Chapter Three

Urban land use patterns, land values, and role of local states in urban
land management
Introduction
Land is considered as a basic source of production in any country with comprehensive social,
economic, political, cultural, and spiritual implications.
Land is defined under the Land Acquisition Act, 1894 as ‗the expression ‗land‘ includes benefits
to arise out of land, and things attached to the earth or permanently fastened to anything attached
to the earth‘. Because of its different use and physiognomies, land is a key tool for the urban
economy. Understanding the market value, the factors associated with the prices and the supply of
urban land is significant for executives to value land, adopt the land tax, and for policymakers to
formulate land-related policy reforms.
Urban land use is determined by the various decisions made by firms, households and the
government (primarily local authorities). Firms occupying shops, offices and factories have on
occasions to decide whether to expand and, if so, whether to move or redevelop the existing site.
Moreover, in a dynamic economy, new firms come into being and have to choose where to locate.
Similarly, households decide where to live, and if many people move in a particular direction - for
example, to the suburbs - it profoundly affects the character of urban land use. Finally, government
authorities influence land use through the control of development, overall transport policy and the
siting of roads, and by local authority house-building and comprehensive redevelopment.
Our first approach will be to assume a market economy where:
(i) Resources are allocated on the basis of prices, costs and profits;
(ii) Firms and households have preferences for settling in particular locations and these
preferences are reflected in the price/rent they are prepared to pay for the use of land;
(iii) Owners of land sell/let to the highest bidder.

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 (iv) Knowledge of the market by buyers and sellers is sufficient to provide competition;
(v) There are no dynamic changes, the transport system, transport costs, technology, and so on
remaining unchanged; and
(vi) There is no government interference in the market.

1.1 Determinants of the price of urban land

Urban land is an area which is characterized by concentration of population and various other uses
for different activities. Urban areas are termed as cities, towns or conurbations.
Urban land is defined under the Urban Land (Ceiling and Regulation) Act (ULCRA), 1976 as:
1) ―Any land situated within the limits of an Urban Agglomeration (U.A) and forming part of
Master Plan, if prepared.
2) If there is no master plan, any land within the limits of U.A and situated within the local limits
of Municipal Corporation, municipality, notified/town area committee and cantonment board
area‖. However, urban land does not include any land within the limits of a U.A, if:
i) It is used for the purpose of agriculture and horticulture.
ii) The land is entered in the revenue land records, as used for the purpose of agriculture and
not for any other purpose.
The price of land, like the prices of other goods, is determined by the interaction of supply and
demand in the market. In the sense that the total supply of land is fixed, the price of land can be
regarded as being determined by demand alone. For spatial reasons, land is limited in supply,
especially land in the center of an urban area. Nevertheless, the supply of sites for any one use
cannot be regarded as being completely inelastic, since alternative, although less-preferred,
locations exist as we move outwards from the Centre. Thus, any increase in the demand for land
of a particular type or for a particular use is capable of bringing forth additional supplies.
Moreover, greater intensity of site use is possible, chiefly by the addition of capital to build
upwards.
Demand by firms and households for a particular location depends upon the expected net revenue
yield/utility. The price/rent is what has to be paid by a particular use to prevent the site going to
some other use.
Since different locations have different use-capacities, a pattern of differential rents emerges.
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 Furthermore, the pattern of land use reflects the competition between alternative uses for sites in
the market. Thus, land values and land use are determined simultaneously. The greatest demand
will be for those sites having the greatest relative advantage. This is likely to make intensive
development of the site profitable.
Those users (such as offices) who can use the site most intensively will be able to pay the highest
price/rent. Often, however, this result in a site has a split use - for example, shops outbidding other
users for the ground-floor of a building, with offices or residences occupying the upper stores.
Similarly, a household seeks to maximize the utility advantage of a locality over costs of travel.
Our initial task, therefore, is to examine what determines rent-earning capacity for land in a given
location. In general, the bid will depend upon businessmen's profit-maximizing decisions and
households' utility-maximizing considerations. The businessman will seek that location which
maximizes net gain, i.e., the difference between earnings and costs.
1.2 Urban land value
What determines rent-earning capacity (worthiness) of a given plot of land? The maximum
amount that a particular activity can bid for land in a given location depends upon businessmen's
profit-maximizing decisions, and households' utility-maximizing considerations. The businessman
will seek that location which maximizes net gain, that is, the difference between receipts and
costs. Household seeks the location that maximizes the utility advantage of a locality over travel
costs.
In other words, businessmen locate their activities where they can maximize profits, and
households live where they can maximize utility, that is, achieve the greatest residential benefits.
But what determines profitability and utility? The principal factor that determines profitability
and utility maximizing ability of land is accessibility - the advantages of a particular urban
location in terms of movement, convenience and amenity. Accessibility can be examined under
the headings of general accessibility and special accessibility.
General accessibility means the advantage of a particular location in terms of the movement
costs it avoids and the revenue earning capacity it affords. Thus, firms require general
accessibility to factors of production (particularly labor) and to markets, while households seek
accessibility to job opportunities, shops, schools and recreational facilities.

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 Generally speaking, many business users find that the Centre of the urban area, the Central
Business District (CBD) affords the greatest accessibility. On the other hand, the CBD is
limited spatially, a n d competition for sites there results in high prices/rents. Thus, the
advantages of accessibility have to be compared with the level of rent. For shops, accessibility
to as many customers as possible is paramount and the revenue-earning capacity of ground
floor locations in the CBD enables them to outbid other users.
Similarly, offices which are labor- intensive, find upper-store locations present no great obstacles
to accessibility and so they are able to outbid other users.
Special Accessibility: location decisions may also be influenced by special accessibility resulting
from external economies of concentration or complementarity. External economies of
concentration can take the form of a ready supply of trained labour (such as secretarial skills),
common services (such as servicing office equipment), and reputation of the location which has
a pulling or attractive effect for a location. However, for some businesses diseconomies of
concentration such as traffic congestion may exercise a repellent effect, and eventually reduce the
general accessibility of a locality.
Complementarity exhibits different aspects. First, shops selling comparison goods (for instance,
ladies' fashions, antiques and works of art) can, by pulling together, tap each other's trading
market and enhance the reputation of the locality for a particular good through the greater
choices offered to customers. Second, personal contact with other specialists during the working
day may be necessary (for example, advertising agencies and newspapers, discount houses and
banks). Third, consumer services (such as restaurants, cinemas, theatres, hotels) congregate in
the CBD since they serve the workers and shoppers there.
Fourth, complementarity induces smaller shops to be near a dominant retailer or may even bring
together unlike activities. But sometimes complementarity may be negative, acting as a

repellent. Special accessibility often means that, within the pattern of urban land use produced
by general accessibility, there is a 'clustering' of shops and activities. As many special
accessibility advantages are likely to be strongest in the CBD, they serve to reinforce its general
accessibility superiority.
As regards residential location decisions, both aspects of special accessibility, - concentration

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 and complementarity - are relevant. Concentration of population promotes the provision of
schools, churches, libraries, and recreational and cultural facilities. Similarly for
complementarity: not only does nearness to different facilities enhance the residential
attractions of a district, but often households prefer to live alongside others of the same social
and cultural background, religion or race.
Additional factors determining broad structure of urban land use and producing differences in
land value across city include:
(a) Topographical features- physical aspects such river, mountains, plains, slopes, wind,
climate, and geology – often influence the location decisions of different activities.
(b) Institutional and economic factors- for instance the willingness of institutions to provide
funds for housing and other developmental activities in the urban area.
(c) Dynamic factors, chiefly the secular increase in real income and technical developments,
also alter location. Both have an effect on the pattern of land values. For instance, the wide
ownership of cars may result in setting up of out-of-town residences.
(d) Government policy, both central and local, influence location decisions through its
policies on taxation, planning, parks, open spaces, conservation, transport and traffic
congestion, housing, schools, universities, public utilities, hospitals, and so on.
1.3 Bid Rents and Location Gradient: the importance of relative location
Much of the theory of urban land use is based on the work of Alonso (1964) and Muth (1969)
and draws on concepts from microeconomics. Within this theory, patterns of land use are
determined by land values that are, in turn, related to transportation costs.
We will find that each type of urban activity will have its own bid rent function and the
combination of several bid rent functions will define the rent gradient. To illustrate the theory, it
is useful to begin with an extremely simplified example.
To begin with, let us assume the following:
1. The city is comprised of many identical producers that operate in a perfectly competitive
environment.
2. All land is privately owned.
3. All firms are identical and sell in competitive markets, each firm generates a normal rate of

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 profit, can sell as much as it wants, and faces the same set of production costs as all
other firms.
4. The market place for goods and services is located in the Centre of the city such that all
goods and services must be sold there. Consequently, for a firm to sell its product it
must be transported to the market located at the city's Centre.
5. Transportation costs are a linear function of distance. Therefore, total costs to the firm
will be higher for firms located at greater distance from Centre.
6. The city's population is evenly distributed and households have uniform tastes for housing
Because transportation costs are low near the CBD and higher away from the CBD, firms
locating near the CBD are willing to pay more for centrally located parcels of land in order
to minimize their transportation costs. Similarly, because added transportation costs at more
distant locations will reduce profits, firms will not be willing to pay as much for land at
more distant locations.
Because all firms are assumed to generate the same level of profit, and firms at more distant
locations will incur higher transportation costs, they will only be willing to bid up to the
amount at which lower land costs are exactly off-set by their higher transportation costs.
Similarly, the higher value of land at the CBD reflects the capitalization of transport cost
savings into the price of land. This feature of urban land use theory causes land values to decline
with distance from the center city.
In land economics, the amount one pays for the use of land is called rent and the way in which
rent changes with distance is called location rent (i.e. the advantage of one parcel of land over
another because of its location; the concept of declining rent with an increase in distance from
the market). The users of land are conceptualized as participating in an open bidding process
such that the highest bidder for a parcel of land will occupy that parcel. Because all persons
involved in the bidding process have complete information about costs at alternative locations
(assumption #1), and no one will bid more for land than the land is worth, the bidding process

continues until bid rent (i.e. it is the amount of money offered to purchase a piece of land)
exactly equals location rent.
The bid rent for land equals the difference between total revenue and total cost. Competition

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 for land ensures that the land owner gets the excess of total land over total cost. Suppose that a
typical producer occupies one hectare of land and produces Q tons of output which is sold at a
price of P per ton. If the transport cost is t per ton per mile, total transport cost for the firm
located at U miles from the market place is TC = t.Q.U. If the producer spends C on non-land
production cost (labor, raw materials) and land rent is R, the profit per hectare is: = [P.Q] –
[C + t.Q.U + R]. For zero economic profit (under perfect competition assumption all firms
make zero economic profit), the bid rent for land is R = [P.Q] – [C + t.Q.U] because land near
the market place has low transport costs, the firm is willing to pay more for this land. The
bid-rent function shows how much a firm is willing to pay for land at different distances from
the market/CBD. The function is negatively sloped: transportation costs are lower near the CBD.
The basic shape of the bid rent function is illustrated in Figure 1.

Figure 3.1 The Bid rent function

What happens when we allow more than one type of firm? Suppose we relax the first
assumption above and instead of having one type of economic activity we now have two, say,
retailing and manufacturing. Each type of activity will place a different value on accessibility.
How will land be divided between these two activities? If retailers‘ value access to consumers
more than manufacturers, and the population is evenly distributed throughout the city, then
retailers will want to locate in the Centre to maximize access to consumers. In addition,
there may also be agglomeration economies for retailers because clustering facilitates both
contact between entrepreneurs and comparative shopping by customers. For manufacturers,
access to markets and labor is important, but less important
than for retailers.

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 Figure 3. 2 Bid Rent Functions for Retail and Manufacturing
In Figure 2, the intersection of the two bid rent functions (point d 1) defines the point at which
land use changes from retail activities to manufacturing activities. We can draw a line from the
intersection of these bid rent lines down to the x-axis and mark the x- axis at d1. According to
this graph, retailers would occupy land from the CBD out to the point d 1. Up to this point, the
retail bid rent line is above the bid rent line for manufacturing. Thus, up to the distance d 1,
retailers would be willing to out-bid manufactures for the use of land. Beyond d 1, the bid rent
line for manufacturing is above the retail bid rent line, so manufacturers would be willing to out-
bid retailers for land from d1 to d2. Thus, under these conditions we would expect to find retail
activities at a distance of d1 from the CBD and manufacturing activities at a distance of d1 to d2.
Figure 2 also helps highlight some important outcomes from the theory of urban land use.
The first such concept is that of spatial equilibrium. In this case, spatial equilibrium is a
condition in which there is stability in the pattern of land use. Stability of land use occurs when
there is no incentive for, say retailers, to out-bid manufacturers for land beyond d1 (at least in
this example). Similarly, manufacturers have no incentive to out-bid retailers for land
between d1 and the CBD. If the conditions that gave rise to this pattern did not change over
time, the pattern of urban land use would not change and would be said to have reached a
condition of spatial equilibrium.
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Now so far, we have discussed only land uses for firms. In order to introduce the location of
households, we must drop the assumption of even population distribution (assumption #6) and
allow households to compete for land in the same manner as firms. It is likely that while
many households will value access to the CBD to minimize on commuting costs, many
households will also value open space and lower density lifestyles. If this is the case, then
households will have a bid rent function for urban land that is flatter than the bid rent line for
manufacturers. This is illustrated in Figure 3. 3

Figure 3.3 Allocation of land between three uses

In Figure 3, we have three types of users of urban land: retail, manufacturing and residential.
The bid rent functions for retail and manufacturing are similar to those shown in Figure 3.
Because of the flatness of the bid rent line for residential use, we would expect to find
households (residential land use) at the furthest distance from the city's centre. The point at
which land changes from manufacturing use to residential use is marked on the x-axis at point
d2. Beyond d2, households would out-bid manufacturers for land and residential land use
would extend to the distance d3. Beyond d3, urban users do not value land and its value falls to
the value of agricultural land. If the city is symmetrical (which is never really the case) the
pattern of land use will form a set of concentric rings as show in Figure 3.
Tracing only the upper-most portions of each bid rent function renders the land rent gradient, as
illustrated in Figure 4. The rent gradient indicates the rate at which the value of urban land
declines with distance from the CBD. It is also worthy to note that because land prices increase
closer to the CBD, centrally located land will tend to be used more intensively. In such a case,
the intensity of urban land use is correlated with the height of buildings (generally taller

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buildings being located on higher valued land) which helps explain why tall buildings are found
in central business districts. As one moves away from the CBD both the value of land and its
intensity of use decline, as do the height of structures.

Figure 3.4 Generalized Urban Rent Gradient

While no city conforms exactly to the concentric ring pattern of land use, it is nevertheless a
useful concept in our discussion of urban land. To this day, most major cities have a traditional
core that is identifiable by its concentration of tall buildings.
3.4 Land markets, Speculation, and governments in the urban economy
Several studies on land development and management have been conducted over the years,
citing both policy successes and failures. Most of these have concentrated on the technical
aspects of land development and management rather than its political aspects and decisions on
how to implement often require political rather than technical grounds. This part is aimed on
concepts and issues in urban land markets and on possible policy tools to address these issues. A
special emphasis is placed on increasing the access of the urban poor to the formal land and
housing markets.
By the year 2025, most world population will be urban dwellers (World Bank). How well cities
function as a system will determine the future of the world. In the past 30 years the urban
population in all regions of the world has increased dramatically (or 260 per cent) and in the
next 30 years it is expected to increase by about 280 per cent.
This unprecedented urbanization process has been fueled by rapid economic growth and even
more rapid industrialization. With the globalization of economies this trend towards rapid
economic growth and urbanization is likely to continue and even increase. Several mega-cities
and large cities, with populations over a million have emerged and will continue to emerge.
Cities are centers of both hope and despair: while being engines of economic and social
development they are also congested centers of poverty and environmental deterioration. With

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 most of its value added economic activities and populations located in urban areas, how well
cities function as a system will determine the future of the world. Importance of urban land
Market In traditional capitalist literature land is regarded as one of the three basic factors of
production in an economy together with labor and capital. Land is a special component because
unlike labor and capital it is finite. Land or at least land-use rights have been used as a
commodity to be bought and sold in capitalist systems for at least the past two centuries.

If land and property markets are not regulated, they can contribute to the collapse of capital
markets, and cause unemployment. The urban economy comprises three basic markets: the urban
land market, the urban capital market, and the urban labor market. These markets are inexorably
linked and dependent on each other. Of these markets the land market most directly affects the
urban environment and the quality of life in cities. Efficient and equitable land markets are a
prerequisite for well-functioning cities. However, most cities in developing countries of the
region suffer from land market distortions caused by poor land development and management
policies including poor planning, slow provision of infrastructure and services, poor land
information systems, cumbersome and slow land transaction procedures, as well as under
regulation of private land development, leading to unplanned or ribbon/corridor development of
land in the urban periphery.
Distortions in the land market often lead to land speculation. In fact, as it became evident
recently in the South-East and East Asian economies and very recently in Africa, if land
and property markets are not properly regulated, they can contribute considerably to the
collapse of capital markets, and cause unemployment in the labor markets.
Political aspects of land development and management
The key to efficient land markets is the easy and rapid availability of developed land. In the
urban periphery there is need for more planning controls. What this means is proper regulation
which facilitates the development of land but at the same time provides rules which protect
the environment and improve the quality of life of urban residents. The main constraints to
efficient land markets are often more political than technical. Land in and around urban areas
are either owned by the government, by the private sector or, it is owned communally by tribes
or clans. Often large land owners, be they governmental, communal or private, have a vested
interest in maintaining the status quo. These vested interests gain more by keeping the land
markets fragmented, without proper controls and by keeping the dealings in the land market
non- transparent. While they profit from the status quo the prime losers are the urban residents,
particularly urban poor.
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 Land development and poverty alleviation

The urban poor suffer most from a dysfunctional city. Distortions in the land markets allow land
speculation which often prices the poor out of the formal land markets, into the informal land
markets which are exemplified by slums, squatter settlements and illegal sub-divisions, mainly
in the periphery of cities. This leads to longer commuting time and costs, very poor living
conditions, caused by a lack adequate infrastructure and services, causing poor health and
greater expenditure, thereby entrenching the cycle of poverty.
Characteristics of efficient land markets
Efficient, equitable, and well-functioning land markets are prerequisites for well-
functioning cities and poverty reduction in urban areas. Once land is traded as a commodity a
land market is considered to exist. A well-functioning land market could be defined as one
which is:
Efficient: the system governing the land market encourages quick development and transaction
of land.
Equitable: the system governing the land market provides reasonable access to all income
groups.
Environmentally sound: the system governing the land market protects its sustainable use for the
good of both current and future users.
Compatible: the system governing the land markets is integrated with other laws and regulations
governing land, such as, planning, taxation and provision of public infrastructure and services.
A poorly functioning land market leads to several ills including, land speculation, creation of
slums and squatter settlements, environmental deterioration, and an inefficient urban
development pattern which increases the cost of doing business in the city and adversely affects
the urban economy.

Land speculation and its consequences

Land speculation occurs when the demand for land, at the present time or in the near future,
outstrips the supply of land. This can be caused by several factors both on the demand side and
on the supply side.
On the demand side land speculation can be triggered by excess liquidity in the financial
markets caused either by rapid economic growth or by lack of opportunities for investors in
other sectors of the economy in slow growing economies. In either scenario investors invest on
a short term to medium term basis in the land market waiting for prices to increase and sell
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their tenure at a profit. Land speculation can drive land prices beyond the productive value of
the land, causing a "bubble" land and property market.
On the supply side land speculation is caused by bottlenecks in the availability of serviced-
land (land with access to basic infrastructure such as roads, water, electricity etc.). These
bottlenecks can be caused by several factors either in the land development phase or in the
transaction phase (slow provision of infrastructure and services, poor city planning, poor land
records, and cumbersome procedures to buy and sell land). Slow infrastructure provision, as in
the case where government agencies are in charge of providing infrastructure in many
countries, is the primary cause for rampant land speculation.
Another cause of slow land development is poor city planning. The government often provides
arterial infrastructure. Thus only land closest to the arterial infrastructure is developed, causing
ribbon or corridor development. Such development is often found on the periphery of many
developing countries cities. Land farther away from the arterial infrastructure is often left
serviced and thereby unusable for urban purposes. Thus one gets city development patterns with
large pockets of vacant, undeveloped land in the city. This type of development causes
increased economic costs of doing business in the city as it increases the costs of transport and
provision of infrastructure.

In addition to high economic costs land speculation has high environmental and social costs.
Rather than develop existing vacant land within a city land developers find it more profitable to
develop new land along transport arteries in the periphery, often by converting agricultural land
or land earmarked as green areas. This type of ribbon development puts greater pressure on
natural resources. It also increases the costs of disposing urban waste water and solid wastes.
Social costs of land speculation can also be very high. As stated earlier it can drive the urban
poor out of the formal urban land market, pushing them into squatter settlements, illegal
subdivisions and slums. Poor housing and infrastructure conditions not only increase the cost of
living but also cause poor health and entrench the cycle of poverty. In some countries,
speculation in the land markets has made housing unaffordable even for the middle classes.
Government interventions in urban land markets
The rapid urban development process taking place in developing countries leads to swift and
drastic changes in the physical, economic, social, political and administrative structures of the
country‘s cities. Historically governments have felt a need to guide and control the important
structural changes which occur within their domain. This holds true especially for a scarce
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resource such as land. Three main justifications for government interventions in the urban land
market are often cited:
1. Eliminating market imperfections and failures to increase operating efficiencies.
2. Removing externalities so that the social costs for land market outcomes correspond
more closely to private costs.
3. Redistributing society's scarce resources so that disadvantaged groups can share in
society's output.
Governments have a wide variety of tools available to implement their objectives of regulating
land market within its boundaries. These include land registration, planning tools, zoning
ordinances, permits, inspections and penalties. However, their implementation has had limited
results.

Land registration
Efficient functioning of land markets requires efficient and updated land registration systems
which clearly indicate legal ownership of land. As populations gradually grew in most societies,
land became an increasingly scarce resource and various types of rights to use the land develop.
It became increasingly necessary to develop systems which would clarify ownership and
minimize disputes in land ownership rights and transfers. Land registration is also important for
governments for collecting property taxes. Without knowing who owns the land and what that
land is being used for, governments cannot levy property taxes. Some of the major benefits are
listed below.
Security of ownership and tenure rights: this is the most important impact. It reduces the
amount of land disputes which currently is a major issue in developing countries. The security of
ownership also stimulates land development.
More efficient land transfers: the costs of delays for permits are a serious constraint in most
developing countries, and an efficient registration system makes transfers easier, less
expensive and more secure.
Security of credit: the land title can be used as collateral for loans. This security has a positive
impact on the productivity of the land since it enables the release of major financial resources
for investment in the land.
Public control of land markets and intervention: policies such as land redistribution and
control over foreign land ownership are difficult to implement without a functioning
land registration system.
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Support for the land taxation system: the expenses for improving the cadastral system
would, in actual fact, quickly are covered by increased property tax revenues.
Improved land use and management: it can directly provide better information on land
ownership and rights for physical planning as well as facilitate the development of other
planning tools such as information banks covering land use, land values, population etc. It can
also provide a tool to restrict certain land uses with a negative environmental impact.

In developing countries governments have been unable to improve the efficiency of land
registration systems because of institutional, technical, and motivation constraints and a lack of
political will. The institutional problems include shortage of skilled and lack of inter-
organizational a n d i n t e r -departmental c o o r d i n a t i o n. Technical problems include the
inefficiency and inflexibility of the existing system and the high standards regulated for
surveys. The motivation problem often stems from the fact that registration of such a scarce
and valuable commodity such as land is politically sensitive matter.
Planning tools
Physical planning guides development of a city and promotes pre-determined land-use pattern.
Physical planning in developing countries is most often regarded as essentially static in nature,
lacking effective land-use control mechanisms and investment priorities. Planning is restricted
by the lack of feasible means to ensure implementation, anticipate market reactions, as well as,
means to consider the cost implications for various government agencies and the economic
impact on various income groups.
The most commonly used planning tools include master plans, structure plans, and zoning.
The broad objective of these plans is to guide the development of the city for a specified time
period and to promote the land-use pattern which most efficiently fulfils the objectives of the
government.
Master plans
Master plan is detailed plan which is used to guide land-use and development in cities. But
master plans tend to be static or assume slow-growing cities. These plans also tend to be too
time-consuming, detailed and costly to develop and are mostly failing to consider the full
consequences of economic demand for space. They also tend to ignore how households and the
commercial sector alter their demand for land as prices change.
Structure plans
A more appropriate and dynamic planning tool for developing countries is structure planning.
15
This approach highlights the critical issues and prioritizes infrastructure and investments which
are the key issues for shaping city growth. It provides a broad framework for local
decision-making and it involves public participation. The structure plan includes some practical
actions which are necessary to influence development towards the defined objectives.
Land use zoning
Land use zoning is the division of land into districts having different use rights, regulations
and laws. Land use zoning is effective to control densities and protect the natural and living
environments. Zoning dictates to the land owner the purposes he or she can use the land for and
what can be built on that land. Zoning regulates the use of land in areas for residential,
commercial, industrial, agricultural or other land use. Some zoning ordinances apply "bulk"
control over land and buildings. They aim at controlling the density of population, and
production and traffic. Zoning can be a very powerful planning tool as it permits the
government to select which land uses should be allowed. However, zoning is very difficult to
implement effectively as, contrary to regulated zoning ordinances. For example, land in some
cities is frequently used for other or mixed purposes such as residential and commercial use.

3.5 Coping mechanisms of the poor; informal land markets

Land and housing have especial significance for the poor. Often a house for a poor is not just
a shelter it is also a place for income generation. Urban settlements of the poor in developing
countries are characterized by slums and home-based informal business from which the poor
earn their incomes. When the poor are locked out of the formal land and housing markets they
revert to the informal land and housing markets to meet their needs. Slums, squatter
settlements and illegal settlements are often the critical situations in developing countries.
Slums
Slums are legal but overcrowded, under-serviced (under substandard) settlements. Slum
dwellers are low-income individuals or households mainly in the urban informal sector. Slum
settlers could be either renters of the shelter, or the land or they could be owners of the land and
dwelling. Slums are normally found in the centres of cities, although it is not uncommon to find
slums, where land is rented, in the urban periphery.

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Squatter settlements
Squatter settlements are settlements where land has been occupied illegally. They are
unplanned, often unserviced illegal settlements. They are often found on marginal or
environmentally hazardous lands, such as beside railway tracks, along rivers and canals etc.
They are also found on government land or land whose ownership is unclear. Squatter
settlements are spontaneous or organic settlements with little or no planning. They often start
out by a few families finding a vacant piece of land and establishing a homestead there. If they
are not evicted, some other families build their houses there and the settlement expands.
Housing conditions can remain substandard for years if the squatters perceive that there is a
threat of eviction. They often minimize the amounts of capital investment in their housing
because their land tenure is illegal.
Illegal subdivisions
While squatter settlements are spontaneous and unorganized, illegal subdivisions are planned
and organized. These usually occur in cities where the government owns large tracts of vacant
land, with low opportunity cost, in the periphery of the city. Illegal settlements are started by
unscrupulous land developers in league with corrupt government officials. Housing conditions
are often better than in squatter settlements because the perception of secure tenure is higher.
With the protection of these corrupt officials these developers occupy government land,
level it and subdivide it, according to government planning regulations, planning space for
commercial, residential zones, schools, hospitals, religious institutions, recreation areas,
primary, secondary and tertiary roads etc. As the settlement grows the developers usually
form a resident's welfare association which lobbies with government agencies to provide
services and infrastructure.
3.6 Bringing the poor into the formal land market
Poverty can be defined as the lack of security and choices. For the poor these two elements are
missing in the land and housing markets. They have very little choice as far as housing is
concerned and consequently, have to live and work in informal and illegal settlements.
Moreover, they also do not have secure tenure in these settlements. The key to sustainable
poverty alleviation is to enable the poor to operate in formal markets like other citizens and
not to make the poor dependent on governments or non-governmental organizations but to
empower them to increase their security and choices.
 Bringing the poor into the formal land and housing markets needs a two pronged strategy:
increasing the choices and available on the supply side and increasing affordability on the demand side.
A) Increasing supply of land for the poor
In LDCs urban migrants and squatter settlements were treated with open hostility. In some
instances, early attempts by governments in these countries to provide low- income housing
focused on the provision of fully-serviced public housing units. This process was generally a
"dead weight" slowing down the process of overall economic development and as response
illegal settlements were often flattened with the help tedious labour or bulldozers.
As it became increasingly obvious during the 1960s and 1970s that attempts to curb rural-urban
migration would not succeed and government housing programs were completely incapable of
keeping pace with the enormous demand, there was a growing awareness that alternative
methods would have to be found. Many experts (John Turner being the foremost) advocated
that if low-income groups were provided security of tenure and depending on the financial
resources of the government if some basic infrastructure were provided, residents would with
time gradually improve their housing. It was argued that the role of the government in housing
should be changed to be an enabler rather than provider. The enabling role of the government
empowers local community groups and later the groups reduce their burden on the public purse.
Sites-and-services
Sites-and-services schemes provide the target group with a plot and basic
infrastructure, such as water, roads and sanitation facilities. The beneficiaries either lease or
buy the allocated land. Often, they are provided access to a loan with reasonable terms as
well as an additional loan for the construction of a house. Illegal settlements
regularization/upgrading

Although the sites-and-services approach offers many opportunities, it is not a feasible method
for providing housing to the majority of urban low-income residents because of the rising
and unpredictable costs. Settlement upgrading through investments on already existing
housing stock and infrastructure is feasible less costly to implement. Settlement upgrading
provides existing settlement dwellers land tenure, as well as, basic infrastructure, this does not
disrupt the integrity of the community and takes into account the investments the poor have
already made in their settlements.
Incremental development
Incremental development can be described as a sites-and-services scheme without the
services. The approach includes mechanisms whereby groups of households are encouraged to
organize themselves, accumulate funds and to provide infrastructure gradually. Construction
begins when the group has collected a certain percentage of the required funds. Through the
incremental development scheme the government seeks to establish a planned and legal
squatter settlement. Infrastructure and services are provided incrementally when the residents
are able to pay for these.
B) Increasing effective demand for land for the poor
While the above techniques discussed ways of providing low-cost land to the poor, this section
will discuss ways of increasing the effective demand of the poor. Traditional government
approaches have concentrated on subsidizing the poor. However, in most instances this policy
has not worked. The key problem with subsidies is that with scarce resources, most
governments have been unable to subsidize all the poor who need housing. Subsidies are not
sustainable and often miss (do not reach) the targeted group and make the poor dependent on
the subsidizer. Effective demand is defined as demand for a good or service which can be paid
for. There are two basic elements to increasing the effective demand of the poor: organization
and access to finance.
Community organization
The poor as individuals are seldom able to afford land and housing. Experience has shown
that the poor as a group are able to afford not only land but also housing. They are also better
able to negotiate with the government or the private sector as a group rather than as
individuals effectively. Community-based organizations take several forms from welfare
associations to coalitions of poor.

Communities often organize themselves when they face a common threat or need, such as the
threat of eviction. Governmental and non-governmental organizations have to play a major
role in organizing the poor. NGOs have to assist the poor in building their capacities to work
in group environments and to negotiate with government or the private sector for land and
housing.
Increasing savings and providing access to finance
As stated earlier community organization has taken place when the poor feel threatened or
have to satisfy a common need. One way of accomplishing this is through community-based
savings-and-credit schemes. Instead of being reactive (in response to a threat or a need) these
schemes are proactive and therefore more sustainable. Such collective actions organize
communities and increase the effective demand of the poor by increasing their savings and
providing access to credit. Community-based savings-and-credit schemes preserve organized
communities and increase the status of women in the community in addition to providing
access to finance.
It should be noted that the poor are not without income. What they lack is capital. This is
because they cannot access capital at market rates and have to resort to borrowing from money
lenders who often charge them higher interest per day. Formal lending institutions, such as
banks, often require collateral which the poor cannot provide. The poor feel intimidated or
unable to deal with banking procedures which require high levels of literacy. Moreover, the
amounts that they want to borrow are often so small that banks do not find it profitable to lend
them the money. Experience has shown that community-based savings-and-credit schemes
assist the poor in increasing their incomes and capital. Governments can assist this process by
creating financial facilities which act as reserve or mini banks of the poor. Such institutions
provide credit at market rates, technical advice on management of savings-and-credit schemes,
and can serve as an entry point for other community-based development activities.