Pirate subdivisions and the market for residential lots in Bogota

Pirate Subdivisions and the Market for Residential Lots in Bogota FILE COPY SWP435 World Bank Staff Working Paper No. 435 October 1980 Prepared by: Alan Carrol Urbai Deve OF Co The World Bank 1818 H Street, N.Vh. rgton, D.C. 20433, U.S.A. ws and interpretatiors in this doaunent are those of the author oid not be attributed to the Ubrld Bank, to its affiated ations, or to any indvka acting in their behalf.   The views and interpretations in this document are those of the author and should not be attributed to the World Bank, to its affiliated organizations, or to any individual acting in their behalf. WORLD BANK Working Paper No. 435 October 1980 PIRATE SUBDIVISIONS AND THE MARKET FOR RESIDENTIAL LOTS IN BOGOTA Residential lots developed illegally by entrepreneurs and sold with rudimentary or no public services account for between one third and one half of the residential land developed to date in Bogota, Colombia. As one alternative to these so-called "pirate" subdivisions, legally approved "minimum norm" developments with minimum levels of public services have been instituted in Bogota in the past few years. Analysis of data from 135 pirate and 14 minimum norm developments shows that developers of minimum norm lots spend about twice as much on infrastructure per lot as do pirate developers, and sell their lots for about eighty percent more per square meter. The total cost of minimum norm lots are only a third greater than pirate lots because they are only three-fourths as large as pirate lots. Median rates of return for pirate developments, calculated to be 33 percent per annum in nominal terms, indicate that the development of pirate lots is competitive. Median rates of return for minimum norm developments, calculated to be 78 percent per annum in nominal terms, suggest the presence of significant restrictions on the supply of land zoned for minimum norm development. Increasing the land available for minimum norm development would likely reduce its profitability to a competitive level and lower the price of minimum norm lots, but it would be unlikely to eliminate pirate development completely. The higher prices of minimum norm lots relative to pirate lots are mainly attributable to the greater quantity of infrastructure provided with minimum norm lots. Prepared by: Alan Carroll Urban and Regional Economics Division C