Land value capture is used systematically in Germany (Table 2.21). Large cities with high land values often recover an important share of the public infrastructure investment cost private development requires. In smaller cities with lower land values the revenues raised may not be worth the instruments’ administrative cost. Small local governments may also lack administrative capacity.

Germany is a federal state with four levels of government: the national level, 16 federal states, 401 administrative districts and 10,792 municipalities (OECD, 2022[3]). Three federal states – Berlin, Hamburg and Bremen – cover only the territory of individual large cities and combine the functions of states and the municipal level. While smaller municipalities usually belong to an administrative district, larger ones with roughly 100,000 inhabitants or more are independent of districts and combine the functions of municipal and district administration.

The national and state governments have overlapping legislative authority in spatial planning matters. States largely follow national legislation but frequently pass laws that deviate in parts. This leads to a broadly comparable system across states with variations in the details. Decision-making mechanisms contain a mix of top-down and bottom-up elements. States generally develop spatial development plans for their territory that, depending on the state, impose more or less restrictive guidelines on lower levels of government. Often, states also create more detailed regional plans for so-called planning regions, each of which covers typically between 10% and 30% of a state. Regional plans are binding for local land-use plans.

States are also responsible for property valuation through public valuation boards (Gutachterausschüsse). Property valuation follows a national decree, the Immobilienwertermittlungsverordnung. Property value is appraised using market-based approaches, based on data of recently sold properties in the area with similar characteristics; the income property generates or the cost to build an equivalent building.

In most states, administrative districts have limited powers related to spatial planning, with the exception of Niedersachsen, where they are responsible for the preparation of regional plans. Municipalities have considerable powers for land-use decisions. In all states, they are responsible for the preparation of local land-use plans and other urban planning instruments (OECD, 2017[2]). Local officials have high discretion when issuing building permits.

According to Article 14 of the Constitution, private property entails obligations, and its use should also serve the public good. The national government level creates the legal framework for land value capture.

Developers are subject to obligations to obtain approval for new development. The obligations consist of cash or in-kind payments or a combination of both. They are designed to compensate the cost of stronger public infrastructure and services use resulting from private development. The Building Code regulates the obligations and local governments implement them as well as receive the revenues. Local governments frequently use the obligations. The obligations are charged through städtebauliche Verträge (‘urban development contracts’) and Erschließungsbeiträge (‘development contributions’). Städtebauliche Verträge cover a wide range of public costs private development generates, while Erschließungsbeiträge have a narrower scope and only cover public roads and utilities’ costs in the immediate vicinity of private development.

Städtebauliche Verträge have been in the Building Code since 1993. The charge developers have to pay is either calculated using a fixed formula or negotiated between local governments and developers. When formula-based, it takes into account the estimated total public costs private development generate as well as developments’ size, type and market value, including the value of land. When negotiated, the negotiation procedure is similar for each development approval. The charge must not exceed the total public costs private development generates. Local governments cannot make a profit.

Developers must pay in cash or provide public infrastructure and services, such as roads, utilities, schools and parks. Most major cities also use inclusionary zoning. They require developers to provide a share of housing units in new developments as affordable rental units. Moreover, developments must meet energy efficiency requirements that are more far-reaching than standard building code requirements. No developer is exempt from payment or infrastructure provision.

Usually, such charges cover a significant share of the public costs private development generates. Developers must pay or provide the public infrastructure before their developments’ completion.

Regarding affordable housing, some cities, for example Frankfurt, require up to 30% of housing units as affordable rental units in new developments. Developers must build the affordable units within their project sites. Affordable units are comparable to market-rate units in terms of size, design standards and amenities. They remain ‘affordable’ between 20 and 30 years. The following are eligible to rent affordable housing: households with an income below a certain percentage of the area’s median income level; households eligible for social welfare programmes; or households with one or more disabled individuals.

Large cities with high land values, like Munich, Frankfurt, Stuttgart and Freiburg, use städtebauliche Verträge successfully. In smaller cities with lower land values, the revenues raised may not suffice or städtebauliche Verträge’s administrative costs may be too high.

In addition to städtebauliche Verträge, local governments can charge Erschließungsbeiträge up to 90% of the following public costs private development generates, if städtebauliche Verträge do not already cover them:

  • The costs to connect new properties to the electricity, gas, water, sewage, telephone and television networks;

  • The costs for road construction, sidewalks, lighting, green spaces and noise protection systems.

Municipal statutes determine the Erschließungsbeiträge amount. It depends on a development’s size, intensity of land use (the number of floors), type (residential, commercial or industrial) and location. If new development occurs far from existing public infrastructure, the costs for road construction and connection to public utilities networks are higher. In individual cases, local governments can fully or partly exempt developers from payment or allow them to pay in instalments if it is in the public interest or to avoid unreasonable hardship on developers.

Landowners pay a levy for public infrastructure renewal initiated by the government and from which they specifically benefit. There are two types of infrastructure levies: städtebauliche Sanierungsmaßnahmen (‘urban renewal measures’) and Straßenausbaubeiträge (‘road renewal contributions’). Städtebauliche Sanierungsmaßnahmen apply to a wide range of public renewal works, while Straßenausbaubeiträge have a narrower scope and only cover public roads’ renewal costs in the immediate vicinity of landowners’ plots. Some states also have community- or business-improvement-districts laws, where private landowners can initiate public renewal works for which the levies are used.

Städtebauliche Sanierungsmaßnahmen apply in designated renewal areas. For example, landowners pay a levy for:

  • Renewed infrastructure to reduce the pollution and noise from buildings, businesses and traffic facilities;

  • The construction or expansion of renewable energy systems;

  • Green and open spaces for climate protection and adaptation;

  • The equipment of areas with playgrounds and sports fields.

Städtebauliche Sanierungsmaßnahmen date back to a 1971 law, and were integrated in the Building Code in 1987. Local governments implement them and receive the revenues by recovering the land value increase. The levy is widely used and accepted. Landowners, tenants, leaseholders and other affected parties have the right to participate in consultations. However, städtebauliche Sanierungsmaßnahmen often only cover a share of public renewal works’ cost.

Landowners in renewal areas must pay the estimated full value increase of their plots resulting from public works, independently of the works’ cost. When the land value increase is low, particularly in rural areas, the levy may be lower than renewal works’ cost or landowners may be exempt from payment. If prices used for the levy’s estimation change, the levy’s amount cannot be revised. Usually, landowners pay upon completion of renewal works. However, they can also pay in advance and benefit from a discount if they do so. If infrastructure renewal is not provided as originally planned or within the due date, the money is not returned to landowners. If landowners cannot afford the levy, local governments can grant them a loan.

While Erschließungsbeiträge (see developer obligations section above) are levied on developers for the initial construction of public roads private development requires, Straßenausbaubeiträge cover public roads’ renewal costs, which follow initial construction. The legal basis is in states’ municipal tax laws (Kommunalabgabengesetze). States and local governments are in charge of implementation. However, landowners and some political representatives are increasingly questioning Straßenausbaubeiträge due to their financial burden on landowners. Some states have stopped using them; some states are trying to abolish them; and some states leave their use up to local governments.

When used, landowners and leaseholders benefiting from public road renewal works pay in three cases:

  1. 1. Most commonly, the improvement of road infrastructure components, such as new cross-sections, wider sidewalks, improved drainage systems, etc.

  2. 2. The fundamental renewal of road infrastructure components. For instance, when a road needs to be completely renewed at the end of its useful life. Benefiting landowners and leaseholders only have to pay if a reasonable time period has passed since the road’s first construction or last thorough renewal (usually more than 25 years) and if the road’s worn condition is not the consequence of a lack of maintenance.

  3. 3. The construction of new road infrastructure that is added to existing road infrastructure and was not covered through Erschließungsbeiträge (see developer obligations section above). For example, when a parking lane is added to an existing road.

Municipal statutes regulate the identification of benefiting landowners and leaseholders, as well as the distribution of costs among them. Landowners and leaseholders pay the levy according to a fixed formula, based on their plots’ size, use intensity (the number of floors) and type (residential, commercial or industrial).

Between 25% and 75% of roads’ renewal costs are passed on to benefiting landowners and leaseholders, depending on the road type. For instance, residents are largely deemed to benefit from residential roads so they cover a large share of the costs. Main roads also benefit the city in general so nearby landowners and leaseholders cover a smaller share.

Land readjustment (Umlegung) is used for urban development or renewal and the conversion of rural to urban land.*1 The national legal basis dates back to 1960 and is now included in the Building Code. Administrative districts and local governments implement land readjustment. They frequently use it.

Public entities initiate a readjustment project after consultation with landowners. However, no specific share of consenting landowners is required. Landowners are compelled to participate. The main obstacle for land readjustment is landowners’ resistance but expropriation is rarely necessary.

Typically, in greenfield development, landowners must provide up to 25% of their plots for public infrastructure and services, such as roads and parks. In brownfield development, this share is usually higher. There is no limit to the share of plots the government can demand.

After readjustment, landowners receive a plot with a value proportional to their original holdings. If all plots have a similar value per square metre, they may be reallocated based on area rather than value. Landowners usually receive a plot located on or as close as possible to their original land. However, they may receive newly created plots within the readjustment area. They cannot exchange reallocated plots for cash. Owners of readjusted plots that are less valuable than original plots receive the difference in cash. However, owners of readjusted plots that are more valuable are not required to pay any compensation.

Strategic land management is used for public land development, land consolidation and to control urban growth as well as land price inflation. Local governments implement it and receive the revenues. There are three important models for public land development: public interim acquisition, land banking and städtebauliche Entwicklungsmaßnahmen (‘urban development measures’).

Local governments buy land at market price. Usually, local governments buy agricultural land whose prices are low. There is no limit to the duration of public land retention. Local governments draw up a development plan, rezone and develop the land, either themselves or through private developers. Development can include basic physical preparation and servicing, public utilities, roads, transport, parks, etc. Local governments sell the improved land mainly through public tenders that often involve criteria beyond the sales price, for example to favour families with children or affordable housing. Local governments decide on the land’s use even if private developers are in charge of development.

The rezoning of agricultural to developable land and public infrastructure provision significantly increase the land’s value. Therefore, local governments recover investments in land purchase and development through the sale of higher-value plots.

Unlike public interim acquisition, land banking allows to buy land for future sale or development without earmarking it for a specific purpose. For instance, land banking allows to have land available in the future for green space and parks for climate change adaptation. More and more cities buy and consolidate plots for land banking. The city of Ulm, which has been doing land banking for more than 100 years, now owns more than one third of its land. Else, the city of Münster uses public interim acquisition successfully.

Since local governments control the entire land purchase and development process, the latter is usually short in duration. However, local governments bear the price risk. They must also have enough resources for land purchases as they often face restrictions to take on additional debt. Moreover, since local governments cannot force owners to sell their land, public interim acquisition and land banking depend on owners’ willingness to cooperate. Land purchase is easier when an area belongs to one or few landowners. Nevertheless, local governments may have a strong negotiating position even with many landowners. In principle, local governments can decide not to rezone an area if landowners are unwilling to cooperate and can rezone different areas if suitable alternatives are available. Anyway, landowners have an interest to participate because the purchase price is usually higher than the price of agricultural land alone.

Other obstacles, especially for smaller cities, are their lack of administrative capacity and the low revenues from public interim acquisition and land banking schemes due to low land values, which may not be worth the planning and development costs.

Some cities, for example Munich and Frankfurt, use the instrument ‘städtebauliche Entwicklungsmaßnahmen’ (‘urban development measures’) to obtain land at a favourable price for land development. It allows buying or expropriating land at the price before the announcement of a public investment or rezoning. Once the land is rezoned and developed, local governments or a publicly-owned company sell it at the price of the improved land. Alternatively, owners can decide to keep their land and pay the difference between land values before and after the urban development measure. This allows recovering the increase in land values public investment or zoning changes generate.

This instrument is used for large development projects. However, landowners consider it a deep intervention in property rights so it is used occasionally only.

Occasionally, the national and local governments lease their land for residential development, mainly single-family houses and recently, affordable housing within multi-family houses. The national Leasehold Law (Erbbaurechtsgesetz) regulates public land lease since 1919. However, the government does not own a lot of land available to lease. Moreover, many local governments are under pressure to sell their land to pay back their debt. They also lack administrative capacity to properly estimate the lease rents and manage the complex contracts. Local governments often do not consider the local market conditions and set overpriced rents.


[3] OECD (2022), “Subnational government structure and finance”, OECD Regional Statistics (database), (accessed on 13 January 2022).

[8] OECD (2021), “Subnational government structure and finance”, OECD Regional Statistics (database), (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,

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


← 1. Land readjustment is also used for farmland consolidation (Flurbereinigung). A special law (Flurbereinigungsgesetz) regulates land readjustment on farmland. However, it is beyond the scope of the Compendium and the rest of this section focuses on land readjustment in urban areas.

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