Austria

Austria uses several land value capture instruments (Table 2.3). However, most instruments recover relatively little value or a small part of public infrastructure costs. Three main obstacles limit the use of more land value capture. First, it is not always a political priority. Local governments do not try to fully cover public infrastructure costs because at the intermediate government level states generously subsidise local infrastructure investment. Second, the planning system favours private landowners over the public sector. When a planning decision increases land values, private landowners or developers get the full benefit or have to pay low contributions even if the planning decision is costly. Moreover, when planning authorities take a decision that reduces land values, they may have to compensate landowners. Third, some instruments lack a specific legal basis. Those instruments fit within the constitutional boundaries and could work well, but would require comprehensive legislation.

Austria is a federal republic with three levels of government: the national level, nine federal states including Vienna, the capital city, and 2,093 municipalities (OECD, 2022[3]). The national government does not have formal planning responsibilities, but it plans and finances major infrastructure projects such as national roads and railways. The states hold most powers related to planning and pass their own legislation to organise spatial and land-use planning. Even so, most states have structured their planning systems in comparable ways. However, the intensity with which state governments try to influence local land-use policies, differs. Municipalities are responsible for local planning and the mayor issues building permits (OECD, 2017, p. 55[2]). The mayor has high discretion when issuing building permits.

The legal system considers that property has a social function, which implies obligations on owners, though such a provision does not exist in legislation. As a result, the government may limit the use of private property rights in the public interest. The national and state government levels create the legal framework for land value capture.

Landowners pay a levy for local roads, water and sewer infrastructure built by the government and from which they specifically benefit. The levy has existed in all states for more than 50 years. Each state has its own laws and ordinances. Local governments are in charge of implementation and receive the revenues. Local governments always use the levy to cover at least part of public works’ cost.

Landowners whose plots benefit from direct access public roads or utilities are charged. The levy amounts to a fixed rate per landowner or to a rate based on property size. It is independent of public works’ cost or the estimated increase in land values public works generate. Therefore, it covers public works’ cost well in densely populated areas only, where infrastructure provision costs are lower. Local governments recover about 60-80% of roads and utilities’ cost in urban areas but this drops to below 40% in rural areas. The levy must not exceed public works’ cost. Another obstacle is its limited scope as it applies to roads and utilities only. Local governments must provide other infrastructure, such as public transport or schools, fully with public funds. The levy raises approximately EUR 2 billion yearly.

The levy is a one-time charge usually upon completion of public works or once landowners request a building permit in newly serviced areas. Some states allow local governments to regulate the levy through ordinances, for instance to charge it as soon as land is rezoned for development. This helps local governments that lack upfront resources to finance infrastructure investment. Landowners can pay through a lump sum or instalments. No landowner is exempt.

Land readjustment is used for urban development or renewal. States’ planning laws regulate land readjustment. States, local governments and private landowners are in charge of implementation. Land readjustment use varies widely across states. Western states like Tyrol and Vorarlberg frequently use it as they lack suitable publicly-owned land for development and historically have a small plots structure not suitable for large urban projects. Other states do not apply readjustment schemes at all. The issue is that the increase in land values from readjustment projects mostly goes to private landowners. Thus, for example in Vienna, developers have used the instrument as a way to increase their land’s value without providing any public benefits, while generating high public costs due to readjustment projects’ lengthy procedures. For this reason, Vienna has used land readjustment only a few times and has largely abandoned the instrument, though it remains legally in force.

Local governments can initiate a readjustment project at their own initiative, in which case landowners are compelled to participate. Private landowners can initiate a readjustment project if they represent at least half of the landowners and own at least half of the readjustment area. Once these requirements are met, landowners who do not consent are compelled to participate. Landowners participate in consultations in both publicly and privately initiated projects.

Typically, landowners must provide around 10% of readjustment areas for public infrastructure and services, such as roads, utilities and parks.

After readjustment, landowners receive a plot of a value and size proportional to their original holdings and located on or as close as possible to their original land. Depending on the project, they can exchange reallocated plots for cash. Owners of readjusted plots that are less valuable than original plots do not receive any compensation. Yet, this rarely happens as all landowners typically experience a land value increase. Owners of readjusted plots that are more valuable are not required to pay any compensation.

The national government, being the legal successor of the Austro-Hungarian Empire, owns a lot of land, which it manages through government-owned companies. States, except Vienna, do not own much land but some of them have created land funds to support local governments with land purchases. Local governments are the most active public actor in the land market. They buy land for commercial development, affordable housing, public facilities, urban renewal, land consolidation and to control urban growth.

Local governments buy plots at market price or at a reduced price in return for granting landowners a stake in development projects. Usually, they buy unused land or old buildings in city centres. Occasionally, they buy brownfield sites. There is no limit to the length of land retention. Local governments typically rezone the land for residential or commercial development. They then sell it at market price to the highest bidder or at a lower price for example to housing associations for affordable housing construction. Selling land at a lower-than-market price requires use in the public interest. States have a land transfer authority that controls land transactions, but local governments are mostly free to buy and sell any land. Local governments also develop the land themselves to provide social infrastructure, services and municipal housing. For example, Vienna owns nearly a third of all the city’s dwellings.

The national government, states and local governments may also lease their land to provide land for real estate development and encourage development with a public purpose. Leaseholds on urban land are rare but are becoming more frequent.

Local governments issue development rights through land-use plans (Flächenwidmungsplan) and detailed development plans (Bebauungsplan). However, there is no legal basis to charge for development rights. They are granted for free. For instance, there is no established instrument requiring developers to compensate the cost of stronger public infrastructure and services use resulting from their developments. The existing infrastructure has to suffice. Otherwise, the government cannot issue a building permit or must provide the public works private development requires with public funds.

Therefore, the government cannot recover the increase in land values zoning changes, higher density building rights or development approvals generate. As local plans give building rights for an unlimited implementation period, developers may also postpone development speculatively. On the other hand, when planning authorities make a decision that reduces land values, they may have to compensate landowners.

Recovering the land value increment from planning decisions for the public good would fit within the constitutional boundaries. The legal discussion started in the 1970s but political attempts to pass such an instrument have been unsuccessful. For instance, in 1990 several states started to introduce civil law planning contracts – a form of developer obligations – into their planning laws. Such contracts were a condition for planning decisions and allowed local governments to negotiate in-kind contributions with developers in exchange for development rights. They were useful to routinely provide some of the public infrastructure or services private development requires. However, the Constitutional Court ruled them unconstitutional in 1999. It argued that planning contracts can be voluntarily accepted by developers but cannot be a condition for planning decisions. Thus, though local governments might ask developers to provide some of the public infrastructure or services their developments require, developers may not accept.

Contracts that pass on some of the public infrastructure costs to developers are frequent. However, due to their voluntary nature, contracts that demand the direct provision of infrastructure are rare. Typically, local governments only manage to obtain such contracts with developers for areas zoned for urban development for the first time, covered by a detailed development plan for the first time or where developers want higher density building rights. The latter happens especially in Vienna where the city administration negotiates planning contracts especially for large tower developments.

The problem is there are no regulations on how local governments should use these contracts and determine the developer contributions. Moreover, local governments do not need to publish the contracts, which leads to non-transparent use. The negotiated content is only reviewed if either party is sued because it fails to meet contractual terms. In Austria, planning contracts along the lines of developer obligations could work well but would need a consistent and transparent legal framework.

Planning contracts’ negotiation is specific to each development approval. However, no local government tries to fully cover the public costs private development generates because states generously subsidise local infrastructure investment.

Developers may have to sell or rent a share of the newly built flats at affordable prices similar to subsidised social housing prices. Usually, affordable units are on the lower floors and face north but are comparable to market-rate units in terms of size, design standards and amenities. Flats remain ‘affordable’ between seven and ten years. All households and individuals with an income below a certain threshold are eligible to buy or rent affordable housing. Yet, planning contracts provide a handful affordable units only, an insignificant amount compared to the thousands of subsidised social housing units built every year.

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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