A REPORT ON LAND-USE PLANNING IN PORTUGAL: WHY ARE WE REPEATING THE SAME ERRORS

Transcription

1 A REPORT ON LAND-USE PLANNING IN PORTUGAL: WHY ARE WE REPEATING THE SAME ERRORS By João Miguel Ferreira Henriques Sponsored by Robert Schalkenbach Foundation ABSTRACT After 2008, the economic and financial sector goes into crisis in several Western Nations. The issue was discussed but the conclusions fell short. In Portugal, the political option has always been to avoid recognize the real cause of the crisis: the land bubble. As this political option is not compatible with the reality, the report shows both that the land bubble is the real source of the economic crisis and the size of the phenomenon through the application of the real-assets model developed by Gaffney (2015). The description of the impacts of the last land cycle helps to explain why Portugal has a disorganized territory. In turn, this proves that the land-use (or zoning) policy has shown opposite results to the goals that it is supposed to achieve. Although the Portuguese Government does not recognize the land bubble, it decided to proceed in order to review the Land Law. The Reform was approved in 2014, yet the obstacles remain: the legal and economic beliefs still support the new law. The report explains why this New Land Law still is inefficient through a critical approach, which can be used as a basis to develop alternative proposals to improve the land-use regulation system. Key-Words: Land, Zoning, Land-use, Speculation.

2 Index 1. The Financial and Economic Crisis The rise and fall of Real Estate Prices Investment in Peripheral Areas: The premature subdivision phenomenon The diversion of monetary flows: diversion from investments on short-maturity capital to concentrate on investments of long-maturity capital The Liquidity Crisis The Zoning (Land-use) Policy in Portugal What is a disorganized territory? And why has Portugal a disorganized territory? The Land Law Reform: Why are we still repeating the same errors? References... 71

3 1. The Financial and Economic Crisis The Great Crisis of 2008 has internal sources in each of the markets of the Western Nations. In United States, Ireland and Spain, it is recognized that the main cause was the land bubble (or the real estate bubble, because the land values are not collected). However, in Portugal, the Government always refused to accept that the land bubble was the main cause of the financial and economic crisis. So there are some data that must be revealed to show how the Portuguese crisis had similarities to remain Countries crisis. To contextualize, the Table 1, shows the Gross National Product in four Countries. The focus of this Report is Portugal, which in turn, is matched by Spain, Ireland and United States for comparison purposes and due to the reasons given above (related to the source of the economic crisis). As it is one of the aims of this work demonstrate the relation between the economic crisis and the land bubble, the choice of these countries was not random. Thus, the Table 1 shows that all Countries had an uninterrupted period of economic growth between 1990 and 2008, except Ireland. This last one reached the economic peak in Strictly speaking, the Irish economic crisis was in 2008 and the Portuguese, American and Spanish crises were in With this, it is eliminated the hypothesis of the Western Nations crisis has only one main cause (external to each European Countries): the economic downturn of the world s largest economy (American Crisis). Ireland s recession began first than observed in other countries. It is not possible to extrapolate that the Irish crisis was the explanation for the Portuguese, Spanish and American economic downturn. However, all of them fell in crisis because of the same internal cause: the real estate bubble. To complement this conclusion, Krugman (2012) refer that many Countries would be in crisis at this same period, regardless of the global financial crisis (entitled sub-prime crisis ), due to the existence of bubbles in their respective real estate market. Therefore, Harrison (2010: 189) argues that the doctrine which advocates that the crisis began in United States is based on a myth: [The Crisis began in America] It did not. It began in UK. It began in Spain. In Ireland ( ) each one of these Countries was responsible for cultivating its home-grown crisis, located in the domestic land market. Like it is said above, in Spain, Ireland and United States, this cause was recognized. So the focus here will be to demonstrate why the Portuguese crisis had the same source. The method that will be used to identify the real source of the crisis is The Real-Assets Model of Economic Crises developed by Gaffney (2015). According to the author, this model can be validated through four hypotheses: (i) A rise and fall of land values, resulting mostly from autonomous real economic changes. These are less visible and less measurement than purely monetary and fiscal changes, which may reflect and reinforce the real changes but not initiate them; (ii) investment in projects at the margins, both in terms of geographic location and value; (iii) concomitant changes in the structure of capital investment to favor structures with long payout period; and (iv) an increase in bank leverage ratio as a result of lower capital turnover, leaving many banks technically in default by the time the land bubble burst (Gaffney, 2015: 327). 1

4 Table 1 Gross National Product Evolution in Portugal, Spain, Ireland and United States ( ) 1 Financial and Economic Crisis Portugal Spain Ireland United States , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Source: Adapted from OECD STAT (2016). 1.1 The rise and fall of Real Estate 2 Prices A. The National Level If a Bubble consists of the overvaluation of an asset during a short period of time, so what happens with real estate market in Portugal? To expose the facts, there are two operating modes: (i) the Aggregate level (national scale); and (ii) the Disaggregate level (regional and urban/local scale). The first is demonstrative of the dimension of the bubble and must be illustrative enough to prove the theory, while the second is used to understand the real dimension of the phenomenon through a 1 The numbers marked in red correspond to estimates. The numbers for all Countries are expressed in millions. In all of the countries, the GNP is calculated according to current prices for every year. Only in United States, the numbers are presented in United States Dollars ($), while in the remaining Countries, the monetary values correspond to Euros ( ). 2 There are no records of the land values in Portugal. Gaffney (2015) advocates the use of a proxy like indicators representing the evolution of construction activity to apply the model. However, there are records of the formal real estate transactions in Portugal, which are published by the INE. It is this kind of information that can validate the land bubble hypothesis. 2

5 deepening of the problem: real estate booms are local and reactions from booms are local (Harmon quoted by Hoyt, 1933: 223). In Portugal, any city or town has similar problems (related to the boom-bust cycle), but there are territories that can explain better the land bubble than others. This does not mean that the selected sample represents the only cases where the bubbles are proved. That is why it is a sample. The interesting will be to replicate this model in other cities not only in Portugal but over the World to identify and study the phenomenon. According to Table 2, which represents the records for the average value of all Real Estate Properties Transactions in Portugal 3 between 2000 and 2014, the real estate values reached a peak in 2007: between 2000 and 2007, the real estate values increase 97%, or by other words, duplicate. During this period, the real estate values increase, by year, on an average of 10,20%. The values of the properties does not fell steeply after the peak of 2007, which is why it is not the date for the bubble burst as it had been seen in the Table 1. For example, the average values of all transacted properties between 2006 and 2008 are high and differs little from year to year: with an average for the three years considered equivalent to ,33. So the bubble burst in Portugal was in From this year to 2009 there was a fall of 11% of the average values of transacted properties. Comparing the records for 2008 and 2012 (which is the year with the lowest average values of transacted properties), the fall was of 34%. Table 2 Average value ( ) of Real Estate Properties Agreements for Purchase and Sale in Portugal ( ) The Bubble Expansion The Recessive Phase Urban Rural Mix-Use Properties Total Properties Properties Source: Adapted from INE (2015a). The Bubble Burst To complement the above information, the Table 3 shows the records for the numbers of agreements for transactions of Real Estate Properties between 2000 and If it is considered only the expansion phase of the bubble, the lowest number of traded properties was in This may seem contradictory with the data of the average real estate values: comparing the years of 2000 and 2007, the annual numbers of agreements falls by (or 18,72%). There was a trend of reduction on the 3 Purchase and Sale Agreements signed and related to properties situated in Portuguese Territory (INE, 2015a). 3

6 number of agreements since the first year of the records. However if it is considered a mean for the number of agreements to the years of the expansion phase (including the bubble burst year of 2008), it is concluded that there was an annual average of agreements for purchase and sale of real estate properties. This number is higher by around agreements per year than the verified in the recessive phase 4 (including the years of 2008, 2013 and 2014). Table 3 Number of Agreements for Purchase and Sale of Real Estate Properties in Portugal ( ) The Bubble Expansion The Recessive Phase Urban Rural Mix-Use Properties Total Properties Properties Source: Adapted from INE (2015b). The Bubble Burst To conclude, these numbers proved that Portugal had a land bubble like other Western Nations and that the land bubble is the real source of the internal economic crisis. Although these numbers had already been proven the real estate bubble, it is possible to extract more information from them: (i) according to Table 2, the average values of the mix-use properties are higher than the urban properties, which in turn, are higher than the values of rural properties; (ii) the Table 3 shows that the number of traded properties is higher in urban properties than in rural properties, which in turn, have, substantially, more traded properties than the mix-use properties. Apparently this data is not very understandable. However, this is perhaps the most relevant content of such data: (i) the mix-use properties match with real estate that have inside the same boundaries, an urban parcel (which the primary use is not directly linked to farm activities) and rural parcels. The definition is generalist, but it covers properties like farmsteads (particularly those adjacent or within the limits of the cities). That s the explanation for the low records of transactions and for the high average values per property. (ii) The urban properties include different kinds of properties located whether in urban settlements whether in rural landscapes. If it is for the residential use in a city, it will be an apartment, a single dwelling building or a vacant lot 5. If it is for the commercial use, it must be a store, a mall or a vacant lot 5. And so on. (iii) The rural properties include the biggest discrepancies 4 The average for this period was agreements per year. 5 The vacant lot is the construction site explicitly served by infrastructures (sidewalks, roads, street lighting, pipelines, etc.). This is important to say because there are other kind of vacant lots in urban land: the juridical lots in parcels of raw 4

7 between properties, although it may go unnoticed. There are the farming parcels, the forestry parcels and the urban vacant parcels. It appears to be messy, but the parcels located inside the city limits that remain in a raw state can be classified for tax purposes 6 as rural properties. The same can be said for the rural properties (even without any plantation) classified as urban properties or available for urban development in the land-use (zoning) models. It is here where is established the link between the aggregate level and the urban scale. B. The Regional Level At the urban scale, and using the same type of information, it will be possible to prove some evidences about the real problem of land market. Therefore, the scale of analysis is the Lisbon Metropolitan Area. This is the largest urban concentration in the Country: Lisbon is the Administrative Capital of Portugal, and has about inhabitants, inside its boundaries 7. The Lisbon Metropolitan Area has, at all, about inhabitants (Table 4). Though there are 18 Municipalities, the metropolitan area has only 17 cities. So, there are Municipalities that have more than one city and Municipalities that do not have any city. Of these 17 cities, only two have more than 100 years: Lisbon and Setúbal (INE, 2001). Until 1990, there were only 7 cities in this metropolitan region. The other 10 cities acquired their status during the last real estate cycle. The city of Lisbon is located on the north (or right) bank of Tagus Estuary. The city of Setúbal is located on the north (or right) bank of River Sado (located south of Tagus Estuary). Since the conclusion of 25 April Bridge (1966), the two cities began to be separated by 50 kilometers both by road and by railway. The great urban growth, of the municipalities located in the vicinities of the route that link these two cities, is mainly explained by the proximity to the Capital. The effects of the artificial scarcity are regional on the case of the city of Lisbon and only local on the case of the city of Setúbal. This means that the city of Lisbon explains the growth of the 16 agglomerates that became city over the past 50 years, while Setúbal cannot explain the development of any agglomerate that had become a city. These can be proved by direct observation: for example, comparing the boundaries of Setúbal (as a City) with the Administrative Limits of the respective Municipality (Map 2). Through this method, it is demonstrated that currently the extension of Setúbal (as a city) is not enough to reach the limits of the Municipality. Even with an urban growth centered on the peripheral land, Setúbal cannot explain by itself, the development of any new city. At most, this city can only explain the formation of small scattered settlements and/or suburb settlements in nearby municipalities, particularly in Palmela, which, in turn, has no city and is mainly characterized by areas of rural land and scattered settlements (Table 4). The example of Setúbal's influence is comparable to that seen in other Portuguese cities as Leiria or Coimbra. These cities did not reach the administrative limits (and are, in most cases even far from doing so), so the effects of the artificial scarcity are only visible at local scale. This local scale is the city and his surroundings or other settlements close to the city through fast routes (even if they are located in other jurisdictions). In land available for urban uses. The juridical lots are constituted through land subdivision permits issued by the Municipalities. If an owner of rural land available for urban development does not implement the development works after the land subdivision permit be issued, he has the parcel subdivided in several lots, yet only in a juridical basis. 6 For tax purposes, in Portugal, all the real estate properties are classified as rural properties, mix-use properties and urban properties (Lei n.º 66-B/2012 de 31 de Dezembro). 7 The City already surpassed the administrative/official boundaries. That is the reason why exists a metropolitan area, which in turn, is comprised by 18 municipalities: Lisbon, Alcochete, Almada, Amadora, Barreiro, Cascais, Loures, Mafra, Moita, Montijo, Odivelas, Oeiras, Palmela, Seixal, Sesimbra, Setúbal, Sintra and Vila Franca de Xira (Map 1). 5

8 statistical terms, the cities, which are not included in a metropolitan area, are irrelevant. The territorial units, where the data are available, are too extensive to explain the reality at city scale level. Why is this explanation important? It is to understand the monetary value of real estate transactions at an urban scale. With this explanation, the conclusion is that the municipalities administrative boundaries rarely match with the limits of the cities, even in a large metropolitan area. So there are only a few municipalities where the transaction s values of rural properties can explain the high proportion of land values, due to urban pressures in the total value of real estate. These Municipalities are Lisbon, Almada, Barreiro, Amadora, Odivelas, Cascais and Oeiras. And among these, there are municipalities that do not have cities: Cascais and Oeiras. However, these two are densely populated municipalities (at this scale) Cascais had inhabitants and Oeiras had inhabitants, both in 2014; Cascais was the 6 th Municipality with the highest population density (nearly individuals per square kilometer) and Oeiras was the 4 th on the same indicator (nearly individuals per square kilometer). Despite not having cities, they are, at least, large suburbs of Lisbon. These features are visible in its larger settlements: (i) in the Municipality of Cascais there are the Towns of Cascais-Estoril and Parede; and (ii) in the Municipality of Oeiras there are the Towns of Oeiras, Algés and Carnaxide (Map 3). As a whole, these settlements occupy the most of municipalities territory and that is why they are representative to demonstrate the fact that the land values have a significant weight in the market value of real estate. 6

9 Table 4 Resident Population by Municipality in Lisbon Metropolitan Area (2001, 2011 and 2014) Jurisdictions Alcochete Almada Amadora Barreiro Cascais Lisbon Loures Mafra Moita Montijo Odivelas Oeiras Palmela Seixal Sesimbra Setúbal Sintra Vila Franca de Xira LMA Portugal Source: INE (2015c). 7

10 Map 1 Lisbon Metropolitan Area and the 18 Municipalities Members Lisbon Municipality Other 17 Municipalities of Lisbon Metropolitan Area. 20 Km Lisbon Metropolitan Area. Source: Author (2016). 8

11 Table 5 Number of Cities per Municipality in Lisbon Metropolitan Area (2015) Jurisdictions Number of Cities Identification of the Cities Alcochete 0 Without Cities Almada 2 Almada (1973) + Costa da Caparica (2004) Amadora 1 Amadora (1979) Barreiro 1 Barreiro (1984) Cascais 0 Without Cities Lisbon 1 Lisboa (1184) Loures 2 Loures (1990) + Sacavém (1997) Mafra 0 Without Cities Moita 0 Without Cities Montijo 1 Montijo (1985) Odivelas 1 Odivelas (1990) Oeiras 0 Without Cities Palmela 0 Without Cities Seixal 2 Seixal (1993) + Amora (1993) Sesimbra 0 Without Cities Setúbal 1 Setúbal (1860) Sintra 2 Agualva-Cacém (2001) + Queluz (1997) Vila Franca de 3 Póvoa de Santa Iria (1999) + Alverca (1990) + Vila Franca de Xira (1984) Xira LMA 17 - Portugal Source: INE (2001); INE (2016). 9

12 Map 2 Setubal's City Boundaries and Respective Municipality's Limits framed at a Regional Scale Setúbal s City Limits Lisbon Metropolitan Area Municipalities Limits 10 Km Lisbon Municipality Source: Author (2016). 10

13 Map 3 Settlements by Type located in each Municipality of Great Lisbon 8 (Lisbon Metropolitan Area) Lisbon Metropolitan Area Municipalities Limits 12 Km Lisbon Metropolitan Area Boundaries Cities in Lisbon Metropolitan Area Lisbon City Towns in Lisbon Metropolitan Area Settlements in Lisbon Metropolitan Area The Main Settlement of each Municipality Other kind of Settlements located in each Municipality Source: Author (2016). 8 Lisbon Metropolitan Area is composed of two sub-regions: Great Lisbon and Setúbal s Peninsula. Each one has 9 Municipalities. 11

14 Table 6 Municipality's Area and Population Density (2014) Based on Administrative Limits of 2014 Jurisdictions Territorial Units Surface (square Population Density (Residents per square kilometers) kilometer) Alcochete 128, Almada 70, Amadora 23, Barreiro 36, Cascais 97, Lisbon 100, Loures 167, Mafra 291, Moita 55, Montijo 348, Odivelas 26, Oeiras 45, Palmela 465, Seixal 95, Sesimbra 195, Setúbal 230, Sintra 319, Vila Franca de Xira 318, LMA 3.015, Portugal , Source: INE (2015d; 2015e). Furthermore, there is more information to confirm this observation. In 2011, there were individuals living in the 17 cities of Lisbon Metropolitan Area (Table 7). This information has many imperfections if the aim is to get the total of population living in urban settlements (cities, towns and suburbs), because the population living in the main settlements of Cascais and Oeiras are not considered, neither the population living in Mem-Martins (Sintra). Then it is possible to extrapolate that more than 51,71% of the individuals living in Lisbon Metropolitan Area currently reside in predominantly urban areas. Anyway this data confirms that, in 2011, there were individuals living in only 9% of the surface of Lisbon Metropolitan Area (Table 7). Even considering the defects of information already recognized, it can be concluded that the Lisbon Metropolitan Area is not an urban densely occupied region, compared to other worldwide metropolis. Because it is only a small fraction of its total area, that is occupied by cities, towns or suburbs. For example, the second Municipality with most inhabitants of Lisbon Metropolitan Area is Sintra, which has two cities and both have a higher population density than Lisbon (Table 7). However the population density of the Municipality is very low (1.193 individuals per square kilometer) comparing with the data verified whether in its two cities 9 whether with the number of inhabitants. The reason is that there are two extensive sections of the municipality where the predominant land-use is not the urban use: the Natural Park of Sintra s Hills (which extends to the Municipality of Cascais) and the rural area proliferated by several small settlements (usually of the scattered kind). The two cities were 9 In 2011, the two cities (Agualva-Cacém and Queluz) had about 44,49% of the total of inhabitants of the Municipality. 12

15 implemented in the vicinity of the main routes to Lisbon (the Sintra Railway Line and the Complementary Itinerary ) and together occupy only a small fraction of the Sintra s Municipality area 11. Even if it will be considered the area of the two cities plus the area occupied by the Mem- Martins Suburb, probably it will not exceed the 20% of the Municipality s area 12. So the second most populated municipality of the Lisbon Metropolitan Area has only an area between 10 and 20% of its territory occupied by areas that match with a predominantly urban land-use. The large size of the administrative areas for which has been collected the information is not compatible with the size of the cities (with few exceptions). This can be observable even in a Metropolitan Area 13. Therefore, the values of the real estate transactions analyzed at a municipal scale do not show the full impact of the land speculation. Nevertheless, it is possible to demonstrate the real impact of land speculation derived from urban pressures through two complementary approaches (disaggregate level): at the regional scale and at the city/urban scale. Jurisdictions Almada Table 7 Inhabitants, Population Density and Surface of Cities in Lisbon Metropolitan Area (2011) Cities Identification Cities Surface in square kilometeres Cities Surface per Municipality (%) Inhabitants Population Density Population living in Cities (%) Almada 14,7 20,94% ,40% Costa da Caparica 4,6 6,55% ,02% Amadora Amadora 23,8 100,08% ,00% Barreiro Barreiro 10,9 29,95% ,43% Lisbon Lisbon 100,1 100,05% ,92% Loures Loures 11,8 7,06% ,03% Sacavém 3,9 2,33% ,11% Montijo Montijo 9,1 2,61% ,60% Odivelas Odivelas 4,3 16,20% ,33% Seixal Seixal 8,6 9,01% ,56% Amora 5,4 5,65% ,60% Setúbal Setúbal 38 16,50% ,96% Sintra Vila Franca de Xira Lisbon Metropolitan Area Agualva-Cacém 10,4 3,26% ,88% Queluz 6,7 2,10% ,61% Póvoa de Santa Iria 4,6 1,45% ,44% Alverca 10,4 3,27% ,53% Vila Franca de Xira 4,8 1,51% ,10% - 272,1 9,02% ,71% Source: Adapted from INE (2015f; 2015g). 10 It is a Highway with a parallel path to the railway. 11 About 5,36% (Table 7). The Map 4 represents a larger area because it is based on the urban continuity and not on the administrative boundaries like it is the data of the Table based on information collected by INE. 12 The numbers are conservative because the real limits of the cities can be larger than the administrative limits used by INE as it is explain before. 13 Google Earth and similar satellite photography can now demonstrate even to casual observer that urban development is such a small fragment of the total land area (Fischel, 2012: 273). 13

16 Map 4 Municipality of Sintra: Cities, Towns and Suburbs Lisbon Metropolitan Area Boundaries Municipalities Administrative Limits 6 Km Lisbon City Limits Cities Limits (Sintra) Suburbs and Towns Limits (Sintra) Colares Village Limits (Sintra) Sintra Town Other Settlements located in Municipality of Sintra Source: Author (2016). 14

17 The Table 8 shows the average value of the Real Estate Transactions within the administrative limits of Lisbon Metropolitan Area. Thus, it is verified that the real estate bubble burst in 2008: between 2000 and 2008, the average value of all transactions of properties inside this administrative limits, increased by 96,70% (almost doubled the initial average value) and by year, during this same period, the increase is equivalent to 8,82%. From 2008 to 2012 or during the recessive phase of the land cycle, the average value of the properties transacted dropped down 17,50% or about 4,70% by year. By type of properties, the urban and rural properties reach the peak in the same year: 2008; and the mix-use properties reached the peak in 2006, yet it still had high values until The value of urban properties increased by year at 8,69% between 2000 and 2008 or 94,76% considering only the changes between the values recorded to these two years. The value of rural properties increased 168,56% during the same period or at a rate of 13,14% by year. Considering the same period to the mix-use properties, the increase was of 78,18% or 7,49% by year. After the peak of 2008, it entered on the recessive phase of the cycle: the urban properties reach the bottom in 2011 like the average value of all properties transacted, but the values of 2012 can also explain the fall of the real estate values (the transacted values are similar between these two years for all kinds of properties). Hence, the average value of all urban properties transacted fell at a rate of 4,06% by year between 2008 and 2012 or 15,26%, considering the two years. The average value of rural properties average values fell at a rate of 18,79% by year or 56,50% between the two years of the same period (fell to about half). Similar trend is verified in the mix-use properties, whose average value fell by 54,25% in this period or at a rate of 17,76% by year. The data is obvious: There was a land bubble in the real estate market that broke out in This had already been confirmed with aggregated data and the regional approach validates the evidence. The Table 8 represents the information of a metropolitan region because the land bubble must be evidenced at the urban scale (Hoyt, 1933). However, it is been demonstrated that the urban land, in particular, the land occupied by Cities, even in this Metropolitan Area, is only a small fraction of all the land available. Besides these facts, from the comparison between the data available for national and metropolitan scale, there is more information that deserve to be withdrawn: (i) the average value of the urban properties, transacted between 2000 and 2014, located in Lisbon Metropolitan Area corresponds to 162,75% of the average value of the same type of properties transacted on the National level; (ii) the average value of the rural properties, transacted upon the same period, located in Lisbon Metropolitan Area corresponds to 957,37% of the average value of the same type of properties transacted on the National scale; (iii) the mix-use properties average value, during the same period, matches to 486,57% of the average value of the same type of properties transacted on the national level. Considering all the transactions, by including all the types of properties, the properties transacted in Lisbon Metropolitan Area had, in average, the double (207,16%) of the value of properties transacted on national scale. The great reference of this analysis is the difference of values between the rural properties and the mix-use properties on the regional scale and the same type of properties on the national level. These real estate values does not differentiate the land values of the capital values, which means that if the land values has a significant weight on the national scale transactions prices, so in the Lisbon Metropolitan Area (Regional level), the land values are more inflated by far. This confirms and validates the Henry George s theory: So enormous are the advantages which this land [the city s 15

18 land] now offer for the application of labor, that instead of one man with a span of horses stratching over acres, you may count in places thousands of workers to the acre, on floors raised one above the other, five, six, seven and eight stories from the ground, while underneath the surface of the earth, engines are throbbing with pulsations that exert the force of thousands of horses. All these advantages adhere to the land; it is on this land and no other, that they can be utilized, for here is the center of population the focus of exchanges, the market place and workshop of the highest forms of industry. The productive powers which density of population has attached to this land are equivalent to the multiplication of its original fertility by the hundred fold and the thousand fold. And rent, which measures the difference between this added productiveness and that of the least productive land in use, has increased accordingly (George, 2009 [1882]: 217); In the urban context, these dynamics [the paradox based on the fact that economic progress leads to more poverty] are particularly grave because large amounts of rent are generated in cities. Cities are where investment flows, where population concentrates, where pressure mounts on urban land, and where, in turn, rent rises the fastest. Consequently, it is also where the poverty concentrates the most. Aside from income inequality, caused by having to pay high rents to landowners, cities are where access to land can be most restricted (Odeng-Odoom, 2015: 555); George saw cities as foci of communication, cooperation, socialization, and exchange, which he considered the basis of civilization. He saw the cities as the new frontier, an endless series of new frontiers, because the city as a whole enjoys increasing returns. The presence of people with good mutual access associating on equal terms expedites cooperation and specialization through the market. Multivariate interactions in cities are synergistic. Indeed while each part each parcel of land is developed in the stage of decreasing returns, the composite city is generally in a stage of increasing returns, thanks to synergy. The whole is greater than the sum of its parts; and increases to the whole yield more than the sum of increase to the parts (Gaffney, 2001: 63); [the] individuality, this single being of one city regarding to others, clearly, has material roots, originated not only by the site, the location (although there are similarities, there cannot be two equal places), but also by its own city structure, which by the time, is giving rise to a second nature. The own city resists perishing, it is one of the most immortal human creations (Chueca Goitia, 2008 [1982]: 31). All these citations let be conclude that the engine of the material progress is the development of the city, and this level of progress is shown by the land values (which in turn, represents the productivity of the cities). It is in the cities where the land values are higher, because it is there, where the people can achieve more and better opportunities to apply their labor and capital. On a national scale, Lisbon and the Lisbon Metropolitan Area are the place where these gains can be offer more frequently: Lisbon as a city is the largest human mass of Portugal and this is the reason why the values of its properties are so higher than those recorded at national level. The difference is measured by the land values or by the rents that can be obtained in one place and outside this same place. This does not invalidate the fact that the land inside and surrounding other cities located outside the metropolitan areas (Lisbon and Oporto) also has a speculative value, because there, to buy title to land, the people pay prices that look very high relative to current cash flow (Gaffney, 2001: 64). However, in Portugal these places have difficult to be statistically relevant even at the local scale (Municipality), because the area covered by the city (and his surroundings) does not reach, in many cases, half the administrative area where they are located. This issue was already advanced in this article and the author (Henriques, 16

19 2015) demonstrates the evidence of the land speculation phenomenon in a small city 14 located outside the metropolitan areas, where it was possible to confirm the statistical weight of the land values upon the local scale, because the city and its surrounding areas already exceeded the boundaries of the Municipality (the Municipality of Entroncamento is, in area, the second smallest Municipality of Portugal), so the information collected for the Municipality scale can be used to explain the fluctuations of land values upon the city scale. Table 8 Average value ( ) of Real Estate Properties Agreements for Purchase and Sale in Lisbon Metropolitan Area ( ) The Bubble Expansion The Recessive Phase Urban Rural Mix-Use Total Properties Properties Properties Source: INE (2015a). The Bubble Burst Despite it is recognized the land bubble on the metropolitan scale, if the analysis would be carried out only on the basis of the information available in the Table 8, it can create some misunderstandings: for example the average value of the real estate transactions considering, the two periods of the land cycle ( and ), reveals that the average values of the transactions are higher during the recessive phase than during the bubble expansion phase 15. Considering the total values, there is a difference of ,88 between the average values obtained for the total of properties transacted during the recessive phase and during the bubble expansion phase. This could be used to demote the conclusions of this article; however the Table 9 will help to explain this numbers. Before advance to that phase, one last singularity of the data about the transactions average values: although the average values of all the transactions could be higher in the recessive phase, the fact is that both the values of the rural properties and the values of the mix-used properties fell comparing with the average values of the land bubble expansion phase. Naturally, this also proves the theory that the fall of the land values is steeper in the peripheral areas than in the 14 The city of Entroncamento, which had about inhabitants in For the bubble expansion phase, the average values of transactions are: ,44 for urban properties, ,56 for rural properties, ,44 for mix-use properties, and ,11 for the total, while during the recessive phase, the average values of transactions are: ,00 for urban properties, ,75 for rural properties, ,25, and ,00 for the total. 17

20 central areas: In addition to confirming the general hypothesis that land value peaks precede depressions, Hoyt also reveals the differential pattern within a city ( ) The data clearly show that land values shift to more peripheral locations during boom periods it is not in whole city, while some areas are going change at a fast pace, by annexation of rural land, other areas tend to decline, due to obsolescence of buildings and contracts more severely in those same areas after a crash. Thus, land values in the central business district did not even double from 1910 to 1928, but land for housing and outlying business districts grew by a factor of 4.5 and 6.7, respectively. The subsequent crash was also much greater in outlying areas. This shows that the volatility of land prices is in newly-developed marginal lands (Hoyt, 1933: 347 quoted by Gaffney, 2015: 338). The maintenance of high values reflects also the subsidies for the purchase of real estate by speculators (Real Estate Investment Funds) and by foreign investors or residents 16. These subsidies shall be allocated to a demand with high purchasing power, which is the one that can operate upon a freezing market situation (after the bubble burst and without using borrowed capital). In turn, this kind of demand purchase the most properties in the larger cities (Lisbon and to a lesser extent in Oporto), the small palaces or new luxury apartments located in the Portuguese Sunshine Coast (Cascais and Oeiras Municipalities) and the accommodations in resorts and luxury apartments located in the main tourist area of Portugal: Algarve Region. This led to the concentration of large capital flows in a few areas and for a limited number of properties, which may give rise to erroneous conclusions about the average level of prices in the real estate market. Table 9 Number of Agreements for Sales and Purchases of Real Estate Properties in Lisbon Metropolitan Area ( ) The Bubble Expansion The Recessive Phase Urban Rural Mix-Use Total Properties Properties Properties Source: INE (2015b). The Bubble Burst 16 Law no. 75-A/2014, September 30 th (Estatuto dos Benefícios Fiscais): it allows real estate investment funds of paying only a half of both the property and transaction tax (regulatory arrangements, ironically, include in the chapter VI entitled: Tax Incentives for Productive Investments). The Golden Visa (PLMJ, 2015): regulates the foreign individual investment in Portugal, being one of the requirements, the purchase of real estate properties with a price equal or higher than ,00. 18

21 The verification of the previous reasoning is given by the number of transactions (Table 9): (i) during the bubble expansion phase, the average number of transactions was of per year, while in the recessive phase (the values of this approach include the years of 2013 and 2014), this number dropped to transactions per year (a fall of 47,90%, or almost half of the number of transactions); (ii) the average number of rural properties transactions fell by 65,44% between these two periods; (iii) the average number of urban properties transactions fell by 46,99%; and (iv) the average number of mix-used properties transactions fell by 59,04%. This numbers validate again the land bubble theory and the moment when the bubble burst (between 2007 and 2008). On this scale, although the average values have not fallen steeply, due to the reasons advanced before, the fact is that the number of transactions drops steeply: the market is frozen, because the credit is not available, due to a banks liquidity crisis generated by the bubble. The transactions are very restricted and only cover a limited set of agents (framed in demand segment with high incomes). C. The Lisbon city s level The city of Lisbon already surpassed the administrative limits of the Municipality. The Map 5 illustrates the alignment of the city limits superimposed on administrative boundaries. The delimitation was based on satellite images observation using the criterion of urban fabric continuity. More rigorously, the author as it was advanced before defends other limits to the city of Lisbon (covering a large number of suburbs, towns and also the most of the metropolitan cities), however these limits do not have a statistic and administrative structure from which would be possible to collect and develop information to validate the proposed definition. Face the limitations, the approach must be centered in the Lisbon Municipality and the delimitation of Lisbon as a city follows a simple methodology. Taking into account all the information previously worked, it is known that the peak of real estate prices occurred in 2007 and In 2007 the land values reached the peak and the bubble burst during the year of This is explained by the values of the properties transacted and by the number of transactions. So what is the information that can better explain these facts at the local scale? It is the information published for the city scale. Then if the Lisbon city already reached the administrative limits of the Municipality, so it is one of the best evidences to prove the theory of the land bubble. The information of the Table 10 allows the confirmation of this theory: between 2000 and 2008, the total real estate properties average value rose 103% 17 (more than duplicate), but the peak was not in The peak of the average value for all the properties transacted covering the different kinds of real estate (urban, rural and mix-use properties) was in For this reason, the land bubble reaches the peak in that year, not in Considering the years between 2000 and 2007, the real estate average values increase about 133% 18. The urban properties value grew up 132% 19. On the rural properties the growth reached 360% and on the mix-use properties the growth was of 347% 20. From 2007 to 2008, the properties average values fell by 11,82% on urban properties, 81,76% on rural 17 In absolute terms, the average value of all properties transacted, in 2000, was ,00 and in 2008, it was , From ,00 to , From ,00 to , Rural Properties: from ,00 to ,00 ; Mix-use Properties: from ,00 to ,00. 19

22 properties and 79,27% on mix-use properties transactions 21. As a whole, the real estate properties transactions fell 13,02% in only one year 22. Between 2007 and 2012, the real estate average values of all transactions fell 30,36%: the urban properties fell 30,49% and the mix-use properties fell 32,16%. In the opposite direction the rural properties appreciated 73,01% (Table 10). This may seem confusing, but the explanation for the differences between the changes of the values in these types of properties is the low representativeness of the rural and mix-use properties over the total of real estate transactions (Table 11). In this situation, the main volume of transactions is focused on urban properties, because it is this type of properties that command the fluctuations of real estate market: for all the years for which there are records, the urban properties represent 99,73% of the total volume of real estate transactions. Other undeniable fact is that the abrupt changes of the fluctuations in real estate market are related with the land values: they affect urban property values and thus also the general price, however there is on the rural properties where the weight of land values is more evident, because these properties inside the city limits are often under-improved, so the capital is only a small fraction of their global real estate value. Nonetheless, there are some conclusions that should be taken from these records: (i) the average value of the rural properties transacted between 2000 and 2014 is greater than two and a half times the average value of the urban properties transacted in the same period 23 ; (ii) the average value of the mix-use properties transacted between 2000 and 2014 is greater than almost 4 times the average value of the urban properties transacted in the same period 24 ; (iii) the average value of rural properties transacted in Lisbon is greater than 25 times the average value of the same type of properties transacted in Portugal and greater than three and a half times the average value of the same type of properties transacted in Lisbon Metropolitan Area 25 ; (iv) the average value of the mix-use properties transacted in Lisbon is greater than five and a half times the value of the same type of properties transacted in Portugal and greater than more than twice the average value of the mix-use properties transacted in Lisbon Metropolitan Area 26. With these facts, it is possible to extrapolate that the tax policy gives huge subsidies to the landholders of rural and mix-use properties. That is the only explanation for the difference in average values between urban properties and rural and mix-use properties in two dimensions: (i) at the regional and national scale comparing the same type of property; (ii) and at the local scale, between the different types of properties. The loophole is simple to explain: the properties are classified for tax purposes as rural properties or urban properties (the mix-use properties are a designation used to classify properties where it cannot be possible to distinguish if the properties are being used mostly as urban or rural land). The urban properties classified for tax purposes are assessed based on the value of the improvements (buildings), while the rural properties are assessed based on the current income/yield value through a rural productive use (plantations). So if the properties are inside the city, only in the cases where the land cannot be transformed into urban uses (small obsolete parcels 21 Urban Properties: from ,00 to ,00 ; Rural Properties: from ,00 to ,00 ; and Mix- Use Properties: from ,00 to , From ,00 to , The average value of the urban properties for all the years covered is ,00 and the average value of the rural properties for the same period is , The average value of the mix-use properties for all the years covered is , The average value of all rural properties transacted in Portugal is ,00 and ,00 in Lisbon Metropolitan Area (Tables 2 and 8). 26 The average value of all mix-use properties transacted in Portugal is ,00 and ,00 in Lisbon Metropolitan Area (Tables 2 and 8). 20

23 of land, where the building process is not feasible because of the size of the lot; and land located in areas affected by floods 27 ) are that these properties have a market value close to the value of the assessments for tax purposes. However, the New General Plan of Lisbon (CML, 2012) confirmed that all the land inside the Lisbon Municipality Boundaries matches with urban land (inside this classification, there are several categories as land allocated to recreational uses or greenspaces, but probably most of this kind of land is already part of the municipal or State property and is currently allocated for these purposes). This leads to a great conclusion: there is incompatibility between the zoning policy and the tax policy. If the land is classified by zoning policy as urban land (available for development) and it remains classified as rural land for tax purposes, this is a huge loophole: the Picture 1 illustrates some kinds of properties inside the city limits which are considered by zoning as urban properties but probably are classified as rural properties for tax purposes 28. The owners of rural land inside the city limits receive huge tax benefits, which are mainly visible in the cities, towns or other areas where the value of rural land is high enough to promote their transformation into urban land. The price or the value of the transactions of rural or mix-use properties is the great evidence of this major tax problem. Probably, this matter could be reported if the Country had a complete and updated land registry, which is not the case of Portugal. The assessments frequency is also very slow, so during an expansion phase of the land cycle, the properties, in general, benefit from an even more favorable tax treatment. The conclusion is that there are only a few individuals or companies that can buy and develop the vacant land currently existing in Lisbon. The most of them are land speculators which hold the properties indefinitely without any use or development and the others who invest in the construction or remodeling of building structures practice selling or leasing prices inaccessible for the most of effective demand. Table 10 Average value ( ) of Real Estate Properties Agreements for Purchase and Sale in Lisbon Municipality ( ) The Bubble Expansion The Recessive Phase Urban Rural Mix-Use Properties Total Properties Properties The Bubble Burst 27 These issues should be identified in the Zoning Instruments. 28 There are more evidences in other neighborhoods of the city: Olivais, Chelas, Olaias, Benfica. 21

24 Source: INE (2015a) The Table 11 has more data about the real estate market: (i) comparing the volume of transactions of all kinds of properties in Lisbon (Municipality) with the same indicator at the regional scale (Lisbon Metropolitan Area), it shows that in 2000, the volume of properties transacted in Lisbon, represents only 16,12% of the total volume of properties transacted in Lisbon Metropolitan Area, while in 2014, this indicator rose to 31,77%. This proves that during the market freeze phase, it is restricted to the movements of high income operators from both sides (supply-demand). They benefit from the subsidies mentioned above and are operators with few borrowing requirements. The transactions cover mainly properties located in the prime areas of the city 29 : Parque das Nações (Nations Park), Marquês de Pombal, Avenida da Liberdade (Liberty Avenue), Baixa Pombalina (Downtown), and Saldanha. In turn, this also explains, why the average values of transactions remain relatively high, yet they are still far from the peak values reached in 2007 or even the values reached in The changes in the volume of transactions complement the argument development here. (ii) On average, the number of properties transacted by year on the expansion phase of the cycle ( ) was and on the recession phase was There was a difference of transactions per year between the two periods or a fall of 38,82% of the annual number of transactions inside the Lisbon Municipality administrative limits. This number is lower than the fall recorded at the regional level, which validates all the argument developed in this paragraph. Table 11 Number of Agreements for Sales and Purchases of Real Estate Properties in Lisbon Municipality ( ) The Bubble Expansion The Recessive Phase Urban Rural Properties Mix-Use Properties Total Properties Source: INE (2015b) The Bubble Burst 29 Term used to identify the sections of the city with higher value per square meter. These are the central areas of the city and at the same time, are the areas where the land values remain high even after the bubble burst. Or more accurately, it is where the fall of land values was lower. 30 If it is not considered the data for 2008, the annual average number of transactions was

25 Map 5 Lisbon City Limits Municipalities Administrative Limits 4.50 Km Lisbon City Limits Lisbon City Source: Author (2016). 23

26 Picture 1 Vacant Parcels in Carnide Neighborhood, Lisbon Source: Google Earth (2007) and Bing Maps 3D Aerial Views (2016). 24

27 1.2 Investment in Peripheral Areas: The premature subdivision phenomenon The second explanatory factor of the real assets model can be implemented through two approaches: (i) from a reliable database with the geographical and statistical information of all the subdivisions developments by jurisdiction (by municipality) and by city. The required information are the location of the subdivisions, the date of the permits issued, the records of the property development works date (beginning of work and completion of infrastructure works 31 ), the number of lots in each section of the city and/or jurisdiction, the number of lots occupied by buildings and the number of lots that remain vacant, the buildings' conservation status, the age of the buildings, the number of vacant lots with building permits and the number of buildings with rehabilitation/renewal permits 32. However, none of this exists or is not disclosed. For this reason it is not possible to quantify, with accuracy, the dimension of construction in peripheral land and the dimension of construction in central areas; (ii) from direct observation, supported by photography and satellite pictures, it is possible to demonstrate the overbuilding and premature subdivision phenomenon, mainly visible in the peripheral areas and the vacant lots, obsolete structures and parcels located in central areas that are not available for development and use, which shows a contradiction: the overinvestment in peripheral land and the underinvestment in central areas. But, it is precisely this relationship that explains the phenomenon. The underinvestment (the productive real estate investment for transformation, upgrading, rehabilitation, improvement of existing buildings and for the building of new structures) in central areas pushes this kind of investment for marginal areas (peripheral land). Since the means are not met to develop the first approach, then it is understood that the natural choice is to use the second method. The overbuilding can be demonstrated by the subdivisions in peripheral areas of urban centers. A significant amount of these subdivisions remain with the most of the lots and blocks completely empty. As a result, the residents, traders, workers and consumers that was supposed to meet regularly in these places are slow to arrive. In consequence, the subdivisions are abandoned both by the subdivider and the municipalities (which share responsibility for maintain these areas). The scenario is bleak. It is not just overbuilding, but it is also overbuilding in the wrong places. The cities extend prematurely, long before the required: Large areas of land, suitable as yet for extensive uses of a rural type, have been subdivided far in advance into hundreds of thousands of parcels, fitted in shape and size to allow only intensive urban uses. One inevitable by-product of the premature subdivision was the creation of hundreds of miles of unneeded and unused streets, equipped out of the proceeds of bond sales with all of the public improvements essential to health, welfare and safety of an urban population which has not yet arrived (Cornick, 1938: 290); As a matter of American History, excess land subdivision has several times gone to incredible extremes. Probably in no other market can one find comparable excesses (Gaffney, 1956: 108). So, why this scenario does deserves special attention? First, the economic and financial crisis was originated by the land bubble and the premature subdivision phenomenon is the main feature of a land bubble: the most characteristic feature of a real estate boom is the speculation in acre tracts and the sale of lots in subdivisions to small 31 If they are not completed, then it is important to check the license expiration date. 32 Both with the time factor associated (issue and expiration dates of permits and the date of beginning and conclusion of the construction process). 25

28 investors (Hoyt, 1933: 163). A huge amount of capital and labor were wasted on the building of the infrastructures (sidewalks, street lighting, roads, wires, pipes) that do not serve anyone. The capital applied for buy the tracts 33, the capital invested in the construction process (materials and equipment) and the labor (number of workers, knowledge and working hours) wasted in large proportions on these processes. Furthermore, the most of these investments were developed with borrowed capital 34 : the credit that was secured by tracts available for development, urban vacant lots, and unfinished buildings is estimated that it is higher than ,00 35 (80 billion) and with very high impairments (Pardal, 2014: 19). These are the kind of capital that is tied up in projects which do not generate any return for several years. Second, the municipalities have high costs with the management of these surpluses. These costs abruptly increase with the economic recession, which means that the taxpayers have to pay more for living in Portugal. The high costs degrade the quality of other public services (street cleaning, event organization, blocks the human resources qualification and institutional progress). Other example is the inflation of the public services without a corresponding improvement in the quality of the service: the increase on the prices of water distribution and wastewater collection and the rise on public transport fares. Although some services are not provided by the Municipalities or the State itself, the distribution of electricity, natural gas and telecommunications 36 are also inflated by this waste. The street lighting extends overused, because there are an excess of street lamps in areas where there are no users, and the municipalities have to put, in their budgets, the monetary value of that excess of energy consumption 37. These wastes require increasing tax revenue, left less revenue to allocate to the improvement of public services. Third, the territorial consequences generated by the excessive weight that these areas have in cities and its surrounding areas. The premature subdivisions are failed projects. The lots, the size of the streets, sidewalks, the gardens and public parks, the projects of planned buildings are obsolete. The most of these subdivisions were promoted over than ten years ago. It is likely that the market is no longer re-interested in the type of planned projects, even the people, who like to live or work (or both) in the city limits, can no longer be interested in these type of projects. The result will be the fall into oblivion until there is someone available to restructure the whole subdivision. If this happens, perhaps it cannot be the worse for the city. Because it would be a sign that there would be a change in the functioning of the market, through an increase on the new and renovated buildings market in the more central areas of the cities. The people who seek to live in areas where there is greater diversity, where the choose options for leisure and consumption are multiple in a few blocks away of their dwelling unit, can find an affordable housing supply that meets the quality standards of the new building projects. 33 In some cases, have been the original landowner, who starts the subdivision operation. By original landowner, it is understood the individual or Company, who owns the property since the time when that market value would not be higher than the market value of other rural properties in use. 34 The main building cost is the loan interest (Gaffney, 1973; Gaffney, 2009). 35 By comparison, the amount of the loan agreed between the Government of Portugal and the International Monetary Fund, European Union and European Central Bank was of ,00 and the majority of this amount was used to finance the State itself. Only ,00 had been allocated to capitalized the banks. 36 Managed and traded, in Portugal, by Private Companies. 37 Which is payable to the network operator. 26

29 The rural uses have not viability for the market in the areas surrounding the growing settlements. There are the parcels which are processed prematurely in urban lots (where the conversion is difficult) and the parcels which remain empty without use. As it is been shown inside the Lisbon City Limits, there are also a huge amount of properties beyond the limits of urban land, which remain unused. The owners 38 have no interest in use the properties for farming purposes, because they can get a higher value for the property, if it remains without use than if it is to be used for rural purposes (Pickard, 2015). The outcome is the freezing of extensive land sections, which remain unproductive. This force the farmers to seek land in remote areas (far away from the markets cities), generating more waste of resources because of the same cause. Other inevitable consequence is the depreciation and obsolescence of the oldest areas of the cities. Although, in some cases they can generate large capital flows, the truth is that the most of it is applied only on the properties transactions. Then, only a residual part is applied on the modernization, upgrading, renovation, and construction of buildings: [the] money can help build inherent success in cities. Indeed, it is indispensable ( ) [the] money is a powerful force both for city decline and for city regeneration. But it must be understood that is not the mere availability of money, but how it is available, and for what, that is all important (Jacobs, 1992 [1961]: 292). So the question is: what is the weight of the premature subdivision upon the urban areas in Portugal? So far, there is no accurate and official quantification for any city or settlement. Henriques (2015) demonstrated that the city of Entroncamento had, in 2014, at least 351 unused lots (9 occupied by unfinished buildings and 342 vacant). However, this data is based only in a limited number of subdivisions (used as a sample), which means that do not cover the entire city limits. It is true that these data while covering only a fraction of the city, represents the most extreme examples. It is not a coincidence also that these subdivisions (Picture 2) are mainly located in the peripheral areas of the city. 38 In some cases, the owners are not farmers and the most of them have no interest in performing lease agreements. Neither the farmers are able to pay for those properties, more than the amounts required to successfully apply their work in these parcels. 27

30 Picture 2 Four examples of Premature Subdivisions in Entroncamento City, Portugal Source: Author (2014). The report will go further and show other examples of premature subdivisions that are directly related to the expansion of Lisbon: the Montijo Alcochete Pinhal Novo Section (The New Frontier); the oversupply of Warehouses (Castanheira do Ribatejo); and the New Urbanization Fronts in the Old Suburbs (the Western Corridor: Amadora, Oeiras, Cascais, Sintra). A. The Montijo Alcochete Pinhal Novo Section (The New Frontier) The three settlements share a set of common characteristics, yet the most striking is the impact of the changes in the development of Lisbon on the speed of transformation process of these urban centers: Montijo becomes a city in 1985 (INE, 2001); Alcochete grew rapidly since 2001; Pinhal Novo becomes the largest settlement of the Municipality of Palmela: this municipality won almost inhabitants between 2001 and 2011 and it will be possible to extrapolate that a significant part of this increase was absorbed by the Pinhal Novo Town. 28

31 The next doubt is why are these settlements classified as the new frontier 39? Before answer to this question, it is required to understand a little more about the origin or evolution of each one: (i) Montijo became a city before the start of the last land cycle ( ). This settlement is separated from Lisbon by the Tagus Estuary, and then the main link between these two settlements was always through fluvial transportation 40. This particular feature had a significant role in the development of Montijo. Other factors like the opening of the 25 April Bridge and the consequent urban explosion in Setubal s Península Settlements (generating new cities like Almada and Barreiro) had an effect of accelerating the urban development expansion in Montijo; (ii) Alcochete is a Town, which is located not far from the City of Montijo. The link between Alcochete and Montijo was essential for the urban evolution of the first settlement. That is because Montijo had functioned like the main gateway to Lisbon. The urban explosion in Setubal s Peninsula did not arrive to Alcochete, because it was too far away from the main route to Lisbon (both by road and rail link). Thus, until the start of the new land cycle, the urban pression exerted by the development of Lisbon (artificial scarcity phenomenon), was residual in Alcochete, which explains why it have, even now, the lowest number of inhabitants of all Lisbon Metropolitan Area Municipalities (Table 4). Contrary to other municipalities and settlements of Setubal Peninsula, the effects of urban development expansion (related with the artificial scarcity in Lisbon) did not radically accelerate the transformation process of this settlement; (iii) Pinhal Novo is a town, which is known as a railway center. It has links to Lisbon, Setubal, and Barreiro. Again the relationship with the transport infrastructure had a significant weight on the urban development process of this settlement. Likewise it was verified in Montijo, there were pressions for urban development, before the last land cycle had started (Pinhal Novo acquires the town status in 1988). Thus, the effects of the development of Lisbon marked, clearly, the urban transformation process of this settlement. Now answering the previous question, the reasons are: (i) the public investment options; (ii) the link to the new centralities; (iii) the private investments (Shopping Malls); and (iv) the land subdivided available for development and the parcels available for subdivision or urban expansion. The Public Investment options, during the last land cycle, were implemented towards generate an excessive appreciation of the land values in this section. The West Industrial Section of Lisbon was the subject of a huge urban renewal project that transformed an urban obsolete area into a new modern center with a great dynamism 41. This area matches with Parque das Nações Neighborhood and it is where are located the headquarters of major national and international companies (mainly enterprises linked with technology sector and advanced services). The concentration of users in this city area is relevant at the daytime, due to the high number of jobs and to the preponderance of same spaces that concentrates a wide retail offer. This neighborhood absorbed new residents and innovated by bringing large scale modernity into the city (it was the reverse of the general trend the new structures, with the highest modern standards were incorporated in an area within the boundaries of the city, instead of being developed on their peripheries). However, this produces one problem: the diversity, the density and the dynamic of this neighborhood blocked the entrance to people with average income levels (who wants to live there) and even the establishment of small businesses in 39 The term is responsibility of the author. 40 Nowadays, the intensity of this kind of link has been reduced, because of the reasons that will be advanced next. Although the public transportation service more fast and accessible to downtown of Lisbon remains the fluvial transport. 41 This Project was developed, during the 90s, to receive a great event: the EXPO

32 surfaces (shops, offices) without use. The Vasco da Gama Bridge was inaugurated in 1998 as part of the EXPO 98 Project (like the Urban Renewal Project) and linked Lisbon and Sacavém (Loures) to Alcochete and Montijo, which became to be separated by only 17 kilometeres through road transport. This project was also part of the building of a highway (Highway 12), which extends to Algarve (through Highway 2), crossing Setubal Peninsula in a North-South direction. There are other public investment options that have not been realized, yet they gave a contribution to the acceleration of the land boom in this section: (i) the New Lisbon International Airport which was designed to be built in Alcochete or in Rio Frio (Palmela); (ii) the TGV (High-Speed Train) Project that was supposed to came to Pinhal Novo on a line that should connect Lisbon to Madrid; (iii) the third bridge crossing over the Estuary entitled Chelas-Barreiro that would just serve the TGV Line Project. Nowadays, these projects are frozen, but they were much discussed during the land boom period, which contribute to accelerate the land speculation phenomenon that feeds the bubble 42. During the last land cycle, the city of Lisbon had been changed and during that process, it created new centralities. The bigger centrality 43 that is created was the Parque das Nações (or Nations Park ) Neighborhood. This urban development process, inside the city, linked with the new bridge to the other margin of the Tagus Estuary, approached Montijo, Alcochete and Pinhal Novo from a new center. The reference is not just the downtown of Lisbon or the Marques de Pombal Area, but principally the new modern center of Parque das Nações. This process overheated the land markets in these three settlements with the consequences that will be visible below. The last land cycle have other particularity: the building of shopping malls. The last land cycle occurred between 1990 and 2008 as has been demonstrated. Then, the information of the APCC 44 (Table 12) reveals that of the 85 Shopping Centers existing in Portugal, 58 were built during the last cycle (the Malls opening in 1990 and 2009 were not consider). In average, there were inaugurated 3 shopping malls per year, while after the bubble burst there were only 1,5 (or between 1 and 2) shopping malls inaugurated per year ( ) 45. This is a relative difference of -53% between the periods. If it is considered only the period of greatest acceleration of the land bubble ( ), the findings are: (i) in 9 years were built almost half of the existing malls (48%); (ii) in average, by year, there were inaugurated 4,5 (between 4 and 5) Shopping Centers; (iii) the overcome is a fall of 2/3 (or 66,7%) on the opening rhythm of new Malls in Portugal after the bubble burst ( ). Turning now to the Section Montijo-Alcochete-Pinhal Novo, during the last land bubble, there were developed two Shopping Malls: Freeport Outlet located in Alcochete (2004) and Forum Montijo located in Montijo (2003).There are no data about the investment that was applied to develop this two Malls. But, there are some references in newspaper articles about transactions involving these Malls: The Forum Montijo was purchased in 2015 by Blackstone Fund on a transaction of 42 The TGV Line Project came forward in a short section inside the City of Lisbon between the Parque das Nações ( Nations Park ) Station and Braço de Prata Station, but with the crisis, the Portuguese Government decided to cancel the project implementation. 43 It was a root developed process. 44 Portuguese Association of Shopping Malls: 45 Five of the eight Shopping Malls that were inaugurated after the bubble burst ( ), opened in

33 ,00 (this transaction value also covers the purchase of Almada Forum) 46 ; and the Freeport Outlet was purchased in 2007 for ,00 and later, in 2015, the Hammerson will have paid ,00 for three Malls, among which, are included the Freeport Outlet 47. The only settlement which has not absorbed any Shopping Mall was Pinhal Novo. Nevertheless Pinhal Novo is inside the area of influence of Forum Montijo (and probably even to the Freeport), which is accessible by the National Road 252 that links Montijo to this settlement. The Mall is located on the peripheral land of the city inside the Montijo Industrial Park (Map 6). The Freeport Outlet followed the same location trend, which is implanted in the limits of the settlement (Map 6). These kinds of investment projects are huge to the scale of the settlements where they are located. As a result, the value of land available for development (and even the land that is not available for development the land values in general) accelerated by the creation of new centralities, which overshadow anyone of the areas developed so far. The people who do not reside or work in Alcochete, if for some reason they have to go there, the most likely is to moving to the Mall. This reflects on the one hand the innovation of shopping centers as meeting, consumption and work places and the other, the slow adaptability of the old structures (the oldest areas of settlements) to respond to this type of projects and also the poor response given by the new subdivisions promoted. The retailers seek the best areas, which are those that can join diversity with the largest number of users. So, if the new developments and the old sections of the settlements fail to improve/achieve these determinant elements, of course that the retailers will continue to prefer the Malls to operate. Table 12 Shopping Malls in Portugal (General Features) 48 Identification Location 49 Gross Leasable Area (sqm) 8ª Avenida Albufeira Shopping Alegro Alfragide Alegro Castelo Branco Algarve Shopping Almada Forum S. João da Madeira (OMA) Albufeira (Algarve) Amadora (LMA) Castelo Branco Albufeira (Algarve) Almada (LMA) Number of Shops Opening Opening after Renewal Investment Value ( ) , , , Amoreiras Center Lisbon (LMA) The List with the Shopping Malls does not include all of these kinds of project currently existing in Portugal. These are only the members of the APCC. 49 Legend: OMA is Oporto Metropolitan Area and LMA is Lisbon Metropolitan Area chadas.html

34 Aqua Portimão Portimão (Algarve) ,00 53 Arena Shopping Torres Vedras Armazéns do Chiado Lisbon (LMA) Arrábida Shopping Vila Nova de Gaia (OMA) Atlantic Park Setúbal Setúbal (LMA) Braga Parque Braga e Campus S. João Oporto (OMA) ,00 54 CascaiShopping Cascais (LMA) ,00 55 Centro Comercial Amadora Continente Amadora (LMA) Centro Comercial Continente Loures Loures (LMA) Centro Comercial Portimão Continente Portimão (Algarve) Centro Comercial Continente Telheiras Lisbon (LMA) Centro Comercial Valongo Continente Valongo (OMA) Centro Comercial Jumbo Maia Maia (OMA) Centro Comercial Vila Franca de Jumbo Alverca Xira (LMA) Centro Comercial Cascais Jumbo Cascais (LMA) Centro Comercial Setúbal Jumbo Setúbal (LMA) Centro Comercial Vila Nova de Jumbo Famalicão Famalicão Centro Comercial Vila Nova de Pão de Açucar Gaia (OMA) Canidelo Centro Comercial Santo Tirso Pão de Açucar Sto. (OMA) Tirso Central Park Oeiras (LMA) Centro Colombo Lisbon (LMA) Centro Comercial Vila Nova de Gaia Jardim Gaia (OMA) Centro Comercial Maia Jardim Maia (OMA) Centro Vasco da Gama Lisbon (LMA) City Park Leiria Leiria City Park Penafiel Penafiel Coimbra Retail Park Coimbra ,

35 Coimbra Shopping Coimbra Dolce Vita Coimbra Coimbra Dolce Vita Douro Vila Real ,00 57 Dolce Vita Miraflores Oeiras (LMA) Dolce Vita Monumental Lisbon (LMA) Dolce Vita Ovar Ovar Dolce Vita Porto Oporto (OMA) Dolce Vita Tejo Amadora , (LMA) Espaço Guimarães Guimarães Estação Viana Viana do Shopping Castelo ,00 59 Forum Algarve Faro (Algarve) Forum Aveiro Aveiro Forum Barreiro Barreiro (LMA) ,00 60 Forum Castelo Castelo Branco Branco Forum Coimbra Coimbra Forum Madeira Funchal Forum Montijo (Madeira) Montijo (LMA) Forum Sintra Sintra (LMA) ,00 61 Forum Viseu Viseu Freeport Outlet Alcochete (LMA) Gaia Shopping Vila Nova de Gaia (OMA) Galerias Saldanha Residence Lisbon (LMA) Guimarães Shopping Guimarães La Vie Funchal Funchal (Madeira) LeiriaShopping Leiria ,00 62 LoureShopping Loures (LMA) ,00 63 MadeiraShopping Funchal (Madeira) ,00 64 MaiaShopping Maia (OMA)

36 Mar Shopping Matosinhos (OMA) ,00 65 Minho Center Braga Norte Shopping Matosinhos (OMA) Oeiras Parque Oeiras (LMA) Palácio do Gelo Viseu Parque Atlântico Ponta Delgada (Açores) ,00 66 Parque Nascente Gondomar , (OMA) Picoas Plaza Lisbon (LMA) Pingo Doce Algés Oeiras (LMA) Pingo Doce Barreiro Barreiro (LMA) Pingo Doce Costa Oporto Cabral (OMA) Retail Park Abrantes Abrantes Ria Shopping Olhão (Algarve) Rio Sul Shopping Seixal (LMA) ,00 68 Serra Shopping Covilhã ,00 69 Shopping Cidade do Oporto Porto (OMA) Spacio Shopping Lisbon (LMA) Strada Shopping and Odivelas Fashion Outlet (LMA) TorreShopping Torres Novas ViaCatarina Oporto Shopping (OMA) Viana do Viana Retail Center Vila do Conde The Style Outlets Castelo Vila do Conde (OMA) Source: Adapted from APCC (2016)

37 Map 6 Montijo - Alcochete - Pinhal Novo Section Montijo City Limits Alcochete and Pinhal Novo Towns Limits 3,70km Montijo City and Alcochete Town Centers Pinhal Novo Town Shopping Malls Location National Road 252 Vasco da Gama Bridge Source: Author (2016). The problem of premature subdivision of property can explain, by itself, the economic and financial crisis, without having to resort other indicators (the real estate market prices, the evolution and structure of mortgage loans, and the pace of building). Even without detailing the problem, the evidences collected (sample) validate the formulated hypothesis: the financial crisis was originated by the land bubble developed in the Portuguese real estate market. 35

38 The author moved to a set of subdivisions located in this Section and the results of the direct observation approach can be found through the Pictures 3, 4 and 5 and Maps 7, 8, 9, 10, 11, 12 and 13. The maps are simple to interpret: (i) ones (Maps 7, 10 and 12) framed the premature subdivisions area over the total area of urban settlements. In any case, revealing that these samples occupy not only a large proportion of the peripheral land areas, but also a considerable area of the global land occupied by each urban settlement. This shows the weight of the subdivisions for urban development in the building and real estate market dynamics. (ii) Others (Maps 8, 9, 11 and 13) show the amount of continuous lots of empty land: Montijo has twenty six-vacant parcels distributed by three subdivisions (Subdivision 1: 14 parcels, Subdivision 2: two parcels; Subdivision 3: 10 parcels); Alcochete (S. Francisco Settlement) has five parcels concentrated in one subdivision; and Pinhal Novo has thirty-six vacant parcels concentrated also in one subdivision. There is no publication about the developed projects, so it is not possible to query the land-uses foreseen for each empty space or even the precisely number of vacant lots 70. Certainly there is much land available for urban development purposes (apartment buildings, single-dwelling units, apartment buildings with stores, public facilities, shopping centers and supermarkets or other retail outlets, green spaces and gardens, and in some parcels where the subdivision is not completed even roads, parking lots and sidewalks) that is far from the use for which it was planned. The images (Pictures 3, 4 and 5) confirm that the empty lots are abandoned, generating the proliferation of weeds for sidewalks. This time also the municipalities have to allocate a large share of its revenue to performing maintenance of these areas. But most likely they do not have means to do the cleaning of the city public spaces as often as necessary. The outcome is the state of neglect of the main entrances in each of urban settlements. This confirms the excessive waste of public and private resources in the development and maintenance of areas that are used by nobody (or much less people than coveted) and this existing capacity let s give both a bad image of the settlement and a huge contribution to the freezing of local economy. 70 If globally there are 67 vacant parcels in these 5 subdivisions, so it can be estimated that there are, at least, many hundreds of vacant lots in these set of subdivisions. These subdivisions cover directly the data of only one City of the 17 that exist in the Lisbon Metropolitan Area. 36

39 Picture 3 Premature Subdivisions and Vacant Parcels in Montijo Source: Author (2016). 37

40 Map 7 Subdivisions in Montijo at the City Scale Montijo City Limits Subdivisions Limits (Sample) 1 Km Montijo City Center Forum Montijo Shopping Mall Vacant Land Parcels (Sample) Source: Author (2016). 38

41 Map 8 Subdivisions 1 and 2 (Montijo) Montijo City Limits Subdivisions Limits (Sample) 250 meters Vacant Land Parcels Source: Author (2016). 39

42 Map 9 Subdivision 3 (Montijo) Montijo City Limits Subdivision Limits (Sample) 200 meters Vacant Land Parcels Source: Author (2016). 40

43 Picture 4 Premature Subdivision in S. Francisco (Alcochete) Source: Author (2016). 41

44 Map 10 Subdivision in S. Francisco at the Settlement Scale S. Francisco (Alcochete) Settlement Limits Subdivision Limits (Sample) 220 meters S. Francisco Settlement Center Vacant Land Parcels (Sample) Source: Author (2016). 42

45 Map 11 Subdivision in S. Francisco (Alcochete) S. Francisco (Alcochete) Settlement Limits Subdivision Limits (Sample) 100 meters S. Francisco Settlement Center Vacant Land Parcels Source: Author (2016). 43

46 Picture 5 Premature Subdivision in Pinhal Novo (Palmela) Source: Author (2014). 44

47 Map 12 Subdivision in Pinhal Novo framed at the Town Scale Pinhal Novo (Palmela) Town Limits Subdivision Limits (Sample) 750 meters Pinhal Novo Town Center Vacant Land Parcels (Sample) Source: Author (2016). 45

48 Map 13 Subdivision in Pinhal Novo Pinhal Novo (Palmela) Town Limits Subdivision Limits 200 meters Vacant Land Parcels Source: Author (2016). 46

49 B. North Lisbon Logistical Platform (Castanheira do Ribatejo). The subdivision occupies an area of ,86 square meters or 102 hectares. The section, where it is integrated (Alverca Vila Franca de Xira Castanheira do Ribatejo Carregado Azambuja), is characterized by being a mixture of two dominant land-uses: housing and warehouses 71. So this project is an expansion of the land already occupied by this last land-use. Thus, it is not a new type of investment: this was supposed to contribute to a greater economic specialization in this field. However and until now, there are no benefits. The project is one of many examples of premature subdivision of property. The property is a parcel located on the side of the railway line 72 that is facing the bank of Tagus River and it was subdivided in 13 blocks (Map 14). The 13 blocks, according to the planned, should be used as Warehouses, Offices or Commerce structures (IAD, 2007). These blocks are subdivided in 44 lots and all of them are vacant (Map 14). The capital was applied on the construction of the infrastructures, but it was not built any warehouse or office and retail building (Picture 6). The main conclusion is that this is, indeed, a megaproject like several Governing bodies (local and central administration) made it highlight, yet the problem is that this is a megaproject to nobody (Despacho n.º2837/2008).the businesses that had been expected to come and invest in these lots do not exist or do not meet the required conditions to make a transfer or an expansion of its storage/production facilities. This also confirms that it was not just the land available for housing development, which was overvalued and prematurely subdivided, because there are other land-uses involved in the land bubble. Another concern is about the size of the property (before the subdivision): 102 hectares. Facing the numbers, it can be extrapolate that the division of rural property is low or the concentration of property is high. When turns out that there are properties with 100 hectares located on the floodplains of Tagus River, near to Lisbon, being underutilized, then this is the conclusion that can be drawn 73. This also can be one of the main reasons to the lack of political initiative to conclude and update the cadaster of real estate property. Picture 6 Premature Subdivision in Warehouses Development Projects (Castanheira do Ribatejo) 71 In urban settlements. 72 North Line, which links Lisbon to Oporto. 73 Although it is located in an area with high natural fertility and even had not been classified as land available for urban development on the first General Plan of Vila Franca de Xira, the clues point to the fact that it was not invested anything in plantations for a number of years previous to the project approval (IAD, 2007). 47

50 Source: Author (2016). Map 14 Subdivision of Lisbon North Logistical Platform Subdivision Limits Vacant Parcels/Blocks available for Warehouses and Retail Land-Uses Vacant Lots Available for Office Development Vacant Blocks Available for Warehouse Development Source: Author (2016) meters C. Premature Subdivisions in the Old Suburbs: the Western Corridor The Western Corridor is a Section which covered an extensive area with the several settlements located on the Southside of the Municipalities of Amadora (Carnaxide Hills) and Sintra (S. Marcos) and the Northside of the Municipalities of Cascais (S. Domingos de Rana and Alcabideche) and 74 With support on the data available in IAD (2007). 48

51 Oeiras (Barcarena, Porto Salvo, Queijas-Carnaxide). This section has the following boundaries: North Complementary Itinerary 19 75, South Surrounding areas of Highway 5 76, West Sintra- Cascais Natural Park, and East Monsanto Forest Park (located inside Lisbon Municipality). For reasons already explained, the corridor narrows as it moves away from the City (Lisbon). Then, the problem is concentrated in the Municipality of Oeiras or in the particular areas of other municipalities that are located near to this one (surrounding areas). Even without data collected directly in the local, there are evidences of premature subdivisions that can be demonstrated by the Maps 15, 16, 17 and 18: (i) the Map 15 show the dimension of the subdivisions at the settlements scale. This proves that alone, the subdivision of S. Marcos (Sintra) has sufficient capacity to double the size of S. Marcos as a settlement. The size and the isolation of this subdivision do remember the development process of a new settlement. The number of parcels and lots advanced 77 are enough (once occupied) to being considered as a new independent suburb (Map 16). Considering S. Marcos as a neighborhood integrated in territorial unit of the city of Queluz, so this new subdivision cannot be part of the city, because it has no relation of continuity and ensemble that is what makes the cities. The low land-use intensity reveals that in addition to not being a City, it is not a suburb. In the background, it is nothing more than a monumental waste of resources. (ii) The other subdivision is one more annexation, but this time consists in the expansion of the Settlement of Porto Salvo (Oeiras), which is composed by isolated urbanizations without sufficient links to form a cohesive whole. The neighborhoods seem like urban peninsulas, where the most of the buildings remain isolated (surrounded by land with rural features) and where there are only a few roads (in some cases even without sidewalks) to give a small continuity to the settlement. The new annexation produces more urban land without contributing to its densification and diversification, causing waste 78 (Map 17). (iii) The new subdivision of Carnaxide Hills looks like the repetition of a non-sense: The previous urbanization could be taken into account as a bad example, but this new subdivision was not only developed as also has occupied the double of the area of the other (Map 15 and 18 and Picture 7). The subdivision is turned back to the city that granted the license (Amadora), while it is not connected with the Town of Carnaxide. The conclusion is that it is isolated. It is not possible to walk on foot, if you want to go to the center of Amadora or to the center of Carnaxide, because there is no diversity of land-uses and the pedestrian links are uncomfortable or inexistent. At least, there is no diversity of uses (or the level of diversity required) to generate a minimum of cohesion and thus promote the movement of people and the regular use of space. Considering for example Carnaxide, this is the problem of a Town that was born from a Suburb: the residential density is high and spread over several neighborhoods (high, if it is considered the average number of dwellings built by structure), there are two industrial parks, there is one section where the dominant land-use is the retail warehouses (the Alegro Alfragide Mall, the Media Markt, the Leroy Merlin, etc) which is located on the edge of the town (close to the National Road 117 that separates Carnaxide from Amadora City (Alfragide Neighborhood), and there are several schools. But there is not any link between these uses: there is no kind of union in the settlement; there are no streets that can support a small business. These facts taken together explain the choice of building a civic center (2004) for trying to create a center in a town that had no reference. This option of public development does not 75 It is a Highway, which links Sintra to Lisbon. 76 This one links Cascais to Lisbon. 77 There are 32 vacant parcels in this subdivision. 78 The subdivision has 20 vacant parcels. 49

52 solve the problem, but recognizes that it exists. So why are the new subdivisions still repeating the same mistakes of the past? Even when the premature subdivisions will be occupied, it will still exist urban problems for which there are no solutions. In addition to all these problems, the fact is that there is one more subdivision of a wide area that remain abandoned and far away from the expected occupation: there are no buildings, so all of the lots remain vacant 79. Map 15 The Premature Subdivisions located in the Western Corridor Lisbon City Limits Amadora, Queluz and Agualva-Cacém (Cities) Limits Carnaxide, Algés, Oeiras, Carcavelos and Mercês (Towns) Limits Subdivisions Limits (Sample) Amadora City Center 2,30 km Agualva-Cacém, Queluz and Carnaxide Centers Settlements/Neighborhoods close to the Subdivisions Vacant Land Parcels (Sample) 79 The subdivision has 8 parcels and all remain vacant. 50

53 Source: Author (2016). Map 16 Subdivision 1 in Western Corridor (S. Marcos, Sintra) Queluz City Limits Subdivision Limits 700 meters S. Marcos Neighborhood Vacant Land Parcels Source: Author (2016). 51

54 Map 17 Subdivision 2 in Western Corridor (Porto Salvo, Oeiras) Subdivision Limits 230 meters Vacant Land Parcels Source: Author (2016). 52

55 Map 18 Subdivision 3 in the Western Corridor (New Carnaxide Hills, Amadora) Amadora City Limits Carnaxide Town Limits Subdivisions Limits 400 meters Neighborhood of Carnaxide Hills (Amadora) Vacant Land Parcels Source: Author (2016). 53

56 Picture 7 Carnaxide Hills Neighborhood Source: Adapted from Bing Maps 3D (2016). 1.3 The diversion of monetary flows: diversion from investments on short-maturity capital to concentrate on investments of long-maturity capital. This chapter is already, to some extent, demonstrated upon the evidence developed on the previous points: the market value of the properties and the number of transactions; and the number and size of premature subdivisions. The mentioned facts, confirmed that the real estate transactions had a substantial weight on the business volume of the several economic sectors and that the building sector had an equivalent weight upon the total of industrial production in Portugal 80. So why does it happen? Gaffney (2015: 330) gives an explanation to this in simultaneously with the description of the phenomenon of artificial scarcity 81 : During an economic boom, as land prices are raising, an immediate effect is hoarding of good locations. If land prices are expected to rise at 20 percent per year, and other investments yield only 10 percent, owners have an incentive to hold land off the market until the growth of land prices falls below the return on alternatives. This process describes the behavior of the owners of the most advantageous locations for the development projects (vacant 80 This was found during the expansion phase of the land cycle. 81 The explanation about the Theory of Artificial Scarcity is developed in Chapter 2 of the present report. 54