9-line access access management access point accessibility ADA air quality alignment amenity antiplanner atlanta BART benchmark BID bike Blogs boston branded bus corridors brookings brt bus Bus Rapid Transit BYU capacity car pool car pool lane cars central link Centrality certification commuter rail condo congestion congestion pricing connections consistency coverage crossings CRT cycling DART dedicated dedicated right of way density denver depreciation developers development economics efficiency Envision Utah equity eugene exclusive extension FAQ favela Federal Funding Flex Bus florida free fare zone freeways frequent network frontrunner frontunner Gallivan garden cities gas prices geotagging goat Google grade-separation Granary District growth headway heavy rail hedonic High Speed Rail history housing housing affordability housing bubble housing prices HOV income infill innovative intersections intensity ITS junk science LA land use Land Value Economics LEED legacy city light rail linear park location LRT lyft M/ART malls mapping maps metrics metro MetroRail missoula mixed mixed traffic mixed-traffic mobile mode choice Mode Share multi-family MXD neighborhood networks news NIMBY office online op-ed open letter Operations parking parking meters peak travel pedestrian environment phasing Photomorphing planning Portland property property values Provo proximity quality_transit rail railvolution rant rapid rapid transit RDA real estate redevelopment reliability research retail Ridership ridesharing right of way roadway network ROW salt lake city san diego schedule schedule span seattle separated service branding shuttle silver line single family SLC SLC transit master plan slums smartphone snow sprawl standing stop spacing streetcar streetscape streetscaping subdivision Sugarhouse Sugarhouse Streetcar Tacoma taxi technology tenure termini time-separation TOD townhouse traffic signal tram transit transit agency transit networks transit oriented development Transit Planning transponder transportation travel time TRAX trip planning trolley tunnel uber university of utah urban design urban land UTA UTA 2 Go Trip Planner utah Utah County Utah Transit Authority value vmt walking distance web welfare transit Westside Connector WFRC wheelchairs zoning

Wednesday, November 14, 2012

Why Favelas Exist

Favelas are generated when rapid urbanization causes population to outstrips the existing housing supply. The rapid growth in population drives up the value of housing. In a normal market, that triggers the development of additional housing until the two equalize. But  the essential input of housing is urban land. As the value of housing is rising, so is the value of urban land. Because of the durability of buildings, urban land can be developed only once per generation, so it makes sense to wait to develop until the value increase in urban land has stopped/slowed. While the present  value of urban land is high, the expect value of urban land in the future is higher still. As a result, rather than developing a property to its present ‘highest and best use’, landowners instead hold out for the future, when the highest and best user will be even more profitable.

With low land taxes, the cost of ‘holding out’ and waiting until a later time to develop is actually very low. 
Because the majority of the value of a land is actually  in its future value, the present value of land is largely irrelevant (especially in the context of high inflation), so interim uses are irrelevant—squatters and slums do not matter, insofar as they cannot claim legal title to the land, and can  be removed/cleared when the time is appropriate to develop the parcel.