect
institutions and regions. Actual implementation is often a complex compromise.
Collaborative Strategic Goal Oriented Programming
Collaborative Strategic Goal Oriented Programming is a collaborative and
communicative way of strategic programming, decision-making, implementation, and
monitoring oriented towards defined and specific goals. It is based on sound analysis of
available information, emphasizes stakeholder participation, works to create awareness
 31
among actors, and is oriented towards managing development processes. It was
adopted as a theoretical framework for analyzing redevelopment processes in large
urban distressed areas in European cities.
Background of Collaborative Strategic Goal Oriented Programming
CoSGOP is derived from goal-oriented planning (Gesellschaft für Technische
Zusammenarbeit - GTZ 1988), which was oriented towards the elaboration and
implementation of projects based on a logical framework, which was useful for
embedding a specific project in a wider development frame and defining its major
elements. This approach had weaknesses: its logical rules were strictly applied and the
expert language did not encourage participation. CoSGOP introduced a new approach
characterized by communication with and active involvement of stakeholders and those
to be affected by the program; strategic planning based on the identification of
strengths and weakness, opportunities and threats, as well as on scenario-building
and visioning; the definition of goals as the basis for action; and long-term, flexible
programming of interventions by stakeholders.
Elements of Collaborative Strategic Goal Oriented Programming
Collaborative Strategic Goal Oriented Programming is not a planning method but
a process model. It provides a framework for communication and joint decision-
making, in a structured process characterized by feedback loops. It also facilitates
stakeholder learning. The essential elements of CoSGOP are analysis of stakeholders
(identifying stakeholders’ perceptions of problems, interests, and expectations);
analysis of problems and potentials (including objective problems and problems and
potentials perceived by stakeholders); development of goals, improvement priorities,
and alternatives (requiring intensive communication and active stakeholder
participation); specification of an improvement program and its main activities (based
on priorities defined with the stakeholders); assessment of possible impacts of the
improvement program; definition and detailed specification of key projects and their
implementation; continuous monitoring of improvement activities, feedback, and
adjustment of the programme (including technical and economic information and
perceptions of stakeholders).
4.3.2 Application
CoSGOP has been applied in European cross-border policy programming, as well
in local and regional development programming. In 2004, the CoSGOP model was
applied in the LUDA Project, starting with an analysis of the European experience of
urban regeneration projects.
Collaborative planning in the United States
Collaborative planning arose in the US in response to the inadequacy of
traditional public participation techniques to provide real opportunities for the public
to make decisions affecting their communities. Collaborative planning is a method
designed to empower stakeholders by elevating them to the level of decision-makers
 32
through direct engagement and dialogue between stakeholders and public agencies, to
solicit ideas, active involvement, and participation in the community planning process.
Active public involvement can help planners achieve better outcomes by making them
aware of the public’s needs and preferences and by using local knowledge to inform
projects. When properly administered, collaboration can result in more meaningful
participation and better, more creative outcomes to persistent problems than can
traditional participation methods. It enables planners to make decisions that reflect
community needs and values, it fosters faith in the wisdom and utility of the resulting
project, and the community is given a personal stake in its success.
Experiences in Portland and Seattle have demonstrated that successful
collaborative planning depends on a number of interrelated factors: the process must
be truly inclusive, with all stakeholders and affected groups invited to the table; the
community must have final decision-making authority; full government commitment
(of both financial and intellectual resources) must be manifest; participants should be
given clear objectives by planning staff, who facilitate the process by providing
guidance, consultancy, expert opinions, and research; and facilitators should be
trained in conflict resolution and community organization.[22][23]
4.3.3 Aspects
Aesthetics
In developed countries, there has been a backlash against excessive human-made
clutter in the visual environment, such as signposts, signs, and hoardings. Other
issues that generate strong debate among urban designers are tensions between
peripheral growth, housing density and new settlements. There are also debates about
the mixing tenures and land uses, versus distinguishing geographic zones where
different uses dominate. Regardless, all successful urban planning considers urban
character, local identity, respects heritage, pedestrians, traffic, utilities and natural
hazards.
Planners can help manage the growth of cities, applying tools like zoning and
growth management to manage the uses of land. Historically, many of the cities now
thought the most beautiful are the result of dense, long lasting systems of prohibitions
and guidance about building sizes, uses and features. These allowed substantial
freedoms, yet enforce styles, safety, and often materials in practical ways. Many
conventional planning techniques are being repackaged using the contemporary term
smart growth. There are some cities that have been planned from conception, and
while the results often don't turn out quite as planned, evidence of the initial plan often
remains.
Safety
Historically within the Middle East, Europe and the rest of the Old World,
settlements were located on higher ground (for defense) and close to fresh water
sources. Cities have often grown onto coastal and flood plains at risk of floods and
 33
storm surges. Urban planners must consider these threats. If the dangers can be
localised then the affected regions can be made into parkland or green belt, often with
the added benefit of open space provision.
Extreme weather, flood, or other emergencies can often be greatly mitigated with
secure emergency evacuation routes and emergency operations centres. These are
relatively inexpensive and unintrusive, and many consider them a reasonable
precaution for any urban space. Many cities will also have planned, built safety
features, such as levees, retaining walls, and shelters.
In recent years, practitioners have also been expected to maximize the
accessibility of an area to people with different abilities, practicing the notion of
"inclusive design," to anticipate criminal behaviour and consequently to "design-out
crime" and to consider "traffic calming" or "pedestrianisation" as ways of making urban
life more pleasant.
Some city planners try to control criminality with structures designed from
theories such as socio-architecture or environmental determinism. Refer to Foucault
and the Encyclopedia of the Prison System for more details. These theories say that an
urban environment can influence individuals' obedience to social rules and level of
power. The theories often say that psychological pressure develops in more densely
developed, unadorned areas. This stress causes some crimes and some use of illegal
drugs. The antidote is usually more individual space and better, more beautiful design
in place of functionalism.
Oscar Newman’s defensible space theory cites the modernist housing projects of
the 1960s as an example of environmental determinism, where large blocks of flats are
surrounded by shared and disassociated public areas, which are hard for residents to
identify with. As those on lower incomes cannot hire others to maintain public space
such as security guards or grounds keepers, and because no individual feels personally
responsible, there was a general deterioration of public space leading to a sense of
alienation and social disorder.
Jane Jacobs is another notable environmental determinist and is associated with
the "eyes on the street" concept. By improving ‘natural surveillance’ of shared land and
facilities of nearby residents by literally increasing the number of people who can see it,
and increasing the familiarity of residents, as a collective, residents can more easily
detect undesirable or criminal behavior. However, this is not a new concept. This was
prevalent throughout the middle eastern world during the time of Mohamad. It was not
only reflected in the general structure of the outside of the home but also the inside.
Jacobs went further, though, in emphasizing the details in how to achieve this
'natural surveillance', in stressing the necessity of multiple uses on city streets, so that
different people co-mingle with different stores and parks in a condensed part of city
space. By doing this, as well as by making city streets interesting, she theorized a
continuous animation of social actions during an average city day, which would keep
 34
city streets interesting and well occupied throughout a 24 hour period. She presented
the North End in Boston, Massachusetts, as an idealization of this persistent
occupation and tasking in a condensed city space, as a model for criminal control.
The "broken-windows" theory argues that small indicators of neglect, such as
broken windows and unkempt lawns, promote a feeling that an area is in a state of
decay. Anticipating decay, people likewise fail to maintain their own properties. The
theory suggests that abandonment causes crime, rather than crime causing
abandonment.
Some planning methods might help an elite group to control ordinary citizens.
Haussmann's renovation of Paris created a system of wide boulevards which prevented
the construction of barricades in the streets and eased the movement of military
troops. In Rome, the Fascists in the 1930s created ex novo many new suburbs in order
to concentrate criminals and poorer classes away from the elegant town.
Other social theories point out that in Britain and most countries since the 18th
century, the transformation of societies from rural agriculture to industry caused a
difficult adaptation to urban living. These theories emphasize that many planning
policies ignore personal tensions, forcing individuals to live in a condition of perpetual
extraneity to their cities. Many people therefore lack the comfort of feeling "at home"
when at home. Often these theorists seek a reconsideration of commonly used
"standards" that rationalize the outcomes of a free (relatively unregulated) market.
Slums
The rapid urbanization of the last century caused more slums in the major cities
of the world, particularly in developing countries. Planning resources and strategies are
needed to address the problems of slum development. Many planners are calling for
slum improvement, particularly the Commonwealth Association of Planners. When
urban planners work on slums, they must cope with racial and cultural differences to
ensure that racial steering does not occur.
Slums were often "fixed" by clearance. However, more creative solutions are
beginning to emerge such as Nairobi's "Camp of Fire" program, where established
slum-dwellers promise to build proper houses, schools, and community centers
without government money, in return for land on which they have been illegally
squatting on for 30 years. The "Camp of Fire" program is one of many similar projects
initiated by Slum Dwellers International, which has programs in Africa, Asia, and
South America.
Decay
Urban decay is a process by which a city, or a part of a city, falls into a state of
disrepair and neglect. It is characterized by depopulation, economic restructuring,
property abandonment, high unemployment, fragmented families, political
disenfranchisement, crime, and desolate urban landscapes.
 35
During the 1970s and 1980s, urban decay was often associated with central areas
of cities in North America and Europe. During this time, changes in global economies,
demographics, transportation, and policies fostered urban decay.[30] Many planners
spoke of "white flight" during this time. This pattern was different than the pattern of
"outlying slums" and "suburban ghettos" found in many cities outside of North America
and Western Europe, where central urban areas actually had higher real estate values.
Starting in the 1990s, many of the central urban areas in North America have
been experiencing a reversal of the urban decay, with rising real estate values, smarter
development, demolition of obsolete social housing and a wider variety of housing
choices.
Reconstruction and Renewal
Areas devastated by war or invasion challenge urban planners. Resources are
scarce. The existing population has needs. Buildings, roads, services and basic
infrastructure like power, water and sewerage are often damaged, but with salvageable
parts. Historic, religious or social centers also need to be preserved and re-integrated
into the new city plan. A prime example of this is the capital city of Kabul, Afghanistan,
which, after decades of civil war and occupation, has regions of rubble and desolation.
Despite this, the indigenous population continues to live in the area, constructing
makeshift homes and shops out of salvaged materials. Any reconstruction plan, such
as Hisham Ashkouri's City of Light Development, needs to be sensitive to the needs of
this community and its existing culture and businesses. Urban Reconstruction
Development plans must also work with government agencies as well as private
interests to develop workable designs.
Transport
Transport within urbanized areas presents unique problems. The density of an
urban environment increases traffic, which can harm businesses and increase
pollution unless properly managed. Parking space for private vehicles requires the
construction of large parking garages in high density areas. This space could often be
more valuable for other development.
Good planning uses transit oriented development, which attempts to place higher
densities of jobs or residents near high-volume transportation. For example, some
cities permit commerce and multi-story apartment buildings only within one block of
train stations and multilane boulevards, and accept single-family dwellings and parks
farther away.
Floor area ratio is often used to measure density. This is the floor area of
buildings divided by the land area. Ratios below 1.5 are low density. Ratios above five
constitute very high density. Most exurbs are below two, while most city centres are
well above five. Walk-up apartments with basement garages can easily achieve a
density of three. Skyscrapers easily achieve densities of thirty or more.
City authorities may try to encourage higher densities to reduce per-capita
infrastructure costs. In the UK, recent years have seen a concerted effort to increase
 36
the density of residential development in order to better achieve sustainable
development. Increasing development density has the advantage of making mass
transport systems, district heating and other community facilities (schools, health
centres, etc.) more viable. However, critics of this approach dub the densification of
development as ‘town cramming’ and claim that it lowers quality of life and restrict
market-led choice.
Problems can often occur at residential densities between about two and five.[31]
These densities can cause traffic jams for automobiles, yet are too low to be
commercially served by trains or light rail systems. The conventional solution is to use
buses, but these and light rail systems may fail where automobiles and excess road
network capacity are both available, achieving less than 2% ridership. The Lewis-
Mogridge Position claims that increasing road space is not an effective way of relieving
traffic jams as latent or induced demand invariably emerges to restore a socially
tolerable level of congestion.
4.3.4. Suburbanization
In some countries, declining satisfaction with the urban environment is held to
blame for continuing migration to smaller towns and rural areas (so-called urban
exodus). Successful urban planning supported Regional planning can bring benefits to
a much larger hinterland or city region and help to reduce both congestion along
transport routes and the wastage of energy implied by excessive commuting.
4.3.5 Environmental Factors
Environmental protection and conservation are of utmost importance to many
planning systems across the world. Not only are the specific effects of development to
be mitigated, but attempts are made to minimize the overall effect of development on
the local and global environment. This is commonly done through the assessment of
Sustainable urban infrastructure and microclimate. In Europe this process is known
as a Sustainability Appraisal.
In most advanced urban or village planning models, local context is critical. In
many, gardening and other outdoor activities assumes a central role in the daily life of
citizens. Environmental planners focus now on smaller and larger systems of resource
extraction and consumption, energy production, and waste disposal. A practice known
as Arcology seeks to unify the fields of ecology and architecture, using principles of
landscape architecture to achieve a harmonious environment for all living things. On a
small scale, the eco-village theory has become popular, as it emphasizes a traditional
100-140 person scale for communities.
An urban planner can use a number of quantitative tools to forecast impacts of
development on the environmental, including roadway air dispersion models to predict
air quality impacts of urban highways and roadway noise models to predict noise
pollution effects of urban highways. As early as the 1960s, noise pollution was
addressed in the design of urban highways as well as noise barriers. The Phase I
 37
Environmental Site Assessment can be an important tool to the urban planner by
identifying early in the planning process any geographic areas or parcels which have
toxic constraints.
Tall buildings in particular can have a substantial effect in channelling winds and
shading large areas. The microclimate around the building will typically be assessed as
part of the environmental impact assessment for the building.
Light and Sound
The urban canyon effect is a colloquial, non-scientific term referring to street
space bordered by very high buildings. This type of environment may shade the
sidewalk level from direct sunlight during most daylight hours. While an oft-decried
phenomenon, it is rare except in very dense, hyper-tall urban environments, such as
those found in Lower and Midtown Manhattan, Chicago's Loop and Kowloon in Hong
Kong.
In urban planning, sound is usually measured as a source of pollution. Another
perspective on urban sounds is developed in Soundscape studies emphasising that
sound aesthetics involves more than noise abatement and decibel measurements.
Hedfors coined 'Sonotope' as a useful concept in urban planning to relate typical
sounds to a specific place.
Light pollution has become a problem in urban residential areas, not only as it
relates to its effects on the night sky, but as some lighting is so intrusive as to cause
conflict in the residential areas and paradoxically intense improperly installed security
lighting may pose a danger to the public, producing excessive glare. The development
of the full cutoff fixture, properly installed, has reduced this problem considerably.
Process
Prior to the 1950, Urban Planning was seldom considered a unique profession.[35]
Planning focused on top-down processes by which the urban planner created the
plans. The planner would know architecture, surveying, or engineering, bringing to the
town planning process ideals based on these disciplines. They typically worked for
national or local governments.
Changes to the planning process Strategic Urban Planning over past decades have
witnessed the metamorphosis of the role of the urban planner in the planning process.
More citizens calling for democratic planning & development processes have played a
huge role in allowing the public to make important decisions as part of the planning
process. Community organizers and social workers are now very involved in planning
from the grassroots level. The term advocacy planning was coined by Paul Davidoff in
his influential 1965 paper, "Advocacy and Pluralism in Planning" which acknowledged
the political nature of planning and urged planners to acknowledge that their actions
are not value-neutral and encouraged minority and under represented voices to be part
of planning decisions.
 38
Ozawa and Seltzer (1999) advocate a communicative planning model in education
to teach planners to work within the social and political context of the planning
process. In their paper "Taking Our Bearings: Mapping a Relationship among Planning
Practice, Theory, and Education," the authors demonstrate the importance of
educating planners beyond the rational planning model in which planners make
supposedly value-neutral recommendations based on science and reason. Through a
survey of employers, it was found that the most highly rated skills in entry-level
professional hiring are communication-based. The results suggest this view of planning
as a communicative discourse as a possible bridge between theory and practice, and
indicate that the education of planners needs to incorporate synthesis and
communication across the curriculum.
Developers have also played huge roles in development, particularly by planning
projects. Many recent developments were results of large and small-scale developers
who purchased land, designed the district and constructed the development from
scratch. The Melbourne Docklands, for example, was largely an initiative pushed by
private developers to redevelop the waterfront into a high-end residential and
commercial district.
Recent theories of urban planning, espoused, for example by Salingaros see the
city as a adaptive system that grows according to process similar to those of plants.
They say that urban planning should thus take its cues from such natural processes.
Such theories also advocate participation by inhabitants in the design of the urban
environment, as opposed to simply leaving all development to large-scale construction
firms.
In the process of creating an urban plan or urban design, carrier-infill is one
mechanism of spatial organization in which the city's figure and ground components
are considered separately. The urban figure, namely buildings, is represented as total
possible building volumes, which are left to be designed by architects in following
stages. The urban ground, namely in-between spaces and open areas, are designed to
a higher level of detail. The carrier-infill approach is defined by an urban design
performing as the carrying structure that creates the shape and scale of the spaces,
including future building volumes that are then infilled by architects' designs. The
contents of the carrier structure may include street pattern, landscape architecture,
open space, waterways, and other infrastructure. The infill structure may contain
zoning, building codes, quality guidelines, and Solar Access based upon a solar
envelope. Carrier-Infill urban design is differentiated from complete urban design, such
as in the monumental axis of Brasília, in which the urban design and architecture
were created together.
In carrier-infill urban design or urban planning, the negative space of the city,
including landscape, open space, and infrastructure is designed in detail. The positive
space, typically building site for future construction, are only represented as
unresolved volumes. The volumes are representative of the total possible building
envelope, which can then be in filled by individual architects.
 39
4.4 REVISION POINTS
1. To revise about different parameters in urban planning.

4.5 INTEXT QUESTIONS

1. Explain the environmental factors which affects the suburbanization.
4.6 SUMMARY
1. This chapter explained about Urban planning with reaction and applications.
4.7 TERMINAL EXERCISES
Larger system of resource extraction and consumption, energy production and
waste disposal are noway ________.
4.8 SUPPLEMENTARY MATERIALS
1. www. Urban planning

4.9 ASSIGNMENTS
1. Explain about sub_urbanisation

4.10 SUGGESTED READING/ REFERENCE BOOKS /SET BOOKS

1. Fredrick Gibbered, Town Design, Architecture press (2002), London.
4.11 LEARNING ACTIVITIES
Group discussion (during PCP days)
1. To discuss about environmental factors in Urban Planning
4.12 KEYWORDS
Aspects – sub urbanization - sistainability


 40
CHAPTER – V
URBAN LAND POLICY
5.1 INTRODUCTION
Some of the crucial problems that the MMR faces today like extremely inadequate
shelter opportunities, inadequate land for provision of social facilities and lack of
resources for local infrastructure are ingrained in the present land policy or the lack of
it. Although provision of infrastructure helps increase the land values, the private land
market tends not to provide adequately for infrastructure like roads, parks, schools,
hospitals etc. This leads to "inefficient" land use patterns. Further the legal private land
market for variety of reasons tends not to cater to the low income sections resulting in
"inequitable" distribution of land and shelter opportunities. Thus on account of both
efficiency and equity goals of urban development it is imperative to intervene in the
private land market.
However, before discussing possible ways of intervention, it is useful to note some
characteristics of urban land.
1. Every parcel of land has unique location and because of this characteristic it is
not possible to produce identical parcels of land,
2. Though quantity of land per se is finite, it is possible to increase the supply of
urban land by providing urban infrastructure,
3. But for provision of infrastructure, land itself is one of the essential inputs,
4. Urban land cannot be treated as pure public good. This implies that market in
urban land cannot be eliminated, and
5. Because of these characteristics the economic and environmental externalities
reflect in the land price.
5.2 OBJECTIVES
To understand the urban land policy with in the legal frame work.
5.3 CONTENTS
5.3.1 Objectives of Urban Land Policy
5.3.2 Urban land Policy
5.3.3 Policy Instrument
5.3.4 Legal Frame Work
5.3.5 Acquisition of Reserved plot
5.3.6 Planned Development of undeveloped Areas
5.3.7 Property Tax
5.3.8 Need for New Approach
5.3.9 Redevelopment of Obsolete Development
5.3.10 Other related policies
 41
5.3.1 Objectives of Urban Land Policy
The Urban Land Policy Committee (Ministry of Health) appointed by the
Government of India in 1965, articulated the following Land Policy Objectives (Planning
Commission, 1983);
1. To achieve optimum social use of urban land;
2. To make land available in adequate quantity, at right time and for reasonable
prices to both public authorities and individuals;
3. To encourage cooperative community effort and bona fide individual builders
in the field of land development, housing and construction;
4. To prevent concentration of land ownership in a few private hands and
especially to safeguard the interests of the poor and under - privileged sections
of the urban society.
In addition, a commonly held objective is, 5. To use land as a resource for
financing urban development by recouping the unearned income which otherwise
accrues to private land owners. Fifth Five Year Plan.
5.3.2 Urban Land Policy
The Task Force on Planning of Urban Development appointed by the Planning
Commission in 1983 Planning Commission, 1983 rephrased the 4 objectives
mentioned above in the following words:
5. To widen the base of land ownership specially to safeguard the interests of the
poor and under - privileged sections of the urban society.; and proposed following two
objectives;
6. To encourage the socially and economically efficient allocation of urban land
such that urban development is done in a resource conserving manner and that the
magnitude of land used is .optimal.;
7. To promote flexibility in land-use in response to changes resulting from a
growing city.
The report of the Committee on Land Policy observed that to realise the objectives
.there is no escape from large scale public acquisition if the question of guiding urban
development or the provision of adequate housing and other facilities is to be tackled
effectively.. Further .large scale advance acquisition of land would really be in the
interests of the society as a whole. It is by far the best and perhaps the only way to put
an end to speculation in land and to capture subsequent increases in land values.
These surpluses, where realised by the public authorities, should benefit the
community in more ways than one. (Menezes, 1982).
The most important experiment of large scale public acquisition of land for urban
development has been that of Delhi Development Authority (DDA). However the results
have been quite contrary to the expectation. It is generally observed that (Planning
Commission, 1983);
 42
1. It has not been possible for DDA to provide land at affordable prices to low
income beneficiaries resulting in large scale jhuggi jhopadi colonies.
2. In the absence of price signals land has been sub optimally used, resulting in
over provision to powerful groups, and 3. DDA.s policy to auction very few plots at a
time and treating the maximum price quoted in such biding as the real market price
has in fact meant artificially increasing the land price through deliberate scarcity.
The rephrasing of the objective identified by the Urban Land Policy Committee in
1965 by the Task Force in 1983 is therefore indicative of the realisation of severe
limitations of large scale public ownership of land as a means of achieving the land
policy objective.
Land Development Strategies proposed in the Regional Plan
The Regional Plan 1973 (BMRPB, 1974), did not explicitly spell out a
comprehensive land policy. It considered the I and policy issues as a part of housing
and new town development strategies. The recommendations of the Plan summarized
below also reflect the dominant thinking of the period:
1. In the absence of any land use zoning, every piece of land competes with every
other for claiming the floating value for the most remunerative use. Land use zoning
must therefore be strictly resorted to, to localise floating values for different purposes
and to ensure that adequate and suitable lands would be available for housing at the
price level of housing lands.
2. The price of residential land must somehow be maintained at a level at which it
would be suitable for middle and low income housing. The only way in which this could
be done would be by taking resort to public control of lands by their bulk acquisition.
Short of acquisition, no other measures are possible to make available adequate supply
of land for low income group housing at the right price.
3. The entire development value of all lands would have to be frozen. But until
that is done, bulk acquisition of large areas by a public authority would be the only
course available within the framework of the existing laws. This would ensure that land
required for the housing of low income group people can be subsidized from the profits
realized from the sales of other types of land, namely, industrial and commercial lands
and housing lands sold for higher income group housing and 4. Leasehold tenure is
preferred to freehold tenure as leasehold tenure enables effective control on use of land
through restrictive covenants and provides rights of revision of lease rent.
5.3.3 Policy Instruments
Although the objectives have been neatly formulated, the policy measures which
can achieve these objectives in practice still remain to be sharpened and coordinated.
The measures can be classified as a) direct government investment b) legal and
regulatory; and c) fiscal. Examples of these are;
 43
1. Direct government investment in land development for provision of
infrastructure, housing or overall town development through large scale compulsory
land acquisition.
2. Statutory provisions for compulsory acquisition of land at less than market
price, regulations regarding land use zoning, development control and building codes
for health and safety.
3. Fiscal measures in the form of appropriate taxation that can help achieve the
land policy objectives.
5.3.4 Legal Framework
Although a variety of policy instruments are available, the emphasis so far has
been on using legal interventions. This section therefore briefly reviews legal framework
with reference to compulsory acquisition of land and related compensation provisions.
The Land Acquisition Act, 1894
The Act enables compulsory acquisition of land needed for public purposes and for
Companies. After the amendment of 1984, the expression public purpose includes, the
provision of village sites, land for town planning, for planned development, residential
purposes, schemes sponsored by government and for locating public offices. The Act
requires that the market value of land be awarded as the compensation for compulsory
acquisition. Market value of the land is determined on the rates prevailing at the date of
the publication of the notification. In addition to the market value of the land, an amount
of 12% per annum on such market value for the period commencing on and from the
date of the publication of the notification, in respect of such land to the date of the award
or the date of taking possession of the land, whichever is earlier and a solatium of 30%
on such market value in consideration of the compulsory nature of acquisition is also
payable.
Declaration of Intended Acquisition under Section 6 has to be made within one
year from the date of the publication of the notification under Section 4. The award has
to made under Section 11 within a period of two years from the date of the publication
of the declaration and if no award is made within that period the entire proceedings for
the acquisition lapse. The amount of compensation to be awarded for the land acquired
under the Act is principally based on the market value of land at the date of the
publication of the notification under section 4 (section 23(1)). However Section 24
clarifies that while awarding the amount of compensation, increase to the value of the
land likely to accrue from the future use is not to be taken into consideration.
Changes in the Constitution Affecting Land (1949-1978)
Article 19 (f) of the Constitution recognised .to acquire, hold and dispose of
property, as one of the fundamental rights. While the Directive Principles of State
Policy (Article 39(b)) require that the .ownership and control of the material resources
of the country are so distributed as best to subserve the common good; that the
operation of the economic system does not result in the concentration of wealth and
means of production to the common detriment.
 44
The 25th amendment of 1972 made any legislation claiming to subserve the
Directive principle non-justiciable. Notwithstanding anything contained in Article 13,
no law giving effect to the policy of the State toward securing all or any of the principles
laid down in Part IV shall be deemed to be void on the ground that it is inconsistent
with, or abridges any of the rights conferred by Article 14 or 19, and no law containing
a declaration that it is for giving effect to such policy shall be called in question in any
court on the ground that it dose not give effect to such policy. This amendment further
replaced the word .compensation by the word amount in Article 31 (2) and the
adequacy of the amount was made non-justiciable. By the 44th Amendment of 1978,
Article 38 (2) has been added which states that, .The State shall, in particular, strive to
eliminate inequalities in status, facilities and opportunities, not only amongst
individuals, but amongst groups of people residing in different areas or engaged in
different vocations. The amendment also deleted the fundamental right .to acquire,
hold and dispose of property and reduced it to only a legal right. The 25th amendment
of 1972 is of crucial significance, as legislation enacted thereafter provided for taking
over of land, at less than market price or at a nominal .amount.. According to Section
32 (1) of the Maharashtra Industrial Act, 1961, the State Government can acquire the
land required for the purpose of development by the MID Corporation. Provisions for
land acquisition are same as in LA Act, 1894.
Maharashtra Regional and Town Planning Act, 1966
Under Section 125 of this Act it has been clarified that "any land required,
reserved or designated in a Regional Plan, Development Plan or town planning scheme
for a public purpose or purposes including plans for any area of comprehensive
development or for any new town shall be deemed to be land needed for a public
purpose within the meaning of the Land Acquisition Act, 1894". Under the Act, after
the publication of a draft Regional Plan, a Development or any other plan or town
planning scheme, acquisition of land can proceed under the provisions of the Land
Acquisition Act 1894. On receipt of application from the Appropriate Planning
Authority, the State Government has to make a declaration in the Official Gazette, in
the manner provided under Section 6 of the LA Act, 1894. The declaration so published
is deemed to be declaration under Section 6 of the LA Act, 1894. However, such
declaration should not be made after the expiry of three years from the date of
publication of the draft plan. Compensation is determined on the basis of the market
value prevailing on the dates as described below;
1. Where the land is to be acquired for the purposes of a new town, the date of
publication of the notification constituting or declaring the Development Authority for
such town;
2. Where the land is acquired for the purposes of a Special Planning Authority, the
date of the publication of the notification of the area as an undeveloped area; and
3. In any other case, the date of publication of interim or the draft plan or town
planning scheme.
 45
If a declaration is not made within three years of publication the draft plan, then
fresh declaration has to made and that date is to be used for determining the market
value and compensation.
Section 127, allows the owner to serve a purchase notice to the Appropriate
Planning Authority, if land is not acquired within ten years from the date of the final
Plan. If lands are not acquired within six months from the date of the service of such
notice, the reservation, allotment or designation is deemed to have lapsed and the land
is deemed to be released from such reservation, allotment or designation. The land
then becomes available to the land owner for the purposes of development permissible
in the case of the adjacent land under the relevant plan. Under Section 128, lands can
be acquired for purpose other than the one for which it is designated in any plan under
the provisions of the LA Act 1894 under certain conditions.
The Maharashtra Slum Areas (Improvement, Clearance and Redevelopment) Act, 1971
Execution of any work of improvement of any slum area or building in such area
or redevelopment of clearance area is deemed to be a public purpose in this Act. The
State Government on representation of the Competent Authority can acquire the land
for such purposes. The amendment of 1984, allows the State Government to transfer
the lands so acquired by way of lease to Co-operative Housing Societies of the
slumdwellers. The compensation under Section 17, is 60 times the net average
monthly income actually derived from such land during the period of the five
consecutive years immediately preceding the date of publication of the notice under
Section 14.
Mumbai Metropolitan Region Development Authority Act, 1974
According to Section 32 (2), discharging any of Authority’s functions or exercising
any of its powers or carrying out any of its projects or schemes or development
programmes are deemed to be public purpose; and on receipt of representation of the
Authority, State Government can acquire the land.
For land in urban areas acquired under this Act, the amount of compensation
under Section 35, is 100 times the net average monthly income actually derived from
such land during the period of the five consecutive years immediately preceding the
date of publication of the notification under Section 32. When the amount of
compensation for acquisition is not paid on or before possession of the land, the
Competent Authority has to pay interest at the rate of 4% for first six months and
thereafter at the rate of 9% per annum. In case of rural areas the compensation is to be
determined as laid down in the Land Acquisition Act, 1894.
Urban Land (Ceiling and Regulation) Act, 1976
Section 3 of the Act specifies that persons are not entitled to hold vacant land in
excess of the ceiling limit. Section 4 (1) specifies the ceiling limits applicable to different
categories of urban agglomerations as shown below:
 46
The agglomeration is defined to include an area within a radius of 8 km. in case
of Mumbai and 5 km. in case of Thane and Ulhasnagar respectively. After the
notification under Section 10(1) by the Competent Authority the land in excess of the
limit is deemed to have been acquired by the State Government under Section 10(3). In
case of lands, (Section 11(1) (a)) where there is income, compensation is paid equal to
8-1/3 times the net average yearly income of last five years preceding the date of
notification under Section 10(1). In case of land, (Section 11(1)(b)) which has no annual
income, the maximum compensation is Rs. 10 per sq.m. for lands situated in
categories A or B and Rs. 5 per sq.m. for categories C and D. The competent Authority
is entitled to fix the amount lower than the above. In no case the total amount of
compensation exceeds Rupees Two lakhs under Section 11(6). Furthermore the land
owner is entitled to get only Rs. 25,000 in cash or 25% of the total amount whichever
is less. The balance amount is payable by negotiable bonds redeemable after 20 years
duration carrying 5% interest from the date on which the vacant land is deemed to
have been acquired under Section 10 (3).
The Maharashtra Housing and Area Development Act, 1976
The State Government by Section 41, is empowered to acquire land to enable the
Authority to discharge its functions or to exercise its powers or to carry out any of its
proposals, plans or projects. The provisions related to compensation are same as in
MMRDA Act, 1974.
Experience of Public Land Development in MMR
It would thus be seen that the legislation for taking over land under public
control, including the constitutional framework has moved away from the concept of
compensation at market rate and has provided stronger means of intervening in the
land market except the amendments to the Land Acquisition Act 1894 which made
provisions more just from the land owner’s point of view). A review of actual
performance of various agencies in acquiring and developing land over the last two
decades would therefore be useful.
Bulk Land Acquisition in Navi Mumbai
Following the recommendation of the Regional Plan in 1970, planning and
development of Navi Mumbai was started on 34,400 ha. including 1,237 ha.
subsequently transferred to Nhava Sheva Port Trust of land across the Thane Creek.
Out of this 10,137 ha was government land, 16,567 ha private land, 2,720 ha salt pan
lands and 4,976 ha of other types (MIDC, Gaothans and Others). The State
Government in 1970 notified 16,567 ha of private land and 2,720 ha of salt pan land
for compulsory acquisition. Till May 1992, 14,600 ha. of notified land was acquired
(76%) and State Government had transferred 5,289 ha of government lands (50%) to
CIDCO. However, only 934.68 ha of developed land was leased by then.
Selective Acquisition in Greater Mumbai
In Greater Mumbai compulsory land acquisition is resorted to on a selective basis
for land designated in the Development Plan for public purpose. The experience of
 47
implementation of the 1967 Development Plan in this respect has however been
dismal. The revised Development Plan therefore adopted a more market oriented
strategy of allowing the land owner to retain and transfer the development rights to
other location on the condition that the designated land is handed over to MCGB free
of cost and free of encumbrances (GOM, 1991). It is too early to evaluate the outcome
of this policy. But indications are that where the land has occupied buildings, the TDR
is unlikely to succeed in getting the land for public purpose.
Acquisition under MHAD Act
MHADA as a State level housing agency implements housing schemes on lands
made available by government. These can be excess lands under ULC or lands
acquired by the government on behalf of MHADA. After the amalgamation of various
boards and introduction of MHAD Act 1976, MHADA has not acquired any lands in
Greater Mumbai District and Mumbai Suburban District. However, 87.83 ha of land
has been acquired in Thane and Raigad Districts of MMR.
Acquisition under Slum Act
Under the Bombay Urban Development Project (1985 to 1995) it was agreed that
at least 10% of the programme of upgrading 100,000 slum households would be
implemented on private lands by acquiring the land under the Slum Act and
transferring the land tenure to the slum dwellers. cooperatives. However in spite of
concerted efforts not a single scheme could be implemented by acquiring private lands.
Acquisition under MMRDA Act
With a view to implementing the recommendations of the Regional Plan, MMRDA
had identified New Growth Centers and promoted various Area Development Schemes
in the Region. For this purpose MMRDA initiated several acquisition proceedings. The
current status of these initiatives is summarized in Table-9.1 given below:
Land Acquisitions for Industrial Development
MIDC is a State level corporation responsible for promoting industrial
development. The corporation acquires land under the MIDC Act and develops by
providing basic infrastructure like water supply, roads and sewerage disposal etc. In
the MMR, MIDC has planned to develop 5,507.96 ha. of land. Out of which 3,919.44
ha. is private land and remaining government land. Till March 1989, 4,840.90 ha. of
land was in possession of MIDC. Out of this 3571.06 ha. is private land acquired by
MIDC. 1,884.59 ha. (38.93%) out of the total area in possession of MIDC has been sold.
However MIDC’s efforts to acquire land at Bhiwandi (200 ha.), Wangni (200 ha.) and at
Virar (800 ha.) could not succeed.
Surrender Under UL (C&R) Act
Till January 1990, about 27,105 statements declaring 13,917.63 ha. as excess
land has been filed under Section 6(1) of the Act with the respective Competent
Authorities in the MMR. Of the total land declared, 4836 ha. (35%) of land has been
 48
notified under Section 10(1). 876 ha. (18%) of the notified land is deemed to be
acquired under Section 10(3) of the Act (H&SA Dept., GOM). It may thus be seen that
the nationalisation efforts have not been successful.
Alternative Practices
In order to successfully implement the plans the designated authorities have
resorted to alternative practices. Opposition to compulsory land acquisition and low
compensation these approaches are similar. They allow land owners/builders to
develop land and gain returns on their land under certain terms and conditions. This
is not only evident in MMR but also in other parts of the country. The practices in
MMR are briefly described below; has compelled the authorities to adopt collaborative
approaches within the existing legal framework. Though the modus-operandi and
scope have been different, in principle, all
Table – 9.1: Land Acquisition by MMRDA
Sr. Project Area in Ha Year of Present Status
No. Notification
1. Kalyan Area 60 1985 Acquisition abandoned Development Scheme in 1991
2. Kalyan Growth Centre 1683 1984 Acquisition lapsed
3. Pen Industrial Area 15 1982 Final notifiction not yet published
4. Khopoli 50 1979 Acquisition initiated for Khopoli MC. Compensation still
under dispute.
5. Powai Area 102 1983 Guided Development
6. Oshivara District 65 Guided Development Centre
7. Chitalsar Manpada 45 1982 76000 sqm obtained 1988; but no decision on
utilisaion
CIDCOs 12.5% Scheme of Land Return
Compulsory acquisition of 2500 ha. of land from Uran Tehsil for Nhava Sheva Port
was severely opposed by the villagers. The Government was impelled to declare
payment of ex-gratia. Higher compensation of Rs. 75,000 per ha. was agreed instead of
Rs. 37,500 per ha. proposed earlier. It was also agreed to return 12.5% of the
developed land to the original land owners at a price of Rs. 5 per sq.m. plus double the
acquisition cost.
MMRDAs Guided Land Development at Powai
It was decided to acquire and develop land at Powai in January, 1977.
Subsequently, the landowners approached the Authority with a request to allow them
to develop the notified land as per MMRDA.s layout. A tripartite agreement was
reached between the Government of Maharashtra, MMRDA and the landowners to
develop 86.04 ha. As per the guidelines prescribed in the agreement, a development
proposal was prepared by the developers/ owners for the notified area.
 49
The Salient Features of the Tripartite Agreement are as Follows;
The land holders to deliver possession of the land to the State Government for
nominal price of Re. 1 per ha. The Authority to lease the land to the land owners for a
period of 80 years for nominal premium of Re. 1 per ha. The landowners to develop the
entire infrastructure in the land within a period of 10 years and hand over the same to
the MMRDA free of cost. 15% of the entire built up area will be surrendered to the
State Government/ Authority for a fixed price of Rs. 135 per sq.ft., which was
subsequently increased to Rs. 150 per sq.ft. The entire land to be exempted under
Section 20 of the ULC Act. However, land holders to build 50% of the flats less than 40
sq.m.. in terms of FSI and remaining 50% of the flats not to exceed 80 sq.m.
The land holders were required to offer 50 ha. of developed land to Central
Government Departments who had initiated acquisition proceedings for the land before
the execution of the tripartite agreement. However if the Central Govt Departments did
not respond within a period of three months the landowners were free to use the land.
In practice therefore the Govt. Dept. got less than 10 ha of land
Guided Land Development Scheme at Oshiware District Centre
Realizing the limitations of land acquisition, an alternative scheme of guided
development promoting participation of land owners was approved by the Government
by its Notification dated 28th January 1992. The scheme envisages allowing the
landowners to develop the land. The lands will be acquired by the MMRDA for nominal
acquisition price of Rupee one. The acquired lands will be released to the same owners
for a period of 60 years for undertaking development as per MMRDA’s planning
proposal on payment of lease premium ranging between Rs. 750 per FSI sq.m. to Rs.
300 per FSI sq.m Depending on the land use. The lease premium will be utilized for
meeting the cost of providing the off site infrastructure. The premium can be revised
periodically.
The land owners are responsible for carrying out all on site infrastructure
developments at their cost and the land owner will be free to sell the buildings in the
open market (GOM, 1992).
Kalyan Growth Centre - Guided Land Development
All these practices use the legal framework of compulsory acquisition as the
.stick. to compel the land owners to accept the alternative package. This can succeed
only when the threat of acquisition is perceived to be real. For this reason such
schemes can succeed on a smaller scale. In fact the guided development scheme of
MMRDA for Kalyan could not succeed as the acquisition proceedings themselves
lapsed.
Alternatives to Compulsory Land Acquisition and Development
Alternatives to compulsory land acquisition have to be considered in the three
types of planning situations viz.
 50
1. Acquisition of an individual plot reserved in the Development Plan e.g. school,
garden
2. Bringing about planned development of land that is about to acquire urban
potential over the next decade, but which is currently largely undeveloped, and
3. Areas in need of comprehensive redevelopment on account of obsolete pattern
of development and buildings
5.3.5 Acquisition of Reserved Plot
According to the Development Plan, 1967 and the Development Control Rules of
Greater Mumbai the development right on the land reserved for roads could be
transferred by the land owner to his remaining land, if agreed, to hand over the land to
MCGB free of cost and free of encumbrances. This principle has been extended further
in the Development Control Regulations 1991 in the form of Accommodation
Reservation and Transfer of Development Rights.
Accommodation Reservation
The land owner can develop the facility for which the land is reserved (such as a
library), hand it over to the BMC free of cost and then utilise the development right
equivalent to the full permissible FSI for his own purposes. In case of Mumbai, this
measure is likely to succeed as land prices are several times higher than construction
cost. But where land prices are not that high or are less than construction cost such a
measure is unlikely to succeed.
Transfer of Development Rights
Where the land has to be exclusively put to reserved use or where no building
construction is possible, the DCR 1991, allow the land owner to transfer his
Development Rights elsewhere in Mumbai if the land in question is surrendered to
BMC free of cost and free of encumbrances. In both these cases, if the land owner dose
not come forward, the right to compulsorily acquire the land is retained by the
Planning Authority. In fact for this reason the land owners are expected to agree to
transfer their development rights from high value area to generally low value area on
one to one scale, without any weightage for the price differential.
5.3.6 Planned Development of Undeveloped Areas
Town Planning Schemes
The oldest method of bringing about planned development by reconstitution of
large agricultural plots into serviced urban plots with minimum of compulsory
acquisition is the Town Planning Schemes. The Bombay Town Planning Act, 1915
provided for the "Town Planning Schemes" (TPS). Though these provisions have
continued in the MR&TP Act, 1966, in the recent past such schemes have not been
promoted on any significant scale. The basic rationale of TPS is that with the
reconstitution of plots and provision of roads and open spaces the land price
considerably appreciates. The total value of the land therefore increases even if some
land is lost for roads and open spaces.
 51
The land owners are therefore expected to join the scheme. According to the
provisions of the MR&TP Act 1966, TPS can be prepared by the planning authority for
the purpose of implementing the proposals of a final Development Plan. The cost of the
TPS is to be financed by recouping 50% of the "betterment" which is defined as the
difference between the value of Final Plot after TPS implementation and value of
Original Plot before TPS implementation.
Despite being conceptually attractive, TPS has proved to be procedurally very
cumbersome. Average time taken for completion of a TPS in Maharashtra has been 15
years. Moreover as they are essentially plot reconstitution schemes they do not ensure
land for the poor (Keskar & Kopardekar, 1984).
Land Readjustment Schemes
Land Readjustment (LR) is based on the same rationale as that of TPS. In LR land
assembly and development is carried out by the public agency. But unlike in TPS, cost
recovery is through sale of part of the land retained by the development agency. This is
possible because land values increase significantly after provision of urban
infrastructure. The increase is of such a magnitude that, if a small proportion of land
is sold, it recovers the cost of infrastructure and the remaining land can command an
attractive rate of return over the original land value to the land owners even after
foregoing land for infrastructure and for sale by the developing agency. (A slight
variation would also be possible for the public agencies to retain some percentage of
developed land for low income shelter.) This technique has been widely used in Japan,
Taiwan, Australia, Hawaii and Germany (Shoup, 1978).
Land Readjustment schemes, however have the following problems:
1. Land assembly has to be done by the public agencies, which may be difficult;
2. Valuation of property before and after the implementation of the scheme can
be a complicated matter, often subject to litigations; and
3. Equitable distribution of .value added. Amongst landowners can be a
complicated business.
Guided Land Development Schemes
MMRDA had prepared a Guided Land Development (GLD) Scheme for Kalyan
Growth Centre which was a variation of LR Scheme. It’s main objectives were to
ensure;
1. Fair return on investment to the private owner/developer; a relatively large
proportion of serviced sites for allotment to low income families; and at the
same time,
3. Recover at least part of off site infrastructure cost for the public agency.
The responsibility for assembling land, preparing the layout and developing the
on site infrastructure according to the guidelines is cast on the private developers.
Further the developers are required to make available certain number of small plots for
 52
low income beneficiaries at a fixed price to public agencies. In this process the question
of recovering the cost or of equitably distributing the betterment are totally
circumvented. Such a scheme was considered to be possible as the land was notified
for compulsory acquisition and the GLD was seen as an opportunity offered to land
owners to develop their land in a manner that assures reasonable return on land.
However as the Land Acquisition proceeding itself was abandoned the GLD could not
be put to practice. Similar scheme has been adopted in the Tamilnadu Urban
Development Project under the framework of Urban Land Ceiling and Regulation Act.
Redevelopment of Already Developed Areas
Land Sharing
This technique is used in already developed areas or lands which have been
encroached. The principle behind this has been that the land is shared equitably
between the land owner and the tenants (quasi). The land owner develops the land in
such a manner that the original inhabitants in that area are given shelter in the very
same area, lands for public facilities is made available to the planning agency, and the
remaining area is developed and sold freely in the market. This technique is widely
used in Thailand and Indonesia to deal with relatively low density squatter settlements.
Slum Redevelopment
The Development Control Regulations for Greater Bombay, 1991, became
effective in March 1991. Regulation 33 (10)-Appendix IV allows rehabilitation of the
slum dwellers through owners/ developers/ co-operative housing societies. A total floor
space index of upto 2.5 is granted with a condition that existing slum dwellers are
rehabilitated at stipulated prices. The scheme is also applicable to land reserved for
public purposes on the condition that land on reduced scale is made available for the
reserved purpose. Similar strategies need to be developed to encourage recycling and
urban renewal of old office and commercial districts in Mumbai including some of the
heritage conservation areas.
Fiscal Measures
The emphasis of land policy has been on large-scale public acquisition of land.
The potential of land and property taxation for achieving land policy objectives has not
been given due importance. The objectives of land taxation could be-1. Revenue
generation for infrastructure investment. Although local authorities charge user fees
for many services, in certain types of services it is not possible to charge a user fee. A
general tax is therefore important. Levy of such tax should cause equitable and
progressive incidence on the tax payers. 3. Capturing land value gains or so called
unearned income that accrue on account of public investment, infrastructure, and 4.
The tax should help optimal allocation of urban space - a particularly scarce resource
in Mumbai.
5.3.7. Property Tax
Property tax has been the principal tax related to land and buildings. This tax
according to provisions of municipal acts is levied on the annual rateable value which
 53
is to be determined on the basis of annual rent for which the land or building might
reasonably be expected to let from year to year. However, this principle has been
grossly distorted because of the provisions of rent control legislation and none of the
objectives of the land taxation mentioned above can be achieved by the present
practice of property tax.
Revenue Generation
The revenue generation on account of property tax in Greater Mumbai is given in
Table-9.2. It would be seen from this data that despite phenomenal increase in
property prices during this period, the income from property tax has been virtually
stagnant in real terms.
Inequitable incidence
The rateable value is linked to standard rent which cannot be revised. This has
meant that the new properties in distant locations which have a lower market value
pay more taxes than those older properties having higher market value. Furthermore,
as the rateable value the tax base is stagnant and distorted, the policy has been to
impose additional levies. Table-9.3 gives the data on changes in tax rates since 1936.
With the recent addition of Street Tax the total property tax incidence comes to over
108.5 % of the rateable value (Figure-9.2). But for the frozen rateable values these
rates of taxation would be considered expropriatory. However it needs to be noted that
with frozen tax base, every increase in tax rate makes, the incidence of tax in absolute
terms more inequitable.
Capturing Land Value Gains
If the rateable value truly reflects the market rent, property tax can capture the
land value gains. However, due to linkage of rateable value with standard rent this has
not been possible. But, this does not mean that land value gains are not realized. The
key money shared by the owner and tenant, the rents charged by tenant to sub-tenant
are all forms of realizing the land value gain by private owners and tenants. However,
none of this accrues to the State. Property tax related to true market rents also acts as
the moderator of real estate market (Dusansky, 1981).
The buyer would tend to deduct the discounted present value of expected tax
payments from the price he is prepared to pay for real estate. This may keep the real
estate prices under check. However, with frozen taxes such consideration does not
affect the real estate prices in Mumbai and rise in prices is fully captured by the
developers.
Optimal Allocation of Land
The frozen property tax has provided an incentive for some obsolete land uses to
continue in the high value areas. Where changes in users have occurred, the benefits
have been fully shared between the owner and the original tenant. Although distortions
in property tax have prevailed for over four decades precious little has been done to
correct the distortions. The municipal finance commission (Municipal Finance
 54
Commission, 1974) had recommended delinking or rateable value from standard rent.
Various committees and commissions for example Economic Administration Reforms
Commission, Govt. of India, 1982 and National Commission on Urbanisation, Govt. of
India, 1988) have concentrated on rent control reforms for improving housing market
but very little attention has been paid to property tax reforms with a view to using it as
an effective instrument of land policy. There is no dearth of proposals for rent control
reforms, what is required are early action. Concomitant with rent control reforms,
improvement in property tax management is also necessary. It should however be
noted that common opposition to realistic assessment of rateable value is based on the
assumptions that tax rates will continue at existing (expropriatory) level. Any
systematic reforms will therefore involve both correct assessment of rateable value and
rationalisation of tax rates.
Betterment Levy
Public investment in infrastructure causes appreciation in the value of land. This
rise in value entirely accrues to the land owner as "unearned income". Efforts have
been made to recoup such land value gains by charging a betterment tax or levy.
Following Acts enable levy of betterment charge; The Mumbai Municipal Corporation
Act, 1888, as part of Improvement Schemes The Mumbai Highways Act, 1955, The
Maharashtra Regional and Town Planning Act, 1966, as a part of Town Planning.
The Mumbai Metropolitan Regional Development Act, 1974, (for recouping land
value gains occurring due to schemes executed by the Authority) The Maharashtra
Housing and Area Development Act, 1976. The content, form and basis of these acts
differ. However, the basic logic is that any improvement and action by the public
authority increases the value of the land and the benefit of the increment in the value
of the land has to be shared between the land owner and the public authority. In all
the acts, there is a provision of recovering half of the value of the increase in the value.
The Highways Act offers the owner an option of paying the betterment charge in terms
of land equal to the value of the betterment charge. The experience of recovering such
betterment charges has however not been particularly encouraging. This particularly
on account of the difficulties in attributing the rise in land value to a particular cause
and inevitable litigation that follows.
Comprehensive Legislation for Taxation of Land Value Gains
Despite these experiences, recoupment of land value gain has been a favourite
theme. In 1988, Government of Maharashtra had prepared a draft legislation to tax
land value gains accruing on account of-1. infrastructure investment (betterment) 2.
permission to convert land use, and 3. grant of excess FSI. The draft legislation had
also proposed taxation of vacant land. However, the legislation could not even be
introduced in the legislative assembly.
Infrastructure Impact Fees & Development Charge
Inadequacy of tax revenues to finance capital investment in public infrastructure
has been a common problem even for American cities (JAPA, 1988). The American
 55
cities particularly in California have adopted a scheme of infrastructure impact fee. In
this the infrastructure impact of proposed development is assessed and fees to recover
such cost are charged. Appropriate legislative backing has also been obtained. MCGM
has however been informally recovering such infrastructure fees. For example, the D.C.
Rules allow FSI on land for road widening if it is surrendered free of cost and
encumbrances, but MCGM has been asking the land owner to build the roads too.
Similarly, despite the levy of Sewage Benefit Tax, the experience of BUDP shows that
MCGB demanded the cost of sewage pumping station or future cost of laying sewers
from MHADA for its low income sites and services schemes. The 1992 amendment of
MR&TP Act has now imposed a general development charge related to area of
development to be paid at the time of obtaining development permission.
Recovery of development charge implies initial up front cost for new
establishments and households. In the absence of property tax reforms this means
further regressive burden on the new properties as compared to the old but expensive
properties.
From the above discussion, it could be concluded that capturing land value gain
is very difficult from the point of view of political acceptance as also from the point of
view of measuring the gains or betterment particularly where the gains are not realized
through transaction of assets. Moreover, serious enforcement of such capturing of
gains could be counter-productive as land owners may defer development and restrict
supply of serviced land.
5.3.8 Need for New Approach
It is obvious from the above discussion that a new approach to achieving land
policy objectives is necessary. Regional Plan is mainly concerned with bringing about
planned development of land which is going to acquire urban development potential
over the next two decades. Other problems viz. of procuring individual plots of land for
public purposes and redevelopment of obsolete areas need to be handled by the
detailed Development Plans of individual towns. Further discussion therefore
concentrates on the land that has urban potential but which is currently undeveloped.
Such land is being designated as Urbanisable Zone 1 (U1) and Urbanisable Zone 2 (U2)
in the revised land use plan.
Development of Currently Undeveloped Land
In these zones the emphasis should be on increasing the supply of serviced land
in an equitable manner. The present land use planning practices also need to be
reviewed in this regard. In the current practice, land is allocated for various uses in
finer details responding to the assumed requirements of population 20 years hence.
The land designated for public purposes like roads, schools, gardens, hospitals,
cremation and burial grounds, police and fire stations is supposed to be compulsorily
acquired. Although land owners appreciate that such infrastructure is necessary and
would in fact enhance the land values, individual land owners are not prepared to
surrender their entire land holding at legally determined prices In fact, higher the
 56
expected rise in land value, greater is the resistance to compulsory acquisition. These
difficulties can be overcome basically by land assembly where land requirement for
public purposes can be shared by the group of land owners and not by a single land
owner. Similarly, the benefits betterment can equitably accrue to all land owners.
The land use planning and development control system therefore needs to be
reoriented to achieve the following:-1.The burden of providing land for public purposes
should be equitably cast on all land owners and not only on them whose land happens
to be reserved in the development plan. This could be achieved by providing incentives
for assembling land in larger parcels and stipulating scale of reservations. The actual
uses of such land can be determined dynamically through a process of development
application review. In this process, the long term land use allocation need be
determined only for arterial road network and major transport inputs like suburban
railway stations. To keep the interest of landowners alive by avoiding land use
allocations that reduce the price of their land. This could be achieved by limiting land
use allocations as mentioned above. Provisions of arterial road network in fact increase
the land values. To minimize the resistance of land owners to part with a fixed
proportion of land for roads, services and other facilities and provide incentives for
additional discretionary requirement of facilities or low income housing.
This could best be achieved by controlling the allocation of development rights by
way of FSI without directly affecting the ownership of land. The basic FSI may be
defined for a small undeveloped plot of land say less than 5000 m2, which could be
relatively low (say 0.25 or 0.2). Larger plots assembled from smaller plots would
facilitate proper layout, local roads and open spaces. In order to promote such land
assembly higher FSI may be permitted. Mandatory provisions for local roads open
space and some social facilities should not cause loss of development rights as FSI is
defined as gross FSI. Furthermore as provision of local roads, open space and basic
social facilities would increase the land value, it may not be necessary to provide any
incentives. However for land required for arterial roads, higher level social facilities or
locally undesirable but otherwise necessary land uses incentive in the form of bonus
FSI could be provided. As brought out in Chapter-8 the main thrust has to be on
increasing the land supply. In a market oriented strategy directly controlling the price
may not be appropriate. But for land used for small plots less than 35 m2 with
minimum allocation of 0.75 FSI it may be possible to grant incentive FSI. This could be
subject to the condition of right of preemption to MHADA at prices declared every year.
A broad simulation of this approach is shown in Table-9.4, 9.5 & 9.6. In the
proposed land use plan it is proposed to have two "urban" land use zones U-1 and U-2,
U-1 will cover all the existing municipal areas where detailed statutory Development
Plans are required to be prepared, whereas U2 covers non-municipal areas. The
proposed scheme could be applied in U1 zone only where large undeveloped tracks of
land are to be brought under development.
 57
Table-9.4 shows the base gross FSI of 0.25 and 0.20 respectively for U1 and U2
zones for plots of less than 5000 sq.m. The land assembly incentive allows gradual
increase in FSI upto 0.43 and 0.34 respectively for U1 and U2 zones for plots larger
than 15 hectares. With the mandatory provision of local roads, open spaces and area
for social facility, the Net FSI may range between 0.29 to 0.71 in U1, and 0.23 to 0.57
in U2 (Figure-9.3). Table-9.5 shows the bonus FSI available for making provisions for
arterial roads and additional social facility area stipulated by the planning agency. If
the proportion of such land is 15%, resultant gross FSI may range between 0.30 to
0.51 in U1 zone, and 0.24 to 0.41 in U2 zone. The corresponding range of net FSI will
be 0.41 to 1.13 and 0.33 to 0.90.
Table-9.6 shows the incentives for setting aside small plots for low income group.
The implications shown are based on the assumption that 10% of the area is allocated
to arterial roads and additional Social Facility Area and FSI allocated to small plots is
0.75. If area set aside for small low income plots is 20% of total area, the gross FSI can
range between 0.35 to 0.59 in U-1 zone, and 0.28 to 0.47 in U-2 zone. The
corresponding net FSI on plots excluding the low income plots will be 0.60 to 1.97 in
U1 and 0.48 to 1.57 in U2 zone (Figure-9.6 & 9.7). Net FSIs beyond 1.5 may not be
acceptable to market as marginal cost of construction would be higher than the
marginal revenue equivalent to real estate price. In such cases the proportion of land
set aside for low income plots may reduce. But the decisions could be left to the
market.
It would be interesting to visualize how land market would react to such a growth
management mechanism.
1. In remote areas where land owners wish to build true farm houses for their use
value. They would accept the low gross FSI stipulation.
2. When the area begins to urbanise the exchange value of land would also begin
to increase. At this stage the land owners would like to have higher FSI, but this could
be granted only if land is large enough or assembled into a large enough parcel. This is
important as at this stage proper layout including provision for local roads, open
spaces and social facilities will also become crucial.
3. However, the response of all land owners will not be similar. Some will
anticipate quicker appreciation of real estate prices or implicitly use lower discount
rate in perceiving the present value and therefore may wish to develop their land early,
by participating in land assembly. Others may still like to hold on their parcels and
develop at the lower FSI. The land assembly incentive therefore has to be attractive
enough to induce large number of land owners to join assembly efforts.
4. In the initial stage of urbanization the requirement of city level facilities will be
less, and planning authority can insist only upon the mandatory provision. As the
urbanisation progresses the requirement for city level facilities will increase and prices
of real estate will also increase. As the land taken for such facilities will be
compensated by a bonus FSI, land owners may not resist such allocation of land.
 58
5. This will enable planning authority to avoid freezing of land uses for a twenty
year period, and dynamically respond to changing patterns of growth. This however
would require a more informed review of development applications including
developments in the surrounding area unlike the present system which is based on the
rigid checklist derived from the regulations.
6. In this process it would be possible to transfer the responsibility of
infrastructure development on the private developers with only city level trunk
infrastructure remaining with the public organisation.
Land assembly and development may be done by a cooperative formal or informal
of land owners or by a developer holding power of attorney. Land owners could also be
given a choice to approach the Planning Authority for planning and development of
land on their behalf at a fee. Appropriate enabling provisions may have to be made in
the MR&TP Act 1966, if found necessary.
5.3.9 Redevelopment of Obsolete Development
Although the above approach appears to be more suitable for undeveloped areas
that have gained urban potential or likely to gain such potential over next decade, with
some variation similar approach can be used for redevelopment purposes.
Redevelopment is currently being considered as reconstruction of old and dilapidated
buildings in the Island City and redevelopment of slums. Redevelopment should not be
confined to reconstruction of buildings alone but should include improvement in
layout, provision of public facilities and recycling of land uses. Obvious example is the
areas around suburban railway stations. These areas need redevelopment for providing
adequate parking, grade separation of pedestrian movements, interchange facilities
between rail and bus and IPT and above all hawkers. High real estate prices in these
areas need to be exploited to bring about desired redevelopment. The planning
approach that incorporates the land policy instrument of incentive FSI could be as
outlined below.
Land Assembly Simulation
1. Delineate the area of redevelopment
2. Define the mean consumed FSI as the base FSI which will ensure rehabilitation
of existing occupants
3. Prepare an outline of three dimensional plan showing various public facility
areas like parking, pedestrian areas road network and floor area uses. Integration with
railway station area development including use of air rights will be a desirable feature
of such a plan.
4. Specify a scale of incentive FSI for land assembly and for provision for public
facilities.
5. Provide for substantive review of development proposals through a two stage
development permission. The land policy instruments, land use planning approach and
development control procedure suitable for different types of land development are
summarized below in Table-9.7.
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5.3.10 Other Related Policies
In order to adopt the land policy approach recommended above changes in other
related fields would also be useful. These are;
Maharashtra Regional and Town Planning Act, 1966
The Maharashtra Regional and Town Planning Act, 1966 has been exclusively
concerned with the orderly development and use of land and compulsory acquisition of
land in conjunction with the Land Acquisition Act, 1894. The Act till the recent
amendment was immune to other land policy objectives like resource mobilisation for
infrastructure investment or imposing conditions of development for more equitable
development of land. The 1992 amendment has provided for levy of development
charge. Similar provisions are necessary to enable the planning agencies to stipulate
conditions of development that help the poor. Furthermore, in view of the planning
strategy described above, a two stage review of development proposals will be
necessary. Amendments to the MR&TP Act may be necessary to give effect to such a
procedure.
Urban Land Records
For the efficient operation of market oriented land policy instruments proper and
up to date land records is a prerequisite. Success of town planning schemes, land
readjustment, guided land development and transfer of development rights depend
upon efficacy of land records - cadastres and cadastral maps. The National
Commission on Urbanisation has recommended a national agency to set standard for
urban records, introduce new technology and provide technical expertise to the State
and Local Governments to organise urban land information system. It therefore
recommended setting up of Settlement Survey of India and separate Directorates of
Urban Land Records at the state level. This recommendation was also echoed in the
approach to Eighth Five Year Plan of Maharashtra (State Planning Board, 1990).
Pending the creation of such institutions it would be prudent to initiate
improvement and coordination in the databases of existing agencies. The maintenance
of land records including cadastral mapping is the statutory responsibility of the
District Collector. This also forms the basis of land taxation particularly the non-
agricultural assessment. The responsibility of granting development permission is with
the Planning Authorities where Development Plans or Proposals are prepared, this
responsibility is also with the Collector. The local authorities have to use same data
base for assessment of properties for property tax. It is therefore necessary to establish
interactive data bases- cadastral and developmental-with the concerned agencies. The
technology for this purpose is discussed separately in the paper on Information
System. It is a common knowledge that city surveys are not updated and many areas
are not even covered by city surveys. This process will have to be quickened.
Land and Real Estate Price Data
The officially registered prices of transaction are known to be notoriously under
priced. For the purposes of stamp duty, the Town Planning Department has prepared
property price zones for each city. However these are not widely known. To encourage
land owners to come up for land assembly and development it may the desirable to
widely publicise such data.
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5.4 REVISION POINTS
1. To know about different Urban Land Policy
5.5 INTEXT QUESTIONS
1. Write the objectives and explain indetaqil about Urban Land Policy.
5.6 SUMMARY
The review of previous approaches to land policy indicates that the heavy reliance
on intervening in the land market by empowering the state to accomplish large scale
compulsory land acquisition, has not been particularly successful. The general
approach to land policy therefore has to be market oriented with a view to manage the
land resources in an efficient and equitable manner. In this regard, allocation of
development rights instead of compulsory acquisition of ownership rights, could be
used as an important instrument of land policy.
The potential of fiscal measures of land policy has been generally overlooked.
Under the pernicious regime of rent control legislation, the property tax neither serves
the resource mobilisation objective nor the other land policy objectives. On the
contrary it distorts land and real estate market and leads to regressive incidence of
taxation. Reforms in the rent control legislation and property taxation are therefore
imperative.
5.7 TERMINAL EXERCISES
1. Land development strategies was proposed in the _______.
5.8 SUPPLEMENTARY MATERIALS
1. www.Urbaneconomics.com
5.9 ASSIGNMENTS
1. Explain about how Urban Land Policy are violated by private persons
5.10 SUGGESTED READING/ REFERENCE BOOKS /SET BOOKS
1. E.M. Mills & B.A. Hausiltor, Land resource economics, Prentice Hall (2007), New
York.
5.11 LEARNING ACTIVITIES
Group discussion (during PCP days)
1. To discuss about DCR
5.12 KEYWORDS
GLD – Acquisition – Obsolete.

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CHAPTER – VI

URBAN INFRASTRUCTURE
6.1 INTRODUCTION
The urban population in India is 285 million (Census 2001) and is likely to be
twice its present level by 2030. Rapid urbanization has increased the demand for
urban services. The Steering Committee on Urban Development for Eleventh Five Year
Plan of India (2007-2012), has estimated that total fund requirement for
implementation of the Plan target in respect to urban water supply, sewerage and
sanitation, drainage and solid waste management is Rs. 12,702 billion4. The 74th
Constitutional Amendment gave urban local bodies (ULBs) the responsibility to provide
these services. The sources of revenue devolved to ULBs are, however, not sufficient
and still depend on higher levels of government. Traditionally, urban infrastructure has
been financed mainly through budgetary allocations. Other financing has come from
financial institutions like Housing and Urban Development Corporation and limited
investments by the ULBs themselves through their internal resources. Financial
resources from all these sources, however, fall far short of the urban sector’s estimated
investment requirements. Since public funds for these services are inadequate, ULBs
have to look for alternative sources for financing their infrastructure costs. Market-
based financing and Public-Private Partnership (PPP) have emerged as a viable
alternative to finance infrastructure investments. This chapter describes the
development of this new market-based urban infrastructure financing system,
emerging PPP options in India and draws certain conclusions.
6.2 OBJECTIVES
 To make understand the urban infrastructure.
6.3 CONTENTS
6.3.1 Market Based Financing System
6.3.2 Credit Rating
6.3.3 Tax Free Municipal Bonds
6.3.4 Pooled Financing
6.3.5 Public-Private partnership options
6.3.6 Linkages with Jewaharlal Nehru National Urban Renewal Mission.
6.3.1 Market-Based Financing System
Since 1994, the Indo-US Financial Institution Reform and Expansion (FIRE-D)
project is working with national, state and local governments in India to develop a
market-based bond market. Several ULBs and utility organizations have issued bonds
that so far have mobilized over Rs.12,249 million through taxable bonds, tax-free
bonds and pooled financing (Table 1).
 62
Table 1: Municipal Bonds in India
S.No. Type of Bond Amount (Rs. in Million)
1. Taxable Bonds 4.450
2. Tax-Free Bonds 6.495
3. Pooled Finance 1.304
TOTAL 12.249
6.3.2 Credit Rating
Rating Agencies Provide Investors With An Independent Third-Party Evaluation Of
The Credit Strength Or Weakness Of A Particular Bond Issue. In The India Context,
Rating Agencies Do Not Rate Cities Or Countries, Rather They Rate The
Creditworthiness Of A Particular Debt Offering, Essentially Addressing The Ability And
Willingness Of A Government Issuer To Pay Its Debts. Ratings Of Local Governments
Establish A Transparent Credit Record, And A Reference Framework For Current And
Future Performance Of Local Finances And Debt Management. In Addition To Providing
An Initial Rating Of A Bond Offering, Agencies Continue To Monitor The Capacity Of
The Issuer To Make Timely Payments Of Principal And Interest Throughout The Term
Of A Bond. This Continued Monitoring Throughout The Life Of A Bond Issue Is
Important To The Effective Operation Of A Secondary Market In Local Bonds. In
Ranking A Local Government's Debt Offering, Rating Agencies Construct A General
Framework For Evaluation That Includes Legal And Administrative Framework,
Economic Base Of Service Area, Municipal Finances, Existing Operations, Management
Capacity, Project Viability, Financial Structuring, Etc. In 1995, The FIRE-D Project
Supported The Credit Rating Information Services Of India Limited (CRISIL) To Develop
A Methodology For Carrying Out Municipal Credit Ratings Based On Careful Study Of
Ulbs In India And International Experience. Ahmedabad Was The First City Where This
Methodology Was Applied In India. In February 1996, Ahmedabad Received A Rating
From CRISIL For A Bond Offering. This Was The First Rating Received By A Municipal
Bond Offering In India. The Municipal Credit Rating System Has Come To Be Regarded
By India’s Private Financial Community As A Solid Indicator Of A City’s Performance
And Competitiveness. In The Last 12 Years, Four Rating Agencies Have Provided
Ratings For Municipal And Municipal Enterprise Bond Offerings. Subsequently, The
Process Of Credit Rating Of Ulbs’ Has Gained Wide Acceptance With More Than Forty
Towns And Cities Seeking Credit Rating From One Of The Accredited Credit Rating
Agencies In The Country.. The Ministry Of Urban Development Launched An Initiative
For The Institutional Credit Rating Of 47 Ulbs By The Security And Exchange Borad Of
India (SEBI) Certified Agencies Namely. The Credit Rating Initiative Is Envisaged To
Contribute Towards Improved Financial Management Of Ulbs And Financing Urban
Infrastructure Projects. Taxable Municipal Bonds
The Government Of India (GOI), Recognizing Infrastructure’s Key Role In The
Process Of Economic Development, Set Up The Expert Group On The
Commercialization Of Infrastructure, Often Known As The Rakesh Mohan Committee,
 63
In 1994. The Committee Recommended Private Sector Participation In Urban
Infrastructure Development And Accessing Capital Markets Through Issuing Municipal
Bonds. The Ahmedabad Municipal Corporation (AMC) Was The First ULB To Access
The Capital Market In January 1998. It Issued Rs.1,000 Million In Bonds To Partially
Finance A Rs.4,390 Million Water Supply And Sewerage Project. This Was A
Remarkable Achievement Since It Was The First6 Municipal Bond Issued In India
Without A State Guarantee And Represented The First Step Toward A Fully Market-
Based System Of Local Government Finance. The AMC Had Previously Instituted
Significant Fiscal And Management Reforms, Including Improved Tax Collection,
Computerization Of Its Accounting System, Strengthening Of AMC’s Workforce And
Financial Management, And Development Of A Comprehensive Capital Improvement
Program. Due To These Measures, AMC Was Able To Turn Around Its Financial
Position From A Cash Deficit Municipal Corporation To Achieve A Closing Cash
Surplus Of Rs.2,140 Million By March 6 The Bangalore Municipal Corporation Was
The First Municipal Corporation To Issue A Municipal Bond Of Rs.125 Crore With A
State Guarantee In 1997. 1999. These Reforms Laid The Necessary Groundwork For
AMC’s Bond Issue And The Successful Implementation Of The Water Supply And
Sewerage Project.
The Indo-US FIRE-D Project’s Partnership With AMC Began In 1994 With The
Preparation Of An Urban Environmental Workbook And An Environmental Risk
Assessment. Information Provided By These Studies Served As The Basis For
Formulating An Ahmedabad Corporate Plan. In This Exercise, The FIRE-D Project
Assisted AMC To Carry Out Financial Analyses And To Prepare An Affordable
Investment Plan. The Plan, Which Was Prepared In Association With IL&FS, Assisted
AMC In The Development Of The Ahmedabad Water Supply And Sewerage Project. In
Addition, The FIRE-D Project Sponsored And Facilitated Participation Of AMC Staff
And Elected Leaders In A Number Of Training Programs And Study Tours To Build
Capacity To Undertake And Sustain Reforms. Since 1994, The FIRE-D Project’s
Multifaceted Assistance Has Played A Vital Role In The Development Of The City’s
Water Supply And Sewerage System And Subsequent Bond Issues.
The Debt Market In India For Municipal Securities Has Grown Considerably Since
The Issuance Of Ahmedabad Bonds. Since 1998, Other Cities That Have Accessed The
Capital Markets Through Municipal Bonds Without State government guarantee
include Nashik, Nagpur, Ludhiana, and Madurai (Table 2).
 64
Table 2: Taxable Municipal Bonds in India
City Amount Place- Gua- Annual Escrow Purpose Rating
(in Rs. ment rantee Interest
Million)
Bangalore 1,250 Pvt. State 13% State Citv A- (SO)
(1997) Govt. Government Road&Street
Grants Drains
and
Propertv Tax
Ahmedabad 1,000 Public No 14% Octroi From WS&S Project AA-(SO)
(1998) & 10 Octroi
Pvt. Collection
Points
Ludhiana 100 Pvt. No 13.5% to Water & WS&S Project LAA-
(1999) 14% Sewerage (SO)
Taxes And
Charges
Nagpur(2001) 500 Pvt. No 13% Property Tax WS Project LAA-
And Water (SO)
Charges
Nashik(1999) 1,000 Pvt. No 14.75% Octroi From WS&S Project AA-
Four (SO)
Collection
Points
Indore (2000) 100 Pvt. State 13.0% Grants Improvement Of Citv A (SO)
Gover Property Tax Roads
nment
Madurai (2001) 300 Pvt. No 12.25% Toll Tax City Road LA+(SO)
Collection Project
Visakliapatiiam 200 Pvt. No 7.75% Property Tax Water Supply AA-(SO)
(2004) Proiect
TOTAL 4,450
In Most Cases, Bond Proceeds Have Been Used To Fund Water And Sewerage
Schemes Or Road Projects. India’s City Governments Have Thus Mobilized About
Rs.4,450 Million From The Domestic Capital Market Through Taxable Municipal
Bonds. It Is Significant To Note That Most Of The Municipal Bonds Issued So Far Have
Been Without A Government Guarantee. The Success Of These Issues Demonstrated
That Local Governments Can Access The Capital Market To Finance The Efficient
Delivery Of Civic Services. The Ability Of Municipalities To Take Advantage Of These
Opportunities, However, Depends On Their Presenting Themselves As Viable Financial
Entities. Ulbs Must Demonstrate Creditworthiness And Obtain An Investment Grade
Credit Rating. This Forces Them To Improve Their Revenue Base By Introducing
Reforms, Including Improved Cost Recovery And Financial Management, As Well As
Better Management Of Service Delivery Systems. Another Prerequisite For Issuing
Municipal Bonds Is Development Of Commercially viable projects, projects that can
recover full costs, including the cost of debt service.
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6.3.3 Tax-Free Municipal Bonds
Table 3: Tax-Free Municipal Bonds in India
City Government Projects Amount of
Tax-free
Municipal
Bond (Rs.
million)
Alimedabad Municipal Corporation Water Supply And Sewerage Project 1,000
(2002)
Hyderabad Municipal Corporation Road Construction And Widening 825
(2003)
Nashik Municipal Corporation (2002) Underground Sewerage Scheme And 500
Stormwater Drainage System
Visakliapatnam Municipal Corporation Water Supply System 500
(2004)
Hyderabad Metropolitan Water Supply Drinking Water Project 500
And Sewerage Board (2003)
Ahmedabad Mimicipal Corporation Water Supply Project, Stormwater Dramage 580
(2004) Project, Road Project, Bridges And Flyovers
Chennai Metropolitan Water Supply & Chennai Water Supply Augmentation Project 420
Sewerase Board (2003)
Chennai Metropolitan Water Supply & Chennai Water Supply Project 500
Sewerage Board (2005)
Chennai Municipal Corporation (2005) Roads 458
Ahmedabad Mimic Lpal Corporation Roads And Water Supply 1,000
(2005)
Xagpur (2007) Xagpur Water Supply And Sewerage Project 212
Total 6,495
The Indian Income Tax Act Provides Tax Preferences For Investments In
Infrastructure Projects. These Provisions, However, Have Not Been Generally Available
For Financing Municipal Infrastructure. To Boost The Municipal Bond Market, The
Government Of India Decided To Provide Tax-Free Status To Municipal Bonds. The Goi
Issued Guidelines For Issue Of Tax-Free Municipal Bonds In February 2001. These
Guidelines Stipulate Eligible Issuers, Use Of Funds, Essential Pre-Conditions,
Maturing Period, Buy-Back, Nature Of Issue And Tax Benefits, Ceiling Amount For A
Project, Compulsory Credit Rating, And External Monitoring Of The Tax-Free Municipal
Bond. Creating Tax Incentives For Municipal Securities Provided A National
Government Subsidy For Ulb Bond Offerings By Substantially Reducing The Interest
Cost Of Financing Local Infrastructure Projects. Tax-Free Status Provided An Incentive
To Local Governments To Improve Their Fiscal Management Sufficient To Meet The
Demands Of The Investment Community. Ahmedabad Was The First Municipal
Corporation In India To Issue Tax-Free Municipal Bonds For Water And Sewerage
Projects. In April 2002, Amc Issued A Tax-Free 10-Year Bond With An Annual Interest
Rate Of 9.00 Percent. The Bond Issue Amount Was Rs.1,000 Million. The Municipal
Corporation Of Hyderabad Also Issued A Tax-Free Municipal Bond In May 2002 For
 66
Rs.825 Million. The Mch Thus Became The Second City To Issue Tax-Free Municipal
Bonds. The Money Raised By Mch Through Municipal Bonds Was Used For Providing
Urban Infrastructure In The City Especially In Slums. The Tenure Of The Bond Was
Seven Years With A Rate Of Interest Of 8.50 Percent. Table 3 Above Presents A List Of
Organizations, Projects And Amounts Of Tax-Free Municipal Bonds Issued To Date.
6.3.4 Pooled Financing
Only Financially Strong, Large Municipal Corporations Are In A Position To
Directly Access Capital Markets. Most Small And Medium Ulbs Are Not Able To Directly
Access Capital Markets On The Strength Of Their Own Balance Sheets. Also, The Cost
Of The Transaction Is Another Barrier. In The United States And Elsewhere, Small
Local Bodies Pool Their Resources And Jointly Access The Capital Market. The Fire-D
Project Developed A Similar Vehicle For India’s Ulbs That Enables Capital Investments
To Be Pooled Under One Borrowing Umbrella. Based On This Model, The Governments
Of Tamil Nadu And Karnataka Issued Municipal Bonds By Pooling Municipalities. In
2003, The Tamil Nadu Urban Development Fund Issued A Bond By Pooling 14
Municipalities For Commercially Viable Water And Sewerage Infrastructure Projects. A
Special Purpose Vehicle, The Water And Sanitation Pooled Fund (Wspf), Was Set Up To
Issue The Municipal Bonds. The Fire-D Project Supported The Efforts Of Wspf To
Structure A Rs.304 Million Bond Issue Whose Proceeds Financed Small Water And
Sanitation Projects In The 14 Small Ulbs. The Trust Vehicle Enabled The Local Bodies
To Participate In The Capital Market Without Increasing The Contingent Liabilities Of
The State And To Channelize Private Financial Resources Into Infrastructure
Investments. This Was The First Municipal Pooled Issue. It Had A Fifteen-Year
Maturity And An Annual Interest Rate Of 9.20 Percent. While The Bonds Were
Unsecured, A Multi-Layered Credit Enhancement Mechanism Was Set Up. The Ulbs
Agreed To Set Apart Monthly Payments Equal To One-Ninth Of Their Annual Payments
Into Escrow Accounts And Transfer The Same During The Tenth Month Into The
Wspf’s Escrow Account. Besides The Strong Escrow Mechanism And Government
Intercept, A Key To The Bond’s Success Was That All The Pooled Projects
Demonstrated Strong Collection Of User Charges And/Or Fixed Upfront Contribution
From Citizens. Usaid Provided A Backup Guarantee Of 50 Percent Of The Bond’s
Principal Through The Development Credit Authority (Dca) Mechanism. The Issue
Demonstrated A Successful Model Of Pooled Financing In India. It Threw Open The
Possibility Of Enabling Smaller And Medium Municipalities To Access Capital Market
Funds At Competitive Rates. Subsequently, The Government Of Karnataka Used The
Concept Of Pooled Financing To Raise Debt From Investors For The Greater Bangalore
Water Supply And Sewerage Project. This Project Covers Eight Municipal Towns
around Bangalore and has a total project cost of Rs.6,000 million. A debt fund called
the Karnataka Water and Sanitation Pooled Fund (KWSPF) was established under the
Indian Trust Act to access the capital market by issuing a bond on behalf of the
participating ULBs. The KWSPF was created as the intermediary between the local
 67
municipalities and the capital market. The KWSPF borrowed from the market and on-
lends to the ULBs at terms determined by the KWSPF. During June 2005, the KWSPF
successfully floated Rs.1,000 million tax-free municipal bonds at an annual interest
rate of 5.95 percent. The tax-free status of the bonds greatly enhanced the terms on
which the ULBs were to repay the loans, which in turn elevated the confidence of the
investors. USAID under its DCA program provided a guarantee of up to 50 percent of
the principal amount of market borrowing. It is felt that the tax-free status of the
bonds and the DCA guarantee lowered the interest rate by about 1.5-2.0 percent per
year compared to similar credit enhancement structures and helped to extend the
bond’s tenure to 15 years. The GBWASP will provide water supply to 1.5 million people
residing in about 300,000 households, including some 60,000 urban poor households
in 250 wards in the eight ULBs, which as of December 2006 have been merged with
the Bangalore Muncipal Corporation.
The success of the pooled finance model as demonstrated in the States of Tamil
Nadu and Karnataka subsequently led GOI to create a central fund that enables capital
investments to be pooled under one state borrowing umbrella. The objective is to
provide a cost-effective and efficient approach for smaller- and medium-sized ULBs and
to reduce the cost of borrowing. MOUD formulated the Pooled Finance Development
Fund (PFDF) Guidelines to help small- and medium-sized ULBs access market funds
for their infrastructure projects and to encourage municipalities undertake fiscal,
financial and institutional reforms required to create efficient and equitable urban
centers. The PFDF Guidelines call for states to create their own pooled financing
entities. The scheme is meant to provide credit enhancement grants to facilitate market
borrowings through a pooled financing mechanism on behalf of identified ULBs for
investment in urban infrastructure projects.
6.3.5 Public-Private Partnership Options
As a response to an insufficient provision of basic urban services and a lack of
access to finance and other resources by ULBs that aim to increase access to these
services, a number of PPP options have emerged. These include: service contracts;
performance-based service contract; joint sector company to implement and finance
the project; a management contract for operations and maintenance (O&M); and
construction cum build-operate-transfer (BOT) contract. It is pertinent to mention
already at the beginning that the Government of India has designed PPP guidelines to
sensitize state governments and urban local bodies to the policy and procedural issues
that need to be addressed so as to reform urban water supply and sewerage issues.
The new PPP guidelines advocate the changed approach and can drive and sustain
comprehensive reform of urban water and sanitation services. This approach will also
strengthen the role of urban organizations to provide the urban services more
effectively and support the decentralization objective of the Government. In this
improved environment, public-private participation models for provisioning of various
services would also become feasible. Features of the PPP options are presented below.
Service Contract: The Chennai Metropolitan Water Supply and Sewerage Board have
 68
made a significant advance in use of service contracts for PPP in O&M of water supply
and sewerage systems in the city. Out of the 119 city sewerage pumping stations 70
have, so far, been given to private contractors for operation and maintenance. The
system is working very well which has resulted in an increase in the contract period
from one to three years. The Board has also given service contracts for O&M of two
sewage treatment plants for a period of three years. Performance-Based Service
Contract: In the Navi Mumbai Municipal Corporation (local body for a planned new city
close to Mumbai), core municipal services are managed by the private sector on a labor
contract basis. Of the forty-two contracts in operation, nineteen performance-based
service (PBS) contracts were prepared for managing the water distribution system and
one PBS contract for the transmission system. The basis for repackaging the contracts
was to increase the efficient operation of the system, and take specific steps to:
maximize the water that is billed; reduce leakages in the system; detect illegal use of
water; and take similar steps to minimize the consumption of power. The scope of work
included: system operations; operations based on schedule of rates; water audit;
energy audit; repairs and maintenance, and advice. The PBS contract envisaged
provision of services for 3 years with annual performance reviews.
Operator Consultant: As part of the World Bank funded Karnataka Urban Water
Supply Improvement Project, demonstration zones have been identified in the three
cities Belgaum, Gulbarga, Hubli-Dharwad and entrusted on a performance based
contract to a Private Operator Consultant for carrying out water supply improvements
in the zones with the prime objective of demonstrating provision of 24/7 water supply.
The scope of the contract is to undertake detailed technical investigations of the
present water supply in the Demo Zones and prepare a detailed investment plan and
undertake the rehabilitation of the distribution zonal assets, provide operations,
maintenance, and customer services at agreed levels of service.
Management Contract: Jamshedpur Utilities and Services Company (JUSCO) a
wholly owned subsidiary of the Tata Steels was formed in 2003 to provide and
maintain urban services in the city. This private company provides very good urban
services including power to its 7 lac population. It has a management contract for O&M
of water supply and sewerage services for Jamshedpur city.
Joint Sector Company: This option is adopted in Tiruppr water supply project.
Tiruppur city in the State of Tamil Nadu had a population of 3,500,000 in 2001. The
city produces more than 75 percent of the country’s knitwear exports. Realizing the
need for an improved water supply to survive in a highly competitive international
market, the Tiruppur Exporters Association supported by the state and local
government decided to involve the private sector in meeting the water demand. As a
result, a public limited company with private sector participation, the New Tiruppur
Area Development Corporation, was formed to implement the project. When
operational, the water project will supply 185 million liters of water per day and serve
nearly 1,000 textile units and residents in Tiruppur and its surrounding areas. The
project was implemented on BOT basis. The Project will recover the total project cost
along with realizing reasonable returns through user charges. The estimated cost of the
project is Rs. 10,500 million.
 69
Construction-cum-BOT Contract: Alandur Sewerage Project had a construction
contract for 120 KM sewage collection system; whereas, the treatment plant of 24 MLD
is with a BOT contract. The total cost of the project is Rs. 340 million. The operator is
expected to make capital investment for the treatment plant and recover it over a
period of 14 years. The local body will recover the costs through a combination of
sewerage tax, sewerage charge, connection charge, general revenues and state
government support.
There are several PPP projects in solid waste management. Vaious ULBs are now
taking help from private sector to develop ater supply projects in PPP mode and some
of these initiatives in Latur, Nagpur, Mysore, Maduari, Mandvi, etc. are now at different
stages of project development and implementation. The initial focus of new investments
on PPP of water supply projects was on provision of bulk supply. However, BOT
projects often did not address problems of existing water supply and sanitation
systems such as high unaccounted for water, high expenditure on energy and low cost
recovery. The focus is slowly shifting to improved management of existing systems. It
may be mentioned here that most of PPP projects in water supply sector are in pilot
stages. Most of them are not citywide, water supply tariff in India are low, base data of
exiting water supply systems are missing and capacity of private operators is also
inadequate. Unless these issues are taken care it will not be possible to undertake PPP
projects in urban water supply and sanitation sector.
6.3.6. Linkages with Jawaharlal Nehru National Urban Renewal Mission
Acknowledging the critical role of cities in the country’s current economic context,
GOI launched in December 2005 a flagship program, called Jawaharlal Nehru National
Urban Renewal Mission (JNNURM). The program aims at providing incentives to cities
to undertake institutional, structural and fiscal reforms at state and local levels to
improve service delivery systems, boost local economic performance and enhance
quality of life. JNNURM has two overarching goals, one relate to provision of urban
infrastructure and second reduction of poverty in cities. Through this program, GOI is
providing investment follow up for cities undertaking comprehensive reform. The
JNNURM will disburse a total of at least Rs.1,000 billion over a seven-year period
(2005-12). Of this, Rs. 500 billion will be contributed by GOI and another Rs. 500
billion will be contributed by states and ULBs. States and ULBs accessing the JNNURM
must complete a total of 22 reforms, some mandatory and some optional, during the
seven-year period (2005-12). The mandatory and optional reforms of states/ULBs
under the JNNURM include decentralization of urban governance and empowering
urban local bodies, introduction of improved accounting systems, improved revenue
base, reform of rent control acts, delivery of services to poor, etc. The JNNURM
encourages ULBs to access market-based financing and PPP for urban infrastructure
projects that are funded by the Mission. The FIRE-D project assisted Nagpur and
Thane Municipal Corporations to prepare financial and resource mobilization plans to
fund their local contributions to projects identified under JNNURM. The Nagpur
Municipal Corporation issued Rs.212 million municipal bond in March 2007 to fund a
WSS project under JNNURM. The Thane Municipal Corporation is expected to access
 70
the market for a Rs.1,000 million bond to fund its local contribution for a sewerage
project under JNNURM. PPP options were have been approved for 22 projects under
JNNURM and most of them are for solid waste management in cities.
6.4 REVISION POINTS
1. To know about Infrastructure facilities
6.5 INTEXT QUESTION
1. Explain Market based Financing system.
6.6 SUMMARY
Great progress has been made in developing the policy and legal framework for
local governments to access the capital market to finance urban infrastructure.
However, to routinely access capital markets or invite private sector, ULBs will have to
have the capacity to develop commercially viable projects. The most critical factor for
obtaining market finance will be a healthy municipal revenue base. A market-based
approach to financing urban infrastructure linked with JNNURM will further
strengthen ULBs and help achieve the decentralization objective of the 74th
Constitutional Amendment. Thus, market-based financing is an important innovation
for urban infrastructure in the country.
As far as PPP options for urban infrastructure are concerned, the entire notion of
developing and implementing projects in a commercial format is a relatively new trend
in India. These project require considerable efforts in evolving project documentation,
developing institutional arrangements for project structures, securing approvals and
clearances from stakeholders, financial structuring, selecting a contractor, operator or
concessionaire and ensuring overall financial closure. A wide range of actors have to be
involved in all these processes, and consistent coordination is necessary. In addition
there is a constant need for the sponsor to pursue project related activities to mitigate
and minimize risks. Both capacity and legitimacy are required to perform these roles.
6.7 TERMINAL EXERCISES
1. The Indian Economics Tax Act provides tax preference investements in _______.
6.8 SUPPLEMENTARY MATERIALS
1. www.infrce.com
6.9 ASSIGNMENTS
1. what is Construction- cum _BOT contract
6.10 SUGGESTED READING/ REFERENCE BOOKS /SET BOOKS
J.V. Henderson, Economic Theory and cities, academic Press [2000], New York.
6.11 LEARNING ACTIVITIES
Group discussion (during PCP days)
1. To discuss about the space requirement for different infrastructure facilities
6.12 KEYWORDS
Credit Rating – Pooled financing – Municipal Bonds.

 71
CHAPTER – VII
ECONOMIC CHARACTERISTICS OF URBAN LAND
7.1 INTRODUCTION
Public and Private Property In Land and Improvements
Property in land and improvements may be held by public authority or by private
individuals; and since many services are supplied, the right to enjoy or control them
may be divided between public authority and one or more private individuals. Thus,
both private and public property may exist in connection with the flow of services from
a single parcel of land and its various improvements. In fact, such a division of
property does exist in every parcel of land and its improvements, for complete control is
never vested in private individuals. Government or public authority always retains
three rights to which all private property is subject.
The first is the right to extinguish private property when the land and
improvements are needed for a public purpose; this right is asserted through the power
of eminent domain. The second is that of placing restrictions on the use of land and
improvements; this right is asserted through the police power, and is expressed in
measures designed to protect the public health, morals, and general welfare. Finally,
the public authority retains the right to levy taxes against private property for the
support of its activities.
Private interests in land and improvements held subject to public rights are
known as estates, and in law are classified according to a number of their attributes:
(1) the quantity or duration of the estate, (2) the quality of the estate, (3) the time of
enjoyment, (4) the number of owners, and (5) incorporeal rights. Some of these
attributes are important only legally, but others are significant for an economic study
of the behavior of real estate markets. The following three sections of this chapter deal
with the kinds of estate (or interest) most commonly involved in real estate
transactions, namely, the freehold in fee, fee sithplè, or fee simple absolute; the
leasehold; and the equitable (or created by a mortgage or deed of trust in the nature of
a mortgage;
Attributes of the Freehold Estate in Fee
The fee embodies the largest quantity of rights and covers the longest term of any
estate. It gives to its holder all the rights that a private person can possess, and its
duration is in perpetuity. Thus the owner in fee may enjoy exclusive use and
occupancy for life, subject to the reserved public rights; he may provide for disposition
of his rights after death; he may, during his lifetime, convey them to others in whole or
in part, in perpetuity or for designated periods of time; he may convey these rights as of
the present or future; he may pledge his rights as security for a debt or for the
performance of an obligation. Within the law, he may do as he pleases with all the
rights to use and occupancy theoretically in perpetuity. Few owners in fee, however,
preserve all their rights intact, even during their lifetime. Most fees are divided into
 72
parts which are bought and sold in the market, or are pledged at one time or another
as security. Once an owner has disposed of part of his rights, or has pledged all or a
portion of them as security, he is restricted by the terms of the agreements he has
entered into. Thus, a fee may become encumbered by its owner so that its economic
characteristics are changed. The rights disposed of, though not of such a nature as to
destroy the fee as contemplated by law and equity, may so restrict the owner's future
actions as to change the nature of the retained rights. It is always necessary, therefore,
to inquire whether a fee is free and clear or encumbered; and if encumbrances exist, to
know their characteristics before completing a transaction affecting the fee.
7.2 OBJECTIVES
 To make understand the Economics characteristics of Urban Land Economics.
7.3 CONTENTS
7.3.1 Characteristics of Lease holds
7.3.2 Characteristics of the services of Land and Improvements
7.3.3 Necessity for continuous Expenditures
7.3.4 Variability of Demand for services
7.3.5 Characteristics of services and Nature of the real Estate market
7.3.1 Characteristics of Leaseholds
A leasehold estate is created when an owner of an estate conveys rights to
another, reserving for himself two rights: (1) the right to receive rent for the term of the
agreement and (2) the right of reversion, that is, to regain the rights he has
relinquished. In turn, the owner of a leasehold estate may also dispose of his rights in
to or in part. He may create new leasehold estates within the framework of his own,
pledge his rights as security, or hold them intact for the term of his estate.
Each owner or group of owners of an estate, whether freehold or leasehold, holds
it to the exclusion of all others. However, use and occupancy of particular space (the
visible evidence of ownership) can be enjoyed exclusively only by the owner or owners
of one of the various existing interests, whose rights may be from those of the fee owner
and even from those of other intervening owners.
Fees and Leaseholds as Security
The fee or leasehold estate is pledged as security for the payment of a debt or the
performance of an obligation by the execution and delivery by the owner of an
instrument known as a mortgage, or a deed of trust in the nature of a mortgage. The
character of this instrument, and the way it is used in financing real estate
transactions, will be examined in detail. Here, it is sufficient to say that the interest it
carves out of the owner's estate is of a different character from those previously
commented on. Ordinarily it pledges all the rights of the owner and therefore restricts
his, future actions, but it does not commonly deprive him of the enjoyment of the
rights of use and possession until after default. Rather, it conveys a contingent right
 73
which all other transactions must take into account for the rights it pledges may, 'until
the obligation is discharged, be forfeited, and with their forfeiture all the rights
conveyed by the owner subsequent to the pledge are annulled.
Determination of Ownership of Interests
It frequently becomes difficult to determine precisely the character and priority of
interests or estates. This determination is made by examining all the evidence
available, both written and oral, bearing upon issues that may arise between the
owners or claimants of different estates. Through centuries of adjudicating cases, and
by the adoption of constitutions and enactment of legislation, the law of real property
and that of landlord and tenant have been developed. They exist as a means of
identifying and protecting these varied and sometimes widely distributed interests, and
have become one of the major branches of law. Their wide scope and complexity
account for much of the cumbersomeness surrounding the transfer of real estate
interests.
7.3.2 Characteristics of The Services of Land and Improvements
Transactions in the real estate market include the sale, purchase, exchange, and
pledge of a wide variety of rights. Their characteristics or attributes differ widely. Some
are of short duration; some are in perpetuity. Some represent immediate as well as
long-deferred benefits; others represent only one or the other. Some are held by a
single owner; others are widely held. Some confer upon their owners a wide range of
action; others bring only limited privileges. In every case the rights represent interests
in the control of a stream of services rendered by land and improvements, the
characteristics of which are determined by the land's location and the improvements
placed in and upon it. We shall discuss first the characteristics common to all
locations and types of improvements and then those peculiar to each of the several
types.
Joint Nature of Services
First, the services rendered are the joint product of land and improvements.
Unimproved urban land can serve only limited uses, improvements being essential for
use by any large number of persons. Once improvements are installed, however, the
services are a joint product of land and improvements; the two unite to form a
compound, not a mixture.
Persistence of the Flow of Services
Durability is an outstanding characteristic of improvements, no way having been
devised for constructing improvements so that they will last for a predetermined length
of time and then disintegrate or collapse. The combination of land and improvements
may end by destruction or demolition (sometimes by conversion), but this rarely
occurs, except after a great many years. Thus, for a long time, the kind of services
rendered is predetermined by the improvements, and cannot be substantially changed.
The necessity for enduring qualities in improvements partially accounts for the fact
 74
that their installation or construction is usually costly, often requiring a large capital
investment to be made over a considerable period of time prior to the appearance of the
product. Once the investment has been made, the future character of the product is
essentially fixed.
7.3.3 Necessity for Continuous Expenditures
As with other capital goods, the original funds invested in improvements must be
supplemented by continuous expenditures in order to release and maintain the flow of
services. Failure to provide funds for operating costs can result only in rapid
deterioration of improvements, loss of private rights through nonpayment of taxes, or
deterioration of services. When these funds are provided, however, the stream of
services (or, alternatively, a new stream to be provided by the construction of new
improvements) can be expected to continue for many years.
Perishability and Localization of Services
Not withstanding the permanence of land and improvements, the services they
provide (such as shelter, privacy, and so forth) are perishable as are all services. From
the time capital is invested for improvements, it is essential that services be utilized as
fully as possible.
Otherwise, a portion of the stream of potential services is permanently lost.
Another characteristic of these services is that they can be utilized only where
produced. This has an important effect on the market because, unlike most economic
goods which can be moved according to market conditions, they are localized and the
market must come to them.
Influences Affecting Quality of Services
Although the stream of services provided by land and improvements is
continuous, the quality of those services may not be uniform in time. Their quality
depends upon the degree to which they meet the requirements and preferences of
users. It is affected, therefore, by the attributes of the land and improvements and by
users' preferences and choices. The former are largely fixed when improvements are
constructed; the latter are in constant flux. Good design, adaptation of structure to
land, and flexibility in use are some of the attributes of improvements which enable
them to render a high quality of service, while the opposite condemn them indefinitely
to inferior service. Management policy also affects the quality of services. The above
factors affecting the quality of services are controllable, but other influences are
controllable only by an authority extending over a wide area, inasmuch as they are
extraneous to a particular parcel of land and improvements. Typical of the latter are
the uses to which adjoining or near-by are put, influences which can be controlled only
by the exercise of zoning rights.
Changes in users' preferences also affect the quality of services; but, because of
the durability of improvements, these effects are uncontrollable by the owner or
manager of the individual parcel. In the time that an improvement stands, changes in
taste and preferences may become so pronounced that what was once the finest in
 75
design, equipment, and location is rendered quite obsolete. Finally, new methods of
transit may effect a different pattern of convenience or accessibility and profoundly
change the quality of services which a particular parcel can render.
Incommensurability of Services
No method has been devised by which either the quantity or quality of services
provided by different parcels of land and improvements can be compared. Parcels
cannot be graded, standardized, or interchanged; consequently, they are ordinarily
purchased after personal inspection, although this procedure is unsystematic and
precludes delicate distinctions in the market.
Inflexibility of Supply of Services
Since the kind of service to be rendered is determined by the character of the
improvements, there can be relatively little modification of their potential volume
without extensive construction or conversion. Conversion, however, usually involves
large capital outlays. The alternative of building new improvements, on the other hand,
frequently involves demolition which temporarily reduces the supply of services
available. Similarly, diminution of the volume of potential services can be realized only
by demolition or closing of improvements. Strong forces, however, such as overhead or
operating charges, tend to hinder these decisions since these charges are not
proportionately reduced by partial closing of improvements and are not stopped even
by total abandonment. In other words, although there can be some adjustment in
services of various qualities, an important increase or decrease in the supply of
services rendered by land and improvements occurs only over long periods.
7.3.4 Variability of Demand for Services
On the other hand, effective demand for these services fluctuates considerably in
both short and long periods. In periods of expansion, established business concerns
expand and new concerns are organized, both requiring more land and improvements.
Also, with an increase in income, qualitative and quantitative changes occur in the
demand for housing facilities. New households are created, both by marriage and by
the "spreading out" of persons who have been living in limited quarters, and housing
standards rise, with demand shifting toward better living accommodations. In some
respects, the reverse occurs during periods of contraction as business demand for the
services of land and improvements shrinks and the demand for housing facilities
lowers both in magnitude and in quality ranges.
Long-run changes in demand occur in both the quality and quantity of services.
Quantitative changes result from changes in population, especially in the number of
households, shifts in age distribution, changes in geographical location of population
and economic activities, changes in industrial output, and changes in the volume and
distribution of national income.
Qualitative changes, on the other hand, come largely from technological progress
and rising standards of living. As a result of advances in public health and in
transportation, urban real estate is now expected to provide services of a quality wholly
unanticipated even two generations ago Many of the attributes of these services, such
 76
as facilities for automobiles and common untainted water supply and sewage disposal
service, have come to be provided by public authority, largely from taxes on private
rights in land and improvements. Others, such as elevator service, electricity, air
conditioning, telephones, and other communication facilities, and greater convenience
and comfort in arrangement and attractiveness in design, are provided as a matter of
course by private owners. The effect of these qualitative changes is to quicken
obsolescence and to create dissatisfaction with services long before the physical life of
improvements has expired.
7.3.5 Characteristics of Services and Nature of the Real Estate Market
Since the services of land and improvements can be used only where they are
produced, they must be disposed of in a restricted, localized market, difficult to
anticipate because of the small area covered. Affected by every significant change in the
economy, particularly by changes in expectations, the market for each kind and quality
of service, as will be seen in the following chapters, may behave quite differently.
Consequently, the real estate market cannot be analyzed as a single market, but only
as a series of localized, fragmentized, and particularized markets for a wide variety of
rights to assorted services flowing from numerous unique sources, and only roughly
comparable one with the other.
7.4 REVISION POINTS
1. To know about Economic characteristic of Urban Land
7.5 INTEXT QUESTION
Explain characteristics of a) Lease holds
b) the services of Land and Improvement.
7.6 SUMMARY
This chapter explained about different characteristics of Leaseholds, The services
of Land and Improvement, Influences affecting Quality of Service.
7.7 TERMINAL EXERCISES
1. Property in Land and improvements may be led by
7.8 SUPPLEMENTARY MATERIALS
1. www.Urbaneconomics.com
7.9 ASSIGNMENTS
1. What is service of land and Improvements
7.10 SUGGESTED READING/ REFERENCE BOOKS /SET BOOKS
Richard U. Ratchiff, Urban Land Economics, Mc graw Hill Publishing company
Pvt. Ltd, (2009), Singapore.
7.11 LEARNING ACTIVITIES
Group discussion (during PCP days)
1. To discuss about the necessity of continous expenditure
7.12 KEYWORDS
Leaseholds – security – Ownership

 77
CHAPTER – VIII
THE MARKET FOR RESIDENTIAL LEASEHOLDS
8.1 INTRODUCTION
Characteristics of the Residential Leasehold Estate
The outstanding characteristics of the residential leasehold estate are its short
term, usually one year or less, the fact that the purchaser of the residential leasehold
estate is ordinarily the direct user of the services which use and occupancy provide,
and the fact that these services can be consumed only at the specified location. The
short term of the leasehold and the fact that rental payments are made at intervals
during the period of the lease agreement mean that in this market there is not likely to
be a financing problem. From the financial viewpoint, the chief importance of the
leasehold estate is its effect on the financing of other types of transactions, mainly the
sales of homes in fee. The nature of the service conveyed means that the market, like
the market for homes In fee, consists of numerous localized markets which, while they
may Overlap, are never identical. Since most residential leases, though written, are not
recorded, the amount of information available about this market is greatly restricted.
There are neither comprehensive data on the number of leasehold estates bought and
sold nor on the prices and other terms characteristic of completed transactions.
Furthermore, in most communities there are no counts of vacancies, except at census
dates; no centralized facilities for listing vacancies or offers to lease, except during war
emergencies; and no compilations of rents offered, asked, and agreed upon. The
individual tenant or landlord, lacking comprehensive and reliable information, falls
back on newspaper advertising, brokers' listings, and personal contacts. The
imperfection of the market is heightened by the fact that the services conveyed by
different leaseholds cannot be directly and accurately compared. As in the case of the
purchaser of single-family homes in fee, the prospective purchaser or seller must make
rough comparisons of dissimilar, and not always discernible, things. A renter can only
estimate the inconvenience of living another quarter of a mile from public
transportation or from a school; he has to rely largely upon rumor or casual inquiry in
judging the landlord's consideration for the tenant; he can never know very much
about the kind of neighbors his landlord may select for him.
Likewise, the landlord cannot accurately compare his offering with his
competitor's, and he can only guess at the significance prospective renters will ascribe
to his competitive advantages or disadvantages. As a result of these market
imperfections, the process by which rents are arrived at is based upon general
impressions rather than on specific and detailed information. The short lease term
tends to make actual, if not nominal, residential rents more sensitive to changing
market conditions than the prices of single-family homes in fee, but compared with
some other prices they are very insensitive. Inasmuch as rent is determined in advance
for the term of the lease, however, pricing is not continuous, and the rental, nominal or
actual, for the leasehold in question does not respond to changes in market conditions
that occur during its term. This relative insensitivity is strengthened by the practice,
 78
prevalent in most urban communities, of having the major portion of residential leases
expire on the first day of September or October, or on the first day of April or May.
During the last thirty or sixty days of their term, leases commonly permit the landlord
to show the premises to prospective tenants, with the result that the pricing and
marketing of residential leaseholds tends to be concentrated in the few weeks
preceding "moving day"; significant changes are not likely to be made except during
this period. Modifications in rents actually paid are more likely to appear during these
intervals in the form of concessions than in adjustments of nominal rental schedules.
8.2 OBJECTIVES
To make understand the market for Residential Lease holds.
8.3 CONTENTS
8.3.1 Reaction to Rising Incomes
8.3.2 Characteristics of a Seller’s Market
8.3.3 The Market in Transition
8.3.4 Characteristics of a buyer’s market
8.3.1 Reaction to Rising Incomes
A rising standard of living, generally coincident with higher incomes, is reflected in
the housing market by the occupancy of more space, by the enjoyment of better
housing accommodations, and by the movement of some families to more attractive
neighborhoods. These conditions, supplemented by a rapid rate of increase in the
formation of new families, quickly expand the aggregate demand for housing. Some of
this demand finds expression in the acquisition of a home in fee by those who have
been renting; a large portion expresses itself in the rental of larger or better dwelling
units, or in the rental of separate units by new families. To the extent that the increase
in housing demand is not accompanied by an increase in the number of dwelling units,
vacancies are reduced, and vacancy lists are transformed into waiting lists as landlords
receive an increasing number of inquiries for space. During this period, many single-
family homes move from a rented to an owner-occupied status, some being purchased
by former tenants and others by newly-formed or established families. Many owners
withdraw their houses from the rental market by refusing to renew leases, or they
insert a cancellation clause in the renewal contract which enables them to give prompt
possession to a purchaser. In most communities, and especially in smaller cities, only
a small proportion of all dwellings are in structures with more than one dwelling unit,
and there are seldom a sufficient number of single-family dwellings for rent to give
prospective tenants a wide choice in location and quality. Consequently, only a few
withdrawals of dwellings from the rental market may bring about a situation in which
the tenure of rented single-family houses is uncertain. Home ownership increases
under these conditions as tenants must purchase a home in fee in order to protect
their tenure or to secure suitable dwellings. Many families dispossessed from single-
family homes probably choose a dwelling in two-, three-, or a four-family structure that
 79
provides the most nearly similar accommodations, and the vacancies in these
structures are more rapidly filled than those in the larger buildings. In the early stages
of expansion of the rental market, increases in rents are modest and hesitant. The
owner of a small structure wants to secure one or two tenants rather than to ask, and
fail to receive, a higher rental. Landlords and managing agents dealing with a larger
number of units are gratified with the higher gross revenue that comes with declining
vacancies, and for a time do not want to run the risk of asking for substantial rent
increases and failing to get them. As waiting lists grow, this timidity disappears and
rents rise more rapidly. They eventually reach a point where it appears "cheaper to own
than to rent," and a considerable volume of single-family home building is induced. If
high incomes continue, however, new construction is unlikely to provide dwellings for
all who want them and are able and willing to pay the prevailing prices. Eventually
vacancies for rent virtually disappear, and a housing shortage or a seller's market
develops.
8.3.2 Characteristics of a Seller's Market
In a seller's market, the landlord is in a strong bargaining, position with respect to
both his present and prospective tenants. Any change by the present tenant is
accompanied by the inconvenience of "moving day," and alternative accommodations,
plus the cost of moving, are likely to prove as expensive over a short-term lease as
renewal at a higher rent. He is likely, therefore, to accept a considerable rent increase
rather than change dwellings. The prospective tenant likewise has little choice. The
lack of a central listing of offerings makes it difficult to compare available space and
terms, and the task of finding suitable dwelling increases his readiness to pay a rent
increase. This willingness to accept higher rentals is strengthened, in both cases, by
the fact that decisions are made under the pressure of an approaching moving day.
Construction of dwellings for rent increases rapidly as the evidence that rents will
continue to rise becomes more convincing. The increase seems likely to appear first in
the smaller types of structure— two-, three-, and four-family buildings—the major
portion of which are constructed by operative or speculative builders and sold to
owner-occupants. Sales appeal usually emphasizes the economy of ownership by
showing that a large portion of the carrying charges can be met by the rental income. A
relatively small commitment of capital is involved and, in a rising market, the builder's
investment is for a short period only.
8.3.3 The Market in Transition
With new units being fed in at the top of the market, it becomes more and more
difficult to fill them; the time necessary to acquire a satisfactory level of occupancy
increases, and heavy vacancies may be sustained in structures not completed in time
to compete for occupancy prior to moving day. In order to meet this situation,
concessions— most commonly in the form of one or two months' free occupancy—are
made to obtain high occupancy and to maintain the appearance of a rent schedule well
above that prevailing in the area. As provision is made in new structures for more and
 80
more tenant families, especially under the lure of concessions, landlords of older
structures face the alternative of losing tenants or making their own offering more
attractive through repairs, modernization and improvements, and by a reduction in
rent schedules. The first alternative is often chosen as an inducement to tenants to
renew leases, or to execute new ones at the same rent. Such inducements multiply
rapidly as vacancies increase, but when they prove inadequate, rents are reduced by
concessions.
As indicated, the use of concessions is partly to obtain a bargaining advantage
and partly to give the appearance of high earnings to prospective purchasers of the fee,
but it is in some measure a reflection of the landlord's opinion that the situation is
temporary and that soon concessions can be abandoned. The result is that the rental
schedule survives essentially unimpaired until the approach of another moving day. If
incomes do rise or remain stable, the landlord may be able to reduce concessions or
abandon them altogether; if not, he may have to increase concessions further or openly
to reduce rents. In any event, the action has to be taken well in advance of moving day.
The tenant, too, is obliged to make a hasty decision. The possibility of obtaining
increased concessions or a lower rent if he delays signing a new lease until after
moving day must be weighed against the chance that after his lease expires it may be
automatically renewed on identical terms for another equal period, or that he may gain
nothing and be obliged either to move, or to accept the landlord's terms. Significantly,
it requires an offer sufficiently lower than the landlord's to enable him to write off the
cost of moving during the lease's term, or equal advantages to induce him to move.
8.3.4 Characteristics of a "buyer's market"
As an increasing number of families shift from a rental to an ownership status,
competition among landlords, increasing in intensity as moving day approaches, leads
to concessions and reductions in rental schedules. In the disorganized market process
that develops, tenants are able to make favorable leases if they take full advantage of
their position. When vacancies appear at high and sustained levels of income, rent
reductions may increase occupancy. but not during a period of declining income. Thus,
the decline in rents between 1925 and 1929 tended to increase occupancy, although
perhaps not by as much as was necessary to absorb the increase in dwelling units
produced during that period, whereas after 1929 further rent reductions were
unimportant as a stimulant to higher occupancy. Accordingly, competition among
landlords becomes very keen in a period of falling income. The ability of the individual
landlord to reduce rents is mainly determined by the level of his operating costs and
fixed charges, which vary substantially from one owner to another. Operating costs and
taxes, which do not vary proportionately with occupancy, are not likely to differ greatly
from one structure to another, but owing to differences in the amount and terms of
debt carried by different structures, the debt service may become a crucial element in
determining differences in competitive strength. Owners of small structures are
frequently able to shift certain operating costs to the tenant, or to absorb them through
 81
self-operation, and where their structures are debt free, or carry very low debt charges,
they can offer rentals that many competing landlords cannot meet. The competitive
pressure on the owners of small structures is particularly strong since the vacancy of
one unit results in a relatively large percentage reduction in total property income.
Owners of large structures, on the other hand, are more likely to carry heavy debt
service charges and, if they are unable to meet competition by cutting operating costs
and deferring maintenance, their only course, after unpaid taxes and interest have
accumulated, is to accept foreclosure or to give a voluntary deed to the creditor in lieu
of foreclosure.
The mortgagee, frequently a financial institution, may pay accumulated taxes out
of reserves, and set rentals at a level sufficient to cover only operating costs and
current taxes. Since both of these charges do not vary proportionately with occupancy,
it would seem likely, when there are vacancies, that some units would be offered at
rents too low to cover all costs. The landlord's fear, however, that a knowledge of this
preferential treatment will spread to other tenants and that on the next moving day it
will be necessary to reduce all rents tends to discourage the adoption of this pricing
policy. The landlord may prefer to continue vacancies rather than to achieve full
occupancy at the cost of a drastic over-all reduction in rent schedules. While the lowest
level to which rents can fall is set by operating costs plus taxes, this level is not likely
to be reached until after a few years of declining income, a sustained high level of
vacancies, and widespread mortgage defaults.
Throughout a period of declining rents it becomes more and more apparent that it
is "cheaper to rent than to own." Being committed only for the short term of a
residential lease, the tenant can take advantage of rent decreases, whereas the owner
is usually committed to relatively inflexible fixed charges. As rents decline, fixed
charges compare less and less favorably with current rents; many single- family
homeowners find themselves unable to meet their fixed charges with the result that,
together with owners of heavily debt-burdened rental structures, they face foreclosure
or the execution of a deed in lieu of same.
Rents of single-family homes acquired through foreclosure can fall to a lower level
than rents of apartments in large structures, even though both are usually offered
unfurnished; the former may frequently rent on terms that require the tenant to pay all
costs of operation except repairs, maintenance, and taxes. This fact, in addition to the
widespread preference for single-family homes, especially by families with children,
may account for the relatively low vacancy rate characteristic of these homes during a
buyer's market. With few exceptions, single-family homes showed the lowest vacancy
ratio of any type of structure in vacancy surveys, and in the few time series on
vacancies that are available.
 82
8.4 REVISION POINTS
1. To revise about market condition for residential lease holds
8.5 INTEXT QUESTIONS
1. Explain the characteristics of the Residential Leasehold Estate.
8.6 SUMMARY
1. This chapter expalined about characteristics of Seller’s and buyer’s Market.
8.7 TERMINAL EXERCISES:
1. The out standing characteristics of residential lease holds are usually for _______.
8.8 SUPPLEMENTARY MATERIALS
1. www.Urbaneconomics.com
8.9 ASSIGNMENTS
1. To know about buyers and sellers market
8.10 SUGGESTED READING/ REFERENCE BOOKS /SET BOOKS
1. E.M.Mills & B.A., Hausiltor, Land resource Economics, Prentice Hall [2007], New
York.
8.11 LEARNING ACTIVITIES
Group discussion (during PCP days)
1. To discuss about Rising Income
8.12 KEYWORDS
Reaction – Rising Income – Transition.


 83
CHAPTER – IX
UNCONTROLLED URBAN SETTLEMENTS
9.1 INTRODUCTION
The urbanization of Delhi
Delhi’s urban population grew from 1.4 million in 1951 to 12.8 million in 2001
(Table 1). Notably, net in-migration contributed slightly more to its population growth
than its natural growth did, as shown in Figure 1 (Delhi 2009). Delhi has also
experienced urbanization in the form of urban sprawl, with the core area experiencing
less population growth than the periphery, both between 1981 and 1991 and between
1991 and 2001 (Dupont, Tarlo et al. 2000; Sivaramakrishnan, Kundu et al. 2005). The
core area’s population grew at the rate of 3.59 per cent from 1981 to 1991, while the
periphery grew at a rate of 3.8 per cent. The core and periphery areas grew at the rate
of 3.09 and 4.08 per cent respectively between 1991 and 2001. In short, the trend in
population growth shows that Delhi was a growing city (Kumar 2006).
Table 1 Growth of Delhi’s population, 1951-2001
Total Total urban Percentage of urban Decennial urban Annual urban
years
population population population growth growth rate
1951 1,744,072 1,437,134 82.4
1961 2,658,612 2,359,408 88.75 64.17 5.08
1971 4,065,698 3,647,023 89.70 54.57 4.45
1981 6,220,406 5,768,200 92.73 58.16 4.69
1991 9,420,644 8,471,625 89.93 46.87 3.92
2001 13,782,976 12,819,761 93.01 51.33 4.23
Source Census of India 2001-15

Figure 1 Estimates of annual population growth in Delhi, 1993 – 2007

(Data source: Economic Survey of Delhi – 2008 - 2009)

 84
Since 1951, Delhi has expanded from 201 sq km to 792 sq km. This has been due
to numerous events, with major expansions taking place during Delhi’s
reestablishment as the capital of British India and in the aftermath of partition in
1947. The enactment of the Delhi Development Authority (DDA) Act of 1957 and
subsequent planning intervention caused the city to expand to 326.55 sq km in 1961,
which amounted to a decennial growth rate of approx. 62 per cent at the time. In the
1990s, it grew to 624.28 sq km and is presently spread over 792 sq km (about 53.41
per cent of the area is now urbanized). It is estimated that the entire area under the
National Capital Territory of Delhi (NCTD) will be urbanized by 2021 (India 2007).
Typology of settlements
The settlements are differentiated on the basis of tenure security, dwelling
conditions, infrastructure status and the degree of planning intervention. There are
various studies which explicitly categorize the typology of settlements (Kundu 2004;
Dutta, Chander et al. 2005). The National Capital Territory of Delhi (NCTD) is
controlled by three governing agencies: the Municipal Corporation of Delhi (MCD), the
New Delhi Municipal Corporation (NDMC) and the Delhi Cantonment Board (DCB), as
shown in Figure 2. The MCD is one of the world’s largest municipal corporations. Its
settlement pattern is broadly divided between planned and unplanned settlements. The
unplanned settlements, which are the main domain of this paper, consist of seven
different types with three subgroups, as shown in Figure 2.
Figure 2 Types of settlements in Delhi

The subgroups are based on the process by which the settlements have evolved:
(a) the unauthorized colonies and regularized unauthorized colonies, which are in the
same subgroup because they share the same evolutionary pattern, (b) the urban
villages and rural villages, urban villages basically being a “reincarnation” of the rural
 85
village, and (c) JJ clusters, notified slum areas and JJ resettlement colonies. JJ
clusters are either slum areas or places in which people from elsewhere have been
resettled, hence the name “JJ resettlement colonies”. These three subcategories have
similarities based on their evolution as well as other characteristics such as their
environment and building conditions. However, they also possess certain
dissimilarities as regards tenure security and planning intervention. A representative
settlement from each category was therefore selected for the case study.
9.2 OBJECTIVES
 To understand the uncontrolled Urban settlements.
9.3 CONTENTS
9.3.1 Planned Settlements
9.3.2 Regularized unauthorized colonies
9.3.3 Resettlement colonies
9.3.4 Causes of uncontrolled Urban Settlements
9.3.5 Low Supply
9.3.6 Low Income
9.3.7 A Comparative study of Three selected settlements
9.3.1 Planned Settlements
These settlements are the outcome of planning, either by the DDA or private
agencies. Although the planned development of the city was started in the early 1960s,
only 24 per cent of the population actually lives in such planned settlements today.
These planned developments may be divided into public and private areas.
Uncontrolled Settlements
As discussed above, there are broadly three categories of uncontrolled settlements
and a total of seven types of settlements. Each one will be discussed here.
Unauthorized Colonies
These settlements developed on agricultural land by illegal means, viz. land
assembling, division and disposal. They neither possess planning permission nor
building permission, hence the dwellings are below standard and rarely have any
adequate physical or social infrastructure. These settlements have a lesser degree of
tenure security and minimal urban amenities. In 1993, there were 1,071 unauthorized
colonies which are still in the process of regularization. It is estimated that about 0.74
million people that is approx. 5.7 per cent of Delhi’s inhabitants live in this kind of
settlement (Government of the National Capital Territory of Delhi 2009).
9.3.2 Regularized Unauthorized Colonies
This kind of settlement is basically a more advanced version of an unauthorized
colony. Its characteristics are similar to those of unauthorized colonies, but they also
include the right to tenure, as regularized by the government. These settlements also
 86
have a better infrastructure than an unauthorized colony. The Government regularized
567 colonies in 1977, and at present, a total of 1.76 million people live in this type of
settlement, i.e., 12.7 per cent of Delhi’s total population.
Urban Villages
These settlements existed as rural villages prior to any planning intervention.
After rapid urbanization, they fell into urban areas, so they were renamed “urban
villages”. These settlements have a higher degree of tenure security, but few urban
amenities. When Delhi had its first master plan (1962), about 20 villages located within
the urban area were declared to be urban villages, a figure which has now grown to
135. A scheme to improve civic services was started by the Delhi Development
Authority (DDA) in 1979/80 and then transferred to the Municipal Corporation of Delhi
in 1987/88. The urban villages are home to around 0.88 million people, i.e., approx.
6.4 per cent of the city’s total population.
Rural Villages
About five per cent of the population lives in rural villages. It is estimated that all
these settlements will be urbanized by 2021. The characteristics of rural villages are
similar to other part of rural India in terms of spatial structure and socio-economic
characteristics of households.
Jhuggi Jhopdi Clusters
These clusters of settlements mostly arose by encroaching on public or private
land. The condition of the dwellings is extremely poor and rarely do any urban
amenities exist. The inhabitants of these settlements fear eviction and have an
extremely low income, so investments to improve their living situation are rarely made.
A survey conducted by the Government of Delhi in 1990 estimated that around
260,000 households were located in 929 JJ clusters (Government of the National
Capital Territory of Delhi 2000). These type of settlements currently house 600,000
households in 1,071 JJ clusters, which is about 2.07 million people, or 14.8 per cent of
Delhi’s population.
Notified Slum Areas
These settlements are an improved version of JJ clusters. The improvements took
place in the form of tenure security and some urban amenities, but the residents still
live in very poor conditions. At present, 2.66 million people live in such slums, which
accounts for 19.4 per cent of the entire population of Delhi.
9.3.3 Resettlement Colonies
The resettlements took place in the 1970s by relocating squatters and slum
households from the heart of the city to its periphery in order to improve their living
conditions. The resettlements were mostly undertaken on the periphery and hardly
involved any integrated mechanism of economic and social habilitation (Schenk 2004).
Around 180,000 JJ cluster households were resettled by the DDA between 1975 and
1977 and 26 new JJ resettlement colonies were set up. Between 1979 and 1980, 44 JJ
 87
resettlement colonies were provided along with improved basic civic amenities. Between
1988 and 1991, the DDA transferred these settlements to the MCD. Presently, all 44
JJ resettlement colonies have a piped water supply and sewerage system. The total
estimated population is 1.7 million, i.e., about 12.7 per cent of Delhi’s population. The
characteristics of these settlements are further elaborated by Figure 3 based on tenure
security, dwelling conditions, infrastructure status and planning interventions. This
figure presents a tentative level of various urban characteristics based on published
documents and is not grounded on any empirical study. It shows the variation in
urban characteristics, with the lowest being in JJ clusters and the highest in planned
settlements. Each settlement possesses unique characteristics, which calls for
individual studies to be made to get a clearer overall picture, otherwise we may be
misled. This particular study explores an unauthorized colony, an urban village and a
slum settlement.
9.3.4 Causes of Uncontrolled Urban Settlements
The high number of uncontrolled settlements in Delhi is a result of the increased
gap between the demand for and supply of land, housing and allied infrastructure. On
one hand, Delhi’s explosive population growth and rapid urbanization have accelerated
demand, while on the other, the public monopoly on the supply of urban land has
reduced the supply of serviced land. In addition to this, low income among the
inhabitants has made urban resources unaffordable for the urban poor and caused
urban settlements to proliferate uncontrollably. Numerous studies in addition to our
own have revealed this settlement trend, which has taken place despite the
government’s good intentions (see Pugh 1991; Srirangan 2000; Sivam 2003; Kumar
2008). Some important causes of this proliferation are discussed below.
Figure 3 Vital characteristics of settlements in Delhi High demand for land

High demand for land

Explosive population growth and rapid urbanization – Delhi has experienced
exceptionally high population growth and spatial expansion as discussed earlier. UN-
 88
Habitat’s latest study shows that the average annual growth rate in large cities in
developing countries was 1.8 per cent in the 1990s (with the exception of a few Chinese
cities like Beijing and Shanghai), while Delhi’s was 4.23 per cent for the same period
(UN-Habitat 2008). This exponential growth has had a severe impact on the city’s
social and physical infrastructure besides leading to an acute shortage of housing
(Singh 1991; Ali 2003).
Low supply
Land-Tenure Security
There are two reasons for the low supply of land in Delhi: the public monopoly on
land coupled with mismanagement (Pugh 1991; Sivam 2003), plus issues associated
with tenure security (Kundu 2004). In the absence of tenure security, people are afraid
to invest in their housing and allied services, which means and the denial of credit and
services to disadvantaged groups as well as in psychological problems among dwellers.
Appropriate land-tenure mechanisms are cited as being a prerequisite for efficiency
and equity in the land market, otherwise they will result in corruption and a loss in
public revenue (Sivam and Karuppannan 2002). The settlements in Delhi are listed
here in order of their degrees of security, starting with the highest and ending in the
lowest: planned settlements, resettlement sites, designated slum areas, urban villages,
rural villages, regularized unauthorized colonies, unauthorized colonies and JJ
clusters (Kundu 2004).
Political, Managerial and Institutional Failure
The proliferation of uncontrolled urban settlements has also been caused by
inadequate political, managerial and institutional leadership collectively and even by
exploitation by the custodian of the institutions concerned. A number of studies have
pointed out how chaos has occurred in uncontrolled settlements for reasons of political
gain, either due to vote bank politics or on other grounds such as a case of
resettlement during the emergency period from 1975 to 1977 (Dupont, Tarlo et al.
2000). A study by Cedric Pugh also demonstrates how managerial and institutional
failure on the part of the apex agency, the DDA, led to the proliferation of uncontrolled
urban settlements (Pugh 1991).
Implementations Deficit
Since India’s independence in 1947, its governments have anticipated for
inclusive planning. For instance, MPD 2021 has clearly led policies and projects for
low-income settlements. A policy document entitled “National Urban Housing and
Habitat Policy 2007” has also instrumented policy for inclusive growth by allocating
urban resources – mainly land and housing infrastructure – to economically and
socially marginalized sections of societies. But paradoxically, these noble policies could
not materialize fully at ground level, hence they failed to address issues in spite of the
good intentions underlying them. We have termed this an “implementation deficit”. The
implementation deficit should be minimized for inclusive and sustainable development.
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In contrary to this, high implementation deficit means programs and policies are not
transferred on ground, hence low probability for intended output.
9.7 Low Income
The low income of households cause urban deprivation and diminish human
capability. Hence, it accelerates growth of uncontrolled urban settlements. A study
conducted by the National Council of Applied Economic Research (NCAER) shows that
Delhi’s share of the urban population was 4.9 per cent in 2004/05, while its share of
income was 10.6 per cent in relation to urban India, i.e., the share of income was 2.2
times higher than its population share (Dobhal and Pande 2008). Another study shows
Delhi has become richer: its per capita income increased from Rs. 44,200 in 2001/02
to Rs. 51,604 in 2003/04, and the average value of a household’s assets also grew
from Rs. 92,000 in 1981 to 7.47 lakh3 in 2002 (Kumar 2008). This data reveals that
Delhi’s citizens have a higher economic status overall in relation to other parts of the
country. However, the darker side to this story is that inequality has been increasing
among urban Indians. This can be demonstrated by increasing the Gini coefficient,
which is the measure of inequality used most frequently. This varies between 0 and 1,
where 0 represents complete equality and 1 stands for complete inequality (i.e., one
person has all the income, while none of the others have any). The Gini coefficient for
urban India increased from 0.39 in 1995/96 to 0.43 in 2004/05, which is a rise of
roughly 15 per cent in a decade (Dobhal and Pande 2008). The proportion of Delhi’s
population living below poverty line has increased by 87 per cent from 1.55 million in
1999/2000 to 2.29 million in 2004/2005.,. The proportion of Delhi’s population living
below poverty line in 2004/05 was 14.7 per cent of total population in Delhi, 6.9 per
cent of rural and 15.2 per cent of urban population. This means, population below
poverty line grew by 87 per cent, in just five years (Government of the National Capital
Territory of Delhi 2009.).
Delhi therefore has two faces: one accommodates the richer section of society and
the other accommodates a significant number of poor people (a number that is still on
the rise). Low incomes and the ever-widening gap between the rich and poor directly
and indirectly contribute to the proliferation of uncontrolled urban settlements in
Delhi. The rapid growth of such urban settlements has a host of negative
consequences, including various types of deprivations – economic, social and political –
all of which are interlinked.
9.8 A comparative Study of Three Selected Settlements
Three settlement areas were chosen for a comparison, namely Abul Fazal Enclave,
Okhla and B. G. Khanpur. These are all examples of different kinds of settlements: an
unauthorized colony, an urban village and a notified slum area respectively. These
settlements are located in the southern periphery of Delhi, as shown in Figure 4. They
represent a subgroup of all seven types of uncontrolled urban settlements (see Figure
2). The unauthorized colony is characterized by a low degree of planning intervention, a
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low degree of legality and an early stage of urban evolution, while the main features of
the urban village are a moderate level of planning intervention, a certain degree of
legality and a historical evolution. The slum represents a third category. About 300
households were selected randomly in these settlements and a survey was conducted
with the head of each household. In the absence of this person, the most senior
members of the household were questioned. This took place in January/February 2009
in order to establish the socio-economic profile of the inhabitants and the
characteristics of their dwellings.
Evolution, General Characteristics and Urban Amenities
The unauthorized colony situated in the southern periphery arose because of
illegal land development on agricultural land in the early 1980s. Interviews with the
residents, some of whom had lived there from the very beginning, revealed that the
processes of land assembly, subdivision and disposal were well organized and even
included flexible financial options based on mutual trust among the stakeholders.
Today, there is no fear of demolition any more; indeed, the colony is already in the
process of being regularized by the central government. The traits of dwelling units are
not uniform, but vary within the settlements and can easily be identified by visual
observation.
This settlement has an electricity supply, but does not have an adequate physical
infrastructure such as a municipal water supply or sanitation services. The social
infrastructure provided, like schools and health services, are also inadequate. Mostly
these needs are catered to informally by the private sector. Okhla, the urban village
that was studied, is an old settlement in South Delhi. It was previously a rural village,
but was later encompassed by urbanization and emerged as an urban village in the
1980s. This settlement is compact, has a greater right to tenure compared with the
unauthorized colony. Most of the dwellings are three to four storeys high with 100 per
cent built-up area on their plot. Although this settlement is legally able to have urban
services due to its tenure status, it severely lacks a municipal water supply and
sewerage system. The third kind of settlement, we looked at, was a “notified slum area”
located in Khanpur. The basic difference between a notified slum area and a JJ cluster
lies in their tenure rights: since the government has given the slum a formal right to
tenure, or “notified” it, the settlement has more tenure security and some urban
amenities. But, JJ clusters households fear eviction and have extremely poor
amenities. The slum that was studied is relatively old, with most of the dwelling units
being erected about 20 years ago.
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Fig. – 4: Location of Case-Study Areas on the Land-Cover Map of Delhi, 2003

Socio-Economic Characteristics of Households

Table 2 presents a summary of the socio-economic characteristics of uncontrolled
urban settlements. A preliminary tabulation showed that there was little difference
between an unauthorized colony and an urban village, so we merged these settlements
into one group. We shall make a comparison between an unauthorized colony/urban
village (known hereafter as a “non-slum”) and slum households. The average household
size in the settlements was six. A non-slum household has a smaller size than a slum
household. The gross monthly income per household varies significantly between both
groups. On average, the household income in uncontrolled settlements was Rs. 12,240,
which is considerably below the average household income in Delhi. The monthly
average income in a slum household was only Rs. 4,330, while non-slum households
reported about four times as much income – Rs. 16,864. In the slum, about 65 per
cent of the households had an average income of less than Rs. 4,500, while in the non-
slum
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Table-2: Socio-economic characteristics of households by settlement types
UAC/UV slum total statistic
Number of N % N % N %
Household Member Mean 5.99 6.22 6.03 -0.64
4 44 30.99 28 33.73 72 32 0.35
5~6 48 33.8 25 30.12 73 32.44
7 50 35.21 30 36.14 to 35.56
Household Income Mean 16894.08 4329.51 12240.22 10.21***
(in Rupees) 4500 7 4.93 54 65.06 61 27.11 135.55***
4501~8999 24 16.9 27 32.53 51 22.67
9000~15999 49 34.51 2 2.41 51 22.67
 16000 62 43.66 0 0 62 27.56
Tenure Owner 79 55.63 44 53.01 123 54.67 1.42*
Rental 61 42.96 39 46.99 100 44.44
Others 2 1.41 0 0 2 0.89
Rent /Dwelling Mean 1844.6 348.73 1302.62 5.87***
(in Rupees)
Family Type Nuclear 110 77.46 56 67.47 166 73.78 2.70***
Joint 32 22.54 27 32.53 59 26.22
Religion Hindu 5 3.52 73 87.95 78 34.67 164.86***
Muslim 137 96.48 10 12.05 147 65.33
Others 0 0 0 0
Caste Not Reported 72 50.7 0 0 72 32.73 125.73***
Upper 65 45.77 23 29.40 88 40
Middle 4 2.82 43 55.13 47 21.36
Lower 1 0.7 12 15.38 13 5.81
Migration Status Native 20 14.08 19 22.89 39 17.33 21.56***
Migrant 122 85.92 64 77.11 186 82.67
Period of Migration  1 Year 16 11.35 6 7.23 22 9.82 26.19***
1~5 Years 24 17.02 19 22.86 43 19.2
6~10 Years 22 15.6 4 4.82 26 11.61
11~15 Years 32 22.7 4 4.82 36 16.07
 15 Years 47 33.33 50 60.24 97 43.3

Purpose of Migration Employment 95 72.52 64 100 159 81.54 21.56***

Education 36 27.48 0 0 36 18.46

Note: UAC: unauthorized colonv. UV: urban village; the statistics mentioned are the T-value for the averages
and the chi square value for the frequencies. ***:p-value <.01, **:p-value<.05, *:p-value<.1
Source: field survey, January-February 2009.
households, 44 Per Cent Of The Families Had An Average Income Of Over Rs.
16,000. This Figure Shows That The Gross Monthly Income In Slum Households Is Not
Enough To Meet Their Basic Needs, A Fact That Can Be Seen From The State Of Their
Dwellings And Neighbourhoods. Our Data Shows That The Rate Of Ownership In Non-
Slum Households Is Higher Than In Slum Households. However, A Significant
Percentage Of Slum Households (47 Per Cent) Live In Rented Housing, Which Means
Due Consideration Should Be Taken With Respect To Planning Intervention To
Safeguard The Tenants’ Interests (And Those Of Their Landlords).
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The Monthly Average Expenditure On Housing In Slum Households Measured By
Rent Per Dwelling Was About Rs. 348, While That For Non-Slum Households Was Rs.
1,844. Indirectly, This Also Shows The Extent Of Poor-Quality Housing In Slum
Settlements. In India, The Concept Of The Joint Family Is A Common One In Rural
Areas. In The Settlements We Studied, Approx. 26 Per Cent Of The Households Lived
As Joint Families The Religious Background Of Our Respondents Shows That The
Settlements Are Exclusively Dominated By A Particular Religion; Take, For Instance,
The Non-Slum Area, Which Is Mostly Dominated By Muslims, And The Slum We
Observed, Which Is Dominated By Hindus. The Limited Data Available For The Caste
Indicates That The Slum Is A “Hotspot” For The Lower And Middle Classes. So, Positive
Intervention In Slums Would Help To Bridge The Social Gap That Exists. Migration
Data Shows That 82 Per Cent Of The Households Consist Of Migrants, Which Is
Significantly High. For The Purposes Of Our Study, A Migrant Is Someone Who Lives In
A Place Other Than His/Her Place Of Birth. Our Data Shows That More Than 80 Per
Cent Are Migrant Households In The Settlements. Perhaps This Pattern Might Indicate
That Migrants (Especially Unskilled People) Opt For Uncontrolled Settlements As Viable
Places In Which To Live And Then Hunt For A Job Since Over 70 Per Cent Migrated For
Employment Purposes And The Rest For Educational Reasons.
9.4 REVISION POINTS
1. To revise about uncontrolled settlements
9.5 INTEXT QUESTIONS
1. Explain the causes of uncontrolled Urban settlements.
9.6 SUMMARY
1. This chapter explained about planned and unplanned settlements and the causes
of uncontrolled urban settlements.
9.7 TERMINAL EXERCISES
1. Delhi urban population grew from 1.4 million in 1951 to 12.8 million.
9.8 SUPPLEMENTARY MATERIALS
1. www.community planning.net
9.9 ASSIGNMENTS
1. What are the causes of uncontrolled settlements
9.10 SUGGESTED READING/ REFERENCE BOOKS /SET BOOKS
A.W. Evan, An Introduction to Urban Economics, Macmillan Publishing company
Pvt. Ltd., (2006) 1221, Avenue of the Americas, New York 10020.
9.11 LEARNING ACTIVITIES
Group discussion (during PCP days)
1. To discuss about plan and un planned settelments
9.12 KEYWORDS
Settlements – colonies – Cocosupply – Low Income.

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CHAPTER – X
UNLOCKING LAND VALUES TO FINANCE URBAN INFRASTRUCTURE
10.1 INTRODUCTION
Land has a long history as an instrument of infrastructure finance. When Baron
Haussmann rebuilt Paris during the Second Empire, he used public powers to acquire
the land that was converted into grand avenues as well as excess land that lay along
the path of reconstruction. The excess land served as collateral for borrowing that
financed new roadways, water supply, and natural gas and sewer lines. Gains in the
value of city-acquired land were used to repay the public debt. Land-based financing is
now becoming an important element of urban infrastructure finance in developing
countries, especially where cities are growing rapidly. Table 1 summarizes several
recent land-based financing arrangements and compares their magnitude with other
sources of urban capital investment funds or total capital spending. The scale of land-
based financing is surprisingly large.
As part of the capital financing mix, land-based financing has significant practical
advantages. Most techniques generate revenue up front, reducing dependence on debt
and the fiscal risks thatdebt financing can introduce. Land sales and onetime
development charges also can be easier to administer than property tax systems that
require periodic valuations of all taxable property. Land-based financing of
infrastructure can be divided into three categories: developer exactions, value capture,
and land asset management.
10.2 OBJECTIVES
To understand unlocking land values to finance urban infrastructure.
10.3 CONTENTS
10.3.1 Developer Exactions
10.3.2 Value Capture
10.3.3 Land Asset Management
10.3.4 Risks of Land based Financing
10.3.1 Developer Exactions
Developer exactions require developers to go beyond installing infrastructure
facilities at their own site. They oblige a developer to finance part or all of the costs of
external infrastructure needed to deliver public services to the site. Thus developers
are required to build subdivision roads and also help pay for major access highways to
the area. They may be required to help pay for the trunk lines that deliver water and
for wastewater removal and treatment systems. In some cases investment
responsibilities are assigned through formal public-private partnerships. In the New
Cities area outside Cairo a private developer is undertaking $1.45 billion of
infrastructure investments, including many that are traditionally the public’s
responsibility, in return for free allocation of desert land
 95
Table 1: Selected Cases of Land-Based Financing in Developing Countries
Location and activity Amount and use of proceeds Comparative magnitude
Cairo, Arab Republic of Egypt: $3.12 billion, to be used to 117 times total urban property
Auction of desert land for New reimburse costs of internal tax collections in country; equal
Cities (May 2007, 2,100 infrastructure and build highway to 10% of national government
hectares). connecting to Cairo Ring Road. revenue.
Cairo, Arab Republic of Egypt: $1.45 billion of private Will provide infrastructure for a
Private installation of “public” infrastructure investment, plus range of basic services covering
nfrastructure in return for 7% of serviced land turned over more than 3,300 hectares of
developable land (2005–present). to government for moderate- newly developed land, without
income housing. financial cost to government.
Mumbai, India: Auction of $1.2 billion, to be used primarily 10 times MMRDA’s total capital
financial center land (Jan. 2006, to finance projects in Mumbai’s spending in fiscal 2005; 3.5
Nov. 2007, 13 hectares) by metropolitan transportation plan. times total value of municipal
Mumbai Metropolitan Regional bonds issued by all urban local
Development Authority bodies and local utilities in India
(MMRDA). since 1995.
Bangalore, India: Planned sale of $500+ million. On hold; land will Minimum sale proceeds were
excess land to finance access be used instead for ministry projected to considerably exceed
highway to new airport built buildings and government-built costs of highway construction
under public-private partnership. industrial space. and acquisition of right-of-way.
Istanbul, Turkey: Sale of old $1.5 billion in auction proceeds, Total municipal capital spending
municipal bus station and former to be dedicated to capital in fiscal 2005 was $994 million.
administrative site (Mar. and Apr. investment budgets. Municipal borrowing for
2007). infrastructure investment in
2005 was $97 million.
Cape Town, South Africa: Sale $1.0 billion, to be used to Sale proceeds exceeded
of Victoria & Albert Waterfront recapitalize Transnet and support Transnet’s total capital spending
property by Transnet, the nationwide investment in core in fiscal 2006; equal to 17% of
national transportation authority transport infrastructure. 5-year transport investment plan
(Nov. 2006). prepared in 2006.
Bogotá, Colombia: Betterment $1.0 billion collected in 1997– Betterment fees finance 50% of
levy. 2007, and $1.1 billion planned street and bridge improvements.
for 2008–15, for financing city Other planned sources of
street and bridge improvement financing: $50 million
program. International Finance Corporation
loan; $300 million international
peso-linked bond issue.
Source: Peterson forthcoming
Developer exactions have become one of the main mechanisms for increasing
private investment in “public” infrastructure. Developers recover the cost of investment
when they sell the developed land. Much potential remains for this form of land based
financing. Consider the United States, where impact fees typically are designed to
require that growth pay its own way when it comes to infrastructure costs. A
subdivision developer may be required to pay as much as $35,000 per standard
housing unit to finance the off-site infrastructure costs associated with growth. Best-
practice impact fees are based on urban development plans that identify the
incremental infrastructure costs associated with development at different locations
within the urban region. Formal analyses of this type may be impractical in developing
 96
countries given their planning and data requirements. But simple versions of
development fees likely will be used to shift larger shares of public infrastructure costs
to private developers and ultimately to the purchasers of new housing and new
business sites.
10.3.2 Value Capture
Value capture builds on the principle that the benefits of urban infrastructure
investment are capitalized into land values. Because public investment creates the
increase in land values, many land economists have argued that government should
share in the capital gain to help pay for its investment. Public authorities have used a
variety of instruments to capture the gains in land value created by infrastructure
investment. Betterment levies, which impose a one-time tax or charge on gains in land
value, are one such instrument. Most countries in the world have experimented with
betterment levies at some point, typically taxing away 30–60 percent of the gain in land
value attributable to infrastructure projects. Under modern conditions, betterment
levies have proved difficult to administer. Attempts to identify with precision, parcel by
parcel, the gains in land value resulting from public works projects have proved both
ambitious and contentious. And the tax rates, at 30–60 percent or even higher, are too
high to impose unless accuracy in measuring the tax base can be assured. For this
reason, betterment levies have fallen out of favor as a significant revenue source, often
in the face of court judgments challenging the assessment process. Colombia long has
used a form of betterment levy, contribución por mejoras, to finance public works. But
reliance on the scheme declined sharply in the 1980s and 1990s, for the same reasons
found elsewhere. Gains in land value due to infrastructure projects were difficult to
estimate. The process involved high administrative costs and led to countless legal
disputes. In the past several years, however, Bogotá has simplified its approach and
converted the betterment levy into a general infrastructure tax more loosely associated
with gains in land value. Rather than estimate parcel by parcel the gains in land value
due to individual investment projects, Bogotá has packaged its street and bridge
improvement program into a citywide bundle of public works projects, all financed in
part through a citywide betterment fee that is broadly differentiated by benefit zone
and other factors. Thus Bogotá has been able to revive valorización as an effective
infrastructure financing tool. The approach is being replicated throughout Colombia.
Value capture through public land sale is another vehicle for recouping public
infrastructure costs. It involves the sale of land whose value has been enhanced by
infrastructure investment. If the public sector owns the land, it can internalize the
benefits of public investment and capture the gain through land sales. China has
financed a large part of its urban infrastructure investment in this manner. For a
major urban highway project, a municipality can transfer the land surrounding the
highway to a public-private development corporation. The corporation borrows against
the land as collateral, finances highway construction, then repays debt and obtains its
profit by selling or leasing land whose value had been enhanced by access to the new
highway.
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The potential for recouping infrastructure costs from increases in land values is
illustrated by metropolitan Recife, Brazil. Figure 1 shows how land values are affected
by different types of urban infrastructure investments, at varying distances from the
city center. The author estimates that, on average, investing in wastewater removal
leads to gains in land value 3.03 times the cost of investment, paving roads to gains
2.58 times the cost, and providing piped water supply to gains 1.02 times the cost.

10.3.3 Land Asset Management

Value capture seeks to recover gains in land value specifically attributable to
infrastructure investment. Land asset management recognizes that the balance sheets
of many public entities already are top-heavy with urban land and property assets. At
the same time the cities in which the property is located suffer acute infrastructure
shortages. Under these conditions it can make sense for public authorities to exchange
land assets for infrastructure assets. They do this by selling or leasing publicly owned
land and using the proceeds to finance infrastructure investment. Rather than using
land-based financing instruments to finance individual investment projects, public
entities undertake a strategic examination of their balance sheets and decide to
exchange underused or vacant land for infrastructure. Several of the transactions
summarized in table1 are of this type. As can be seen, urban land sales have the
potential to generate substantial revenues. At the same time the sale of valuable,
vacant land parcels accelerates private investment in locations that are critical to
urban development.
 98
As important as the revenue yield is the policy rationale underlying the
transactions: that municipal governments and infrastructure agencies should adopt
more strategic methods of land asset management. A critical element of this approach
is to divest non core land assets so that government can concentrate its financial
resources and management attention on core infrastructure responsibilities. The sale
of government-owned land has the added advantage of steering private investment to
areas where it is most productive and filling in gaps in the urban development pattern.
10.3.4 Risks of Land-Based Financing
There are important risks associated with land based financing of infrastructure.
Three risks in particular deserve emphasis:
• Urban Land Markets are Volatile, and Recent Transactions May Reflect a Land Asset
Bubble.
Urban land prices in developing countries cannot steadily increase by 20–30
percent a year. So it is critical that proceeds from land sales or other forms of land-
based financing be used for infrastructure investment and not be allowed to trickle
over to the operating budget, where current spending can become dependent on
unrealistic expectations of future land price increases.
• Land Sales Often Lack Transparency and Accountability.
Many land sales are conducted off-budget through private negotiation. Studies
have shown that competitive auctions can greatly enhance revenues—in some cases
increasing the realized land price per square meter by a factor of 10 or more. Equally
important is transparent public accounting for the use of revenues. Otherwise the large
sums produced by land sales invite corruption or bureaucratic capture by the agency
that has legal title to the land.
• Government authorities may be tempted to use restrictive zoning to drive up land values
or abuse develop exactions when strapped financially.
Such practices can harm the local economy, raise real estate prices unduly, and
distort urban development patterns.
Land-based financing offers powerful tools that can help pay for urban
infrastructure investment. For an urban region considering this strategy, a logical
place to start is with an inventory of land assets owned by government agencies. Such
an inventory would identify current land use and the market value of land. The
government can then decide which land parcels would be more beneficial to urban
development if sold to private developers, with the proceeds dedicated to infrastructure
investment. Where such inventories have been carried out, the government typically
discovers that public agencies own far more undeveloped land than it had realized.
Next, public officials should address the potential for developer exactions and
related fees. Preliminary analyses for Mumbai, India, for example, have concluded that
if Mumbai is to finance its ambitious long-term development plan, developer fees or
similar new, land-based financing techniques will have to generate more than $10
 99
billion to finance infrastructure investment. Developers are receptive to such charges
(which will be passed on to buyers) as long as they help streamline the process for
development approval. Value capture then can fill in specific gaps in the infrastructure
financing plan. A generalized approach to betterment fees, such as that used in
Bogotá, becomes politically acceptable when a majority of the population believes that
the benefits of infrastructure improvements outweigh the tax costs. This has been true
most frequently of road improvements and other transport projects with highly visible
payoffs.
10.4 REVISION POINTS
1. To revise about risk in Land Based Financing
10.5 INTEXT QUESTIONS
1. www.Bussiness.Standard.Com
10.6 SUMMARY
This chapter explained about land asset management and risks of land based
Financing.
10.7. TERMINAL EXERCISES
1. Land is an ________ commodity.
10.8. SUPPLEMENTARY MATERIALS
1. www.Bussiness.Standard.com.
10.9 ASSIGNMENTS
1. Explain land asset management?
10.10 SUGGESTED READING/ REFERENCE BOOKS /SET BOOKS
1. E.M.Mills &B.A.,Havsiltor.
10.11 LEARNING ACTIVITIES
Group discussion (during PCP days)
1. To discuss about Migration towards Urban.
10.12 KEYWORDS
Developer exactions – value capture – Risks.


 100
CHAPTER – XI
URBAN DEVELOPMENT AND PLANNING
REGULATIONS IN SELECTED ASIAN CITIES
11.1 INTRODUCTION
The National Context:
The federal republic of India is a Union of 32 states. 7 of these states (including
Delhi - the federal capital) are called Union Territories, for receiving special assistance
from the Centre - unlike the other 25 States which are required to generate sufficient
funds on their own. Currently there is a move to convert Delhi into a State. India has
the seventh largest land cover in the world (about 3.28 million sq. kms), but the second
highest population (846 million in 1991). With land being static, the land : man ratio
has dropped rapidly from 0.99 hectares per capita in 1901 to 0.39 in 1991 (0.81 in
China). The projection for 2051 is 0.22 hectares per capita (0.66 for China). Of the 20
largest countries in the world (in terms of area), India has the most unfavourable land :
man ratio. With at least 10 per cent of this land being topographically unusable, the
problem is further compounded. Clearly, land in the Indian context, is a very finite and
scarce resource. Despite this, the track record has been poor in its use and
management, mainly due to uncoordinated exploitation and abuse.
In 1991 , the human settlements of India comprised of about 4500 urban centres
(megacities - 10m+, metropoles - 1m to 10m, cities - 0.1m to 1m, towns - 20,000 to
0.1m and town panchayats - 20,000 and below) and of over 0.58 million inhabited
villages grouped into village panchayats. Settlements and their linkages occupied less
than 4 per cent of land in 1901 . By 1991, this increased to a little over 6 per cent (a
change from agriculture to urban of about 60,000 sq. kms in 90 years). It is estimated
that by 2021 (within 30 years), at the current rate of change a further 60,000 sq. kms
would be taken away from agriculture use. If to this is added land which is
topographically unusable, only about 82 per cent of land would be available at that
time for increase in food production, cash crops, mineral workings, forestation,
watersheds and the like to sustain a burgeoning population. Of this, only about a sixth
is devoted to food production (13.67 percent against 10 per cent in China) and this just
about balances current needs.
Practically all the change from primary sector to settlement expansion would be
on the fringe of existing settlements on largely fertile land, despite the fact that large
areas within existing settlement boundaries are unused or underutilised. Master plans
in India invariably propose a generous expansion of the periphery and correspondingly
have sketchy implementable prescriptions for lands within existing settlement
boundaries. This concomitant change therefore from agriculture to non-agriculture has
become the most contentious of all changes on the use of land especially in metropoles
and other high land value situations. If inevitable, it would increasingly have to be on
the basis of transparent and integrated policies, strategies and developmental actions
 101
that recognises land as a dwindling resource and access to new lands resorted to only
after seeking to optimise the use of unused or underutilised urban lands. The draft
urban development sector (1997) for the ninth 5-year plan (1998-2003) more forcefully
than earlier national plans, gives credence to this policy approach and the states of the
Union so stand committed.
11.2 OBJECTIVES
 To understand the Urban Development and planning regulations.
11.3 CONTENTS
11.3.1 Land management Retrospective
11.3.2 Administrative Arecis “small is Beautiful”
11.3.1 Land Management Retrospectives
The Town AND Country Planning Organisation (TCPO), Ministry of Urban Affairs
and Employment (Government of India) in a 1976 study of about 400 Master Plans in
the country, found that in cities with a population of more than 0.10 million, about 30
per cent of the land earmarked for development within the existing urban fences,
remained unused or were underutilised. This percentage was even larger for urban
settlements with population below 0.10 million.
In Delhi (taken as a model for plan making particularly in northern cities of India),
a 20 year plan (1961-81) proposed a doubling of population from 2.30 million in 1961
to 4.60 million in 1981 largely through expansion of land at the periphery. By 1981 , it
was found that acquisition of new lands was getting expensive and the process more
time consuming. At the same time, success stories in private participation in lands on
the urban periphery through land pooling/reconstitution as in the States of Gujarat
and Maharashtra worked for smaller parcels (rarely above 40 hectares) and that too by
sacrificing standards in non-remunerative uses like roads and open spaces. Also, the
system and standards did not make allowances for reservations for
marginal/marginalised groups. (The scheme as in operation permits upto 70 per cent
of the land to be reconstituted into remunerative plots and efforts by the World Bank
and other loan agencies to reduce this to a more environment friendly 60 per cent
continues being opposed).
In a confused scenario of growth on the urban periphery and which precipitated
speculative unplanned development, the extended plan for Delhi 1981-2001 had a part
success story through an intrinsic redensification within the existing urban fence and
whereby it was found that in terms of transport, physical and social infrastructure, an
area which was to hold 4.60 million in 48 sq. kms of land could hold about 9.00
million, beyond which expansion of the periphery was inevitable.
Guided land development concepts surfaced at this time through private
participation via land assembly of larger areas of land (upto 1000 hectares) as in the
State of Haryana bordering Delhi. Such exercises however for change in land use from
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agriculture to settlement growth, calls for a finely tuned partnership with government
through spatial plans and policies that continue favouring a reduction in the rate of
growth of mega cities. In Delhi, it is leading to an integrated equation between counter-
magnets, growth centres, satellite towns and inner city restructuring within a long
range megacity region plan called the National Capital Region (NCR) Plan -
encompassing over 32,000 sq. kms of land in Delhi, the bordering States of Haryana
and Uttar Pradesh and even Rajasthan.
From the NCR experience, one notices replicable ingredients for strategy (concept)
plans and structure plans as the basis for integrated projects. Through such plans,
access to land could now be through any, some or all of four experiences - a) guided
land development for large areas (called urbanisable blocks in Haryana); b) land
pooling for compact areas (institutionalised as a major ingredient of Town Planning
Schemes in Gujarat and several other states); c) land reconstitution/redevelopment (for
in-situ upgrading in small parcels in core areas) and d) but not the least, acquisition
for a public purpose under the Central Land Acquisition Act 1894 or state level
variations of it (recent amendments require substantial development within three years
of a clear title, failing which land gets re-notified at an enhanced market value and a
solatium already increased from 15 to 30 per cent of this value. This amendment has
made the land banking or large scale government land acquisition, development and
disposal system unaffordable. Therefore, land can no longer be held vacant for long
periods of time). A deterrent tax on vacant or underutilised land would further help in
lands developed at the right time for housing and other uses.
Conscious that land continues being uneconomically used, the report of the
technical group on Urban Planning Systems of the Planning Commission, Govt of India
(May, 1996) have reiterated recommendations of earlier national 5-year Plans that the
rate of growth of megacities and metropoles be slowed down. In their report as adopted
by Government, they have stated that the urban future of India is progressively linked
to the creation of a balanced urban hierarchical structure from metropoles to those
small towns which are vibrant, economically viable and capable of sustained economic
growth. This recommendation and which coalesces accepted strategies in India over
the past several years, takes into consideration a rapidly changing urban growth
scenario from around 30 million urbanites in 1901 (one in every eleven) in about 2200
urban settlements to over 300 million urbanites (one in every three) in around 4500
urban settlements in 2001 . The report further states that macro economic policies
today, pointedly affect the urban economy and the quality of the urban environment
and hence the impact of all such economic development policies need to be seen on the
performance of the urban sector. At the same time, it has to be underlined that at the
turn of the century, human settlements in India would accommodate nearly 700
million people (70 per cent of the total population) in rural areas, in addition to over
300 million people (30 per cent of the total population) in urban settlements. In this
equation, though urbanisation is increasing, investments in rural areas are also
 103
increasing and the emerging scenario for India would for several decades be one of an
URBAN-RURAL CONTINUUM rather than the domination of the rural sector as hitherto
or the urban sector as in the developed world. This fact has precipitated the interfacing
through the two epoch making 73rd amendment (rural) and the 74th amendment
(urban) to the Constitution. These amendments stress on empowerment to the people
(urban and rural) through a strong third tier that is required to spearhead and regulate
development that visibly affects the environment at grass roots. The 32 states of the
Union (including 7 union territories) are now required to work in a framework of
organisational integration for planned growth. The emphasis is on planned
development more explicitly on a finely tuned interface between spatial and socio-
economic development.
This framework recognises that urban and regional planning, housing, urban
transport, basic physical and social infrastructure and other local government subjects
are in the State legislative and operational list (as in Malaysia) and within which spatial
and socio-economic development have to work in tandem. This has to be within an
existing but-restructured three layers comprising of:-
 local levels (panchayats and municipal bodies);
 regional levels (districts and metropolitan areas and mega-regions); and
 state level.
For facilitating governance, States are divided into Districts - each under a
Collector who is also in charge of total district revenue. The Districts are further sub-
divided into sub-districts (Taluks).
11.3.2 Administrative Areas - 'Small is Beautiful'
An average size of a district is about 7,000 sq. kms for India taken as a whole. Of
the 472 districts which comprised the Union of India in 1991 - (the State of Jahmur
and Kashmir was not enumerated at that time), as many as 102 were more than
10,000 sq. kms in size. On the other hand, 56 districts were less than 2,000 sq. kms in
size. In this respect, the State of Haryana is a good small state model composed as it is
of 19 compact districts of which 7 are less than 2000 sq. kms each and only one
district exceeds 5,000 sq. kms in area. This compactness facilitates developmental
actions with state and local levels working cohesively. Also, with empowerment to
people at district and village levels through the 73rd constitutional amendment and at
urban levels (town and city) through the 74th constitutional amendment, we can
envisage an era of participatory planned development - a down-top process
interfacing with a subdued present top-down bureaucratic dispensations. The District
Development Plans to be mandatorily prepared by the District Planning Committees
and which are to be immediately constituted across the length and breadth of the
nation, offers the key as for the first time a Plan is possible where spatial prescriptions
and socio economic investments have to be at tandem and be, subject to analysis by all
stakeholders from the smallest group of villages upwards. Already states are reducing
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districts to workable sizes - a doubling from 13 to 26 in Orissa and from 20 to 29 in
Karnataka. Several new districts have been created in Uttar Pradesh, and the demand
for creating new districts in all large states is increasing. If this trend/demand is being
marginally slowed down, it is primarily to ensure that the administration is geared to
cater to additional districts.
It has been recommended that whereas at the national level, sectoral policies
are spelt out, at the state level, the flexible strategy or perspective plan is to be
mandatory as a guide to regional level actions through statutory district or
metropolitan spatial strategy or structure plans and which are required to facilitate the
appropriate use of land. This is to be achieved through basic long range perspective
plans (20 to 25 years); a more detailed medium range development plans with stress on
infrastructure (5 years and ideally co-terminus with national 5-year plans) and finely
tuned annual action plans - as applicable. The above recommendations have been
accepted by the Planning Commission for spelling out national policies and for
disbursement of federal plan funds in the ninth 5-year plan (1998-2003) and in
collaboration with the concerned central government ministries so as to fulfil a
constitutional diktat. The States of the Union are now analysing changes to be brought
in place with acceptable variations so as to respect land covers as historically evolved
in their respective jurisdiction and then to ensure the optimal use of this static
resource within environmentally acceptable parameters. There is thus to be an
overhaul of the spatial planning structure of India and which hitherto was based
primarily on urban master plans and town planning schemes and a modicum of
regional plans.
Currently urban planning and development administration in India is organised at
three levels viz. federal, state and local. At the central level, the Ministry of Urban
Development and the Housing and Urban Development Division of the Central
Planning Commission are the two authorities dealing with the subject of urban
planning and development performing advisory and co-ordination roles apart from
providing technical assistance for promoting orderly urbanisation. The type of
arrangement, at the national level are mainly in the form of policy planning and
allocation of plan funds thereof to the states; monitoring of central sector schemes;
providing incentives to achieve an uniform and comparative plan enabling pattern; and
dissemination of new and innovative techniques for improving efficacy of urban
planning approaches and methodologies. The Ministry is supported in these tasks by
the Town and Country Planning Organisation (TCPO), the Housing and Urban
Development Corporation (HUDCO), the Central Public Health and Environment
Engineering Organisation (CPHEEO) and the national Institute of Urban Affairs (NIUA).
At the state level, urban planning and development is governed by respective town
planning acts and other development acts. As on today, Town Planning Departments
exist in all the states and most of the union territories of the Union of India. Functions
and activities of the department vary from state to state but by and large it includes
 105
preparation of Master Plans/Development Plans, Regional Plans, Town Planning
Schemes, Development Schemes, Urban Development Projects, Zonal Plans, Action
Area Plans, Implementation of Central and State Sector Schemes. State level policy and
strategy planning are worked out to ensure formulation of statutory development plans
at various levels and implementation of development schemes. At local level, Planning
and Development Authorities in large cities and metropolitan areas, municipalities, etc.
are the important agencies engaged in preparation of Development Plans/Master Plans,
Zonal Plans and Action area level implementation plans. They are also responsible for
giving development permission and undertaking development or ensuring conservation
in zones declared as development area. The authorities are created either under State
Town Planning Acts or under a separate Planning and Development Authority Act. In
some cases, power has also been delegated to municipalities for preparing plans and
for giving development permissions. Where these authorities do not exist, the State
Town Planning Department prepares development plans and gives development
permissions. The third tier (municipalities and panchayats) as yet are subservient to
the second tier (State) in India.
However the policy context for planned development as now evolved has
necessitated legislative changes in the relevant state list of subjects. This in turn is
enabling a gradual transition in state and local government administration to tie up
with mandatory third-tier elections for a more effective stakeholders participation. (This
process was witnessed as being made progressively non-existent in India's first 50
years of independence). Along with this, have emerged nationally enunciated policies
towards globalisation and privatisation and the role of government as a facilitator
rather than as a doer. Therefore, in planned development, the three inter-related
thrusts which have erupted to the forefront within the last few years and are crucial in
the future are:-
 A greater grass root autonomy (inclusive of a minimum one-third
representation to women);
 A larger private participation in planned change on land (with government
acting as a facilitator); and
 A more effective environnent protection and control (ground, water, air, noise,
etc).
Like China, India has several primate cities, each with hinterlands of their own
within the country. The megacity of Bombay (now called Mumbai) on the west coast,
the megacity of Calcutta on the East Coast and the megacity of Delhi in the north has
distinct regions of influence. In the South Madras (now called Chennai) held this place
but latterly, Hyderabad and Bangalore are competitions with each having population in
excess of 5.00 million. The World Bank estimates that Hyderabad will be the fourth
megacity of India (and not Chennai). In the census of 1991 , Mumbai and Calcutta
were shown as megacities and 21 other cities were shown as metropoles. In 2001 , the
 106
megacities of India would be 3 (including Delhi) and there would be 37 other
metropoles (of which Hyderabad, Chennai and Bangalore would be 5.00 million plus
cities). These 40 agglomerations are well distributed over the geographic mosaic of
India with linear concentrations only along the west coast (Ahmedabad, Vadodra,
Surat, Mumbai and Pune over a 600 km linear stretch) and with Mumbai as the prime
magnet). All these agglomerations have Municipal Corporations. In addition, they have
State appointed Development Authorities over a wider Metropolitan area comprising of
several local government entities. Thus megacities and larger metropoles function in
India today as megacity regions. Of India's 300 million urban population expected by
2001 , over 180 million would be in the metropoles and the remainder of around 120
million in the other 4,450 urban settlements at that time. Among these, at least 360
urban settlements would have populations of between 0.10 to 1.00 million
accommodating at least another 60 million people between them. Thus urbanisation in
India is almost an issue of metropolitanisation and it is here where economic growth
and shortages in services exist side by side with megacities offering the most
challenges.
11.4 REVISION POINTS
1. To revise about Land Management Retrospectives
11.5 INTEXT QUESTIONS
1. Explain land asset management?
11.6 SUMMARY
1. This chapter explained about Land Management Retrospectives.
11.7 TERMINAL EXERCISES
1. A more effective Environment Protection and Controls inclueds _______, ________,
_______ etc.
11.8 SUPPLEMENTARY MATERIALS
1. www.britaninca.com
11.9 ASSIGNMENTS
1. What is National Context?
11.10 SUGGESTED READING/ REFERENCE BOOKS /SET BOOKS
J.V. henderson, Economic theory and cities, Academic press (2000), New York.
11.11 LEARNING ACTIVITIES
Group discussion (during PCP days)
1. To discuss about the power of Development Control Regulation (DCR)
11.12 KEYWORDS
Retrospective – Administrative Area
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CHAPTER – XII
URBAN MOBILITY
12.1 INTRODUCTION
Urban Mobility and its Evolution
Urban transportation is organized in three broad categories of collective,
individual and freight transportation. In several instances, they are complementary to
one another, but sometimes they may be competing for passengers, the usage of
available land and transport infrastructures:
Collective Transportation (public transit). The purpose of collective
transportation is to provide publicly accessible mobility over specific parts of a city. Its
efficiency is based upon transporting large numbers of people and achieving economies
of scale. It includes modes such as tramways, buses, trains, subways and ferryboats.
Individual Transportation. Includes any mode where mobility is the outcome of a
personal choice and means such as the automobile, walking, cycling and the
motorcycle. The majority of people walk to satisfy their basic mobility, but this number
varies according to the city considered. For instance, walking account for 88% of all
movements inside Tokyo while this figure is only 3% for Los Angeles.
Freight Transportation. As cities are dominant centers of production and
consumption, urban activities are accompanied by large movements of freight. These
movements are mostly characterized by delivery trucks moving between industries,
distribution centers, warehouses and retail activities as well as from major terminals
such as ports, railyards, distribution centers and airports. The mobility of freight
within cities tends to be overlooked.
Rapid urban development occurring across much of the globe implies increased
quantities of passengers and freight moving within urban areas. Movements also tend
to involve longer distances, but evidence suggests that commuting times have
remained relatively similar through the last hundred years, approximately 1.2 hours
per day. This means that commuting has gradually shifted to faster transport modes
and consequently greater distances could be traveled using the same amount of time.
Different transport technologies and infrastructures have been implemented, resulting
in a wide variety of urban transport systems around the world. In developed countries,
there have been three general eras of urban development, and each is associated with a
different form of urban mobility:
The Walking-Horsecar Era (1800-1890). Even during the onslaught of the
industrial revolution, the dominant mean of getting around was on foot. Cities were
typically less than 5 kilometers in diameter, making it possible to walk from the
downtown to the city edge in about 30 minutes. Land use was mixed and density was
high (e.g. 100 to 200 people per hectare). The city was compact and its shape was
more-or-less circular. The development of the first public transit in the form of
 108
omnibus service extended the diameter of the city but did not change the overall urban
structure. The railroad facilitated the first real change in urban morphology. These new
developments, often referred to as trackside suburbs, emerged as small nodes that
were physically separated from the city itself and from one another. The nodes
coincided with the location of rail stations and stretched out a considerable distance
from the city center, usually up to a half hour train ride. Within the city proper, rail
lines were also laid down and horse-cars introduced mass transit.
The Electric Streetcar or Transit Era (1890 - 1920s). The invention of the
electric traction motor created a revolution in urban travel. The first electric trolley line
opened in 1888 in Richmond. The operating speed of electric trolley was three times
faster than that of horse-drawn vehicles. The city spread outward 20 to 30 kilometers
along the streetcar lines, creating an irregular, star-shaped pattern. The urban fringes
became areas of rapid residential development. Trolley corridors became commercial
strips. The city core was further entrenched as a mixed-use, high density zone. Overall
densities were reduced to between 50 and 100 people per hectare. Land use patterns
reflected social stratification where suburban outer areas were typically middle class
while the working class continued to concentrate in the central city. As street
congestion increased in the first half of the 20th century, the efficiency of streetcar
systems deteriorated and fell of favor; many were abandoned.
The Automobile Era (1930 onward). The automobile was introduced in
European and North American cities in the 1890's, but only the wealthy could afford
this innovation. From the 1920s, ownership rates increased dramatically, with lower
prices made possible by Henry Ford's revolutionary assembly-line production
techniques. As automobiles became more common, land development patterns
changed. Developers were attracted to green-field areas located between the suburban
rail axes, and the public was attracted to these single-use zones, thus avoiding many
inconveniences associated with city, mainly pollution, crowding and lack of space.
Transit companies ran into financial difficulties and eventually transit services
throughout North America and Europe became subsidized, publicly-owned enterprises.
As time went on, commercial activities also began to suburbanize. Within a short time,
the automobile was the dominant mode of travel in all cities of North America. The
automobile has reduced the friction of distance considerably which has lead to urban
sprawl.
In many areas of the world where urbanization is more recent, the above synthetic
phases did not took place. In the majority of cases fast urban growth led to a scramble
to provide transport infrastructure often in an inadequate fashion. Each form of urban
mobility, be walking, the private car or urban transit has a level of suitability to fill
mobility needs. Motorization and the diffusion of personal mobility has been an
ongoing trend linked with substantial declines in the share of public transit in urban
mobility.
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12.2 OBJECTIVES
 To understand the Urban Mobility Transit
12.3 CONTENTS
12.3.1 A Taxonomy of Urban Mobilities
12.3.2 Urban Transit
12.3.1 A Taxonomy of Urban Mobilities
Movements are linked to specific urban activities and their land use. Each type of
land use involves the generation and attraction of a particular array of movements.
This relationship is complex, but is linked to factors such as recurrence, income,
urban form, spatial accumulation, level of development and technology. Urban
movements are either obligatory, when they are linked to scheduled activities (such as
home-to-work movements), or voluntary, when those generating it are free to decide of
their scheduling (such as leisure). The most common types of urban movements are:
Pendulum movements. These are obligatory movements involving commuting
between locations of residence and work. They are highly cyclical since they are
predictable and recurring on a regular basis, most of the time a daily occurrence, thus
the term pendulum.
Professional movements. These are movements linked to professional, work-
based, activities such as meetings and customer services, dominantly taking place
during work hours.
Personal movements. These are voluntary movements linked to the location of
commercial activities, which includes shopping and recreation.
Touristic movements. Important for cities having historical and recreational
features they involve interactions between landmarks and amenities such as hotels
and restaurants. They tend to be seasonal in nature or occurring at specific moments.
Major sport events such as the World Cup or the Olympics are important generators of
urban movements during their occurrence.
Distribution movements. These are concerned with the distribution of freight to
satisfy consumption and manufacturing requirements. They are mostly linked to
transport terminals, distribution centers and retail outlets.
The consideration of urban movements involves their generation, the modes and
routes used and their destination:
Trip generation. On average, an urban resident undertakes between 3 and 4
trips per day. Moving in an urban area is usually done to satisfy a purpose such as
employment, leisure or access to goods and services. Each time a purpose is satisfied,
a trip is generated. Important temporal variations of the number of trips by purpose
are observed with the most prevalent pattern being pendulum movements.
Modal split. Implies which transportation mode is used for urban trips and is the
outcome of a modal choice. Modal choice depends on a number of factors such as
technology, availability, preference, travel time and income.
 110
Trip assignment (routing). Involves which routes will be used for journeys within
the city. For instance, a commuter driving a car has most of the time a fixed route. This
route may be modified if there is congestion or if another activity (such as shopping) is
linked with that trip; a practice often known as trip chaining. Several factors influence
trip assignment, the two most important being transport costs and availability.
Trip destination. Changes in the spatial distribution of economic activities in
urban areas have caused important modifications to the destination of movements,
notably those related to work. The central city used to be a major destination for
movements, but its share has substantially declined in most areas and suburbs now
account for the bulk of urban movements.
The share of the automobile in urban trips varies in relation to location, social
status, income, quality of public transit and parking availability. Mass transit is often
affordable, but several social groups, such as students, the elderly and the poor are a
captive market. There are important variations in mobility according to age, income,
gender and disability. The so called gender gap in mobility is the outcome of socio-
economic differences as access to individual transportation is dominantly a matter of
income. Consequently, in some instances modal choice is more a modal constraint
linked to economic opportunities.
In central locations, there are generally few transport availability problems
because private and public transport facilities are present. However, in locations
outside the central core that are accessible only by the automobile, a significant share
of the population is isolated if they do not own an automobile. Limited public transit
and high automobile ownership costs have created a class of spatially constrained
(mobility deprived) people. They do not have access to the services in the suburb, but
more importantly to the jobs that are increasingly concentrated in those areas.
12.3.2 Urban Transit
The main reason why people use public transit is because they cannot effectively
park their car where they would like to go.
Transit is dominantly an urban transportation mode, particularly in large urban
agglomerations. The urban environment is particularly suitable for transit because it
provides conditions fundamental to its efficiency, namely high density and significant
short distance mobility demands. Since transit is a shared public service, it
potentially benefits from economies of agglomeration related to high densities and from
economies of scale related to high mobility demands. The lower the density in which a
transit system is operating, the lower the demand, with the greater likelihood that it
will be run at a loss. In fact, the great majority of public transit systems are not
financially sound and have to be subsidized. Transit systems are made up of many
types of services, each suitable to a specific set of market and spatial context. Different
modes are used to provide complementarity services within the transit system and in
some cases between the transit system and other transport systems.
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Contemporary transit systems tend to be publicly owned, implying that many
decisions related to their development and operation are politically motivated. This is a
sharp contrast of what took place in the past as most transit systems were private and
profit driven initiatives. With the fast diffusion of the automobile in the 1950s, many
transit companies faced financial difficulties, and the quality of their service declined
as in a declining market there were limited incentives to invest. Gradually, they were
purchased by public interests and incorporated into large agencies, mainly for the sake
of providing mobility. As such, public transit often serves more a social function of
public service and a tool of social equity than having any sound economic role. Transit
has become dependent on government subsidies, with little if any competition
permitted as wages and fares are regulated. As a result, they tend to be disconnected
from market forces and subsidies are constantly required to keep a level of service.
With suburbanization transit systems tend to have even less relationships with
economic activities.
Reliance on urban transit as a mode of urban transportation tends to be high in
Asia, intermediate in Europe and low in North America. Since their inception in the
early 19th century, comprehensive urban transit systems had significant impacts on
the urban form and spatial structure, but this influence is receding. Three major
classes of cities can be found in terms of the relationships they have with their transit
systems:
Adaptive cities. Represent true transit-oriented cities where urban form and
urban land use developments are coordinated with transit developments. While central
areas are adequately serviced by a metro system and are pedestrian friendly,
peripheral areas are oriented along transit rail lines.
Adaptive transit. Represent cities where transit plays a marginal and residual
role and where the automobile accounts for the dominant share of movements. The
urban form is decentralized and of low density.
Hybrids. Represent cities that have sought a balance between transit development
and automobile dependency. While central areas have an adequate level of service,
peripheral areas are automobile-oriented.
Contemporary land development tends to precede the introduction of urban
transit services, as opposed to concomitant developments in earlier phases of urban
growth. Thus, new services are established once a demand is deemed to be sufficient,
often the subject of public pressures. Transit authorities operate under a service
warrant and are often running a recurring deficit as services are becoming more
expensive to provide. This has led to a set of considerations aimed at a higher
integration of transit in the urban planning process, especially in North America, where
such a tradition is not well established. Still, in spite of decades of investment, North
American public transit ridership has roughly remained the same.
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From a transportation perspective, the potential benefits of a better integration
between transit and local land uses are reduced trip frequency and increased use of
alternative modes of travel (i.e. walking, biking and transit). Evidence is often lacking to
support such expectations has the relative share of public transit ridership is declining
across the board. Community design can consequently have a significant influence on
travel patterns. Local land use impacts can be categorized in three dimensions of
relationships and are influenced by levels of use. Land use initiatives should be
coordinated with other planning and policy initiatives to cope with automobile
dependence. However, there is a strong bias against transit in the general population
because of negative perceptions, especially in North America, but increasingly globally.
As personal mobility is a symbol of status and economic success, the users of public
transit are perceived as the least successful segment of the population. This bias may
undermine the image of transit use within the general population.
12.4 REVISION POINTS
1. Urban - Mobilities
12.5 INTEXT QUESTIONS
1. Explain in detail about Urban Mobility and its Evolution.
12.6 SUMMARY
1. This chapter explained about Urban Mobilities and Urban transit in detail with
examples.
12.7 TERMINAL EXERCISES
1. The main reason why people use the Urban Transit is for inconvenience in
_______.
12.8 SUPPLEMENTARY MATERIALS
1. www.urbanmobility indira,com
12.9 ASSIGNMENTS
1. Explain about urban mobility?
12.10 SUGGESTED READING/ REFERENCE BOOKS /SET BOOKS
E.M. Mills & B.A., Hausiltor, Land Resource economics, Prentice hall (2007) New
York.
12.11 LEARNING ACTIVITIES
Group discussio (During PCP days)
1. To discuss about Urban Transit.
12.12 KEYWORDS
Urban – Mobilities - Transit

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CHAPTER – XIII
URBAN REAL ESTATE MARKET
13.1 INTRODUCTION
It is impossible in this study to cover all the additional real estate markets in
which the rights in land and improvements of special types are bought, sold, and
exchanged. Some are so infrequently encountered as to be hardly markets at all but
rather individual cases of negotiation, such as the purchase and sale of churches and
clubs. Theaters and sports arenas are in the same category, though they are more
frequently the subject of transactions. Three kinds of markets are so common and of
such economic significance as to justify further exploration, namely, the markets for
subdivision lots and acreage, office and commercial space, and industrial land and
improvements. Significant as the markets for these types of land and improvements
are, the data essential for their study are very inadequate. Some of their aspects may
be mentioned, however, and some generalizations hazarded.
13.2 OBJECTIVES
To make understand the Urban Real Estate Market
13.3 CONTENTS
13.3.1 Subdivision Lots and Acreage
13.3.2 Commercial and Office space
13.3.3 Terms of Commercial Leases
13.3.4 Special Characteristics of Office Space
13.3.5 Land and Improvements used for Industrial Purpose
13.3.1 Subdivision Lots and Acreage
There are two results from an increased demand for urban land and
improvements: one, a greater use of urban sites through the construction of
improvements on vacant land and by replacement of existing improvements with better
ones and, the other, an extension of the urban land area by "subdivision" or
"development." 1 Being an accompaniment of economic expansion, the process of
subdividing is spasmodic rather than continuous. It begins with the acquisition oftitle,
or the right to title, in an appropriately situated tract of land. The land is then mapped,
cleared to the extent necessary and marked off; streets are established, utilities and
public improvements may be installed, and permanent structures erected. At any point
in this procedure lots may be offered for sale, with or without improvements. When
offered without utilities and other facilities, it is usually expected that these will be
provided by the local governing body and that the cost will be charged, at least in part,
to the lot owners through special assessments. In most instances, lots are not actually
available for urban use until these facilities have been provided; hence, it has been
argued that subdivision maps should not be admitted to record until conversion is
complete or until a bond has been posted guaranteeing installation. Also, cases are
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increasing in which the subdivider installs public facilities, builds structures on all or
most lots, and offers only completed land and buildings for sale. These changes present
a striking contrast to the earlier situation when much subdividing was essentially
speculative, being stimulated by a belief on the part of both subdividers and the public
that the rising demand for land would continue and greatly expand the area used for
urban purposes.2 So successful were these operations that subdividing generally i-an
far ahead of lot utilization, with the result that when business contraction set in many
lots were unused and became tax delinquent.
In the late 1880's, it became customary in many parts of the country for
subdivision lots to be sold on "land contracts" with small down payments.4 This
speculative practice reached a peak in 1926 with the spectacular Florida boom.5 The
relation between local subdivision activity and residential construction may be seen by
comparing the data on subdivision activity in six metropolitan areas and in Chicago
with Long's series on residential building in twenty-nine cities (Chart 2). The process of
adding to the services of urban land and improvements is a long drawn out one and
involves large amounts of capital. Acreage or accommodation land is one of the
necessary elements in the process, but so much capital is needed after the acreage is
acquired that the cost of acreage is only a small proportion of the total investment.
Even when no buildings are constructed, the expense of subdividing and of installing
utilities will in most cases be larger than the cost of the acreage. In the northeastern
states in 1947, the cost of installing utilities, including street paving, averaged $10.26
per front foot of residential lots. Therefore, for lots 60 x 125 feet, of which there are 4.3
per acre, the average cost per acre was about $2,647. If a home were to be erected on
each of these lots at an average cost of $8,000, the utilities-installation expense would
amount to about 7 percent of the total cost per acre of subdivision, conversion to
urban land use, and construction.7
Since a differential in acreage prices is a small element in the selling price of
houses and lots, the speculative sub divider builder is generally in a better position to
sell improved parcels if high-value acreage is utilized, even though at a higher original
cost. As a consequence, high-value acreage frequently serves as a vehicle for
speculation. The prices paid for it for subdivision and development may be reflected in
large increases in the value, per acre, of improved parcels. While the subdivider-builder
tries to minimize the risk of acreage investment by postponing acquisition until he is
ready to use it, his plan may be thwarted by owners of available tracts or speculators
who anticipate his need and secure title, or the right to title, to the land. Speculation of
this type is not uncommon in periods of high building activity; acreage tracts are
sometimes sold and resold several times in a short period.
In order to be profitable, however, speculation in acreage has to be timed
carefully, and the land must be priced so as to avoid missing the market. Although the
cost of acreage may be only one, and a relatively small, element in the final cost of land
and improvements, the subdivider-builder must not overpay for acreage; sometimes an
inferior tract will be taken at a favorable price rather than a superior but overpriced
tract. Since subdividing-building is not frequently undertaken in a neighborhood, or by
 115
a large number of individuals or organizations, the possibility of a given tract being by-
passed is very real.13.3.2 Commercial and Office Space
Most commercial and office space is occupied on leasehold with the occupiers in
the relationship of tenants or landlords who hold the premises in fee or askenants who
sublet a portion of their estates, but there are many cases of owner-occupants. Among
the latter are large department stores, insurance companies, banks, and even
manufacturers, whose need for commercial or office space is so great that they can
utilize whole structures. Ownership in fee of "home offices" is sometimes traceable to a
desire for prestige,8 and, in other cases, to a need for specially designed quarters.
Small commercial premises, however, are sometimes owned in fee by the occupants as
protection against rent increases or because of a desire to engage in real estate
investment or speculation simultaneously with the conduct of a commercial enterprise.
These exceptions notwithstanding, the markets for commercial and office space are
primarily markets for leasehold estates that
Chart 2— Long’s Index of Residential Building in Twenty-Nine Cities, and subdivision
activity in Six Metropolitan
AREAS AND IN CHICAGO, 1830-1934

a
 116
CHART 2- Concluded

convey the rights of use and occupancy for a determinable number of years at
specified or ascertainable rents, with provision for reversion to the landlord or lesser at
the end of the term.
Terms of Commercial Leases
There are no comprehensive data on the volume or terms of leaseholds of
commercial and office space. They vary in length of term, some being essentially
tenancies at will and others extending for fifty years or more. General business
conditions and the amount of structural changes and special equipment required by a
particular tenant are important factors affecting length of term. During periods of
 117
business contraction, for example, when rents are relatively low, tenants generally
bargain for a lengthening of the lease term, hoping thus to preserve the economy of low
rent. The landlord, however, generally wishes a shorter term, leaving an opportunity to
raise rents as prosperity returns. During periods of expansion, the interests of the two
are, of course, reversed. Finally, the term of the lease must be sufficient to allow the
cost of structural alterations and special equipment, especially if it is not readily
removable, to be written off. Rents reserved in commercial leases may be a constant
amount for the term of the lease, may be set on a graduated scale, or may be
determined as a percentage of the net volume of business transacted on the premises.
The first of these provisions is probably the older form, and still survives in a great
many cases. The rent is fixed by negotiation and generally without elaborate
calculations by either party, especially where tenants operate small enterprises. On the
other hand, the growth of large enterprises, notably chain stores, has been
accompanied by a considerable refinement and elaboration of techniques in selecting
sites and in determining the level of rents. Calculations are based principally on
analyses of traffic and merchandising activities in the area in which location is
contemplated.
The small independent entrepreneur, without such scientific guides, often follows
the lead of the larger organizations in selecting a location. The graduated rental
appears to have developed in the renting of commercial space in developing areas
where the potential volume of business is not easily estimated. Also, it is sometimes
used in the early phases of a business expansion. In both these situations the landlord
may be hesitant to give a long-term lease in which the rental terms are based on .the
current volume of business, and the tenant may be unwilling to pay currently the high
rent that the premises may command if the volume of business increases. Graduated
rental is a compromise that provides for increases in rental at' stated. intervals during
the term of the lease.
The inability of either landlord or tenant to estimate accurately the volume of the
location's potential business has brought about an increasing use of the so-called
"percentage lease." Under the provisions of such a lease a minimum rent is ordinarily
fixed, based largely on the current situation and on the estimate of the near future,
and the tenant agrees to pay an additional amount which is a percentage of the net
sales realized in the location. Under these provisions both parties enjoy a portion, at
least, of the benefits that flow from business improvement. With a lease of this type,
the landlord's fortunes are tied to those of the tenant; this relationship accounts for the
fact that landlords are hesitant to enter into an agreement with someone whose ability
as a merchandiser has not been established. The landlord is usually more easily
persuaded to enter into such a lease with a chain store organization. The market for
commercial leases primarily reflects general economic conditions, the demand
increasing as business expands, as new businesses are formed, and as existing
concerns enlarge their space requirements. Favorable sites always being limited
 118
because of the concentration of pedestrian and vehicular traffic at points of
convergence and transfer, those nearest such points become known as100 percent
locations and are usually confined to a very small area, from which the desirability of
locations declines. At the height of prosperity, competition is keen [or almost all
locations. Rents rise and landlords insist on leases of as long a term as they can
obtain. As long as prosperity continues, rents are likely to remain high,
notwithstanding the appearance of vacancies in the fringe, or even in the core, areas.
During contraction, it naturally becomes more difficult to fill vacancies, and rents
decline as these spread from the fringe to the heart of the 100 percent locations.
The broker plays an important part in marketing space in established commercial
areas, but in fringe areas, in string street developments, and in smaller neighborhood
areas his role is less important and the market is less well organized. This lack of
organization partially accounts for the apparently greater volatility of values in this
portion of the market for commercial space.
13.5. Special Characteristics of Office Space
Office space has a number of characteristics which are important to an
understanding of the market's behavior. The greatest portion of it is in large centrally
located structures; small buildings in outlying areas provide space mainly for local
services. As a consequence, the provision of office space usually involves the
investment of large amounts of long-term,, and relatively high-risk, capital. Sources of
such capital being narrowly restricted, the market response to increased demand is
likely to be less prompt than for residential facilities. New construction begins in
significant volume only after the virtually complete absorption of existing space and
after there is abundant evidence that additional space will be marketable at profitable
rents.
Another characteristic of office space is its greater flexibility as compared with
residential facilities. Residential accommodations are rented in units, each of which
contains special facilities; units are designed to provide an area in which family life can
be satisfactorily carried on. Unlike residential space, office space is marketed by the
square foot in units which are multiples of "bays"; most of this space is not equipped
with special facilities and can therefore be adjusted in size without large expenditures.
Like demand for commercial space, demand for office space arises from the
establishment of new businesses and from the expansion of established concerns. The
amount of space used by an individual business unit reflects its volume of business.
Business enterprises, therefore, will contract or expand their office space more
promptly in response to changes than will families whose residential quarters directly
affect their standard of living.
Moreover, business enterprises respond more rapidly to business conditions than
do households or families. Therefore, one would expect the occupancy of office space to
react more sensitively to changes in business conditions than the occupancy of
residential facilities. Finally, there are fewer shifts in the tenure status of office space
 119
occupants. Although the percentage of dwellings owner-occupied changes from time to
time by a shift of the occupants' tenure status, the office space market is little affected
by this factor. Since the supply of office space is somewhat more inelastic for the short
period than the supply of residential accommodations, vacancies are absorbed, and
rents rise more rapidly in periods of business expansion for the former than for the
latter. Office rents, however, rise only after occupancy has increased since, as in the
residential market, owners and managers of office space prefer occupancy at prevailing
rents to the vacancies that might prevail if rents were increased. During a transition
period, leases are likely to be written for shorter terms than will be incorporated in
contracts after all, 'or nearly all, vacancies have been absorbed and rents have risen.
After a prolonged period of high occupancy and high rents, construction of new
office space on which still higher rents can be charged increases. New facilities are
readily absorbed, since higher rents are not the deterrent to occupancy which they
would be in periods of business contraction, and considerable prestige attaches to the
occupancy of new and modern office facilities. The time involved in the projection,
planning, and construction of new office facilities is so long and it is so difficult to
anticipate the changes that may occur in the demand for space from the time a project
is initiated until it is completed that construction activity usually continues well past
the point at which demand has been met. In the last phase of business expansion,
therefore, the volume of office construction is usually at or near its peak, and the
structures finished late in the period, or after expansion has turned into a phase of
contraction, are difficult or impossible to fill. Vacancies multiply in existing structures,
and new structures maintain their high rent schedules and their high occupancy only
by granting concessions. At the peak of construction activity vacancies, rent
reductions, and concessions are first apparent in older structures. As business volume
shrinks, vacancies increase and rentals are reduced in all structures, new and old. As
in the case of large apartment houses, the minimum rents that can be scheduled are
those necessary to meet costs of operation, taxes, and debt service. When income falls
below this level, foreclosures increase. It should be observed, however, that such rental
schedules for offices do not seem to approach minimum levels as closely as apartment
rental schedules do. According to data compiled by the National Association of Building
Owners and Managers, the percentage of rental area occupied in reported office
buildings declined gradually from 92 percent in 1925 to 87 percent in 1930, and then
fell off more rapidly, with the contraction of general business, to 73 percent in 1933
(Table 45). The gradual decline in the occupancy ratio through 1930 must be
accounted for by the provision of additional space at a rate more rapid than was
necessary to meet the demands of expanding business, since the number of business
enterprises was increasing until 1929.
13.6 Land and Improvements Used For Industrial Purposes
Land and improvements used for industrial purposes vary widely as to types, size,
and other characteristics. They may consist of a large plot and a one-story building in
which a single product is made, or of land and a multi-story structure where a variety
of products are manufactured; they may be temporary structures in the rear of lots
used principally for commercial or even residential purposes, or permanent structures
 120
specially planned for a particular enterprise and located on a selected site; finally,
industrial plants may be found in isolated locations or clustered in districts. Probably
in no other kind of use are land and improvements employed for a greater variety of
purposes, or under more varied conditions. In consequence, the market in which rights
in land and improvements for industrial use are bought, sold, and exchanged is
complex and varied and difficult to characterize generally. Certain observations can be
made, however, concerning the main types of industrial land use and the nature of the
market for them. The single purpose plant, especially that utilized by heavy industry, is
usually designed for a particular occupant, and is commonly fitted with special
machinery and equipment, the arrangement and space requirements of which are quite
rigidly determined by the character of the processes and products involved. Examples
are automobile manufacturing and assembly plants, oil refineries, agricultural
implement manufacturing plants, machine tool and aircraft manufacturing and
assembly plants, and the like. Since the development of mass production methods, this
type of plant has become typically a one-story structure widely sp'read over a large
area. In recent years, new plants have been constructed principally in outlying areas
where big plots, including large parking areas, could be assembled at low cost. This
decentralization is, in fact, an important force in changing the pattern of land uses in
the outlying areas of urban communities.
Characteristics considered essential to sites of this kind are size,. direct access to
adequate highways and spur railroad sidings, and location within distance of an
adequate labor supply.' Plants of this type are seldom bought, sold, or exchanged
separately. Designed and equipped for a specific operation, they are usually transferred
from one ownership to another only as a part of the assets of a going concern which is
being transferred as a whole. Also, the financing of this kind of plant usually is
completed as a part of the financing of the undertaking as a whole; even though a
mortgage on. land and, improvements may be given as specific security, the purpose is
generally not to obtain funds for a specific purpose, but rather to give a preferential
position to one or more creditors. The second type of industrial improvement is the
multi-story building in which space is rented by a number of light industries,
commonly called a "loft" building. Loft space is more nearly standardized than space in
the specialized industrial structure, and it generally provides for a minimum of special
equipment or machinery. Much loft space, in fact, has a flexibility in arrangement and
use similar to that which characterizes office space. As a consequence, the market for
loft space is wider and better organized than the market for large plants. Since the
demand for this kind of space arises from individual firms whose needs depend upon
the volume of their business, it tends to expand and contract with industrial activity.
In large cities there is a noticeable tendency for light manufacturing to become
concentrated in certain areas and in certain buildings, depending mainly on the type of
product and the relative importance of nearness to market. Most products of light
manufacturing are such that proximity to railroads or waterways is less important
than the availability of skilled workmen and nearness of market. The lightness, small
 121
bulk, and high value of products enable delivery by truck (or even by hand) to
distributors or terminals. Finally, the most highly organized market for industrial real
estate is found where industrial areas have been established, developed, and managed
as such.'6 Typical cases are the Central Manufacturing District and the Clearing
Industrial District in Chicago, both of which began in the late nineteenth century and
were initiated by railroad managements as a means of utilizing land and acquiring
freight traffic.. Streets and spur tracks were laid out so as to provide maximum
convenience in shipment of goods for the projected factory buildings, and a campaign
was initiated to locate enterprises in the area.
These districts are so organized and financed that they are able to offer great
flexibility to prospective occupiers of factory sites; sites can be purchased in fee and
improved with buildings erected by the enterprise, provided they comply with the
general rules of the districts regarding height, land coverage, and the like, or the
districts will agree to provide on lease to the enterprise both site and, within reasonable
limits, a specially designed structure, or space within an existing structure. The
services of architects and engineers are made available through the district for
designing and building structures and certain maintenance services are supplied.
Assistance is also given the industry in financing the purchase of land and the
construction of improvements.
13.4 REVISION POINTS
1. Leases - Lots
13.5 INTEXT QUESTIONS
1. Explain in detail about Land and Improvements used for Industrial purpose.
13.6 SUMMARY
1. This chapter explained about subdivision lots, commercial and office space and
their improvements in detail.
13.7 TERMINAL EXERCISES
1. In office space the greatest portyon is for _______.
13.8 SUPPLEMENTARY MATERIALS
1. www.Urban Real Estate .Com
13.9 ASSIGNMENTS
1. what are the factors consideredwhile Land improving for industrial purposes.
13.10 SUGGESTED READING/ REFERENCE BOOKS /SET BOOKS
1. Richard U. Ratchiff, Urban Land Economics, Mc Graw Hill Publishing Company
Pvt. Ltd., (2009) Singapore.
13.11 LEARNING ACTIVITIES
Group discussion during PCP Days
1. To discuss about urban Real Estate Market
13.11 KEYWORDS
Lots – Acreage - Leases

 122
CHAPTER – XIV
URBAN LAND USE AND ZONING
14.1 INTRODUCTION
All economic theories of cities have to take a stand on the key force that
agglomerates firms and agents in a compact geographical area we call a city.
Production externalities are one of the leading agglomeration mechanisms used in the
literature. They have formed the basis of many urban models that have undoubtedly
contributed to our understanding of the structure of cities. The equilibrium allocation
in these models is not efficient, so society can gain from urban policies that distort
equilibrium land use structure. City governments have used zoning policies as well as
different types of subsidies and taxes to take advantage of these potential gains. The
practical intent to materialize these benefits highlights the need for a conceptual
framework to analyze and evaluate urban policies. We characterize the optimal
distribution of urban land, and use this analysis to design policies that improve the
efficiency of equilibrium allocations. Our focus is on allocations that maximize total
production net of total consumption in the city. Or, equivalently, total rents. The theory
determines the distribution of business and residential land together with employment
and residential densities at all locations in the city. The two main forces that determine
the optimal allocation of land in our theory are spatial production externalities and
commuting costs. The first force agglomerates firms in clusters. The second disperses
producers, so that workers can live close to their work places. The trade-off between
these two forces leads to optimal allocations that differ depending on the size of
commuting costs and the form and degree of external effects. Low transport costs lead
to a central business district with high employment density, while higher transport
costs result in low employment density or residential areas at the center. If spillovers
decline faster with distance, producers concentrate closer to the center of the city, and
business areas become smaller but with higher employment densities. We use the
model to analyze potential policies to improve efficiency in the city. We find that
location specific labor subsidies are sufficient to implement the optimal allocation as
equilibrium. In contrast, zoning restrictions cannot implement the optimal allocation,
but they can improve the efficiency of the equilibrium allocation, especially when
commuting costs are high.
Our results show that business land and employment are more concentrated in
the optimal than in the equilibrium allocation. In equilibrium, the higher commuting
costs the more mixed areas in the city. In the optimum, mixed areas will disappear and
the land use structure will resemble a Mills city (a central business center surrounded
by residential areas, following Mills, 1967) for reasonably high commuting cost. Even
higher commuting cost will yield multiple business or residential sectors. We will prove
that it is never optimal to have mixed areas in the city. The higher concentration of the
optimal employment density is illustrated in Fig. 1, where we have plotted the Lorenz
Curve of employment concentration in New York City.2 We find parameters so that the
equilibrium Lorenz Curve fits the data as well as possible. We then use the same
parameter configuration to compute the Lorenz Curve for the optimum. The figure
suggests that employment in New York City should be much more concentrated.
 123

Fig. 1. Lorenz Curves of Employment in New York city.

Another implication of the model is that the difference between the Pareto Optimal
allocation and the equilibrium allocation is smaller as the cost of commuting
decreases. In equilibrium, when commuting costs are low, the allocation resembles a
Mills city. The same is true in the optimal allocation, but with more concentrated
business areas. In contrast, high commuting costs imply different optimal and
equilibrium land use structures. Of course, the optimal employment density is greater
than the equilibrium density, since the effect on other firms of one firm employing more
workers is internalized.
There are two sources of gains from reducing commuting costs: a direct effect of
agents paying less commuting costs per mile commuted and an indirect effect via the
concentration of business areas. Policies like road construction, improving public
transportation and parking space provision should consider this additional gain. The
indirect effect has been mostly forgotten in the literature since we lacked a framework
to study land use structures within cities. The need for this framework is also evident
in the design of zoning restrictions. Borukhov and Hochman (1977), Dixit (1973) and
Hochman and Pines (1982) study the problem of optimal allocation of workers within a
city. These three papers obtain densities of workers and households, but they impose
the land use structure by assumption. Other papers like Stull (1974) and Helpman and
Pines (1977) impose a land use structure in the form of a business sector in the middle
of the city surrounded by a residential area, but obtain the optimal size of the business
sector endogenously. However, they use the assumption that agents commute to the
center of the city instead of their actual work places. This assumption turns out to be
an important simplifying assumption since it separates the problem of location of firms
from the problem of location of residences. Fujita and Thisse (2002) analyze one
dimensional model of a city with constant employment and residential densities. We
relax both of these assumptions. The model is a two dimensional model since densities
and externalities take into account that economic activity locates in a circular plane, a
disc. However, we consider only symmetric allocations. None of these papers designs
policy instruments to improve efficiency.
 124
Fujita and Ogawa (1982), Berliant et al. (2002) and Lucas and Rossi- Hansberg
(2002) (from now on LRH) determine only the equilibrium internal structure of the city
and not the optimum. The difference is crucial, as pointed out above, since in these
models agglomeration is generated using production externalities. In particular, we will
use the same production externalities as in Lucas (2001). Fujita and Ogawa (1982) and
Berliant et al. (2002) assume a one dimensional city and constant densities of firms
and residents. Although the latter article does introduce location specific capital, LRH
relaxes both of these assumptions. We use the results in LRH extensively. They
constitute the equilibrium allocation to which we compare the results of our model.
Although the basic frameworks are identical, the way in which the equilibrium is
calculated in LRH differs substantially from the way in which the optimum is
calculated in this paper. In LRH, wage no arbitrage conditions are derived and they
constitute an important part of the solution algorithm. For the optimum these
conditions are not satisfied.
14.2 OBJECTIVES
 To make understand How to do zoning and Urban Land Use.
14.3 CONTENTS
143.1 The Model
14.3.1 The Model
We model a circular city where a single good is produced using land and labor.
People consume goods and residential land. There is a production externality that
depends on where other firms locate. Workers allocate one unit of time between
working and commuting to their workplaces. Commuting is costly in time. The
objective is to maximize the value of land in the city. That is, we want to maximize total
production net of residents’ consumption (from nowon ‘net output’).We will consider
only symmetric allocations, where everything depends only on the distance from the
center. Let n(r) be the number of workers per unit of business land at a distance r from
the center (from now on ‘location r’), N(r) the number of residents per unit of residential
land at location r, θ(r) the proportion of land used for business purposes and c(r) and
_(r) consumption and units of land per person.
Firms produce using land and labor. At location r, production per unit of land of a
firm that employs n(r) workers per unit of land is given by g_z(r)_f _n(r)_, where z(r)
denotes the productivity of a firm at location r. Consider a circular city with radius S.
Productivity at each location is determined by an external effect of employment that
declines exponentially with distance. As in Lucas (2001), we let

That is, productivity at a particular location is a weighted average of employment

 125
at other locations. The particular form of the production externalities is arbitrary.
Fujita and Thisse (2002) derive this type of external effects from knowledge spillovers
between firms. It is possible to show that z(r) is also the reduced form of different types
of agglomeration effects. For example, if agglomeration effects are the results of
differences in local demand and increasing returns.
There are many empirical papers that test for spatial production externalities.
Some examples are Ciccone and Peri (2002), Ciccone and Hall (1996), Dekle and Eaton
(1999), Ellison and Glaeser (1997), Glaeser et al. (1992), Henderson (2001), Jaffe et al.
(1993), Moretti (2002), and Rauch (1993). All these papers find evidence of
agglomeration effects. In particular, Dekle and Eaton (1999) find that the external
effects decline with distance, particularly in the financial services sector. Jaffe et al.
(1993) also provide evidence on patents that suggests that interactions decline with
distance. Glaeser et al. (1992) find evidence that supports external effects among
different industries and not only inside particular industries. The same is true for
Ciccone and Hall (1996) that show that the density of economic activity determines
productivity. This is important for us, since we have a one good model and so the
external effect affects all firms. Agents derive utility from residential land and
consumption of goods. The utility of an agent that consumes c(r) goods and occupies
E(r) units of land is given by U_c(r), E_(r)_.
Commuting is costly in time. Each worker is endowed with one unit of labor. This
unit is spent working and commuting. An agent that works at location r, but lives at
location s, spends
1 − κ|r − s| ≈ e−κ|r−s|
units of time working.
Define the state variable H(r) as the stock of unhoused workers at location r. Given
housing and employment at locations [0, r), H(r) keeps track of how many workers need
to be housed at locations between r and S (the rest of the city) in order for every worker
in the city to have a place to live. We construct this stock as in LRH using a differential
equation with boundary condition H(0) = 0. At any location r, to calculate the change in
H(r) in an interval dr, we need to compute the net number of unhoused workers in the
interval,

We also need to take into account that, if H(r) is positive, we are housing workers
dr miles farther away from their work places. This implies that they commute for longer
and therefore supply less time for work. Since employment at locations [0, r) is given,
we need to house more workers in order for them to supply the needed amount of
work. In particular, we need to house κH(r) dr more workers. The above reasoning leads
to the following differential equation,
 126
If H(r) is negative, as we increase r we are employing workers farther away from
their residences, so we need to reduce the amount of employment necessary to provide
every resident with a job. So, for H(r)<0,

The maximization problem can then be stated as:

Problem (O). Choose functions n(r), N(r), θ(r), c(r), _(r), z(r) and H(r) so as to
maximize

Constraint (2) states that the proportion of land used for business purposes has to
be between 0 and 1. (3) guarantees that every household gets at least a reservation
utility ￣u. One useful way of thinking about this constraint is to let the city be part of
a big country.
Then ￣u is the utility that an agent could get if he migrates to some other city.
Constraint (4) guarantees that the density of workers and residents is positive and (5)
determines the amount of land per person. (6) guarantees that the stock of unhoused
workers at the boundary of the city is zero. That is, that all workers are housed in the
city. The last constraint determines the external effect as discussed above.
The Hamiltonian for the problem, without considering (3) and (7), is given by

where ξ(r) is the Lagrange multipliers associated with (3), λ(r) is the co-state
variable associated with (6) and μ(r) is the Lagrange multiplier associated with
constraint (7). The co-state variable λ(r) represents the cost of employing an extra
 127
worker at location r. It is the costs of giving the worker land at some location in (r, S]
and enough consumption to obtain utility ￣u.
The first-order conditions after eliminating the Lagrange multipliers ξ(r) and μ(r)
are, for all r ∈ [0,S],

where the first two conditions hold with equality if n(r) > 0 and N(r) > 0. In the last
condition, the left-hand side is greater if θ(r) > 0, smaller if θ(r) < 0, and equal to the
right-hand side if θ(r) ∈ (0, 1).

These equations plus the constraints and

(6), form the system of first-order conditions.

The last terms (8) represents the effect on other locations of hiring an extra worker
at location r. Since this term is positive, if f is concave, n(r) will be larger than if the
externality was not internalized. It is also useful to understand the intuition behind
condition (10). Rewrite it as

Then, the first term on the left hand side is total output per unit of land if location
r is a business sector. The second is the total gain in output at other locations from
producing at location r, caused by the external effect, and the third represents the cost
of employing n(r) workers. On the right hand side, N(r)[λ(r) − c(t)] are the benefits in
terms of net output of housing N(r) worker at location r. As we mentioned before, λ(r)
has the interpretation of the unit cost, land plus consumption, of employing an extra
worker. So [λ(r) − c(t)] is the gain per resident of assigning the land at location r for
housing. Hence, the first-order condition compares the benefits, in terms of net output,
of land being used for business or residential purposes. The Maximum Principle
provides an extra condition on the behavior of the co-state variable. Namely,
 128

and Pontryagin Maximum Principle also requires λ to be continuous. The system

of first order conditions can be solved for n, N, c, z given λ(0) and θ . Using (6) we can
then solve for the value of λ(0). Given this, we can use the condition above to calculate
λ at all locations r where H(r) > 0 or H(r) < 0. If H(r) = 0, then ∂λ(r)/∂r = −κλ(r) E. Rossi-
Hansberg / Review of Economic Dynamics 7 (2004) 69–106 77 if θ(s) = 1 for s > r
arbitrarily close to r and ∂λ(r)/∂r = κλ(r) if θ(s) = 0 for s > r arbitrarily close to r. If θ(s) ∈
(0, 1) for s >r arbitrarily close to r, then if

since we are accumulating unhoused workers so H(s)>0 and λ is a continuous

function. If

since we are decreasing the amount of unhoused workers. Finally, if

θ(r)n(r)− _1 − θ(r)_N(r) = 0,
we can use this equation to solve for ∂λ(r)/∂r.
The above description implies that we can solve for all variables in terms of θ. The next
section provides an algorithm to find the optimal land use structure, summarized by θ.
14.4 REVISION POINTS
Zoning Regulations – land use
14.5 INTEXT QUESTIONS
1. Explain in detail with a Model How to do Zoning?
14.6 SUMMARY
1. This chapter explained through mathematical Model how to do zoning.
14.7 TERMINAL EXERCISES
1. The urban zoning should include _________% of land for agriculture.
14.8 SUPPLEMENTARY MATERIALS
1. www.rgplan.org / presentation
14.9 ASSIGNMENTS
1. The factors to be considered while zoning.
14.10 SUGGESTED READING/ REFERENCE BOOKS /SET BOOKS
1. Fredrick Gibbered, Town Design, Architecture Press (2002) London.
14.11 LEARNING ACTIVITIES
Group discusiion (during PCP days)
1. To discuss about zoning regulations
14.12 KEYWORDS
Model – Zoning – Land Use.

600E210
Annamalai University Press 2018 – 2019
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