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Instruments to put the Transit-Oriented Development strategy into practice

The way a city is planned directly impacts the daily routines of the people living there. Day-to-day travel, transport costs, access to work and leisure opportunities – different basic activities that are part of life in urban centers – are influenced by something quite abstract: a planning strategy. Nevertheless, if it turns out to be an efficient strategy, associated to effective use of urban infrastructure and a good public transport system, there is a good chance that the city will develop sustainably, guaranteeing its residents’ quality of life.

And this is precisely what Transit-Oriented Development (TOD) is geared towards. This urban planning strategy aligns transport and the use of land to implement a 3C city model, that is, compact, connected and coordinated cities. The model focuses on a higher concentration of people living closer to collective transport, with more jobs located closer to stations and thus making it easier for all people to reach parks, schools and work.

However, to make this viable, Sustainable TOD must be included in a city’s Master Plan (MP), and can be implemented based on three principles:

Compact urban growth. Measures to control and qualify the growth of cities, based on factors such as the number of buildings and residents living along public transport corridors and the balanced distribution of city infrastructure. It is fundamental to induce and establish city growth around areas already equipped with infrastructure.

Connected infrastructure. Measures to increase efficiency in the use of urban infrastructure and reduce the need to travel. This can be achieved through mixed use initiatives throughout urban areas (neighborhoods that offer commerce, residential buildings, services and leisure areas), the creation of centralized hubs and a transport system able to cater to different regions of the city.

Coordinated management. Measures to promote social management of land appreciation. The goal is to ensure that part of the increased property value resulting from public works and investments and the implementation of infrastructure is converted into collective benefits. These measures also guarantee the “social function of property”, a premise defined under the City Statue and which includes several instruments that can be set out in a MP and employed by public administrators for this purpose.

<p>Pedestrians in busy street, Juiz de Fora</p>

Guidelines set out in Master Plans impact the daily lives of people and the development of future projects (Photo by Mariana Gil/WRI Brasil)

Making it viable

Many urban land regulation instruments also carry weight as financing instruments, whether by raising funds or the concession of urban development incentives. Well-planned cities are more efficient in their use of resources, reducing the cost of provision and increasing efficiency in maintaining city services and infrastructure.

Currently in Brazil, urban planning is still largely decoupled from financing. Urban Land and Building Tax (IPTU), for example, is usually charged with no connection between collection and city urban and social planning. In other words: many cities fail to consider the relationship between the value of land and the presence of infrastructure when charging this tax and also ignore these issues when planning investments in urban infrastructure and services.

A Master Plan must cover definitions like these, so that the available urban instruments can be applied in favor of efficient urban infrastructure and land use. MP guidelines set the stage for successful project development, among them those conceived in accord with the Sustainable TOD strategy.

These Sustainable TOD projects are comprised of several branches that require financing and, due to their magnitude, rely on a series of financing mechanisms, which vary according to project specifications, the local context and the actors involved. Among these mechanisms are three types that can be made viable through a Master Plan, as presented below.

1. Alignment with the public budget

A Master Plan can align urban development strategies for the city with municipal budgetary planning instruments. Similarly, MP actions should be included in the annual municipal budget. The taxes most often cited are related to urban issues, such as IPTU, and those that provide an incentive for active mobility and collective transport, such as IPVA (vehicle tax) and CIDE (Contribution for Intervention in the Economic Domain), in addition to the revenue generated through traffic fines.

2. Management and recuperation of real estate value

Land value is defined according to location – proximity to opportunities and services, presence of infrastructure – and, also, according to opportunities for further developing/using the area. The City Statute provides a series of instruments that could be laid out in the Master Plan and used by public administrators to ensure the social function of property – that is, to prevent property idleness and speculation and guarantee that the increase in the value of a specific area will be returned to the population in the form of quality of life.

  • Special assessment tax: a tax on property appreciation resulting from public investment in the area surrounding the property.
  • Taxes – IPTU and ITBI: The Urban Land and Building Tax and Property Transfer Tax are examples that capture value through the rise in property prices, resulting from the urban infrastructure available locally.
  • Additional Construction Potential Tax: a tariff charged for the added concession of the right to build. ODDC (Sale of Building Rights) and CEPAC (Potential Additional Construction Bonds) are two ways of applying this instrument.

In São Paulo, for example, city administration plans to review the issue of this bond in two urban operations, in an effort to increase population density in these regions of the city. In Fortaleza, the plan is to exempt social housing developments from OODC tariffs and, in cases where it is charged, the resources are redirected towards ordered city expansion, the creation of public spaces, and other such actions in favor or urban environments.

  • Change of Use of a Property Tax: a rate charged for the increase in land value resulting from a change in the use of land or real estate in question.
  • Real Estate Consortium: in this instrument, owners transfer their property to local government for the construction of infrastructure, receiving in exchange a portion of urbanized or developed land.

3. Incentives

Incentives are used as an accessory to make Sustainable TOD viable. They are not a source of resources per se, but rather a way to cut costs for municipalities or agents implementing the project, while also guaranteeing the execution of private projects that generate benefits within public spaces. For example, they can be used to transform the ground floor of buildings into actives spaces or for public use, as well as granting rights to private areas for public use, such as squares and parks.

A Master Plan is able to determine tax and financial incentives and benefits of this nature, as predicated in the City Statute. In São Paulo, for example, the MP created incentives for the mixed use of properties by excluding the portion of property not used residentially, which occupied less than 20% property, from what was considered the total built area, and thus exempting this portion from IPTU charges.

  • Tax and financial incentives and benefits: granted by local governments to promote the implementation of infrastructure for access to public transport stations, for example.
  • Land assignment or donation: donation of land or the grant of use rights by public entities.
  • Transfer of development rights: permission granted to land/real estate owners to exercise the right to build in a specific location that does not belong to them.
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