On the highest and best use of land

The Food and Agriculture Organization (FAO) says land is used in the best way when it fulfils three goals:
1. Efficiency, or use of land in such a way that it yields the greatest benefit at the least cost of inputs or improvements.
2. Equity and Acceptability, or that the land use is socially acceptable and does not create or widen disparities.
3. Sustainability, or use of land that meets present needs at the same time conserving resources for the future.

In reality however the goals conflict with one another hence the trade-offs as when equity is sacrificed in the pursuit of efficiency.

The highest use of land, according to the real estate development sector which leads in land valuation, implicates ‘value’ therefore ‘highest use’ is the greatest value that can be derived from a land use. ‘Value’ involves the dynamics of cost, price, and utility but, in the final analysis, the value of land is its economic or ground, rent capitalized. (Ground rent is computed as the total amount of the gross rent derived from the land and any building upon it less actual expenses, charges and taxes, less interest on the cost of any improvement, and less a sufficient amount for depreciation.)

The highest ground rents and consequently the greatest land values are where the most lucrative businesses are located:
1. Land in financial centers (usually in the CBDs).
2. Land in high class retail sections (e.g. 6740 in Makati City).
3. Land in high class residential sections (e.g. South Drive in Baguio City).
4. Land used for hotels, better residential apartments and office buildings outside the financial district.
5. Land in wholesale business districts, next to the retail district.
6. Land useful for ordinary tenement purposes.
7. Land for suburban or detached residences.
8. Land for factory purposes.
9. Farm lands.
10.Timber lands.
11.Grazing land.
12.Waste land.

Factors that have bearing on land values are:
1. Easements.
2. Restrictions (e.g. deeds).
3. Zoning regulations. Under-zoning with a high or increasing level of demand will result in semi-monopolistic conditions of supply. Over-zoning in a district is likely to result in a lowering of the unit or parcel price of land in that district.
4. Transit (availability of transportation, time it takes to reach a desired location, convenience, and cost of transportation).
5. Trend of population and business toward a locality.
6. Pedestrian count (i.e. probability of passers-by in a given location to make purchases in shops there, using the Law of Probabilities or Law of Averages which contends that a fairly constant percentage of the people passing a given store will enter and make purchases) has bearing on rent charged on property.
7. Community growth (trend of a city’s development leads to anticipation of lands for future use hence speculation over the resource and to its sale at a price in excess of actual value).
8. Neighbourhood influences (crime and nuisances detract from values).
9. Block and street plan (provision for private areas, proper direction for flow of traffic, front footage, accessibility of loading and unloading, and parking hike up land value).
10. Depth of lot (real estate theory supposes that the portion of a lot nearest the street is the most valuable and so when the lot is shortened value is taken away from it. E.g. a lot 20 by 80 ft. containing 1600 sq. ft. is said to be usually worth more than 80% of value of a lot 20 by 100 ft. containing 2,000 sq. ft. But, if proper improvement for the shortened lot would be shops or stores it might be almost as valuable as a full depth residential lot).
11. Width and shape of lot (valuation of different widths and shapes of lots typically follow either the Hoffman-Neils rule: the typical lot is divided into strips of 5 ft. wide across the lot and values arbitrarily assigned to each, taken for granted that all parts of those strips are of equal value throughout; Or, the Davies rule: value is ascribed to each foot in the lot, makes allowance for added worth of land behind a line 100 ft. from street).
12. Condition of lot (standard lot values usually mean values of the lots of standard size at grade i.e. on a level with the grade of the street. Land above grade detracts value as there will be some expense in removing surplus soil. Same applies to land much below grade or having a muddy bottom as it requires filling).
13. Corners and corner influence (corner lots usually are 50% of inside lot value; corner influences, or proximity to the corner lot usually are 10% of inside lot value).
14. Key lots (or, lot that is desirable or necessary for proper utilization of adjoining land such as development of a block of business property. Total value of key lots is computed as the normal value or stand-alone value plus the additional value added due to its key position).
15. Plottage and assemblage (assemblage refers to the gathering together of two or more adjoining lots to which added value may be ascribed because a building of greater size capable of producing a larger net rental may be erected on the larger plot. The added value resulting from assemblage is usually considered to be 10% of the total value of the separate lots.).
16. Management (when two pieces of property are almost identical but show substantially different earnings the difference is in management. Good management will increase the net income of a piece of property, poor management will lower it.).

Similar to the dichotomy in the ‘best use’ of land, a given piece of property at a given time will have different values to persons with different interests. For instance, a property owner has a different value set from the mortgagee and tenants and vice-versa.

In the Philippines, I take it that the goal in the current Philippine Development Plan which is ‘inclusive growth’ is also the goal which land use planning (in terms of highest and best use) in the localities aims for. Other important and complementary national goals such as urban competitiveness and smart growth (as contained in the NUDHF) are I surmise also used as land use planning frameworks. In reality though there can’t be a perfect match among these development goals and objectives. This drives home the concern raised in the argument for highest and best use – whose valuation of the land has the upper hand? Supposedly, the conflict should be resolved when there is inclusive participation or a good representation of the affected community taking part in the planning and valuation process. Otherwise, contestation from those marginalized in the process should be expected, which I believe is often the case in the country.

An example of the conflict in terms of the highest use but not necessarily best use of land is real estate development in Bonifacio Global City.

1. The strip of land to be developed, One Bonifacio High Street, is prime land (since it’s in a growing financial center, in a high class retail center, in a high class residential area, and where the starred hotels, better residential apartments, and office buildings outside of the Makati financial district are located).
2. Land value in the area ranges from PhP154,500 to PhP225,145 per square meter in the first quarter of this year and speculated to rise by 17% within the year.
3. The land will be developed into a mixed-use block of office, commercial and residential use which will cost the developers PhP30 billion spread over four years.

From a business or market economics perspective, the land use is the highest use since it will realize the highest investment returns in terms of ground rent.

But in the face of the problem of access to land and quality housing by the urban poor population the decision and investment on that land raises questions concerning equity and acceptability and sustainability: How does one make justifications for the PhP30 billion investment which will benefit already wealthy corporations and families in contrast to measly investment for urban poor communities who are in real need of such investment? How come we nurture the attitude that socialized housing should not be on prime land but instead on former garbage dumpsites and waste lands? Will ownership of prime land and good housing environment which the wealthy take for granted remain removed and an impossible dream for the (urban) poor? Whose future are being secured with that investment?.

In the Philippines, when we say socialized housing it is usually about rows and rows of box-type houses rr, floors of narrow spaces without maintenance (if it’s a flat-type)in a physically-suffocating space on reclaimed (either garbage dumpsites or waste lands) or unproductive lands (which have been degraded in other ways) in the outskirts (where access to transportation, work sites, etc. is expensive to maintain on a daily basis (which is also why the poor end up selling the house) or deteriorating inner sites. Put a wealthy family in one of this and I’m sure they won’t last the morning – what more if it’s a lifetime, day after day for 50 years or so in that environment? Yet, both the wealthy and the poor families are comprised of human beings. Human beings. Why can’t everyone (whether poor or not) be integrated into prime areas as a community? The answer calls for an honest soul searching – why this discriminatory attitude – and until then this country can’t hope to close the gap of inequality. To institute or carry on rules which favor certain human beings (the wealthy) the best of the country’s spaces and others (the poor) the dank places one witnesses the imposition of (feelings and belief of) superiority of one human being against the other.

Further, in the context of the community, how does the investment and particular use of that land contribute to urban competitiveness – by consistently concentrating large investments in prime areas doesn’t it actually contribute to widen inequality within that space and relative to undeveloped spaces outside of it? Doesn’t it contribute to maintain social distance i.e. the invisible demarcation lines and boundaries which segregate spaces for the wealthy and spaces for the poor? What is keeping us from mainstreaming the poor (socialized housing) into non-poor areas?; to smart growth – by concentrating smart growth in affluent areas doesn’t it actually allow for chaotic growth to happen in neighboring areas?; to inclusive growth – how are the gains from that land use trickle down to benefit Philippine society?

I think that when liabilities impacting on society (e.g. in this case widening inequality by leaps and bounds) far outweigh productivity gains for a few, that is the signal that land is not being used in the best and highest way; at the same time that it is the signal for the State to step in with its facilitative and regulatory function.


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