Land and Shelter Challenges in Albania Yan Zhang (yanzhang@worldbank.org) Urban Economist Europe and Central Asia Region What s interesting? Bank Involvement: Evolution of Approaches First Generation: Community-based upgrading Second Generation: A holistic approach to tackling urbanization challenges Informed by lessons learned from the first generation project and ESWs Albania s Urban Sector A (surprisingly) success story of informal sector meeting unprecedented demand for land and housing A strive for setting the parameters right for the formal land and housing market, which includes mainstreaming the informal market. Caveat: NOT a story about Tirana 1
Albania the Big Picture Population: 3.1 m (42% urban) GDP: $8.38 bn GDP growth: 5.5% GNI per capita: $2570 Unemployment: 15.2% Informal sector: 40-45% GDP Remittances: 14% GDP (2005 data) Albania since the fall of communist regime Migration/Urbanization 1/5 of population emigrated Urban population increased: 35%-42% 1/3 of HHs receive remittances 37% HH used remittances for building/improving houses Privatization Land and housing hastily privatized, with conflicting and constantly changing legal framework Decentralization (2000) Asymmetric arrangement: local governments given responsibilities but not adequate resources 2
Two Parallel System of Land & Housing Markets Share of Total Pop ulation 90 80 70 60 50 40 30 20 10 0 78.7 79.5 21.3 20.5 72.5 27.5 69.1 67.7 66.5 30.9 32.3 33.5 1945 1950 1955 1960 1969 1979 1989 2001 Census Year 64.5 35.5 57.9 42.1 % Urban % Rural Challenges Chaotic urban development: emergence of large informal settlements Weak financing capacity, particularly at the local level Acute shortage of infrastructure and services A formal market within the existing institutional framework as they underwent restructuring An informal market with smaller scale activities operating within networks and processes outside the formal system Fier 2005 3
Informal settlement in Durres Informal settlement in Skodra Urbanization Trend Urbanization has gone through 3 phases since transition: Early 90s Informal sector as main phenomenon; spontaneous, little gov t intervention Late 90s Consolidation of informal development and beginnings of a formal real estate market Current Consolidation of formal sector and regularization of informal sector 4
Bank Involvement in Albania s Urban Sector Operations First Generation Emergency Operation : Urban Land Management Project (1995-2005) Focused on providing much needed infrastructure and social services Community participatory upgrading (including capital investment planning) Pilot, enjoyed exempt from restitution to ex-owners informal settlements adjacent to Tirana Assessment and Lessons Learned Successful in meeting the infrastructure and service needs Moderate Institutional and policy impact (limited local government involvement) Need to scale up and tackle a broader range of issues Security of tenure Country-wide reform in urban planning and management Structural fiscal constraints of the local government Bank Involvement in Albania s Urban Sector Studies: Urban Sector Review (2006) Demographic and Economic Dynamics Demographic and urbanization trends Albania continues on the move Emerging geography of opportunities Fiscal challenges facing local governments Urban Planning and Land Management Emerging real estate market implications for efficiency and welfare Informal settlement Legal framework governing urban development 5
Main Findings of the Urban Sector Review Refute Mythical Urban Perceptions and Policies Urban development has been chaotic Surprisingly good result from the benign negligence of public sector formation of urban agglomeration largely accommodating the needs of migrants relatively compact and efficient urban form Tirana is too big and too crowded Tirana-Durres corridor will and should continue to grow to reap the benefit of urban agglomeration Planning = control, control, control market-responsive, light handed, enforceable planning and regulation A Framework for Action Migration has resulted in growth of center-coastal area Moving away from poverty: External migration and internal migration from the northeast to the coast/center Urban growth highly concentrated in Tirana- Durres metro area Size of population by city and % change in population by district, 1989 and 2000 (INSTAT) (Tirana city population not according to scale) 6
Geography of Economic Opportunities Central region (anchored by Tirana- Durres) has highest concentration of firms Number of registered firms (and per 1000 inhabitants) by district, 2005 Similar picture for enterprise dynamics: districts with greatest growth (mainly center-coast) and loss (mainly north) Tirane Vlore Durres Korce Lushnje Puke Mat Skrapar Kukes Diber +35% +110% +49% +114% +349% -62% -50% -61% -84% -72% -2000-1000 0 1000 2000 3000 4000 5000 6000 7000 Change in absolute number of enterprises Change in absolute and relative amount of registered enterprises by district, 1998-2004 (INSTAT) 7
Urbanization shows high potential for poverty reduction Poverty rates by Region 2002 2005 % change Inequality * COAST Urban 20.2 11.6-42.6 0.293 Rural 20.9 19.7-5.7 CENTER Urban 19.3 12.5-35.2 0.278 Rural 28.5 25.9-9.1 MOUNTAIN Urban 24.7 17.1-30.8 0.254 Rural 49.5 27.7-44.0 TIRANA 17.8 8.1-54.5 0.286 All Urban 19.5 11.2-42.6 All Rural 29.6 24.2-18.2 National 25.4 18.5-27.2 *Gini coefficient, 2005 (higher number implies greater inequality) Urbanization is certain to continue not as fast as in 1990s, but at steady pace 4000 3500 3000 2500 2000 1500 1000 500 3113 Total population Urban population Urbanization rate 1306 3063 42% 42% 1290 3220 45% 3335 48% 1448 1603 3440 51% 1762 3,727-3,216 54% 2,013-1,737 3548 54% 1929 3680 61% 2233 70% 60% 50% 40% 30% 20% 10% 0 2000 UN/DESA 2001 (Census base year) 2005 UN/DESA 2010 UN/DESA 2015 UN/ DESA 2021 INSTAT 2020 UN/DESA 2030 UN/ DESA 0% 8
The Real Estate Market: Implications for Efficiency and Welfare Current State surprisingly good, even in absence of planning Informal housing offered rapid access to and subdivision of urban/peri-urban land to new migrants much quicker than gov t could have done at the time Solid quality, representing major private investment stimulating the economy Floor space per person rose from 5 m 2 20 m 2 on average Process has been relatively equitable especially as compared to other countries experiencing rapid urban influx They are densifying (80-120 persons/hectare), representing efficient land use for suburban areas Emerging formal real estate sector is recycling informal plots, because of difficulty obtaining vacant land legally Transforming informal site to multistory apartment through private negotiation, without government intervention Courtesy of Alain Bertaud 9
Constraints limiting the formal real estate sector Supply Side Limited supply of secured land Administrative barriers Legal complexity and uncertainty Restitution claims Lack of subdivision regulations Absence of Planning: Deals negotiated individually with officials Existing planning law highly normative and overly standardized Most municipalities rely on communist era master plans Existing planning administration highly centralized (anything > 15 acre) and intervention in urban development is currently limited to extreme mechanism (demolition by construction police) Lack of primary infrastructure (developer has to provide it) Lack of long-term construction financing Demand Side Lack of stable and decent income to afford formal sector housing amongst majority of the population Mortgage financing is still limited and expensive 100% Newly constructed housing options in the urban Coastal zone compared to yearly household consumption 90% 45 m2 apartment in a newly developed formal 5 story high apartment block 80% 70% 75 m2 house on a 250 m2 plot in an informal settlement Only top 15% can afford formal apartment. Cumulative % of Households 60% 50% 40% 30% 20% 60 m2 house on a 200 m2 plot in an informal settlement 45 m2 house on a 150 m2 plot in an informal settlement About 35% of population can afford only small informal dwelling. 10% 0% - 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 1,000,000 Yearly consumption in Lek/Year/Household Courtesy of Alain Bertaud 10
Fiscal Challenges Facing Local Governments Structure of local revenues across ECA countries as % of GDP Slovenia 2002 Albania 2004 Lithuania 2002 Estonia 2001 Latvia 2002 Czech Republic 2002 Hungary 2002 Poland 2002 0% 2% 4% 6% 8% 10% 12% 14% 16% Taxes on Property Taxes on Income Other Taxes Grants Other Revenues Towards a Holistic Approach to Tackle Land and Shelter Challenges Informal provision was main solution in the past, but this is not adequate or desirable for the future Need to resolve problem of informal settlements in a broader framework retain dynamic market response to demand, while protecting the public interest in public land uses: devise and implement urban planning and regulation that can be as agile as the market requires, and is enforceable and affordable make municipalities more effective managers of cities, with sustainable financing more responsive provision of infrastructure services, possibly through property taxation ensure security of land/housing 11
Second Generation of Urban Operations Project Objective: development of an efficient land and property markets through enhancing tenure security and improving land administration and management Component A ($20m): Security of Tenure and Registration of Immovable Property Rights Component B ($5m): Urban Land Management Urban Planning: Legal and regulatory framework: new Spatial Planning Law Regulatory Plans for the biggest 8 municipalities Property Valuation and Taxation (pilot + legal and regulatory framework) Component C ($31m): Municipal Investment Competitively awarded to municipalities that fulfill A+B THANK YOU! Yan Zhang (yanzhang@worldbank.org) Urban Economist Europe and Central Asia Region 12