Upzoning and value capture: How U.S. local governments use land use regulation power to create and capture value from real estate developments

The public sector can harness its authority to control land uses to secure valuable public benefits from real estate developments. This paper investigates how five major U.S. cities—Boston, Chicago, New York, San Francisco, and Seattle—are using their land use regulation powers to create and capture value for the public benefit. An analysis of the zoning and entitlement processes of the 20 largest real estate development projects in each city reveals that value has been captured from all 100 projects. Furthermore, these cities implicitly differentiated value capture into two distinct components: value creation and value capture. Among the 100 projects, cities created value for 90 projects by allowing greater density and height—a practice often referred to as “upzoning.” Distinguishing such upzoning incidences from traditional land use exaction tools is important because the added value gives local governments greater legitimacy in asking for public benefits. The experience of the five cities further revealed that value capture strategies can be customized to adapt to unique regulatory, political, and cultural contexts. Lastly, despite the fact that the majority of the upzoned projects increased density and height through project-specific negotiations, none of the cities had clear standards or evaluation frameworks for determining: how much value was created, what can be asked for in return, and who should benefit from the value captured. Cross-national scholarship on value capture can be leveraged to address these important questions.     

Towards an understanding of proactive upzoning globally and in South Africa

Upzoning typically occurs as a passive process whereby landowners approach the municipality for a change of rights. Proactive upzoning, where a municipality takes the initiative to increase the rights assigned to land in its jurisdiction, can be a powerful tool to encourage development to occur in line with municipal policies. This paper firstly describes the various approaches used to achieve proactive upzoning. The focus then shifts to understanding examples of proactive upzoning in South(ern) Africa, which provide examples of policy transfer of ideas, primarily from the Northern into a Southern context. Four key lessons are identified from this discussion. Firstly, proactive upzoning can affect the poor negatively or positively, depending on the design of the initiative. Secondly, from South African experience, it is clear that there is a danger of proactive upzoning examples from the North being copied almost verbatim and applied in a Southern context, despite the considerable differences in context. Thirdly, there is a need to ensure that initiatives are in line with market dynamics, to avoid ‘wasted’ infrastructure investment. Fourthly, proactive upzoning often just considers zoning schemes’ rights, whereas the land development process can face a slew of regulatory constraints beyond the zoning scheme.