Money for air (& building) rights and urban infrastructure for free: field notes from Brazil

Last weekend, I had the honour and privilege to spend four days with colleagues from around the world, all of us guests of the Lincoln Institute of Land Policy.  Besides the exquisite treat of spending a weekend talking shop with like-minded people, the curriculum focus on land value capture and specifically, the experience of Urban Operations, ZEIS zoning and CEPACs in São Paulo, Brazil, was amazing and entirely relevant to the work that I and many of my colleagues do on the African continent.

São Paulo is a beautiful, elegant city:  high rises stretching beyond the horizon, wide boulevards with bicycle paths down the center, state-of-the-art architecture, a beautiful art museum…  Of course, we were in the high-end neighbourhood of Faria Lima, known as Brazil’s “Wall Street”, in the most expensive city in Latin America.  But in walking distance from our hotel and in the center of this neighbourhood, is a social housing project called “Coliseu”.   We visited this on Saturday, when the final residents were moving in.  Their story, from the emergence of the Favela Coliseu in the 1960’s and its growth into the 1990’s, through to the 272 housing units developed on that same land between 2023-2025, to the families moving in as we visited, is very moving, and demonstrates how one might imagine this kind of outcome in other places.  At the same time there are challenges (notably maintenance, ultimately affordability) – perhaps latent in these early days, but clearly promising to emerge over time, given some of the other social housing settlements we saw in the city.  Lots to think about.

The overall approach that made Coliseu and other social housing investments, as well as the delivery of São Paulo’s iconic bridge, the monorail, roads, bicycle paths and other public works investments possible, comes from an underlying philosophy that private property rights can extend in terms of longitude and latitude, but not in height.  This is technically defined: the city sets a maximum floor area ratio (FAR – the outcome of dividing the total building area with the total area of the land on which the building is constructed) to one.  Anything more than that – that is, any stories higher that a developer wishes to build, must be paid for because the air rights are a public good.  Think about this: air rights are a public good, which the public sector sells to generate revenue to invest in public works and social housing. The city doesn’t have to go into debt when it invests in the construction of roads, bridges, and social housing.  Like the old Dire Straits song… money for nothing…

The approach has five parts:

• First, a special zone or area for the intervention is defined. This is locally known as an “urban operation”.  Urban Operations are generally located within high value areas, where private sector investment interest can be leveraged to generate revenue in exchange for building permissions.  The revenue is then invested in public works and social housing in that same area.
• The city defines a density target for the Urban Operation and sets the total number of additional square meters that can be created on that land. Any developer wishing to build above the area standard of a Floor Area Ratio (FAR) of 1 is required to purchase rights to build within the envelope of defined, additional square meters.
• The rights are purchased as “Certificates for Additional Construction Potential” or “CEPACs” in the Portuguese acronym. These are sold on the stock exchange, in an auction governed by the Securities and Exchange Commission – creating market transparency and certainty, and therefore also building trust.
• The revenue generated from the auction of CEPACs is deposited into an escrow account that funds the delivery of public works in that same area, to accommodate the increased density created by developers building within their rights and to address the housing need in the area that has been exacerbated with prices going up. This linkage is critical – it is an area-based intervention facilitated by the city, that serves both developers (necessary infrastructure is delivered) and residents (access to infrastructure and housing).
• In terms of the City Statute of 2001 and the famous “right to the city” that it enshrines, 30% of investment from the CEPAC fund must go into social housing. To this end, the city also defines a “zone of special interest” or what they call in Portuguese a ZEIS where social housing must be delivered.  This is a spatially defined decision by the city to take land out of the market – much as the creation of CEPACs is a decision by the city to put “new” land into the market.

Paulo Sandroni and Camila Maleronka were at pains to drive home the philosophy of the CEPACs and the intentions of the Urban Operations and the ZEIS.  They stressed that the CEPAC is not a tax, and not a fee – rather, it is a mercantile transaction, a purchase of a right to develop land – a right that the developer does not have until this purchase is made.  The goal of the exchange is not the realisation of revenue – what we often think about when we consider land value capture.  Revenue is a means, towards the end, which is equity in land use and value – everyone has a share of the public good, expressed in different ways.  Again, the right to the city.

The history of state investment in social housing in São Paulo is well described by Paulo Sandroni – and his website has a breadth of material explaining the concepts.

Lincoln has been tracing the progress of the Urban Operations and the implementation of the CEPACS, in 2006, and then again in 2021.  Lincoln has also been working with the Development Action Group in South Africa, in the promotion of Land Value Capture in South African metros.

Thinking about all of this in our African context, what resonated most strongly for me was the assertion by the state that air rights are a public good, which can be accessed in a transaction that then funds development for the public.  Excellent.  Of course there are all sorts of challenges to implementing this properly: the administrative and regulatory strength required of the municipality, the orderliness of the building process, the scale of demand for supported housing.  But philosophically – that there are resources that can be leveraged for the public good in the building process – basically, free money – that is worth thinking about some more.

Some other references worth reviewing:

An overview of land value capture: https://www.lincolninst.edu/multimedia/videos/land-value-capture-explained/

Four videos on the Agua Espraiada Urban Operation also in São Paulo: https://www.youtube.com/watch?v=RObZRT8Sv28&list=PL9LNk8SU8LHuFbKtxaGQH9xJDddPC_5o4

Assessing the monetary relevance of land value capture: the case for charges for additional building rights in São Paulo, Brazil: https://ejournals.lib.auth.gr/reland/article/view/6468

Building Rights and Municipal Finance – the experience of São Paulo, Brazil: https://www.urbanet.info/building-rights-and-municipal-finance-sao-paulo-brazil/

** with great thanks to the Lincoln Institute for Land Policy for the invitation and support and to new friends and colleagues for a fantastic learning experience together!