The role of the state in managing urban land supply and prices in Egypt

ARTICLE IN PRESS

Habitat International 27 (2003) 429–458

The role of the state in managing urban land supply and prices in Egypt Mostafa Morsi El Araby* Department of Architecture, Faculty of Engineering, United Arab Emirates University, Jimmy Female Building, Baladia Round-about, P.O. Box 17555, Al Ain, United Arab Emirates Received 28 January 2002; received in revised form 8 June 2002; accepted 7 October 2002

Abstract This paper examines the role of the State in managing urban land supply and prices with reference to the residential urban areas and urban housing in Egypt. The ways by which the State and local municipalities seek to regulate the supply of land for urban development and to generate revenue are examined. The paper explores the market forces and state policies that determine the equilibrium land and housing values and land use patterns. The key issues that affect land management, supply and prices are urban land policies, institutional frameworks and regulations. Therefore, this paper focuses on studying the impacts of the State intervention on land markets—through urban land policies—on land tenure, delivery and supply systems and land prices. Land, in Egypt, is supplied in a dual market by both public and private (formal and informal) sectors. Factors that affect land supply and prices include: political choices, free market forces, land use planning, control and production. In this paper, the State intervention in the land market—through public policies—were analysed and its impacts on both private and public land prices were assessed. The analysis undertaken in this paper suggests that both urban land policies and abnormal market factors—i.e. inelastic demand and supply—impact, directly, land prices. Determinants of land prices for the publicly supplied land are political choices, cost-recovery and generating maximum revenue. For the privately supplied land, land prices are determined by proximity, location and ‘‘potential’’ productivity. The escalation of land prices in Egypt could be explained by factors such as inelastic demand for land, uncertainty, speculation, price inflation, and disparity of income distribution. This paper concludes that modification of current urban land policies and state intervention in the land and housing markets is urgently required. Such an intervention requires a clear conception of land management, supply and delivery systems taking into account the main constraints affecting the quantity and price of land. The aim of the proposed intervention is to restore a market process that in turn may impact the evolution of a normal land market in Egypt. r 2003 Elsevier Science Ltd. All rights reserved. Keywords: Land tenure; Land law; Land supply and demand; Land policy; Egypt

*Corresponding author. Tel.: +971-50-7632590; fax: +971-3-7623095. E-mail address: [email protected] (M.M. El Araby). 0197-3975/03/$ - see front matter r 2003 Elsevier Science Ltd. All rights reserved. PII: S 0 1 9 7 - 3 9 7 5 ( 0 2 ) 0 0 0 6 8 - 1

ARTICLE IN PRESS 430

M.M. El Araby / Habitat International 27 (2003) 429–458

1. Introduction to urban land and rent value 1.1. Urban land The term ‘‘land’’ suggests different things to different people (Barlowe, 1978). In the context of this research, urban land is defined as the land that is utilized for uses other than agriculture. Urban land is characterized by its connections to infrastructure, transportation and urban facilities. It is commonly utilized for residential, commercial, industrial, trade, recreational, transportation and services uses. Interests over urban land vary from legal and political, economic, capital, physical and spatial, technological, social and environmental points of view. This paper will concentrate on examining the relationship between legal and economic aspects of urban land with reference to residential uses. The encountered problems regarding urban land involve the scarcity of land resources, as land is limited in its supply. The supply of urban land is in many cases inelastic. Unlike other commodities, land is not consumed over fixed or expected periods of time. Nevertheless, land is consumed because its natural characteristics are exhausted and it needs facilities and infrastructure over time. The allocation and use of land resources are affected by the physical and biological, economic and institutional factors (Barlowe, 1978). In the developed world, high levels of living and income, technological and communication outgrowth, economic, political and demographic stability derive the need for land. In the less developed world, the need for land is affected by exacerbated urban and population growth, the limited resources for the provision of housing and other services, the imperfect operation of real estate markets, low levels of income and planning techniques for cities future growth. State control over urban land covers aspects of land-use, zoning, building regulations, taxation, eminent domain, finance, conservation and others. However, centralized governmental policies and control in most less developed countries always create ineffective land delivery system and distortions in normal land market behaviour (see, for example, Hin Li, 1997; Arandel & El-Batran, 1996; El Sayed, 1996; Aly, 1995; Needham, 1992). 1.2. Land rent value Urban land has economic, historic, antiquity and social values. The economic value is defined as land rent. Land rent differs from contract rent, i.e. the actual payments tenants make for their use of the property of others. Land rent is defined as the economic return that accrues or should accrue to land for its use in production (Sullivan, 1993). Therefore, land rent may be simply regarded as the land price that is set for specific use and expected economic return. However, many economic theorists like Barlowe (1978), Harvey (1985), and Sullivan (1993) distinguish two types of land rent: land rent and economic rent. Land rent value equals the merit price for land that could be determined by economic factors under the normal conditions of a free, competing land market. Economic rent is viewed as a short-run economic surplus that a productive factor (such as land) or an operator (such as possessor) can earn because of unexpected demand or supply conditions (Barlowe, 1978). Market rent value of land equals the present value of the stream of income generated by the land (Sullivan, 1993).

ARTICLE IN PRESS M.M. El Araby / Habitat International 27 (2003) 429–458

431

Needham (1992), Evans (1996), and Hin Li (1997) differentiate between land rent (residual land value) and economic land rent (market land value) in terms of land value. Market land value—price—could lead to a kind of economic rent gains, under current conditions, while residual land value reveals the normal conditions by which land prices could be set and charged. 1.2.1. Factors that affect land prices Normal conditions and factors that influence land prices in the free market include location, proximity and accessibility, production cost, productivity, grade (soil), shape and size and the demand for land which is derived from the demand for the output, e.g. housing. The derived demand for housing is influenced by population growth, increasing urbanization, changes in income status, stage of economic growth and change in land productivity (Barlowe, 1978). Increasing the need for housing will consequently lead to increased competition between investors/developers for land in specific locations with favourable shapes and sizes. This process, eventually, will lead to increased land prices. Alonso (1964), Muth (1969) and others differentiate land prices in a bid-rent function that explains land prices in relation to transportation costs and distance from the CBD and suburbs centres. Land prices tend to decrease with increasing distance from the centres. The consumer equilibrium occurs when the increasingly unit cost of transportation equals the decreasingly unit cost of land and/or housing. Decreasing commuting and transportation costs, and advances in communication technology decrease the need for face-to-face contact among office workers, allowing some firms to move to the low-wage suburbs and allowing others to decouple their operations into CBD activities and suburban activities. Workers are willing to pay more for housing and land near employment centres (everything else being equal), so the land-rent function has several peaks, one near the CBD and one near each sub-centre. The monocentric, core-dominated city has been gradually replaced with the multicentric, suburbanized city. The land-rent surface has local peaks at the city center and the subcentres, and forms a ridge centred on the beltway (Sullivan, 1993). The development of suburban subcentres (urban villages) is explained by the suburbanization and clustering of retailers and office firms. Retailers moved to the suburbs to be closer to their customers and clustered in sub-centres to exploit shopping externalities. Manufacturing and office firms move to the suburbs to be closer to their work forces and clustered to exploit agglomerative economies in production. This process keeps land prices at peaks in city centers and leaves land prices in suburban sub-centres at lower values. Hence, the supply of urban land in this case becomes more elastic. When land is supplied publicly, political choice factors that include compulsory purchase, subsidies, quality of services, land use patterns, amount of supplied land, and disposals of land at minimum prices for some uses affect land prices (Needham, 1992). Municipalities supply lands for marketable uses at maximum prices, using the concept of residual land value, depending upon the type of development (land use, building intensity, etc.). Hin Li (1997) argued that land prices in Shanghai—where land is supplied publicly—depend on the production-cost value using the private treaty mechanism. However, market land prices, which are set by local authorities in Shanghai, proved to be higher than residual land prices, if land were supplied in a free market. However, both market economic factors and political choice factors affect land prices in Shanghai which witnesses a stage of economics in transition from socialization to privatization.

ARTICLE IN PRESS 432

M.M. El Araby / Habitat International 27 (2003) 429–458

1.2.2. The land-price/housing-price function There is a perception that increase in land price will lead to increase in the output price (e.g. housing price). This statement seems not to be true. Explanations made by Harvey (1985), Barlowe (1978) and Sullivan (1993) indicated that the demand for land is derived from the demand for the output. The price of land could be high because the demand for the output is high. Expensive land is the result, not the cause, of expensive output. It has been argued that increasing land prices will lead to increase in the output cost but not the output price (Cadman & AustinCrowe, 1983). This implies that factors other than land affect the output price, e.g. inelastic demand for the output. However, it has been argued that land price has not to exceed 10 to 20% of total building cost in order to achieve a feasible housing project. The major problem here is that land is considered a fixed cost in production, while construction, marketing and others are variable costs that could be controlled. Therefore, the need for capital to acquire land is essential in the early stages of any housing project. Increasing land prices will, consequently, prohibit many developers/investors from investing in housing and real estate projects. In other cases, increasing land prices coupled by decreasing in the productivity of the land—limited use, height, density, etc.—could possibly made any housing investment over this land unfeasible.

2. The research problem Many attempts to explain land prices—from Ricardo; through Marx, Marshal, Von Thunen; theorists like Wingo (1961), Alonso (1964), Muth (1969) and Mills (1972) who concentrate on the spatial structure of urban land prices; up to and including neo-Marxists or historical materialists like Ball (1985)—take the case when land is supplied by many private owners who compete against each other assuming free competition between suppliers and demanders of land (Needham, 1992). Sometimes, public constraints on this land supply are considered, usually imposed by land-use planning systems, a modification to a theory based on the premise of competition between suppliers (Evans, 1996). Needham (1992) developed a theory of land price in a market when the local authority supplies land collectively where he emphasized the political choice factors as major determinants of land price in Netherlands. Needham (1992) and Hin Li (1997) argue that there are differences between actual land prices and prices set by public agencies that depend on political choices set by public agencies. By granting land in the public-private treaty mode rather than open marker competition to the developers-investors, the public agencies are actually affecting the land prices that will subsequently lead to a distortion of normal land price behaviour. One possible explanation for this is the deeply rooted ideology of the concept of ‘‘cost as value’’, while another is the possible political complications involved in the property rights of various invisible interests in land (Hin Li, 1997). However, when the supply of building land is in the hands of both public agencies and private owners, as in the case of Egypt, a different theoretical approach is needed. On the one hand, public agencies determine the volume and price of supply specified by land use and location, while, on the other hand, private owners supply available land with constraints of use and building regulations. This paper examines the impact of urban land policies on both land and property values with reference to the residential urban areas in Egypt. It explores the market forces and state policies that determine the equilibrium land value and land use patterns. The aim

ARTICLE IN PRESS M.M. El Araby / Habitat International 27 (2003) 429–458

433

of this paper is to develop a theoretical framework that can explain the impacts of urban land policies—through land use planning, building regulations, transport planning, tenure, taxation, finance, etc.—on land prices in the particular case of Egypt. For this, it develops principles that could be applied to other countries where land is supplied by public and private sectors. The discussion here is restricted, however, to the case of urban residential land in Egypt. The discussion is presented as follows. First, a review of urban land and housing policies in Egypt is sketched. Secondly, the impacts of urban land policies on land management and tenure systems are outlined. Thirdly, the urban land delivery system in Egypt is examined when building land is supplied by public, private and informal sectors. That examination still leaves land prices undetermined as they are dependent not only on economic factors but political choices also. This is presented in Section 4. In Section 5, land prices in Egypt are analysed. The final section presents a theoretical framework for land prices in Egypt in addition to implications for future policy options draws conclusions.

3. A review of urban land and housing policies in Egypt: policy and institutional framework 3.1. Urban land policies The Egyptian history of land policies goes back to the 19th century when the country was under the Ottoman Empire. Mohammed Ali (1805–1848) successfully controlled Egypt’s land. First, he took control over the Endowment Authority El Awkaf, by placing it under the state control (EL Abady, in Akbar, 1992). Second, he took over Mamalik land after their defeat in 1811. Mohammed Ali gave peasant farmers (Fallahin) from 5 to 8 ha to use and control. This right could be transferred to their heirs, but the state would still own the land. The Ottoman Land Law of 1858, the first land law, distinguished five types of land tenure: owned land, state land Amlak Amerya, endowment land Awkaf, public use land, and dead land Maoat (Akbar, 1992). According to that law, state lands were those lands that had been left by their original owners either because inability of paying taxes or cultivating these lands. Some owners, who were afraid of losing their lands, endowed their lands so that they and their heirs would not lose benefits of these lands. This law tried to limit the Wakf process (Akbar, 1992) by establishing a state land authority that could take over ‘‘private’’ land before owners of these lands endowed them. According to the same law, the dead land was defined as the desert and unlivable, ‘‘remote’’ land; anyone who could convert this land to a livable use could then own it. After this law, from 1871 to 1918, a system of transferring land ownership and transforming land use called Taboo was in effect. This system allowed occupants and workers of state lands to own them, by paying fees equal to the amount of 6 years of property taxes. All public landholders had to register the land they occupied or rented so that tax assessments could be made. However, until the beginning of the 20th century, most of the public–held lands were not registered (Akbar, 1992). This system was modified in 1911 to allow occupiers of state land, who did not register their land under the Taboo system, to register it. Further, this modification allowed registered public landholders to convert the use of agricultural lands to any other use. However, until 1918, most of the state land was not registered (El Abady, in Akbar, 1992).

ARTICLE IN PRESS 434

M.M. El Araby / Habitat International 27 (2003) 429–458

In 1936, King Fouad I declared another land law. It gave people the right to own and to have a title for state ‘‘public’’ lands if they held them, without any outside disputes or claims, for more than 15 years prior to 1936. In addition, other people who held, occupied and used a piece of state land without permission—even for less than 15 years—could own it but over a further 15 years period. This right would be withdrawn if the land were not used in the first 5 years of this allowed period. Mainly, the law tried to secure the western boundary of Egypt by granting land tenure for Ali Sons tribe (Awlad Ali), who inhabited large parcels of state land in the western desert and who had Libyan roots, therefore, good relations with the monarchy system in Libya. Following this law, the Egyptian Civil Law considered the uncultivated and un-owned lands as state lands (Abd El Tawaab, 1985). Therefore, the state could sell, rent or give these unclaimed lands to whomever it considered suitable and capable of using this land. The Agricultural Law of 1940 and its modifications aimed to further regularize the process of agricultural land subdivisions, conversions and variances. All of these laws and events affected the process by which land was purchased, endowed, or acquired, at least until the first half of the 20th century. They also affected the way by which land rights could be transferred or inherited. All of these factors created six land tenure types. They were state owned land; endowed wakf land; free hold landlords; holders of ‘‘dead’’ or ‘‘state’’ lands; renters; and unclassified and potential owners who did not have a clear title for their lands. The effect of these types of land tenure significantly influenced the process by which land was used, transferred, invaded, or transformed, and has affected potential informal land development in recent years. A radical change in the land policies occurred in Egypt after the revolution of 1952 with the emergence of Agricultural Reform acts in 1952, 1958, 1961 and 1964. Those reform acts gradually limited the ownership of land. In 1961, a maximum ownership of 100 Feddans per family—one feddan is equivalent to 4201 m2, which equals 1.038 acres—was allowed. Therefore, the national government became a major owner of Egypt’s land. Even though the national government claimed to be the major owner, other governmental bodies, such as the General Agricultural Reform Authority, the Ministry of War, different Governorates, etc., also made that claim. Consequently, a fragmented responsibility, a confused and an unclear type of tenure, use, or ownership over these ‘‘public’’ lands occurred. For example, in order to have a legal access to a parcel of the nationalized ‘‘agricultural’’ land, an application had to be submitted to the Agricultural Reform Authority in Cairo in a long, complicated and time consuming ‘‘paper bureaucratic’’ procedure. Meanwhile, other papers had to be processed through the State Land Agency and the concerned Governorate. Therefore, having access to these lands depended, to a major extent, upon personal relations, bribery and corruption (Akbar, 1992). Land Law No. 100/1964 applied all the authorizations and amendments of the 1952 law to urban and building areas. In addition, this law declared all desert lands to be state land. This law was activated by Law No. 143/1981 that allowed the utilization of desert lands for military, new towns, tourism and/or reclamation uses. The Agricultural Law of 1978 and Law No. 3 of 1982 introduced regulations regarding planning regulation, land use, urban growth boundaries, agricultural lands, and land subdivision. The land Law No. 7/1991 defined the responsibilities and the institutions that could manage and exhaust land for uses included in Law No. 143/1981 with the exception of land for military uses. Recently, land Law No. 96/1995 authorized the selling of

ARTICLE IN PRESS M.M. El Araby / Habitat International 27 (2003) 429–458

435

land through public institutions—privatization—and law No. 7/1997 declared the subdivision rules according to the type and proposed use of land. Table 1 summarizes the major land policies in Egypt in the last century. In order to understand how these laws affected the operation of the land market in general, a detailed review of land

Table 1 History of land policies in Egypt 1858–1997 Law

Authorization/Activity

Ottoman land law 1858

Defined five categories of land tenure. Anyone who could convert dead land to livable use would own it. The law tried to control the Wakf movement by establishing a state land system. Ownership for those who worked and occupied state lands. Registration of state land under the Taboo system Adjustments of tenure status for public land holders, who hold the land more than 15 years without any conflicts or disputes over it. State land holders could own their land, in a period of 15 years, if they would be able to use it in a period of 5 years Regulations of agricultural land subdivision, rules for cultivated lands, and irrigation regulations Uncultivated and unclaimed ‘‘owned’’ land became state land. The government could sell, rent or use these lands. State permission is required to use or dispose of these ‘‘state’’ lands Limited ownership to 200 feddans per adult person and 100 feddans to all ‘‘family’’ children. The government would compensate owners for the rest of their lands. The captive land would go under the control of General Agricultural Reform Authority to be distributed to peasants Limited ownership to 300 feddans per family. Restricted the uses of some ‘‘desert’’ land. The Ministry of Military had controlled parts of vital security lands

Land law 1936

Land subdivision law No. 152 / 1940 Egyptian civil law

Agricultural reform law No. 178/1952

Modification to agricultural reform law 1958 National land law 1961

Agricultural reform law No. 100 / 1964 Modifications law No. 50 / 1969 Modification to land subdivision law 1975 Agricultural law Law No. 170 / 1978 Urban planning law Law No. 3 / 1982 Land law No. 7/1991 Land law No. 96/1995

Urban land law Law No. 7/ 1997

Limited ownership to 100 feddans per family that included desert and uncultivated land. Nationalize the properties of larger-scale landlords. Governments, local and central, took control over the excess land Apply all the 1952 law authorizations and amendments to all urban and building land. All desert land became state land Organized the selling and renting procedure of captive land through the Agricultural Lands Trust Fund that aimed to recover money to be used in financing agricultural projects Regulations regarding conversion and variance of agricultural lands to urban uses, land reclamation requirements, and establish the land subdivision committee Rules and requirements for subdivisions, variances and conversions of agricultural lands to urban uses Requirements and regulations concerning urban growth limitations, legal urban land subdivision, land use, land conversion and land invasion Defined the responsibilities and the institutions that could manage and exhaust land for uses included in law No. 143/1981 with the exception of land for military uses Privatization act of publicly owned land by authorizing the selling of land through public institution. Rules and requirements for subdivisions and conversions of desert lands to urban use Requirements and regulations concerning the subdivision rules according to the type and proposed use of land

ARTICLE IN PRESS 436

M.M. El Araby / Habitat International 27 (2003) 429–458

policies regarding land subdivision and land tenure regulations is presented in the following section. 3.1.1. Land subdivision regulations Legal land subdivision may occur either on agricultural land with proper variances, or on nonagricultural urban land. In either case, procedures are time consuming and costly, and the chances of success are small. Subdivision of agricultural land can legally occur under special conditions set forth by the 1978 Agricultural Law which vests authority in the Ministry of Agriculture to develop land defined as agricultural by the Land Reclamation Act. Prior to 1978, local officials and not the Ministry of Agriculture, had authority to control subdivision of agricultural land (regardless of their success at enforcement) and to require that the subdivision comply with requirements facilitating the cost–efficient provision of infrastructure. However, if land being subdivided has been identified as agricultural, this very definition exempts the land from local government subdivision control because under the law it has been categorized as non-developable regardless of what the owner is using it for (Abt Associates, 1982). Nevertheless, if the owner wants to subdivide his land, he can get a variance by persuading the authorities that this land is ‘‘non-cultivable’’. Examples of subdivision activities created by using loopholes in existing laws are (Abt Associates, 1982): *

*

*

An individual subdivides land to accommodate family members. There is often no policing to confirm that subdivision is taking place for this purpose rather than to provide parcels for nonrelated buyers. Persons calling themselves ‘‘contractors’’ buy up ‘‘non-cultivable’’ agricultural land compensate the landowner and farm laborers living on the land, and re-sell parcels for residential useoften deriving a profit of 100% or more. In most cases, these ‘‘contractors’’ are not contractors by definition but transferees of land and are inflating land prices and encouraging informal development. A landowner installs a facility that is considered to be a contribution to the ‘‘Food Security’’ Programme, i.e. an individual can start a poultry farm and on the same site install housing for ‘‘employees’’ of that facility. He does not necessarily have to prove that the occupants of housing in his situation are indeed employees. This type of subdivision is not considered residential subdivision under existing laws.

The procedure for obtaining variances is lengthy. First, a governorate committee has to be formed to evaluate the petition that include the local inspectors of housing and education and the local agricultural manager. The committee inspects the property to make sure that all general codes are being followed (for example, the property must be at least 100 m from a canal). Once the committee has approved the application in writing, the Minister of Agriculture has to set up a review committee: vice-ministers of agriculture, industry, education, planning and housing (Abt Associates, 1982). Not surprisingly, few applications are made. Subdivision of non-agricultural land is apparently not much easier than that of agricultural land. Other studies (PADCO, 1981; IAURIF, VDRA, DUMEZ & GOHBPR, 1986) indicate that the application procedure for obtaining a subdivision permit is too expensive and time consuming to make it worthwhile to go through legal channels. In addition to regular fees attached to

ARTICLE IN PRESS M.M. El Araby / Habitat International 27 (2003) 429–458

437

applications, potential subdividers must hire an architect or planner to prepare subdivision plans to be submitted to officials. ‘‘Official’’ architect and syndication fees range from 10% of project costs for small projects to 2% for large projects. The review process usually takes 6 months or more and there is no guarantee that permission will be granted in the end. Thus, many small subdividers would rather risk going ahead and subdividing their land illegally than to have to go through the bureaucratic maze of application and confirmation. Many subdividers resent the standards included in the subdivision law requiring 10-m road widths and allowances for public uses, because they think they are excessive and irrelevant to the indigenous population (Abt Associates, 1982). Although some illegal subdividers will allow one or two meters right-of-way fronting buildings lots and allocate a minimal amount of open space for public use, the majority does not. They will instead shift the responsibility concerning setbacks for roads to the homebuilder. While illegal subdividers who are close to existing main line infrastructure sometimes provide extensions to newly subdivided areas, they do not always feel compelled to provide any basic infrastructure. Subdividers know that once a subdivision becomes a neighbourhood and residents go to register their land or lobby collectively through their local neighbourhood councils, residents will eventually obtain public facilities and infrastructure (Abt Associates, 1982). Contemporary subdivisions over agricultural land maintain the ‘‘regular’’ pattern of previous agricultural subdivisions. In contrast, illegal subdivisions over desert land display mostly an irregular pattern of development. Fig. 1 illustrates the invasion and conversion of agricultural lands into urban uses and illegal subdivision of urban land. To summarize, it is clear that the land policies, as applied in Egypt, and their consequent land regulations, helped to create a confused, complicated and unclear system of land ownership, which, in turn, affected the operation of the land market as a whole. In that context, it is instructive to review urban housing policies and their consequent impacts upon housing market. This review is important in understanding all the factors that affect both land and housing markets. Therefore, an examination of the urban housing policies in Egypt will follow.

(A)

(B)

Fig. 1. (a) The conversion of agricultural lands to urban uses in Alexandria (Abis). (b) Illegal subdivision of urban lands in Alexandria (Ezbet Skinna and Khorshid).

ARTICLE IN PRESS 438

M.M. El Araby / Habitat International 27 (2003) 429–458

3.2. Urban housing policies Until the 1952 revolution, the housing market was largely dominated by foreign capital and state intervention was minimal. After World War II, Egypt entered a period of economic crisis due to the decline of the industry geared toward wartime needs. As a result of the social crisis, the first rent control legislation was enacted in 1947; the new law blocked rents at their 1941 level and forbade owners from evicting their tenants. It was only in the last years of colonial domination that the Egyptian government undertook to take an active role in the production of social housing, with the construction of two ‘‘workers housing projects’’ in Helwan and Imbaba (Hanna, 1992). The other mode of direct intervention of the state involved the provision of housing units for civil servants. In fact, until the 1950s state intervention in housing was hardly needed: an overall balance between supply and demand had been achieved both in rural and urban areas. As a result of a combination rapid urbanization and counterproductive policies deficits in housing units have risen. The involvement of the Government of Egypt (GOE), in the process of public housing provision started with the 1952 revolution and the rise to power of Gamal Abdel Nasser. The Nasser era was marked by an attempt to reform society while strengthening the political and economic independence of the country. The post-revolution era can be divided into three distinctive periods, which were characterized by markedly different housing policies. During the first period, which extends from 1952 to 1965, a socialist government undertook a series of reforms aimed at achieving greater social and economic equity. This led to the redistribution of wealth and major changes in the country’s social stratification. The gap between the upper class, the aristocracy, and the rest of the population was reduced, leading to the emergence of a middle class, and of a large class of workers employed in public factories and firms. The new middle class became the backbone of the regime and its main constituency. After 1952 a series of laws were passed at 5 years intervals to reduce and control rents of housing units constructed after 1944. The Government became heavily involved in the construction of low-cost public housing, which was built on the outskirts of Cairo, and in cleared slum areas in the central city. As a result, thousands of low cost units were financed and constructed by the Development and Housing Company, a public sector Development Company. In addition, the Government also built workers housing around newly established industrial centres and public housing units for the middle class. The average target of production in the 5year plan of 1960–1965 was 14 500 units. This level of intervention was made possible by the availability of important government funds as a result of the nationalization policy. During the second period, from 1965 to 1975, the production of public housing dropped to less than a third of the previous decade’s production. This, in part, results from a quasi-permanent state of war that forced the state to direct a large share of the national income for military purposes. As high rates in population increase and urbanization continued, the gap between demand and the supply, whether it is private or public, greatly widened. In addition, a law passed in 1965 effected an additional reduction of 20% of the rental value of all buildings built after 1944. The main effect of this was the grave deterioration of the rental housing stock as the maintenance costs exceeded the rents collected by the owners. The third period started after 1975 with the rise of President Sadat to power, who engaged the country in a drastically new direction: the open door economic policy (infitah). A greater opening

ARTICLE IN PRESS M.M. El Araby / Habitat International 27 (2003) 429–458

439

to the west and an emphasis on privatization marks this policy. At the end of the 1973 war one of the priorities was the reconstruction of the cities along the Suez Canal, to which purpose a new ministry was created: the Ministry of Reconstruction. In terms of housing, the government announced that it would only be responsible for the construction of low-income housing and that the private sector would have the primary responsibility for the provision of housing units for Egyptians. Furthermore, while the state produces only small amounts of rental housing, it maintains the policy of rent control with only minor modifications aimed at making the construction of rental housing more profitable. Nevertheless, the public production of mass housing did not stop; on the contrary, it increased considerably, to reach a rate of approximately 30900 units per year (Kardash, 1992). After 4 years and in 1981 the government introduced the Housing Law of 1981 as a revision for the effects of the 1977 Law. In this new law, only a third of all housing units within each residential building could be allocated for selling. Furthermore, this law declared that: All investors in housing can have access to low interest loans (Abd El Hamid & Khalil, 1989). However, no specific funds were allocated to this purpose. With no major change or challenge to the previous legislation, the housing law of 1981 adds to the tenants new rights over owners. This law re-activates most of the previous laws’ articles (1947, 1961, 1965, 1969, and 1977) as an indication of the continuity of all the previous trends. The government, on many occasions, recognized the effects of its policies and, consequently, emphasizes the use of some regulatory tools instead of studying the causes that led to these effects (El Araby, 1994). In November 1982, President Mubark declared housing as one of seven serious problems to be addressed and solved in the present time in Egypt. However, the housing regulations Decree No. 2/1986 gave tenants right to obtain a new, separate lease from the owner, with the permission of the previous tenants. Housing Law No. 25/1992 enforced measures of demolition in case of permit violations and defined responsibilities of civil engineers in supervising construction. Technical committees at the local level were established for supervision of quality and safety measures. Modifications of Law No. 106/1976 were introduced in the 1996 housing law that determined productivity of land—through heights in relation to street width–in designated inner-city areas and new towns areas. This law permitted increasing rent values for non-residential uses and allowed landlords to charge free rents outside the rent control regulations for the newly constructed units. Nevertheless, the effects of that law on the rental market could not be assessed yet. Table 2 summarizes all the important trends in housing legislation with reference to rent control from 1941 to 1996. In Cairo, the infitah and in-flux of Arab and foreign investment caused a sudden rise of prices inside the city center and affected the price of land on the outskirts of the city and outside the urbanization cordon. As money was invested in real estate speculation, land became a basic commodity and the demand for agricultural land at the city’s periphery greatly increased. Due to the soaring prices of the land inside the city, the prominent real estate investors tightened their grip on land (El Batran, 1994). Due to the restrictions imposed by rent control laws, the majority of units built by the private sector were owner-occupied; meanwhile, the public sector stopped building for the rental market. In order to evade rent control laws and secure a return on rental units, the practice of ‘key money’ appeared. Key money is an amount paid by the renter to the owner that is equivalent to the difference between regulated rents and actual costs (El Araby, 1994). The practice of paying key

ARTICLE IN PRESS 440

M.M. El Araby / Habitat International 27 (2003) 429–458

Table 2 Housing policies in Egypt 1941–1996 Date

Legislation/Order

Activity/Authorization

Early orders April 1941

Military Order/1941

Eliminated the owner’s right to evict any renter, except in the case of non-payment of rent. Fixed all the rent levels by the values of April 1941

World War II responds 1947

Housing law No. 121/1947

Froze the current rent levels, and related rent levels to total cost (to be decided in case of complaint)

The Egyptian revolution September 1952

Military order 129/1952

1954

Military order 169/1952 Housing LAW of 1954

Rent reduction by 15% to all housing units built between 1944 and 1952, with no owner’s right to challenge it A new tax of 13.7% of all rents, even on units built before 1944 New reduction for all rental units, without exemption, by 20%. Renters right to complain about maintenance, which may result in a rent reduction

1956

Article 56/1954 Housing regulation

1958

Housing law 145/1956 Housing law 1958

Building permits required with restricted building codes. Permits are required for all maintenance, modification, or expansion work if value exceed 1d 500 Determined the return from investment in housing by 5% of total cost. Reduction for all rental units by 20% including all new units

Article 1 Article 55 Nasser’s Social Society 1961 1961

1962 1964

1965 1969 Sadat’s Open Door Era 1976

Law No. 168/1961

All rents to be reduced by 20%, for all units, without exemption, without challenging Socialization laws Socialiaztion of privately ownership of 61 of the largest landlords properties, including residential complexes, vacant lands, deposits..., etc. Housing law No. 46/1962 Determined rent value as 3% of land value and 5% of construction cost Housing Sector Socialization Total conversion from private ownership to public ownership Act for the largest 119 construction companies and combining them in 35 public agency, which also manage the residential properties—that held under their control—which had been socialized in 1961 Housing law No. 7/1965 Rent reduction for all units by 20% Housing law No. 52/1969 Renters given right to inherit rental units. Prohibitions of side payments, advance rent, or key money

Housing law No. 106/1976

Insurance required for all residential buildings, without inclusion in the total cost

ARTICLE IN PRESS M.M. El Araby / Habitat International 27 (2003) 429–458

441

Table 2 (continued) Date

1977

Legislation/Order

Activity/Authorization

Housing law No. 107/1976

Purchase of govt. Bonds, is a condition to get permits, for all residential buildings exceeding LE 50.000 Determined rent as 7% of total cost; allowed foreigners to purchase units, and allow units to be sold as condominiums Renters right to exchange, release, or re-rent their units without owner’s permission Exempted all luxury units from rent control, in specific zones. Only 13 of the residential units to be sold. Owner’s obligation to provide renters with cost documents. Tenants not subject to eviction even in case of lease expiration, or unpaid rent. Only one unit in each municipality, tenants can release it without owner’s permission Investors given access to low interest loans provided by State Agencies, and banks

Housing law No. 49/1977 Article 48

1981

Housing law No 136/1981

Article 15 6. Mubark’s Era 1982

Housing law No.2/1982

1983

Housing law No.30 /1983

1986

Housing reg. No.2/1986

1992

Housing law No.25/1992

1996

Housing law No.106 /1996

Reg. No. 2105/1996

Increased insurance for buildings that exceeded cost of LE 30000 and limited purchasing of Govt. housing bonds to luxury and administrative housing units Formation of triple committee headed by the Governor to evaluate building violations with possibilities of reconciliation Tenants right to obtain a new, separate lease from the owner, with the permission of the previous tenants Enforced measures of demolition in case of permit violations. Responsibilities of civil engineers in supervising construction. Forming technical committees for supervision of quality and safety measures Modification of Law No. 106/1976. Determining productivity of land—through heights in relation to street width—in designated inner-city areas and new towns areas Established a committee for exempting some projects from defined building regulations and clarifying building regulations in specific areas

money and outside contract payments enabled the private sector to earn enough return on rental housing to continue supplying it. In effect, rent control and key money greatly undermine social equity objectives both vertically and horizontally. In vertical terms, wealthy people benefit from rent control as much as the poor. Horizontally, two families with similar incomes will experience widely different welfare levels, depending on whether they live in a rental unit for many years, or whether they have recently arrived and must pay key money, (Sakr, 1990 in Arandel & El Batran, 1996). However, because of the illegal nature of key money, owners were forced to sell units rather than rent. Rental units gradually disappeared from the market and were replaced by condominiums. As a consequence, the formal private market deals almost exclusively with high middle—and upper—income groups that represent less than 15% of the urban households (Sakr, 1990 in Arandel & El Batran, 1996).

ARTICLE IN PRESS 442

M.M. El Araby / Habitat International 27 (2003) 429–458

Meanwhile, the government concentrated its efforts on the construction of new towns. Large amounts of public investment in housing were directed towards providing housing units on the desert. However, with heavy subsidies, the housing units are not affordable by the majority of the population. The failure of public housing to reach the target groups is demonstrated in the new towns where thousands of fully built and equipped low income flats remain unoccupied for many years while the demand for affordable new housing continues to rise. The consequences of 50 years of housing policy can be summarized as follows: *

*

*

The public housing provided in the 1960s and the early 1970s was unable to satisfy the needs of the low-income groups in terms of quality and quantity—affordability was only possible when heavy public subsidies were involved. Units provided since the 1970s are not affordable to the target group and benefit groups that are economically better off. In addition, subsidized co-operative loans which are available only after obtaining a building permit, are absorbed by the middle and higher income groups. The private capital, which had been pouring into the market, led to a substantial increase in land prices. The continuous increase in land speculation activities within and around urban centres is an endless spiral of escalating prices that exclude the urban poor. The informal market was the only alternative affordable to urban dwellers with low or middle incomes. Rent control was conceived as a measure to reduce the cost of housing for lower income people but has had a major effect in reducing the amount of low and middle-income housing built. Under the best circumstances, a large percentage of the lower income urban populations have no chance in participating in any of the formal housing programms.

The presentation made above illustrates the complex centralized system of different land and housing policies that implemented by different institutions on both central and local levels. Fig. 2 demonstrates, briefly, the impacts of urban land policies on land supply and value for both private and public sectors. 3.3. Institutions involved in planning for urban land and housing In Egypt, a number of agencies are concerned with urban development regarding land and housing, few of which have a clear mandate, and overlapping jurisdictions are common. Three ministries have important responsibilities in designing and implementing national urban development strategies. The Ministry of Planning is responsible for approving budgetary appropriations for all central ministries public authorities and the governorates and also undertakes regional planning studies. The State Ministry for the New Urban Communities is responsible for reconstruction, new town development, and the development of desert land. Within this Ministry, the General Organization for Physical Planning (GOPP) is responsible for the preparation of urban master plans for each of the major cities and for implementation of the revised master scheme for Cairo. The Ministry of Housing and Public Utilities is responsible for housing and public utilities. A January 1996 Presidential decree integrated the State Ministry for the New Urban Communities with the Ministry of Housing and Public Utilities. In addition, there are a number of government agencies in charge of the national urban development organizations including the Central Authority for International Development (CAID), New Urban Communities Authority (NUCA),

ARTICLE IN PRESS M.M. El Araby / Habitat International 27 (2003) 429–458

443

Impacts of Urban Land Policies on Land Supply and Value

Components of Urban Polocies

Public Sector

Wide Supply of newly developed land. Future development.

Privitization and selling of public land.

Private Sector

Allocation of Land

Transfer land right

Limited Supply of land

Cost and complicated procedure

Supply Publicly land.

Subdivision Regulation

Informal subdivision Limited operation

Master - Plans Variance of use Localities responsibilities

Land - Use

Productivity ,densities designated use

Land Price

Considered in Determining Prices.

Secured Tenure Formal Tenure

Revenue

Cost-recovery for replications

Building regulation

Location

Violation , variation in prices

Major factor to affect price

Tenure

Informal tenure

Taxes

Added fixed costs

Infrastructure and Facilities

costs and affecting prices

Fig. 2. The impact of urban land policies on public and private sectors.

and GOPP, all of which are under the supervision of the Ministry of Reconstruction and New Communities. These national organizations play an important role in urban land management, and indirectly influence the scope of land development opportunities available to the governorates. Moreover, the following agencies have the right to modify local development projects without co-ordination with other concerned agencies: the National Investment Bank, the international agencies, the Ministry of Planning, the Ministry of Development, and the Ministry in charge of Local Governments. This, of course, results in many incoherences in the implementation of urban development projects. This complex system results in creating different types of land tenure, heterogeneous suppliers of urban land and differentiable systems of land prices. A detailed discussion about the impacts of

ARTICLE IN PRESS 444

M.M. El Araby / Habitat International 27 (2003) 429–458

land and housing policies on land tenure, supply of urban land and prices will be presented in the following sections.

4. The impacts of urban land policies on land tenure, delivery and supply, and land prices 4.1. Land management and tenure systems As noted previously, Egypt’s contemporary administrative system is the product of the country’s long and complex history. As a result, legislation regarding the ownership and control over land reflects a diversity of influences, including ancient customs, Islamic laws, as well as the French and British law systems. Land in Egypt customarily belonged to the state, and only urban land and houses could remain as private property (Mulk). This tight state control over land was made necessary by the country’s dependence on irrigation and the resulting need to strictly regulate land uses. Land tenure defines the various modes of land ownership and the rights derived from it (Payne, 1997). In Egypt, five main types of land tenure can be identified: *

*

*

*

*

Leased Land: This land is owned by the state and leased on a long-term basis to its occupants. Squatters may be granted this status, if they make a request to the Governorate. Land that remains permanently under leasehold status and cannot be sold is known as hekr land. Other leased lands can be converted from public to private ownership following the end of the lease period. Trust or Wakf Land: It consists of property set aside for charitable or religious purposes and is usually administered by the Ministry of Wakf. Patriarchal property is considered wakf, but is independent of the Wakf Ministry. Encroachment (Wad Al Ayad): The civil code makes it possible for the possessor or user of a plot of land to gain ownership of that land if it is occupied continuously for 15 years and if the owner does not assert his rights. Private Ownership or Freehold: This land is registered with the local district office of land registration division (Ministry of Justice) and owned by private persons or companies. Public Ownership: This land is registered as state property or land owned by the state which serves a public purpose. It includes governorate, Amlak land, land reform, antiquity and military properties (for more elaboration see Payne, 1997).

Ownership of land by the government in its various forms (public, wakf and leased land) is the prominent type of ownership in Egypt, as the government owns all desert land. Access to this land can be achieved through three means: by buying, leasing, or, most commonly, seizing it. The sale of government land is rather rare and, when it occurs, often amounts to the recognition of an act of dispossession. The regularization of seizure found its foundation in the principle of Wad Al Ayad that legitimates the transfer of property to the user after 15 years of ‘‘absence’’ of the owner. This principle applies to both private and public land. As mentioned previously, generally access to urban land is restricted by legislation regarding land subdivision and building regulations.

ARTICLE IN PRESS M.M. El Araby / Habitat International 27 (2003) 429–458

445

The different tenure types and ownership over land, as mentioned above, result in a complex delivery system of urban land, as it will be discussed in the following. 4.2. Urban land supply systems Urban land in Egypt is delivered through three major sectors: public, formal private and informal. Publicly, the State Ministry of New Urban Communities (MNUC) supplies the majority of newly developed land for building in the new towns and settlements. The Ministry determines not only the type of development that will be allowed, according to the master plans, and its location (the development control function), but also the amount of land supplied, when it is supplied, and the price at which it is supplied. Of the building land supplied other than by the MNUC, when it is urban land in existing cities, most of it will be supplied by the Ministry of Housing, Reconstruction and Public Utilities (MHRP) for public housing projects, upgrading and sites and services projects. Municipalities and Local Governments supply land that locates within their jurisdictions for purposes of securing tenure according to the State Land Protection Policy (SLPP). They also sell governorate-building plots and in some cases lease land for housing cooperations and non-profit organizations. Other public agencies such as the Wakf Ministry, Ministry of Agriculture and The General Authority of Land Reclamation, which are public agencies ultimately responsible to the municipalities in which they lie. These public agencies supply land in much the same way as municipalities do and for the same reasons. Privately, the formal private sector delivers urban land that is located mainly in inner cities and within the urban boundaries of most cities. The supply of private land is somehow limited in scale especially in large cities because of restrictions and limited opportunities for formal subdivisions and large-scale real estate development projects. A broader range of control measures and tightening of existing measures regarding subdivisions include the following (Arandel and El Batran, 1996): * * * *

*

*

*

Subdivision advertisement. Inclusion of subdivision approval in contracts of sale or rent. Conditions in subdivision approval must be included in transfer of property to inheritors. Extent of subdivision may be set by the local popular council and include lands expropriated if owners do not voluntarily participate. The Ministry of Development is given authority, after consultation with the governor and approval of the local popular council, to modify previously approved subdivision conditions. The governor may place restrictions upon subdivision approval, with city/village approval for up to 2 years and with a maximum extension for another 2 years. The governor may exclude parts of towns and villages from subdivision due to capacity limitations of public utilities or to control stages of development according to an approved plan. Penalties for violations have been strengthened by providing for imprisonment for five to ten years and a fine of no less than L.E. 10 000 (which is almost US$3500. According to the 1993 exchange levels, US$1=2.85 L.E) (and a minimum fine of L.E. 50 000 if the violation is intentional). Fines may be collected through administrative procedures and do not require a court order.

Coping with the legal requirements for obtaining formal land subdivision seems to be impossible for many owners. Therefore, the only alternative was to subdivide their ‘‘privately

ARTICLE IN PRESS 446

M.M. El Araby / Habitat International 27 (2003) 429–458

owned’’ land illegally (El Araby, 1993). Consequently, replacement, demolition of old buildings and sometimes conversion are the major factors that increase the supply of ‘‘formal’’ private urban land. Mostly, privately owned lands are disposed in the market for maximum prices and maximum expected return value. As a result, the informal sector supplies land, on a large scale, on the periphery and the outskirts of major cities. Squatters and early settlers of state land areas found it easy to occupy parcels of land that did not have an explicit public owner or controller due to disputes or confusion of responsibilities between many governmental agencies concerning these lands. Furthermore, policies of land subdivision, land use, and land tenure regulations have created a significant upward shift in the provision of illegal land subdivisions in which no specific land use was defined and no certain type of ownership was declared. As a result of such policies, a boom in the provision of informal land occurred in the last 30 years (El Araby, 1993). The negatives obviously are consumptive impact on scarce agricultural land and irregular patterns of housing development that create environmental problems. Nevertheless, the positives are the provision of cheap and accessible land for housing construction and the reduction in the need for expensive municipal services because of self-organizing mechanisms. Nothing systematic is known about the suppliers of the building land. Different suppliers of the land probably have different objectives. What is certain is that all the debates in Egypt about building land concentrate on the role of the government. We can conclude that the public sector dominates the supply. Fig. 3 illustrates the urban land supply system in Egypt through all public, formal and informal sectors. 4.2.1. The system of supplying land through the public sector How do the public sector agencies—mainly in the new towns and settlements—supply the land? Usually they do not hold ‘‘banks’’ of land suitable for building upon, but they acquire the land for each development scheme separately. A land-use plan is made and within the designated area the land is allocated for selling. The next stage is when the municipality or the locality services the land within the designated area, laying gas, water, electricity and drainage, and building roads, car-parking areas and public open space. Often the land must be drained or the level raised before any further works can begin. This is exceedingly expensive. A large part of the land will remain in municipal ownership, such as that part used for roads, paths, play spaces and planting. The rest is to be disposed of, mostly freehold, although sometimes leasehold (the choice having little effect on the disposal price). Disposals are to ‘developers’, which include developers of commercial and industrial buildings; private-housing developers; housing corporations building for sale (these supply most of the new housing in Egypt); and trusts for schools, hospitals, and sports clubs (Adopted from Needham, 1992). The common practice is that the whole of the designated area within the land-use plan is treated as the ‘accounting unit’ (or the whole area is, for ease, divided into a few accounting units). For one accounting unit, the total income from disposals has to be sufficient at least to cover the total costs, which include costs of acquisition and compensation, laying infrastructure and services, the costs of preparing the plan, professional fees and interest charges. The total income from disposals must be sufficient for that: but how is that total income to be raised from the various plots that are to be disposed of?

ARTICLE IN PRESS M.M. El Araby / Habitat International 27 (2003) 429–458

447

The Land Supply System in Egypt Major j Land supply sectors

Political Choices

PrivateSector

Location

Ministryy of New Urban communities. Ministryy of Housing g, Public Utilities . Local Governments and Maniapalities p . Other Public Agencies.

Newly y developed land Desert land New Towns and settlements Public housing g sites Upgrading pg g and sites and services Projects.

Governorate and state Land. Development p of desert and reclamated lands. Buildings Lots

Inner cities and Land within urban boundaries.

Variations , replacement and d demolotion d l ti off old properties. Building Lots and Subdivisions. S bdi i i

Real Estate Cooperations. Land Subdivisions comp. Housing Investment comp.

Ways of supply

Private owners

Private informal land holders.

Periphary and outsides of cities.

Private formal owners.

Agricultural land.

Encroachment , sub. division of formal land variance of Agricultural land to urban use.

Transfer of LAnd Rights

Freehold Selling g of state land Lease Conversion of illegal occupation

Freehold Formal registration Inheritance Court - orders occupation

No registration Contracts and pre-sale arrangement

Prices

Informal Sector

Market factors

Public Sector

Market and speculation

Actors

Fig. 3. The land supply system in Egypt.

First, the price for commercial uses is decided either a ‘market value’ or some multiple of the housing value (the determination of which is the last stage in this calculation). Secondly, the prices at which non-commercial uses such as playing fields and schools are to be transferred to municipal departments and school boards are decided either by a norm (so much per square metre) or related to the housing value. The income from those sources is subtracted from the total (minimum) income that has to be raised. What remains have to come from disposals for housing. All the housing plots are then given ‘weights’, depending on the type of housing (luxury, middle, low income housing), the location (with or without a good view), and the plot size. The total income to be raised is divided between the plots according to those weights, hence the disposal prices for housing. The plot prices for the heavily subsidised projects (public housing) must not exceed a norm set by the central government (and until recently had to be approved separately). The aim of the theory developed here is to explain those prices.

4.2.2. The economic principles on which to base an explanation Even though the public sector agencies dominate the supply of building land, it is still subject to certain economic constraints that limit the freedom with which they can set prices. Market forces

ARTICLE IN PRESS 448

M.M. El Araby / Habitat International 27 (2003) 429–458

enter the land development process in three ways: * *

*

When the central government acquires and develops land for sale; When central agencies—Ministries—determine prices in different localities and municipalities in order to attract development; When developers acquire land from a municipality.

These three situations are now considered. The conclusion can be drawn that in most cases the central government acquires land at a zero price. The state dominates most of Egypt’s land. If a ministry is supplying building land we can assume that it wants to attract new development in different localities, even if it does want growth at only some selected localities. Developers wanting to build in one locality will consider switching their demand to another locality if the difference in land prices is attractive. There is, therefore, (locationally imperfect) competition between localities as land suppliers. The effect of this on the location decision of a developer varies between the manufacturing, commercial, and housing sectors. The result is that constraints are set on the maximum prices at which a single municipality can dispose of land. The ministry is obliged, whenever applicable, to charge prices to cover development cost and generate maximum possible revenue for the state. When a developer acquires land from the municipality, in many cases it is for a type of development that can be freely traded within its own sector (marketable uses). This applies to industrial and commercial buildings, to commercially rented housing and to housing for sale. Such properties acquire a value that satisfies the market for that sector. The developer will not pay a price for land which would result in total costs (for land plus buildings) higher than market value. (We assume that there is competition between developers for the land supplied by a locality. If this were not so, a few developers could try, by collusion, to lower the land price which the municipality could realize.) Of course, the municipality is free, if it wishes, to supply land to one or a few chosen developers. This process excludes the possibility that developers bid against each other and so raise the price to the maximum which can be realized (Needham, 1992). However, there is a steady need for the supplied land. The effect of the last type of market force can be discussed using the concept of the residual value of land. The residual value depends on the type of development (land use, building intensity). In a country that has a strong system of development control, the municipality specifies the type of development. In that case it is helpful to regard the residual value of a plot of land as being an institutional residual value, that is, set below the market value but within land-use constraints imposed publicly (Needham, 1988). This qualification reminds us that the concept of transfer earnings (so important when explaining land prices in an unregulated land market) is of relevance when development land is supplied by the public sector. In general, there is a steady demand for land in Egypt because of the fact that the demand for both land and housing is inelastic and the disparity between the demand and supply for land. When private developers acquire land, it is possibly transferred to other users on higher market prices. Because of these circumstances, the market value of land is above the residual value of land. It is important, therefore, to know how the land prices are set and if public agencies as land-suppliers can influence it. A very important determinant of the residual value is the market price of the developed property which is built (is to be built) upon it. And that market price is influenced by the amount of that developed property supplied, hence by the amount of land supplied. The

ARTICLE IN PRESS M.M. El Araby / Habitat International 27 (2003) 429–458

449

connection works as follows. Supplying land for use A allows the supply of A to be increased; that can decrease the market price of A; so the residual value of land for A decreases. Alternatively, if the supply of land for use A were restricted or limited in supply in relation to demand, the market price of A would rise, causing a rise in the residual value of land for that use (see Goodchild, 1978; Evans, 1988). Decisions about how much land to supply by the central governmental agencies in different localities will, therefore, have a great effect on the price of developed property and, hence, affect the residual value of the land within those localities. On the other hand, if central public agencies take decisions about the volume of land supply in response to different demands within localities, the combined effect on property prices and therefore land prices will be great. However, it does not seem that economic factors regarding supply and demand for land and housing, local conditions, commuting and transportation costs have any impact on prices set by public agencies. Summarizing this section, we can say that the central government—namely the Ministry of New Urban Communities, the Ministry of Housing and local governments—acting as land developer is subject to three sorts of market constraints. These are: * * *

The cost of developing land to be acquired for development, The price of land is set by a cost-recovery and generating revenue mechanisms, and The institutional residual value of land for marketable uses.

So far we have been trying to explain absolute prices, that is, the price of a plot of land. One of the conclusions is that this is not possible. By applying the general economic principles we can predict the range within which the price will lie. This has consequences for the ability to explain relative land prices, e.g. the location variation in the price for a particular use, or the variation in the price for different uses in a particular location. It is apparent that whenever the supply of building land is dominated by public agencies, political decisions have an important effect on land prices. They affect both the upper and lower limits of the range within which land prices can be expected to fall, in ways predicted by the economic analysis, and the actual position within the range. Moreover, some of these political choices affect land prices when the choice is made by a single locality; other choices have an effect on land prices only when many localities make the same choice. The six main ‘political variables’ are: * * * * * *

The The The The The The

main objectives of the central government, e.g. privatization; cost of developing and preparing land for sale; possibility of subsidising the land development process; chosen mix of land uses in the plan area; quality of the land servicing; and expected revenue from sales.

From the above, we would expect the minimum price to vary in a predictable way (e.g. higher where values in existing use are higher and where land servicing is more expensive). Also, we would expect the maximum price to vary predictably higher in the more advantageous locations and with the higher yielding uses. The latter value sets the absolute maximum disposal price. However, when land is disposed below its residual value (cost-value), it is, in most cases, transferred in higher prices.

ARTICLE IN PRESS 450

M.M. El Araby / Habitat International 27 (2003) 429–458

The question of the plots with a market value is not so easily answered, however. For the municipality sets not only the price but also the quantity of land supplied specified by use also. We have seen that there is a relationship between residual value and volume of supply. However, the effect of the quantity decision of a single locality on the residual value of land will usually be small (see above). It is possible to conceive of the possibility that a municipality supplies so much land for use A, e.g. housing, that the residual value for use A falls noticeably. In that case, one would not expect the municipality to supply so much land that its residual value fell below the minimum disposal price per square metre of plan area. If, on the other hand, a single municipality restricted its supply of land, that would have little effect on the residual value satisfying the regional market. To sum up, periodic state interventions in the performance of the land market proved to be either ineffective or inappropriate. Ways of securing tenure, selling state land as introduced in the privatization acts of 1995, and providing subsidized land for development proved to have limited impacts on the supply of formal ‘‘new’’ urban land, in terms of in reasonable prices, as an alternative to the limited supply of urban land in inner cities. Land prices have been increased at a compound annual rate of 30–45% in the last decade (El Araby, 1993). Increases in land costs led to increasing construction costs and consequently increased housing costs. Therefore, the success of the land market in providing cheap land is proved to be high when governmental intervention was low. An examination of land prices will follow. 4.3. Land prices in urban Egypt 4.3.1. Private-sector land prices A major constraint on the access to land is the continuous escalation of prices. The cost of land has risen from approximately 8% of the building construction cost in the 1950s to more than 100% today (Allam, 1992 in Arandel & El Batran, 1996). In some cases, the cost of land reaches over 200% of the total cost, where the price of square meter of land reaches as high as 18000 L.E. in some areas in Cairo in 1997. The major problem is that land price is considered as a fixed cost in production, while construction costs and other soft costs are considered as variable costs. The price of land for low-income housing was multiplied by 50 between 1960 and 1993, i.e. from 4 to 200 L.E./m2 in 1993 (according to the 1993 exchange rate US$1=2.85 L.E) while the average unit building cost increased 12 times from 12 L.E./m2 in 1960 to 91 L.E./m2 in 1983. Fig. 4 and Tables 3 and 4 demonstrate the escalation of land prices and average residential unit cost evolution. 4.3.2. Public-sector land prices The 1976 law for the sale of public land proved difficult to implement due to the conflict of ownership between ministries, and Defence Ministry reluctance to forego land it considers strategic. In 1984, Cairo governorate identified 30000 ha. of vacant desert land, one-third of which were the sites of military installations and only one-third were devoid of conflicts of ownership (Deboulet, 1994). As a result of the lack of co-operation and conflicts between ministries, large amounts of urbanizable land remain frozen. In 1995, the government privatization policies allowed for the sale of public lands on a large scale, especially in the new towns and settlements. Land prices in the new towns witnessed a rocky increase between 1980 and 1993 (Fig. 5 and 6 and Table 5 and 6).

ARTICLE IN PRESS M.M. El Araby / Habitat International 27 (2003) 429–458

451

800 710

700 L.E. per Sq.m.

600 500

Moderate Good

436

400

Distinguish

300

266

200 136

100 0 12 1960

1965

67

33

16

1970

1975

1980

1983

1988

1993

Years Fig. 4. The Escalation of land prices in urban Egypt.

Table 3 Average urban land values evolution in Egypt 1960–1993 (L.E./m2) Year

1960

1965

1970

1975

1980

1983

1988

1993

Quality Moderate location land Good location land Distinguished land (prime locations)

4 6 12

6 9 16

12 16 33

21 29 67

47 80 136

93 154 266

120 240 436

200 385 710

Source: Figures from 1960–1983 CAPMAS (1992), Allam (1992), the rest figures are estimations by the author.

Table 4 Average residential unit cost in urban Egypt 1960–1993 (L.E./m2) Year

1960

1965

1970

1975

1980

1983

1988

1993

Level Moderate land Good land Distinguished land (prime locations)

12 16 22

16 22 29

24 30 38

37 48 58

61 73 85

91 106 128

120 200 310

160 280 420

Source: Figures from 1960–1983 CAPMAS (1992), Allam (1992), the rest figures are estimations by the author (According to the 1993 prices US$1=2.85 L.E).

Land speculation plays an influential role in the increase of land prices; both in free land market during the process of subdivision of land or even in the state controlled market. As in the case of sale of public owned plots of land that have been connected to basic infrastructure networks (site and services schemes). Ismailia’s Site and Service Demonstration project, where the land purchased from the project agency, witnessed a dramatic increase in price when illegally

ARTICLE IN PRESS M.M. El Araby / Habitat International 27 (2003) 429–458

452

250

225

200 150

Price LE./m2

150 150

75

75

100 50 30

50 2.5

50 25 20 15

15

35

Small lots Meduim Large Big Areas

25

0 1975

1980

1990

1993

1995

Years

Fig. 5. Average land prices supplied in the New Town and settlements. 120 120 94

Price LE./m2

100 76

80

65

57 60

46

Inner areas Distinguished

47 35

40

21 24

9

3.5

20 1.2

4

1960

1965

27

6.8

0 1970

1975

1980

1983

1988

1993

Years

Fig. 6. Average land prices supplied by the informal sector. Table 5 Average land prices supplied in new towns 1975–1993 (L.E./m2) Year

1975

1980

1988

1993

Size Small lots Medium Large Big areas (500 Acres)

2.5 N/A N/A N/A

30 15 N/A N/A

50 25 20 15

150 75 50 25

Source: Aly (1995) and Interviews made by the author with persons in charge of pricing land in the NUSA. N/A: Not Available.

transferred to other owners. The formal land prices as purchased from the Project Agency at the outset of the project ranged from LE. 2.00 per m2 to L.E. 10.00. Some years later, in 1986, it was found that land prices had increased in the range from L.E. 80.00 per m2 to LE 200.00 when transferring ownership (Sharara, 1995).

ARTICLE IN PRESS M.M. El Araby / Habitat International 27 (2003) 429–458

453

Table 6 Average informal land prices in Alexandria 1960–1993 (L.E./m2) Year

1960

1965

1970

1975

1980

1983

1988

1993

Location Inner areas Distinguished land (prime location)

1.2 3.6

4 9

6.8 21

24 46

27 57

35 76

47 94

65 120

Source: Figures from 1960–1988 (El Araby, 1993), the remaining figure is estimated by the author.

Due to the high rates of growth in urban land prices, the occupiers of low-income settlements are very likely to be forced to move to more peripheral sectors of the city, especially if such settlements are located close to the city centre. Higher types of investments to match the price of the land would replace the original land uses of these areas. This process of pushing out the poorer land uses to the outskirts has already started in Cairo in areas such as Boulak and Imbaba since the 1960s. However, the rate with which this process has been developed has increased substantially since the start of the last decade. 4.3.3. Informal-sector land prices Serageldin (1991) has noted that Law 135/1981 was the first to mention procedures for the regularization of informal development in Egypt. It mandated governorate authorities to prepare upgrading plans for settlements located within their administrative boundaries. However, it did not specifically address issues related to land tenure. Following enactment of the law local authorities turned to the national legislature for the definition of the rules governing the transfer of state land to their occupants. As a result, the main effect of Law 135/1981 was essentially to put on hold any decisions regarding the demolition, destruction, or adjustments of buildings erected prior to 1981 for a period of 5 years. Penalties under the law where also put on hold. However, this process led to increase informal land prices (El Araby, 1993). Law 31/1984 empowered governorates to dispose of land through negotiated sales on the condition that the recipient would utilize and develop the land in accordance with the terms specified in the sales agreement. A year later, executive regulations to implement law 31 had still not been issued. However, governorates felt pressured to develop interim regulations to outline procedures for filing requests to purchase land plots, paying fees to cover survey costs, and depositing a down payment related to the size of the parcel pending appraisal of the property. Executive regulations were issued in 1985. The ministerial decree referred to procedures for the transfer of wastelands to occupants who had brought the land into use prior to the enactment of Law 31 and allowed governorates to define their own operational protocol implement the law. The decentralization of responsibilities entailed a sequence of incremental adjustments in the central local interface. National laws have increasingly been enacted in the form of enabling legislation, which sets a framework of broad powers and areas of responsibility. Local authorities have been given wide discretion to formulate land policy and disposal strategies and define the rules, regulations, and procedures governing transactions, including the regularization of informal tenure, that led to increase informal land prices (Serageldin, 1991).

ARTICLE IN PRESS 454

M.M. El Araby / Habitat International 27 (2003) 429–458

Also, informal land prices and units increased because the informal sector delivers both land and housing for a major sector of population that cannot participate in the formal market, because of, for example, the high costs associated with formal development standards, both for land subdivisions and building construction. A second example, Law 52/1980 which limits plot coverage to 60% of the total area, compared to nearly 100% in informal settlements where only the space that is necessary for ventilation and light is left undeveloped. Land subdivision laws further require that 33% of the land be set aside for public uses when such spaces never exceed 15– 20% in informal settlements, if present at all. The building codes (Law 106/1976) impose high construction standards that increase building costs while informal builders modulate the standards according to their needs and financial constraints. As a result, the implementation of the laws suffered great discrepancies from governorates to governorates. It was implemented with partial success in Alexandria, Ismailia and Aswan but faced greater difficulties in Cairo (Deboulet, 1994). In the latter city, a special committee issued a deliberation after 1 year, local councils in Cairo adopted its recommendations and the governor issued a decree in 1986 that spelled out the policies and procedures for the regularization of land titles. By the end of 1987, fewer than 30000 requests had been filed, representing about 5% of the estimated number of eligible illegal occupants in the governorate. No more than 750 had actually made the required down payment (Arandel & El Batran, 1996). In Helwan, an industrial suburb southeast of Cairo, the price of land was set between L.E. 100 and 120 and then reduced to L.E. 80–100. This price, corresponding to the market level was too high for the settlers and few were in a position to take advantage of this opportunity to increase their security of tenure. 4.3.4. Land tenure impacts on land prices As illustrated above, average land prices vary between different sectors of supply. Private freehold land with formal tenure status tends to have the highest prices and suffers the highest level of speculation in the market. Controlled public land has medium prices but with high degree of speculation. Informal-hold land offers the lowest land prices in the market. Securing land tenure led, on one hand, to increase land prices, and on the other hand, led to increase speculation over land, even if supplied informally. Therefore, it is evident that formal land tenure tends to increase land prices. Government intervention to stop land increases is urgently needed. Such an intervention requires a clear conception of land management taking into account the main constraints affecting the quantity and price of land. This policy will aim at restoring market balance in order to enable low-income groups to re-enter the formal land market and limit the spread of informal land market. Here, it is important to stress upon the importance of reviewing the existing land laws so that normal economic market forces may be restored and abnormal market forces could, possibly, be eliminated.

5. Conclusions The analysis undertaken in this paper suggests that both urban land policies and abnormal market factors, i.e. inelastic demand and supply, impact on land prices. Determinants of land

ARTICLE IN PRESS M.M. El Araby / Habitat International 27 (2003) 429–458

455

prices for the publicly supplied land are political choices, cost recovery and generating maximum revenue. The public sector, i.e. the central government, dominates the supply of building land in Egypt. However, it acts in the land market in the same way as the private sector. Economic factors that could impact land prices do not seem to have a great impact on prices set by the central government. Nevertheless, the central government, namely the Ministry of New Urban Communities, the Ministry of Housing and Local Governments, acting as land developer is subject to three sorts of market constraints. These are: * * *

The cost of developing land to be acquired for development, The price of land is set by a cost-recovery and generating revenue mechanisms, and The institutional residual value of land for marketable uses.

The way by which political choice factors are made is not systematic and subject to change according to political preferences and desire. On the other hand, determinants of land prices for the privately supplied land for both formal and informal sectors are abnormal market forces; possibility of securing tenure; proximity to infrastructure, transportation and central city districts; location that include shape and size; and potential productivity. Increasing land prices led, on the one hand, to increase the cost of housing and consequently housing prices. On the other hand, it influenced the excessive use of land—horizontally and vertically—for the production of buildings. This process of excessive utilization of the land resources results in building violations, distortions in the build environment and distractions in the urban fabric. The escalation of land prices could be explained by factors such as inelastic demand for land, uncertainty, speculation, price inflation and disparity of income distribution. The escalation of land and housing prices is a result of the following factors: *

*

*

*

*

*

The inelastic demand for land as the demand for the output—housing—is also inelastic due to factors such as the population increase, the housing deficit due to the inequality between the supply and the demand for housing, and urbanization growth. The increasingly speculation over both public and private land, due to the limited supply of building land, led to accelerating land prices especially in inner cities. As land prices increase in the urban peripheries, selling land piece by piece, becomes increasingly attractive compared with agricultural returns. The heavy pollution resulting from decreasing productivity further compounds this phenomenon. Remittances and the savings accumulated by Egyptians who worked abroad during the last decades have been invested in land and housing both for self use and in the search of high investment returns. Culturally based motives, which valued the possession of a piece of land and of a house as an important form of social security and prestige largely, contributed to this trend. The formal approval of land is a time-consuming, and costly process with a low probability of success when dealing with agricultural lands, this process led to increase operation and, consequently, prices of the informally supplied land. Informal land prices and units are, also, increased because the informal sector deliver both land and housing for a major sector of population that cannot participate in the formal market.

ARTICLE IN PRESS 456 *

*

M.M. El Araby / Habitat International 27 (2003) 429–458

The uncertainty of investing in other economic sectors and price inflation led to an increase in capital investments in land and real estate as a secured way of investment with high rates of expects revenue and returns. Many economists have argued that there is a disparity of income distribution in Egypt due to factors such as the black economy and the money laundry procedures. However, land and realestate investments are legitimate channels of development that promise excessive returns for any investment.

5.1. Future policy options The conclusions, as illustrated above, make it clear that a modification of current urban land and housing policies and state intervention in the land and housing markets is urgently required. Government intervention to stop land price increases is urgently needed. Such an intervention requires a clear conception of land management, supply and delivery systems taking into account the main constraints affecting the quantity and price of land. Some future policy options may include the creation, re-evaluation and/or redevelopment of the following aspects: *

*

*

Joint venture real-estate agencies between public–private sectors could possibly restore a market process that in turn may impact the evolution of a normal land market in Egypt. Furthermore, the role of such agencies could be expanded to include selling or leasing of public lands in addition to land financing; Information exchange, the use of available technologies, e.g. GIS and others, is urgently needed to spread information about land, housing and real estate available options in the proposed market reform. This is the only way to have control over land resources and land management; State decentralization is highly essential because it will ease the current complex system of both legislations and regulations and it will allow the state intervention I the land market to be more efficient and responsive to local conditions. The process of decentralization would also help in defining responsibilities between different planning sectors and levels. This also includes the need for institutional reform and the need for integration of planning techniques from all social, economic and physical aspects that affect land supply and prices.

All of the above points are important in order to restore a normal land and housing market in Egypt. Maintaining the status quo may result in further complications in both housing and land markets in Egypt.

References Abd El Tawa-ab, M. S. (1985). Qawanin Tanzim Al Melkia Al Aqaria (The organizing laws of real estate properties). Cairo: Al-am Al Kitab. Abd El Hamid, D., & Khalil, F. (1989). Quanon taegir wa bie al amaken (the law of renting or selling places), No. 49 for 1977, and No.136 for 1981. Cairo: Al Hayaa Al Amma Li Shuen Al Matabe-Al Amiria.

ARTICLE IN PRESS M.M. El Araby / Habitat International 27 (2003) 429–458

457

Abt Associates. (1982). Dames and Moore—and General Organization for Housing, Building, Planning, and Research (GOHBPR). Informal Housing in Egypt, Report to US AID, Cairo. Alonso, W. (1964). Location and land use. Cambridge, MA: Harvard University Press. Aly, C. H. (1995). Policies of Supplying, Distributing and Allocating Land for Low Income Housing Projects in Egypt. Proceedings of the ‘‘future of new urban settlements’’, HABITAT, State Ministry of New Urban Settlements and Council for Arab Housing Ministers, Cairo. Akbar, J. (1992). Emar-a Al Ard Fi Al Islam (The building environment in Islam). Jeddah and Beirut: Moassat Elum Al Koran. Arandel, C., & El Batran, M. (1996). The Informal Housing Development Process in Egypt, Draft. Report submitted to CNRS-PIR-Villes, Cairo. Ball, M. J. (1985). The urban rent question. Environment and Planning A, 17, 503–525. Barlowe, R. (1978). Land resource economics. Englewood Cliffs, NJ: Prentice-Hall, Inc. Cadman, D., & Austin-Crow, L. (1983). Property development. New York: E. & F.N. Spon. Central Agency for Public Mobilization and Statistics (CAPMAS). (1992). Housing Units and Buildings Characteristics, Final Report, Vol. 4. Cairo: CAPMAS Press. Deboulet, A. (1994). Vers un Urbanisme d’Emanation Populair, Competences et Realisations des Citadins. L’Example du Caire, Institut d’Urbanisme de Paris, Universite Paris XII-Creteil. El Araby, M. M. (1994). Impacts of rent control upon housing stock and benefits distribution in Egypt: A reference to deterioration of residential buildings. Architectural Scientific Journal, 8, 118–134. El Araby, M. M. (1993). Explorations into the characteristics, the determinants of production and the impact of land policies on the informal housing sector in Alexandria, Egypt, Vol. 54(7) DA 9324947, Ann Arbor, Michigan, USA: University Microfilm International (UMI), A Bell & Howell Company. EL-Batran, M. (1994). Transforming the role of private sector in managing and developing of urban land for the poor, with special references to Ismailia, Egypt. Proceedings of the 2nd symposium housing for the urban poor, Birmingham, UK: International Convention Centre. El Sayed, H. E. (1996). Regulating urban policies in Egypt: An evaluation of the current situation, Master thesis, Faculty of Regional and Urban Planning, Cairo University, Cairo, Unpublished Evans, A. W. (1988). The theory of land values: A re-introduction. Discussion Papers in Urban and Regional Economics No.34, Department of Economics, University of Reading. Evans, A. W. (1996). The impact of land use planning and tax subsidies on the supply and price of housing in Britain: A comment. In: W. F. Lever, & W. J. Money (Eds.), Urban studies, Vol. 33(3) (pp. 581–585). Goodchild, R. N. (1978). The operation of the private land market. In: B. J. Pearce, N. R. Curry, & R. N. Goodchild (Eds.), Land, planning and the market (pp. 11–48), Occasional Papers 9, Department of Land Economy, University of Cambridge. Quoted by Needham 1992. Hanna, M. (1992). Le logement en Egypte: Essai critque. Cairo: CEDEJ. Harvey, J. (1985). The economics of real property. Hampshire, UK: Macmillan Publishers LTD. Hin Li, L. (1997). The political economy of the privatisation of the land market in shanghai. In: W. F. Lever, & W. J. Money (Eds.), Urban studies, Vol. 34(2) (pp. 321–335). IAURIF, VDRA, DUMEZ & GOHBPR (1986). Housing Construction in the Formal and Informal Sectors in Cairo. Cairo: A Presentation Seminar. Kardash, H. (1992). The balance between government and users involvement in housing provision in Egypt. Proceedings of the housing international conference: Policies and housing systems for low-income communities, Ministry of Development, New Communities Housing and Public Utilities, Cairo (pp.74–86). Mills, E. S. (1972). Urban economics. Glenview, IL: Scott Foreman and Co. Muth, R. F. (1969). Cities and housing. Chicago, IL: University of Chicago Press. Needham, B. (1988). The Netherlands. In G. Hallett (Ed.), Land and Housing in Europe and North America (pp. 49–75). London: Routledge. Needham, B. (1992). A theory of land prices when land is supplied publicly: the case of the Netherlands. In: W. F. Lever, & W. J. Money (Eds.), Urban Studies, Vol. 29(5) (pp. 669–686). PADCO. (1981). National Urban Policy Study-Interim Action Report, Cairo: Advisory Committee for Reconstruction—Ministry of Development.

ARTICLE IN PRESS 458

M.M. El Araby / Habitat International 27 (2003) 429–458

Payne, G. (1997). Urban land tenure and property rights in developing countries: a review. London, Uk: Intermediate Technology Publications. Serageldin, M. (1991). Regularizing the informal land development process. Vol. 1. Washington DC: Office of Housing and Urban Programmes, USAID. Sharara, M. A. (1995). Policies of Selling and allocating land and housing units in the New Towns, Proceedings of the future of new urban settlements, HABITAT, State Ministry of New Urban Settlements and Council for Arab Housing Ministers, Cairo. Sullivan, A. O. (1993). Urban economics. Boston, MA: R.R. Donnelly & Sons Company. Wingo, L. (1961). Transportation and urban land. Washington, DC: Resources for the Future.