Land Use Policy 27 (2010) 1010–1017
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Land Use Policy
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sing compensation instruments as a vehicle to improve spatial planning: hallenges and opportunities
enno van der Veena,∗, Marjolein Spaansb, Leonie Janssen-Jansenc
Delft University of Technology, Faculty of Applied Sciences, Julianalaan 67, 2628 BC Delft, The Netherlands Delft University of Technology, OTB Research Institute for Housing, Urban and Mobility Studies, Jaffalaan 9, 2628 BX Delft, The Netherlands University of Amsterdam, AMIDSt, Nieuwe Prinsengracht 130, 1018 VZ Amsterdam, The Netherlands
r t i c l e i n f o
rticle history: eceived 3 September 2009 eceived in revised form 14 January 2010 ccepted 18 January 2010
eywords: arket-oriented compensation
a b s t r a c t
Planners are increasingly adopting market-oriented compensation instruments. This is not only the result of a shift from government to governance, but also because governments are increasingly required to compensate private citizens for losses incurred due to planning regulations. Market-oriented compen- sation instruments have a broad scope as they also enable non-financial compensation opportunities. Non-financial compensation schemes normally use – not necessarily transferable – rights to compensate for a loss in economic value. Countries that adopt such instruments – such as The Netherlands, the US and Spain – often not only use them for compensation, but also to recoup some of the windfall profits
patial planning nternational comparative research ase studies
that are then used for the improvement of urban and regional areas. The benefits of these instruments are currently being debated and this article adds to the discussion by
revealing the circumstances in which non-financial compensation instruments make a useful contribution to the planning of tomorrow’s world. The assessment found that an instrument’s success mainly depends on its specificity, its capability to facilitate co-production and its capability of finding an effective balance between loss and compensation through rights. Although we generally present a favourable view of these
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instruments, the article en
ntroduction new instruments
At present, many governments are discussing and implement- ng innovative pro-market instruments in spatial planning. Many uthors argue that the role of the market in planning should e strengthened (Osborne, 2000; Jessop, 2002; Nicholas and uergensmeyer, 2003; Alexander, 2004) and this is in line with what s generally called the shift from government to governance. It is rgued that government authorities are no longer capable of giv- ng direction to spatial planning in the same manner as was done efore (Kearns and Paddison, 2000). MacLeod and Goodwin (1999, . 506) associate this phenomenon with a “relative decline in the
tate’s direct management and sponsorship of social and economic rojects, and an analogous engagement of quasi- and non-state ctors in a range of public–private partnerships and networks” Spaans, 2006). This shift results – ideally – in various types of∗ Corresponding author at: Department of Biotechnology, Faculty of Applied ciences, Delft University of Technology, Julianalaan 67, 2628 BC Delft, The Nether- ands. Tel.: +31 15 278 6626; fax: +31 15 278 2355.
E-mail addresses: M.vanderVeen@tudelft.nl (M. van der Veen), .Spaans@tudelft.nl (M. Spaans), L.B.Janssen-Jansen@uva.nl (L. Janssen-Jansen).
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264-8377/$ – see front matter © 2010 Elsevier Ltd. All rights reserved. oi:10.1016/j.landusepol.2010.01.003
ith a discussion of some of their drawbacks. © 2010 Elsevier Ltd. All rights reserved.
ooperation between public and private parties, whereby all play- rs jointly invest in an area using tailor-made arrangements that t both public and private goals. This in turn requires tailor-made
nstruments. In addition to this first trend we also distinguish a second: the
ncreasing need for governments to compensate parties with a ested right in property for losses that result from their planning egulations. As a consequence of this second trend, governments re increasingly obliged – or under pressure – to compensate andowners for their losses due to planning interventions. The solu- ion can be found in recapturing part of the extra value generated y an increase in development potential. As well as being used s compensation for the reduction of development potential else- here, the recapturing of extra value is also increasingly being used
s a source of finance for improvements to overall spatial qual- ty (Healey et al., 1995; Pruetz, 2003, p. 87; Cho, 2002; Day, 2005; ullingworth and Nadin, 2006).
The search for win-win solutions that address these trends
as led to the introduction of innovative instruments that involve on-financial compensation. The term non-financial compen- ation has its roots in agency theory, which accepts that in principal-agent relation, non-financial compensation schemesuch as self-development opportunities for employees or other
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on-financial benefits such as a larger office or flexible work sched- les, will sometimes result in greater commitment by the agent han financial incentives. Non-financial compensation in spatial lanning means that a government does not subsidise or com- ensate landowners or developers financially for their losses or ndeavours but instead creates a right that can either be used r sold (Spaans et al., 2008). Under non-financial compensation e also include non-financial incentives. In such cases, a planning
uthority might provide an incentive for developers to realise cer- ain planning goals either on their own land or on the land of others. nstruments based on this concept require extensive negotiations etween public and private parties, while in some cases, existing sers and landowners in the area are also involved in the design of he instruments.
We view the non-financial compensation concept from the overnment point of view: the exchange between government nd landowners is non-financial. However, the exchange between andowners is financial. The instruments are designed with the
arket in mind as to have sufficient potential to balance demand nd supply and in so effectively creating a financial incentive.
Non-financial compensation as a policy concept does not exist – he term cannot be found in documents from any specific country however, it was introduced by the authors as a general category
o refer to various incentive and compensation schemes that make se of property rights rather than money to reward or compensate
andowners and developers for certain land use decisions. The term on-financial is mainly used as to distinguish this category from the
nstruments that involve financial incentives to favour certain land se decisions.
Using non-financial compensation as a concept enables inter- ational comparison between various policy instruments such as he ‘classic’ transfer of development rights (TDR) systems used in he United States and the Valencia model developed in Spain. The ook New instruments in spatial planning: an international perspec- ive on non-financial compensation (Janssen-Jansen et al., 2008) was he outcome of an international comparative research project in hich we asked authors to report on policy instruments that fit the on-financial compensation description. The reports were based n case studies carried out in six countries. General theoretical eflection, as well as reflection on these case studies, allowed us o discern some of the advantages of non-financial compensation nstruments. For example, these instruments – if designed prop- rly – are a useful tool by which governments can profit from the ynamics of the market and compensate for planning interventions hen government funds are lacking. However, this is only the case hen the instruments are tailor-made for the specific needs of a roject.
In this article we provide examples in which new instruments ere applied using the non-financial compensation principle.
he cases that are discussed below provide interesting additions o the planning toolbox. “Background to non-financial compen- ation instruments” section will introduce the background to on-financial compensation by examining the two trends intro- uced at the beginning of this section in more depth. We will also laborate the concept of non-financial compensation and the par- icular factors used in the assessment of the cases. In “Experiences ith non-financial compensation: cases from the US, Spain and the etherlands” section we will discuss three cases from the US, Spain nd The Netherlands in terms of three factors which are crucial o non-financial compensation. Finally, “Non-financial compensa-
ion instruments as tools for planners: some remarks” section will eflect on the findings, and also address some of the drawbacks of on-financial compensation instruments, such as the risk of instru- entalism, the lack of a long-term vision and the neglect of generalublic interest.
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ackground to non-financial compensation instruments
In the previous section, we introduced two trends that under- ie the development of non-financial compensation instruments. hese were (1) the shift from government to governance and (2) he increasing need for governments to compensate private citi- ens for losses incurred due to planning regulations. In this section e will examine the background to these trends in more detail.
hift from government to governance
The general shift from government to governance has onsequences for spatial planning, which will become less overnment-dominated. Although this does not imply that govern- ents will no longer play an active role, established arrangements
or state interventions are being challenged and changed (Peel and loyd, 2007, p. 396). Both the government and governance mod- ls share the goal of “creating the conditions of ordered rule and ollective action” (Stoker, 1998, p. 17) and focus on the changing ontext of governing (Healey et al., 2002; Salet et al., 2003). Rather han losing power, governments are now changing their routines nd searching to create conditions for new collective action across he conventional organisational divides between agencies, sectors, reas and hierarchical levels (Stoker, 1998, p. 17; Gordon, 2006). ualini (2002, p. 33, emphasis in original) argues that “the challenge
or governing and managing action becomes that of co-production, f the pursuit of joint results from the activity and initiative of mul- iple social actors.” As a consequence, the planner’s role should no onger be focused on leading developments but more on facilitating hem. This is in line with the ideal scenario in which government nterference in planning is restricted to the regulatory tasks that nable the market to function properly. The trend is towards a ore stakeholder-driven, regional planning approach with fewer
xed mutual relationships (network governance) compared to overnment-steered planning systems (Micelli, 2002; Salet et al., 003; RPB, 2006). Nevertheless, governments sometimes would
ike to take more control. One of the arguments is that the cost avings provided by instruments whereby the government relies n market laws are only superficial, and governments usually end p paying for the unprofitable parts of the project while also los-
ng important powers enabling them to steer a development in a referred direction (Fainstein, 2001).
Stoker (1998, pp. 22–23) points out that the ultimate partner- hip in the governance model is a self-governing network, including he establishment of a level of mutual understanding and embed- edness in order to develop a shared vision and joint working rocess. The concept of governance embraces the ideal of network-
ng, as it starts with the idea that public and private parties have ifferent capabilities. In spatial planning, public and private parties ust work together in a way that is profitable for the market and hich benefits the general public more than a planning project led
y only one of the two sectors. The Dutch case Space for Space (see Netherlands: the Space for Space programme in North Brabant” ection) provides an example of such a partnership between public nd private parties.
ompensation for interference with property and the recouping of dded value
Rulings on takings in American and European courts – but
lso in other Western-based planning systems – are converging OECD, 2004), and require governments to compensate for their nterference in property rights. Theoretical reasoning based on the pecificities of the legal system has become less important than he idea of finding a solution for a case that does justice to its mer-
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ts (Eisenberg, 2000). This move results from the fact that ‘vested ights in property’ within a country are more important than the oncept of ownership. Therefore, users of property have found pro- ection under the European Convention on Human Rights (Council f Europe, 2003) (see below) that they would not have found under heir national legal systems. This obligation for compensation (that omes with all kinds of compensation systems) also aims to recoup alue from those who seem to profit more from the new regula- ion than would be just from the perspective of the community. ompensation schemes therefore often entail a duty falling on hose parties that profit from the new regulations to pay some of heir windfall profits to the government or to compensate those ho have suffered from the same regulations. The latter situation
an also be achieved by creating a system of development rights hereby the landowner who wishes to engage in development ust compensate the landowner who, due to the new regulations,
o longer has that option. In the cases discussed in this article we ill see examples of this mechanism.
lanners’ interference with property rights Government regulations that are considered to be too onerous
or an individual or a specific class of users or owners of property enerally lead to a duty to compensate such users or owners for heir losses. In the US the concept of ‘regulatory taking’ has existed or some decades. Jacobs (2008, p. 52) describes regulatory takings s:
a United States concept that speaks to the limits placed on government to engage in regulation of private property absent compensation to the land owner for regulation that is deemed to be too onerous. Put another way, regulatory takings is the idea that government regulation that is deemed to demand too much from the individual property owner in the pursuit of a public purpose entitles that property owner to some form of compensation from the public.
he American courts hold that three factors determine a regula- ory taking: the character of the governmental action, its economic mpact and its interference with reasonable investment-backed xpectations (Bruce, 1998, cited in Van der Veen et al., 2008).
The term ‘regulatory taking’ is typical for the US – ‘taking’ stems rom the Fifth Amendment to the Constitution – but the concept in tself is not alien to other legal systems. Jacobs (2008, 2009) warns hat if governments do not allot sufficient funds for the payment f compensation, this could eventually result in abstaining from lanning interventions. However, this does not mean that damages re awarded very often in Europe, the US or in any other country. government has the right to set rules in relation to property to
rotect the general safety of the public, and in relation to other ssues that concern the public welfare (Renard, 2008; Jacobs, 2008, . 62). Generally speaking, government regulations may violate a ested right in property and give way to a duty of compensation. enard (2008, p. 199) concludes:
Roughly speaking, most countries in Western Europe have adopted the principle that constraints on urban development are not subject to compensation (. . .). A constraint on the right to make use of a given parcel of land is not considered grounds for compensation unless it infringes a vested right such as with- drawal of a building permit already granted or a change in the previous statutes of the site resulting in direct, material and
indisputable damage to property. The latter comes close to a ‘taking’, and in fact rarely applies.At the European level, citizens seem to have become more lit- gant. Article 1, Protocol No. 1 of the European Convention on uman Rights (ECHR) reads:
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Every natural or legal person is entitled to the peaceful enjoy- ment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the con- ditions provided for by law and by the general principles of international law. The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.
The article is reminiscent of the US Fifth Amendment mentioned bove, which reads “(. . .) nor shall private property be taken for ublic use, without just compensation”. These provisions mean that se of land development tools and planning tools find their limit in he protection of the fundamental right to property (Groetelaers nd Ploeger, 2007, p. 1423). The OECD (2004) introduced three riteria which are used worldwide and which determine whether government must compensate an individual. These are (1) the
egree of interference with the property right, (2) the character f governmental measures, that is the purpose and the context f the governmental measure, and (3) the interference of the easure with reasonable and investment-backed expectations. In
ine with the OECD we conclude that comparable rules should be pplied in planning systems, obliging governments to compensate ersons with an interest in property when regulations are too oner- us for one person alone. If governments lack the funds for that ompensation or if it seems just that other persons who profit rom those regulations should pay for the compensation, non- nancial compensation instruments that provide compensation in ights and not in money may be adequate compensation tools. he exchange between government and landowners is thus non- nancial, although the exchange between landowners is financial.
ecapturing the added value of land Another side of the coin relates to recapturing the added value of
and. Value capturing can be seen as a means by which compensa- ion is gained from landowners for the added value of land resulting rom new planning regulations. On the basis of our research we see shift towards value capturing. The aim seems legitimate: if gov- rnments must provide compensation for their interference with he property rights of their citizens, it only seems logical that they ook for ways to have the citizens who profit from new planning olicies, pay that compensation, either directly or indirectly by aying a fee to the government. This recouping of value is given
egitimacy by the idea that a certain destination of property in land use plan does not result in a personal property right but
n a communal property right and that therefore the profits that esult from favourable zoning regulations should also be owned y the community (Fischel, 1985, p. 36). The elaborate land use eform theory developed by law professor Donald Hagman, called Windfalls for wipeouts’, is often used to justify this recapturing of rofits. The basic idea is that public agencies which issue regula- ions that cause a reduction in property value should compensate andowners for such ‘wipeouts’. However, at the same time, public egulations or other government activities that increase property alues should allow that value to be recaptured by the govern- ent: thus it recaptures the ‘windfalls’ that it creates (Hagman and isczynski, 1978). Other types of legitimation focus more on planning goals. For
xample, it is argued that recapturing value would result in more
istributive justice thereby reducing land speculation, and it might lso increase trust in governmental planning decisions and thereby educe growing public objection to new development (Janssen- ansen et al., 2008, p. 32). In the British system, for example, ecouping value has long been institutionalised through the instru-
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