Limits of Negotiable Developer Obligations

Abstract

Many local authorities apply public value capture on new developments to cover the costs of additional public services. The development obligations (DO) they apply can be either negotiable (NDO) or non-negotiable (NNDO). This article examines the limits of NDOs by comparing three national case studies according to the basic principles of proportionality, causality, connection, and lack of transparency for developers. Well-developed building land models and a delineation of applicable cost types offer more transparency for the developer and enable the municipal authorities to establish a fairer distribution of burdens based on actual benefit.

Using Sustainability-Oriented Developer Obligations and Public Land Development to Create Public Value

“…Furthermore, Turk [17] found that NDOs in Turkey have a higher public value capture capacity than N-NDOs. However, he also found that they are coupled with lower levels of transparency and accountability resulting in increased uncertainty and risk for developers, which has been observed in other national contexts as well [7,18].…”

“…The use of indirect instruments in some empirical contexts might be difficult to connect directly to capturing unearned private land value gains, and may instead be capturing value increments caused by the landowners. For this reason, some have suggested that public value capture should more broadly refer to any instrument that captures any increase in land and building value, and not solely unearned land value increments [6,7], a perspective adopted here as well. As a result of being more pragmatic, flexible and adaptable in practice, indirect instruments are more common than direct instruments.…”

“…This raises the question of legitimate and good practice. In light of the numerous political and legal issues and concerns over misuse, bias and unequal treatment typically voiced in discussions about NDOs (e.g., [17,18,37]), Hendricks et al [7] argue that it is important to have clear and reasonable criteria for the limits of their use. In the case of public land development, Walters [1] (p. 8) argues that developer obligations can be seen as a way of converting public "land assets to infrastructure assets" meaning they are used more as cost recovery mechanisms and less for capturing unearned private land value gains.…”

“…Capturing increases in land and building value, in the form of public revenue, is a current and pressing issue with European municipalities' decreasing economic and financial means to provide public urban infrastructure and public services [7]. However, value entails more than revenue.…”

“…According to Munoz Gielen and van der Krabben [6], public urban infrastructure includes climate adaptation and mitigation, affordable and social housing, as well as roads, public spaces and public facilities. Another public value capture instrument used to finance such public urban infrastructure is negotiable developer obligations (NDOs) [7], which is receiving more attention as relying on private financing is becoming more common [6]. In Sweden, municipalities sometimes combine the use of these public value capture instruments to drive sustainable development, a practice investigated in this paper.…”