Global Compendium of Land Value Capture Policies

Costa Rica

Land value capture in Costa Rica

Several land value capture instruments are used in Costa Rica, with developer obligations being the most common one (Table 2.11). Local governments rarely apply the infrastructure levy, due to the lack of specific regulations. The national legal framework foresees the instruments of charges for development rights and land readjustment, but they have never been implemented. Land management is used little for strategic purposes, and public land leasing takes place in maritime or riverside zones, as well as rural areas.

Table 2.11. Costa Rica: Main instruments

Instrument (OECD-Lincoln taxonomy)	Local name	National legal provision	Implementation	Use
Developer obligations	Cesiones obligatorias	Articles 32, 28 and 60 of Urban Planning Law (1968) and Regulation of Fractionation and Urbanizations (2019)	National and local governments	Frequent
Infrastructure levy	Contribución especial	Article 1 of Law 74 (1916), Article 86 of Law 7794 (1998) (Municipal code) and Article 4 of Law 4755 (1999) (Tax code).	National and Local governments	Rare
Strategic land management	Expropiación	Expropiation Law (1995)	National and local governments and special purpose bodies	Moderate
Charges for development rights	Concesión de Mayor Edificabilidad por Inversión en Espacio Público	Article 17 of Urban Renewal Regulation (2017)	Local governments	Never
Land readjustment	Reajuste de Terrenos	Articles 51, 52 and 53 of Urban Planning Law (1968) and Article 18 of Urban Renewal Regulation (2017)	National and local governments, private developers and landowners	Never

Enabling framework

Costa Rica is a unitary presidential democracy with one autonomous level of subnational government, the municipalities (cantones). Provinces exist at regional level, but only for administrative purposes. The 82 municipalities are responsible for managing local interests and services in each canton (OECD/UCLG, 2019, p. 461[1]). There are 484 administrative districts to contribute to the work of municipal councils at the local level (OECD/UCLG, 2019, p. 461[1]).

The national and local governments create the legal framework for land value capture.

Developer obligations

Developers that request approval for a development that is new, at higher density, or adjacent to major highways must compensate for the impacts of the project upon adjacent infrastructure. Compensation is provided in the form of land, public space, public utilities, roads, and parking, upon project completion. The national and local governments frequently apply developer obligations.

The obligation is either calculated using an established rule or negotiated between the jurisdiction and the developer. If calculated, the rule takes into account the size, type, and area of development. If negotiated, the procedure is structured. Local governments have some discretion to negotiate, especially in the case of large projects adjacent to highways or major roads. Subdivisions of urbanized parcels of less than 900m² or lots smaller than 90m² are exempt from the obligation to cede areas for parks and communal facilities.

By imposing developer obligations, the government can recover around 70% of the public costs created by developments. When it concerns the creation of public spaces and roads, cost recovery amounts to 100%. When developers build public utilities, such as water and sewerage, the necessary adaptations to connect to the public network are sometimes lacking, which compromises their functioning.

The main obstacle to implementation is the lack of administrative capacities.

Infrastructure levy

Landowners can be required to pay a levy for government-built infrastructure from which they specifically benefit, for example for public roads, public space and neighbourhood facilities. Local governments rarely implement the levy, with 6 of them having approved specific regulations thus far.

Local governments estimate the levy according to the costs of the public improvement, up to the total. In the few cases where there is a local regulation, up to 50% of the costs of the public improvements have been recovered through the fees paid by benefited property owners. One example is the rehabilitation of Avenue 78 in the capital city of San José in 2019.

Before charging the levy, a consultation process with landowners must be in place. The levy is collected upon completion of the public improvement. If the improvement is executed in stages, the accrual will occur in sections too – landowners pay the levy in installments. Medical-social or educational assistance institutions and projects of social interest are exempt from payment (Article 70 of Urban Planning Law).

The main obstacles to implementation are lack of political will to enact local regulations, lack of local administrative capacities and the fact that landowners always appeal the requirement to pay the levy.

Strategic land management

National and local governments, as well as special purpose bodies, carry out land management for the purpose of facilitating development with a public purpose. The national and local governments collect the revenues from leases, which are earmarked for specific purposes.

The government acquires scattered land, both greenfield and brownfield, via purchases at market price or expropriations. The government does not rezone or redevelop the acquired land. The government can retain the acquired lands for about 10 years or transfer them to another public entity.

The government leases public land for development of tourism activities in the seacoast and of productive projects in rural areas. The ground rent is 0.15% of the land value and paid in installments during the term. Leases are adjusted every 5-10 years. Public or non-profit entities may be exempt from paying the rent.

Lease length varies with the purpose for which land is leased, between 5 and 20 years in the coastal maritime zone and between 25 and 50 years in the riverside alongside the border with Nicaragua. Leaseholders cannot transfer the lease in the secondary market nor sublease it to third parties.

The lack of legal framework, the low administrative capacities and the lack of coordination between public entities hold back implementation. Furthermore, there is no official consolidated registry of public land at the national or local level.

Charges for development rights

Local governments can grant the right to build at higher density to developers that promote practices of social interest or that improve the urban fabric. Although the instrument is foreseen in national law and local authorities have high discretion in issuing planning permits, local governments rarely implement it.

The following practices qualify developers to receive the permission to build at higher density: donation of land for public use; restoration of heritage properties of municipal or national interest; transfer of area for public space above the legal minimum; integration of riverbeds and streams to the project; provision of pedestrian, vehicular, and bicycle paths; mixed-use projects; construction of public equipment for education or health; implementation of energy-saving, clean energy and water reuse systems. Greater buildability functions as an incentive to adopt any of these practices.

The incentive is obtained upon receiving the planning permit. Municipalities must calculate the incentive in proportion to the benefits obtained, in order to guarantee equitable distribution of charges and benefits. There is great discretion in the decision of each municipality.

Significant obstacles to the implementation of the charge are the low demand for building at higher density, inadequate legal framework and lack of public administrative capacities.

Land readjustment

Land readjustment is mentioned in the Urban Planning Law (1968), but the regulation that enables it to be implemented was only created in 2017 (Urban Renewal Regulation). Since the national urban renewal regulation was enacted, 8 municipalities have introduced the instrument – Montes de Oca, La Unión, Goicoechea, Cartago, Paraíso, Alvarado, Osa and Golfito. So far, none of them have initiated or approved a land readjustment project. For that to happen, municipalities must create a benefit-sharing agreement for each urban renewal project, in a case-by-case scenario.

The national and local governments can initiate land readjustment projects, as well as landowners and private developers. A consensus between the parties is required, although no specific level is mentioned in the regulation. The participation of resisting landowners is enforced via expropriation. After readjustment, landowners receive a developed plot, albeit smaller than the original one, or compensation in cash.

The main challenges to implementation are the recent approval of the national regulation, the lack of political will of local governments, and the lack of administrative capacities.

References

[3] OECD (2022), “Subnational government structure and finance”, OECD Regional Statistics (database), https://doi.org/10.1787/05fb4b56-en (accessed on 13 January 2022).

[8] OECD (2021), “Subnational government structure and finance”, OECD Regional Statistics (database), https://doi.org/10.1787/05fb4b56-en (accessed on 25 November 2021).

[2] OECD (2017), Land-use Planning Systems in the OECD: Country Fact Sheets, OECD Regional Development Studies, OECD Publishing, Paris, https://doi.org/10.1787/9789264268579-en.

[1] OECD/UCLG (2019), 2019 Report of the World Observatory on Subnational Government Finance and Investment - Country Profiles, OECD/UCLG.