How land banking can cut mega projects costs
The high cost of land has often been cited as one of the biggest challenges facing infrastructural development. This is particularly so, where infrastructure development is carried out in phases. Latter phases end up being hit with higher land acquisition costs due to enhanced commerce, habitation and other opportunities resulting from the earlier phases of the investment.
To illustrate this point, one can look at the case of the Thika Superhighway. The project was constructed over a period of 6 years between 2007 and 2013. In 2021, the Hass Consult extended land value index showed a near ten-fold increase in land value along Thika Superhighway compared to the 2007 price, due to the enhanced opportunities created by the new road infrastructure. Ironically, the increased commercial activity and habitation around the road has ended up exerting greater pressure on existing trunk infrastructure, necessitating further investment by the Government in bulk sewer and water infrastructure, among others. The challenge now comes from the high (near ten-fold increase) cost of land to be shouldered by the Government for the additional trunk infrastructure, making Government the unintended victim of the success of its own project.
From a policy perspective, this highlights the importance of land value capture, which simply put, is a policy approach that facilitates recovery and reinvestment of land value increases resulting from public investment and government actions. One of the tools of land value capture is land banking, where a holistic approach towards infrastructure development is taken at the outset. This means that if a major road is being developed for example, a master planning and zoning approach is taken and extra land acquired in anticipation of the commerce, human settlement and other outcomes expected from the project even where these are to be developed at a later date.
As with most good things, this approach towards land acquisition is not devoid of challenges. First is the sheer amount of resources required upfront for land acquisition under this approach. Even then, this approach still ends up being cheaper in the long run by locking value. It also leads to better planned cities and towns by avoiding haphazard developments around large infrastructure. More importantly, it can be used by Government to unlock some of the value gained from early infrastructure investments particularly where Government partners with private sector investors either through PPPs or other frameworks to develop the land acquired in an organised manner per the master plan.
Another challenge could be the issue of land squatters, who are notorious for settling on large tracts of vacant land, sometimes in opportunistic anticipation of major infrastructure projects. This can be mitigated if the land bank keeps an up to date register of its land, preferably one that is integrated with Geographic Information System (GIS) technology. A GIS is helpful when integrated with land banking as it can be used to provide a host of information on the land at the click of the button including connectivity, basic facilities, drainage, and importantly – illegal occupation. This technology has been used by telecommunication companies and urban planners for many years and can be a source of valuable and profitable data for Government as land values increase.
Connected to the squatter issue is that of Land fraud. Who hasn’t heard of a case where Government land has been irregularly allocated to individuals and illegal title documents issued? Some years ago, many public institutions were found to have been the unfortunate victims of such scams where their grounds were allocated to third parties. With the kind of affinity that we have for land, the temptation to grab unoccupied government land is always looming large. Happily, the same solution on squatters cited above, can be adopted for this problem. Some of the land registries have also been going through digitization of their records and it is hoped that once this exercise is complete, there will be traceability and accountability for all land transactions, making such allocations a thing of the past.
On the social front, it can be argued that acquiring land en masse will cause unnecessary suffering and displacement as innocent citizens will be displaced prematurely from targeted lands just so that such land can be kept in a land bank. However, there are many lessons to be learned from projects which have experienced delays in land acquisition. These have ranged from project delays and overruns (one need look no further than some of the Ketraco transmission line projects that have suffered this unfortunate fate due to challenges in wayleave acquisition), project failure and failure by Government to meet its promises to citizenry. Accordingly, although the holistic planning approach towards land acquisition can be unpopular, it avoids many of the problems that come from a piecemeal acquisition of land on a project-by-project basis.
Another associated concern is litigation risk, which can sometimes be inevitable particularly where a massive land acquisition exercise is at play. The good news is that Kenya has elaborate laws on land acquisition (including compulsory acquisition). Many projects also adopt international benchmarks such as the IFC Performance Standards, for managing environmental and social risks related to the acquisition and use of project land. Where fully observed, this can go a long way towards containing the litigation risk.
These are just but some of the pros and cons linked to the use of land banking as a land value capture tool. Countries such as India have adopted land banking with some level of success. In our context, a proper legal framework will need to be put in place to support land banking and proper sensitization carried out to ensure buy in from the public.
Benjamin Franklin is famously quoted as stating that “failing to plan is planning to fail”. We should not plan to fail. It makes sense to adopt a master planning approach to maximise value for the public and encourage more planned developments.
The article was published in the Business Daily and can be accessed here.