Latvia

Several land value capture instruments are used in Latvia, but only occasionally (Table 2.33). Some instruments are used to recover revenues relative to developments’ impacts on infrastructure, as well as for urban renewal, redevelopment, and expansion. The main obstacles that limit the broader use of land value capture include a lack of administrative capacity, coordination and resources, as well as landowner resistance or inability to pay, controversy related to expropriation. Moreover revenues raised are low.

Latvia is a unitary state with one subnational level of government consisting of 42 local governments (OECD, 2022[3]). Latvia’s national government provides the legislative framework that enables land value capture instruments, while municipalities apply them in their local planning. However, there is no legal definition of land value capture in Latvia. Public officials have a high level of discretion when deciding the granting of planning permits.

The principle of a social function of property is included in Latvia’s constitution.

Strategic land management is used in Latvia for urban renewal, redevelopment and land consolidation, with national law providing the legal basis. The government can buy and expropriate land for public purposes. Land acquired for strategic land management consists of both green and brownfield sites. Both national and local government conduct strategic land management in Latvia and can receive related revenues. However, it does not typically generate revenue.

Land is typically acquired through expropriation to provide public infrastructure and access. National and local government cannot freeze land prices before announcing public investment or rezoning to buy the land at that price. Strategic land management may therefore only result in land value capture if the government expropriates the land before public investment or rezoning plans become public knowledge. However, the government or an authorized public entity can rezone land after its acquisition for strategic management and develop it before it is sold. There is no time limit for retaining land.

Land can be developed for basic physical preparation and servicing, public space, public transport, roads and parking, public utilities, administrative buildings and services, and construction of affordable and social housing. Land acquired for strategic land management is typically either leased or disposed of through public tender involving criteria beyond the sales price. Public-private partnerships (PPPs) between governments and private developers to develop land via strategic land management are rare.

The also government holds a significant amount of public land to lease. Public land is typically leased to generate public revenues, provide land for real estate development, and facilitate development with a public purpose (e.g. affordable or social housing). Developers can develop land under long-term lease.

Obstacles that hinder the practice include a lack of administrative capacity of public entities, a lack of coordination between the relevant public entities, and a lack of financing for the acquisition of land.

Land readjustment is enabled by legislation and occasionally used for urban expansion, development or renewal, but not for land value capture. Rather, it is integrated into spatial development plans in order to help provide public infrastructure, including to resolve problems relating to subdivision, amalgamation or the reallocation of land plots. Neither spatial development plans nor land readjustment projects within them are used for the expropriation of property.

When developing a plot, municipal practice typically includes the creation of a street, provision of electricity, distribution of land plots, the conducting of transactions with developers and determining the ownership structure of the land, obtaining building permits, and construction. In certain municipalities, it is necessary to install all the necessary utilities and establish a new ownership structure or building permit before land transactions take place. Developers usually cover these costs, and often initiate plans.

Developing and initiating a detailed plan does not guarantee its approval, however. The boundaries of land units and utility corridors specified in a detailed plan may shift ownership via reallocation, or be developed into public infrastructure such as a street.

Land readjustment conducted within larger development plans typically involves local governments, special purpose bodies, private entities, and households, and are approved by local government. Development plans are binding for landowners in the designated area, but they are involved in the consultation process, including agreements forged between landowners or developers and municipalities on implementation including each actor’s duties, conditions and responsibilities, deadlines, and financing.

A share of readjusted plots is typically reserved for public infrastructure and service improvements such as public space, roads and parking, and public improvements or services for the neighborhood, utilities or administrative buildings and services. The share is limited to 20 percent. Collectively or publicly owned plots created through land readjustment can be sold or leased.

Obstacles to land readjustment include resistance by landowners, lack of administrative capacity of public entities, cost or controversy related to expropriation, and that revenues raised do not justify the cost of pooling and readjusting plots.

Developer obligations only typically occur in Riga on a case-by-case basis. Though national law does not provide a legal basis for developer obligations, developers in Riga are frequently charged cash or in-kind contributions to compensate for the impact of their developments on adjacent infrastructure when seeking approval or support for new land development. Charges are calculated using an established rule, based on the cost incurred by the jurisdiction due to the developer’s impact on infrastructure, the size and type of development, or the value of land on which it is built. Development charges are borne by the developer in accordance with local plans.

Developers can be exempt from such charges if the construction plan is for their own residence. Charges may be paid at any point in the development approval process. Payments take the form of cash or the provision of public infrastructure or services, which can include road, parking, or public utilities.

Local governments issue development approvals and receive the revenues from the charges. Developers rarely appeal against charges. The main obstacle to developer obligations is a lack of national framework, or local framework in the case of Riga, which leads to ad hoc developer charges.

In 2013, the Riga City Council adopted binding regulations concerning fees for the maintenance and development of infrastructure in Riga. Municipal institutions, spatial planners, real estate owners and developers, and developer-providers of most utility services are responsible for developer obligations.

There is no legal basis for infrastructure levies provided by national law. However, property owners can be charged a fee to cover the development cost of public infrastructure if they benefit. The government frequently levies such fees.

Public entities typically execute projects to improve public infrastructure or services, and can levy a fee on property owners who benefit when the improvement increases the value of the benefited property owners’ land, or when it benefits a specific number of property owners above a minimum threshold (ad hoc).

Fees are always equal to the cost of the improvement. Otherwise, fees amount to a specific percentage of the cost depending on the project and other funds available. Property owners paying the fee are typically involved in the consultations process before the contract is ratified. If the public improvement or service is not provided within a specific period, the money paid is typically returned, depending on stipulations in the contract.

Local governments are typically responsible for levying such fees, including public or private utility companies, and receive the revenues generated. When utilities are provided by municipal companies, local governments have a high level of discretion in levying fees, setting the payment procedure, and using the collected funds. Property owners sometimes appeal against fee requirements.

Obstacles that hinder infrastructure levies include resistance by property owners and property owners’ inability to pay.

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.

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