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Urban Development, increasing land prices and instruments to avoid exclusion in São Paulo, Brazil.


Brazilian cities like São Paulo, Rio de Janeiro, Salvador and others have experienced an intense growth during the second half of the 20th century. After the economic crisis of the 1930s, import substitution resulted in intense industrial development in the city, and  between 1930 and 1960, São Paulo became the largest industrial center in Latin America. In 1965 São Paulo population was estimated in 6,5 million and the urban area was around 700 km2; in  2005 the population had increased to more than 10 million and the urban area around 1.050 km2 (Miranda et al. 2005).

Density did not increase as these numbers show. The increase was absorbed by urban sprawl. But the distribution of the population increase was not uniform. Between 1960 and 1970 the population growth was 2.2 million, but more than 43% of this increase was located in areas considered periphery. In the next decade the growth was 2.6 million and more than 55% of its increase happened in the periphery rings.

In this period of 20 years, migration from the rural area of São Paulo and other states, mainly those from the northeast  was responsible for a considerable part of this increase: in the first decade for 65% of the total, and in the next decade the participation  reduced to 44% ( 1 ).

This process of urban growth was intensified when new agricultural technologies were introduced in the 1960s. The substitution of crops (mainly coffee for soybeans) and the general mechanization of agriculture resulted in a sharp demand reduction for labor force in the agricultural sector and a consequent migration of these redundant rural workers to the cities.

This intense migratory process is confirmed by the number of people living in slums: in 1973 for an estimated population of 6.9 million, 71 thousand lived in slums; in 1980 the population was 8.5 million and the number of people living in slums increased to 375 thousand, and in 1987 from an estimated population of 10.5 million, 812 thousand lived in slums ( 2 ). Aerial photos show this slum formation during these 25/30 years since 1960, especially during the 70s (3).

The new periphery was formed mainly, but not exclusively, from this migrant population. Part of this new periphery rings was formed by poor families evicted from central rings as will be explained later.

During the next two decades (1990 and 2000) the process of migration and population growth reduced considerably but the tendency to slums formation continued and other rings of poverty were formed in the city periphery.

As we showed above this growth in area and population came along with concentration of poverty in peripheral regions. But, this urban sprawl resulted in a) very well located urban rings where the higher income families and the middle class lived, and b) the majority of the population, the low income households being pushed to occupy land in the periphery (outside rings) or live in risky areas (landslides and floods prone) inside the best located rings, frequently in slums, or occupying public vacant land, and/or plots belonging to private owners.

As we pointed out above, these families settled into what was then considered periphery, where land was cheap and/or built shanties in areas where the reaction to invasion was weaker – mainly in public areas at the edge of creeks or in conservation areas, and living there in precarious condition.

The demand for urban land and infrastructure caused by this flow of migrants was considerable. Formerly, housing, water, sewage facilities, roads, and transportation had been provided privately, i.e. inside the exploitation relations between owners of rural land and rural workers living in farms (fazendas). Settled in the city periphery they had none of these services. The pressure on the government to provide them increased sharply from the 70s on.

The political and economic environment

During these decades of intense sprawl two social and economic processes are relevant to urban development analysis: a) Brazil had a military dictatorship which made it very difficult for the low income families to have their demand attended; b) Both the external and public debt increased sharply. The external debt increased from 9.0 billion dollars in 1972 to almost 70 billion dollars in 1982 (4). Inflation soared and government’s investment capacity dwindled to almost nothing. São Paulo was one of the most affected cities by this process.

The end of the military dictatorship in 1985 and the return to democratic institutions and processes (especially free elections) provided new conditions for the poor families to present their demands concerning housing and infrastructure.

In these new conditions – democratic institutions and elections – it was no longer possible simply to demolish slums and take the families out by force even if in some cases these actions happened. The municipal authorities could not simply evict households that were occupying private land. The demands of the poor had to be considered, even if only in the pre-electoral period.

New methods were needed to deal with the so-called “social question”. The government had to find new instruments and new sources of income to solve these problems, because the economic crisis affected deeply the government capacity to finance works of infrastructure and social housing by taxation or other traditional methods of transferring income.

Impact of sprawl on public finance.

 Urban sprawl, and the new demand for land created new centralities in areas formerly located in periphery rings. Transformed in new centralities, prices of land were not affordable any more for low income families that lived in slums, paying rent in modest houses or simply occupying land that did not belong to them. In other words, the land price increment – consequence of this increased demand – created a situation in which  poor families  could not live there anymore, and had to move towards new periphery rings. This process produced many negative consequences. Increasing distances, increased the unitary costs of public services as well. Public transportation, is a good example.  The cost of transportation is higher if a worker lives 15 km away from his job, rather than 10km. The incapacity to finance this increase in costs by subsidy resulted in both higher tariffs and/or bad and insufficient services for people living in these new centralities and in the new peripheral rings.

Besides, living more distant from their jobs, low income  workers spent more time inside buses, trains and other transportation means and had to pay more for them. Their life conditions worsened with urban sprawl.

The process of exclusion intensified during the 80s but several communities of low income families resisted the process of expulsion. Government had now to deal with a social and political problem caused by this resistance: how to finance the new areas infrastructure and eventually how to build houses for the people being evicted from higher income areas. The problem of building social houses had another important dimension:  where to build them.

The solutions to mitigate exclusion

 The debate about the necessity for a new approach, new concepts and new legislation concerning urban development began in Brazil in the 1970’s. An important result of these discussions was the “Embú Letter” the product of a meeting in 1976 in the homonymous city in the State of São Paulo (5).

In this document architects, sociologists, lawyers, urban specialists, and public servants began to frame a group of new concepts and discuss new instruments of intervention for urban development.

One of the most important concepts in this debate was the social function of land ownership. What are the uses of land which fulfill this requirement? Who determines these uses? The answer in Embu Letter was clearly the society represented by the government and not the private landowner.  Implicit in this answer is the separation of property rights from construction rights. In other words, the property right did not include intrinsically the construction right.

In this new approach the property had limitations or restrictions whose determination was an attribute of the public sector and not the owners. A corollary of this concept was the notion of “solo criado” which means additional rights to construct, or  the opportunity to increase the floor area ratio of a plot, or giving the owner/developer a greater latitude in construction, (as changing use for example), than they had before. The opportunity to construct larger buildings in the same plot could be granted if the owner / developer paid for the grant.

Grants for more construction rights that in the past were given for free, now should be onerous. This was another concept introduced in Embu Letter: the concept of “onerous grant”.

In practical terms a plot could get the rights to construct over the existent zoning limits (but up to a maximum), and this benefit in terms of land increment value should be calculated and paid (a fraction or the total) to the public administration. In this sense, the public sector granting the owner/developer more rights to build is the same as “creating” land and charging for it.

The New Constitution and Urban Development

In 1988, a new Constitution was passed in Brazil. Articles 182 and 183 concerning urban development established, among other things, the principle of the social function of land ownership and as we will see later enshrined the separation of the right of property from the right to construct. But, the regulatory acts necessary for these two articles to become operational, were approved only in 2001.

In that year the regulatory law (Law 10.257, Estatuto da Cidade, or City Bill) was approved and only then did the new tool begin to have practical effects in all Brazilian cities.

Nevertheless, many cities and states did not wait 13 years to approve the local regulatory acts necessary to use these two constitutional articles in their jurisdictions. They included these principles in their specific constitutions, approving the complementary legislation necessary to make them valid and operational.

The city of São Paulo was a pioneer in this matter and in 1990 adapted its Municipal Constitution (Lei Organica do Municipio) to the Federal Constitution, regulated Urban Operations, and the municipal Council approved both, what made it possible to begin using these  intervention instruments.

In 1987 in the municipality of São Paulo, i.e. before the approval of the new constitution, an specific legislation was created – the interlinked operations – which used the onerous grant mechanism and was the first concrete example of value increment appropriation by the Public Sector in Brazil ( 6).

The Interlinked Operations 

The main goal of the new legislation was to fix the problem of well located private plots that were occupied by slums, and also in some plots that were located in periphery rings  that were being transformed into new centralities.

A solution in this case meant: taking these families out of the plot so the owner could use its highest and best use. Nevertheless, the owner/developer had to pay economic compensations to finance the construction of social houses in other location for the families that were being removed from his plot.

These economic compensations were paid because the owner/developer was given additional construction rights. Actually the owner/developer was benefited not only for having his land free to build his project but also for these additional rights for which he paid only a part as we will see later.

The name “interlinked” was originated in the fact that this economic compensation had to be used exclusively in constructing social houses for the families living in slums being removed.

In practical terms the deal between government and landowner/developer  was as follows: a private owner whose plot was occupied with slums could propose an increase in FAR up to a maximum of 4 or change uses in his land, and share the increment value produced by this increased FAR with the government in a minimum proportion of 50%. The value paid to the government was destined exclusively to build social houses in other areas of the city for the families that would be removed from the occupied plots.

Later the instrument could be used also in plots that were not occupied with slums if owners/developers needed more floor area ratio to develop their projects. In this case the economic compensation was used to finance the construction of social houses destined to families that lived in slums elsewhere specially in risky areas.

This instrument did not solve the problem of exclusion, nor reduced significantly the number of slums in São Paulo but it provided funds to finance the construction of social houses in reasonable locations for the families that were removed. In other words, the funds to finance the construction of social houses did not come from taxes  and  families that formerly had to move to very distant locations had a reasonable place to live.

Besides, this instrument created the opportunity to train public servants to a) gain expertise in valuing land, calculating the additional value created by the benefits granted; b) brake the respectful reverence they had towards private property, or the notion that the owner had the right to do whatever he wished with his land, and c) learning how to negotiate with private developers.

This legislation lasted almost 12 years – from 1987 until 1998 – and around 115 projects were approved and the value appropriated by the public sector was more than 100 million dollars. These economic compensations paid by developers financed the construction of eleven thousand social houses for families living in slums especially those located in areas subjected to floods and landslides.

This legislation created the opportunity to put into practice for the first time the principle of  “onerous grant” or the appropriation by the local government of part of the land value increment,  created by granting the developer a bigger FAR or allowing him a change in use. This is important because until 1986, landowners and developers used to appropriate all value increment resulting of changes in urban legislation or zoning.

For land owners and developers the Interlinked Operations  were an interesting solution for two reasons: a) the slums could be removed  by negotiations in a less complicated and traumatic way, and they could use their land for their projects or sell the plots for their highest and best use, and b) they did not have to wait for changes in the zoning laws that occurred once in a year in the city Council which sometimes were quite “expensive” (generally they had to bribe some legislators to obtain the approval for specific changes in specific plots) to obtain additional rights of construction (Sandroni 2000).

For the government it was also an interesting solution because an extra-budget income could be obtained to finance the construction of social housing even if the new location for the removed slums were not favorable as before in terms of distance to the center. In terms of security, and quality of houses the new situation was clearly better than before.

In other words, owners and/or developers learned to share these value increments with the public sector and were convinced by the fact that even in these conditions (not capturing all the new value increment) the operation was favorable to them. It was a kind of win-win situation. Considering from a different  perspective: they agreed to pay for the additional construction rights they needed for their projects because it was faster and less expensive than it would be if they had to buy additional “physical” land not always available.

It is important to remark that the success of the instrument in capturing value was facilitated by the fact that São Paulo FAR has been historically low. With the exception of the old center, in the great majority of other districts the FAR was 1 or 2. Especially in the new centralities, formerly periphery rings, these low FAR were predominant. When these areas were required for uses as shopping centers, malls, commercial and services offices, or high standard apartments, the FAR had to be higher than formerly when the low FAR was enough for the single family houses of the low middle class living there.

The government had something to “sell” that developers needed: a higher FAR or in a lesser degree, changes in use. But developers paid less than they would have if they had to buy additional land to develop their projects. Maybe this is why developers supported so strongly this new legislation even if for the first time they had to pay for rights of construction, or for “land” that was not “physical” at all.

This experience in São Paulo helped to consolidate and introduce instruments of value capture in the legislation to regulate two articles (182 and 183) concerning urban development of the 1988 Federal Constitution, the City Bill.

The Opposition to Interlinked Operations

There was a considerable opposition to this instrument. Critics pointed out two negative side effects: a) It did not contribute to a better planning for the city; on the contrary, they were thought to interfere with the new Master Plan that was being discussed, and b) they led to distortions in the zoning law and created privileges for landowners and developers even if they had to pay for the grants they received.

But, even if the income received for compensations were not so significant for a city like São Paulo, and the mitigation of the slum problem was almost irrelevant,  the instrument and the experience it brought to the public sector justifies its existence, application  and use. The experience in capturing value and transforming it in a legitimate process, and the separation in practice of the property right and the right to construct were the main achievements of this first intent to change the relations between public and private sector in urban development, besides contributing in a small scale to mitigate the process of exclusion.

The Urban Operations.

 The second important instrument to capture value and finance   housing (to eradicate slums), and betterments in infrastructure are the urban operations (UO).

UOs can be defined as an instrument for structural transformation of parts of the city basically promoted through a partnership between public authorities and private sector as land owners, developers, residents and other stakeholders. Urban Operations have to be included in the Master Plan and approved by specific legislation in the city Council.

In practical terms, the instrument allows an intervention in a large area of the city (generally more than 400 ha.) that requires revitalization and investments in infrastructure and urban betterments as avenues, drainage, and housing for families living in slums inside its perimeter.

The funds necessary to process the required investments should come from the increment value originated in changes in FAR (floor area ratio), footprints and uses inside the UO area. Owners / developers of plots located inside the perimeter of an Urban Operation may present projects and propose changes in these zoning coefficients and give economic compensations for the benefits received (Montandon and De Sousa, 2007).

The administration analyses the project and, if it is adequate from the architectonic and urban point of view, it gives its approval. The next step is to estimate the value increment of land and how to share this value between the owner/developer and the government.

Each Urban Operation have specific instruments to determine and appropriate the public sector’s share in the increment value resulted from the new zoning coefficients.

In some UO the participation is determined by a minimum percentage of the increment value created; in other is made by selling certificates of additional construction potential named Cepacs that will be explained later (Biderman,  Sandroni and Smolka 2006).

Many Urban Operations are located in areas that formerly were periphery rings, where low income families lived in slums. The expansion of the city reached these areas and to avoid exclusion of these households caused by increased prices of land, the Urban Operations declared areas occupied by slums as ZEIS (Zones of Especial Social Interest), or areas where only social houses could be constructed. This was very important to mitigate exclusion because the Zeis condition of a plot reduced its highest and best use to social houses construction, breaking the tendency to higher prices. Later we will examine this issue in more detail.

São Paulo 2002 Master Plan included 13 Urban Operations occupying around 25% of its urbanized area. Of these, only 5 had until December 2012, specific legislations approved and were operating ( 7).

In three UO the economic compensation is calculated comparing the value of the plot without the changes in FAR or uses, with the value considering these changes, and the difference is divided between the public administration and the owner/developer in proportions varying between 50% and 60% minimum for the former.

In two Urban Operations (Faria Lima and Agua Espraiada) the process is distinct.  In these UOs the total amount of additional area that may be constructed is estimated according to the existent and future infrastructure that will be financed with the economic compensations of developers, and this potential is transformed in certificates of additional construction rights sold in electronic auctions in the Stock Market.

The government appropriates all the income produced in these auctions and this value frequently is much more than 50% or 60% of the increment value of land as occurred formerly. In special cases the income may be over 100% of the increment value, all depending on the interest and needs of developers in buying Cepacs in auctions and the situation of the real estate market cycle. This method is much more effective to value capture, and some calculations indicate that the income produced per square meter sold in Cepacs auctions is more than 150% bigger than the former method (Sandroni, 2010).

Since 2004 and until December 2012, the Cepacs auctions in the two Urban Operations (Faria Lima and Agua Espraiada) produced an income over 2.5 billion dollars (8).

If we consider the income produced in all Urban Operations the total is over 3 billion dollars since 1995.  It is important to point out that the income produced by selling Cepacs is predestined to works previously approved in the UO which includes social housing. This means that the government can only use this income to finance those works and nothing else. This money has been used to finance the construction of avenues, bridges, tunnels and social houses ( 9 ).

Cepacs may be also used to pay contractors in private auctions if they accept it. Since 2004 more than 100 million dollars in Cepacs were accepted by contractors. In this case, the payment of contractors is directly made by Cepacs, i.e. it is not necessary to use cash to pay for the works. If the income produced by Cepacs is not used immediately it may be invested in the financial market yielding interests: the total amount of interest obtained since 2004 was more than 300 million dollars (10).

Urban operations may contribute to solve two important problems concerning programs against exclusion: a) location, and b) income to finance social houses. The first one, as we saw, can be achieved declaring Zeis land occupied by slums inside the perimeter of urban operations. Price of land will not increase in these areas, or the increase will be smaller and expropriations to build social houses there will be easier ( 11 ).

The second: demanding economic compensations from developers by the additional construction rights conceded, allows the funding to finance the construction of social houses. In other words, part of the income originated in selling Cepacs is used to build social houses in the plots declared as Zeis where the former slums were located. The UOs Agua Branca, Faria Lima and Agua Espraiada have  areas declared Zeis inside their perimeter. The first two have  one each, and the latter have five.

Negative aspects of Urban Operations.

 It is not necessary to go beyond a superficial look at the UO created before 2002 São Paulo Master Plan to be convinced that they do not constitute steps in a clearly articulated plan. They were introduced to solve ad hoc problems and at least in two occasions (Faria Lima and Agua Espraiada) the driven force for their approval was speculation with land prices made by developers, and their successful pressure over government and the support of a considerable number of public servants who contributed to approve them.

Besides, UOs were approved without an urban plan. There was only a list of betterments and works concerning infrastructure (which included social houses), but not an  urban plan for the area in which it was established how  the private sector projects would be developed ( 12 ).

Charges for Additional Building Rights: the onerous grant mechanism 

Besides UOs there is another instrument to capture value  in São Paulo by  selling additional building rights. This instrument introduced by the 2001 City Bill “Estatuto da Cidade”, was included in the City of São Paulo Strategic Master Plan approved in 2002 and the Land Use Act 13,885 (zoning) in 2004.

These laws created the mechanism of Charges for Additional Building Rights in all the municipal area that was not included as UOs, establishing a Minimum, a Basic and a Maximum Coefficient of Land Use (FAR), and limited the supply of buildable area by districts in the city.

The minimum FAR refers to the minimum expected from a plot to comply with its social function. The Basic FAR, refers to the buildable area that any owner has the right by virtue of ownership, and the maximum FAR the constructed area that could be supported by the existing ( and future) infrastructure and zoning regulations. If an owner/developer wants to build more than Basic FAR (up to the Maximum FAR) the same as in the UO, he must pay monetary compensations for the government. The basic FAR established in 2004 varies between 1 and 2, depending on the area of the city considered. The maximum coefficient can be 1.0, 2.0, 2.5, or 4.0, also depending on the area. In areas were the master plan consider the necessity to avoid density increase, the maximum coefficient varies from 1 to 2. In areas where the density could be increased the density may go up to 2.5 or 4.

The formula to calculate the amount of the economic compensation the developer should pay if he wishes to have more FAR, or construct beyond the basic coefficient , contains two elements that may reduce or increase this compensation.

The first one is a “planning factor” which may vary from 0.25 and 1.4. For residential use it may vary between 0.6 and 1.2. The smallest (0.6) is destined to stimulate construction in the periphery rings where density is low. It enters the formula multiplying, and so reducing the economic compensation. The highest (1.2) is used in the central rings where density is already high and where there are problems of saturation in infrastructure as transportation and traffic. It tends to increase the economic compensation. For non residential use, and for similar reasons the variation is from 0.6 to 1.4.

The “social interest” factor is directly related with social houses and public equipments. It establishes exemptions or reductions in the economic compensation depending on the use or activity being developed. For social houses the coefficient is zero. So, there is no economic compensation in case the developer constructs social houses and requires more than the basic FAR. The coefficient is also zero for hospitals, schools, and sports facilities if they are public. In case they are private the coefficient may have a maximum of 1. Generally in these cases the coefficient is 0.7. As a general rule, the smallest the planning factor and de social interest factor, the smaller the economic compensation paid by the developer and vice-versa.

One very important aspect of this new legislation is that in several areas of the city these new regulations reduced building rights by establishing a basic coefficient of 1 for plots that had a FAR equivalent to 2, 3, or 4 under prior zoning laws. This new approach broke a very important paradigm: the principle of acquired rights. The separation of property right and right to construct may be seen in this case in its full dimension. Implicit is the concept that the right to construct is not intrinsic to the property right, and does not belong to the owner of the land. It can be changed if it is important for the land to fulfill its social function.

In parallel, the municipality of São Paulo used the instrument to extend the building potential or the FAR up to 4 on land that previously could be developed only to 1 or 2. As a result, in certain areas where the prior maximum FAR was 2, and the new zoning reduced the basic FAR to 1, developers could submit projects using maximum FAR 4  as long as they pay for the additional buildable area above the basic coefficient, i.e. the difference in value of land with FAR 1 to land with FAR 4.

This new legislation also limited the supply of residential and non-residential building potential in all city districts by establishing a total additional buildable area of 9,769 million square meters (m2): 6,919 million square meters (m2) for residential use and 2850 million mfor non-residential use. This total did not include the additional potential inside the UOs. (São Paulo Strategic Master Plan 2002)

The additional area was distributed among the 91 city districts with the exception of four environmentally protected areas. This definition and demarcation of the potential building stock introduced a new element to the real estate market. Once the maximum building area was known, developers anticipated its future scarcity, especially in districts where the supply was small and demand high, unleashing a trend in price increases.  By October 2010 land (and construction rights) supply for residential use had been exhausted or was very close to it in 16 districts, and for non residential use in 5 districts.

The lack of buildable areas, in turn, lead to pressures from real estate developers over the municipal administration to increase  supply—that is, to change the building area limits in these districts during the 2007 revision of the master plan—but their efforts were not successful.

The total income originated in these grants, from 2005 to 2010 was approximately U$ 380 million as can be seen below.

2005 – U$ 24
2006 – U$ 38
2007 – U$ 58
2008 – U$ 69
2009 –  U$ 67
2010 –  U$ 124
Total  –  U$ 380 millions

Source:  São Paulo Municipality Budget, selected years.

The income was small in 2005 but it increased substantially and in 2010 it was five times bigger. This income was used in financing parks, public squares, betterments in streets and avenues and revitalization of historical buildings. But it was not used to construct social houses or urbanize slums.

This instrument to capture land increment value was not directly linked to mitigate exclusion. But, as long as they contributed to finance betterments in periphery rings and not only in central ones, indirectly helped to compensate tendencies of exclusion.

Nevertheless, the limits created by the 2002 Master Plan on additional constructed area and its influence over prices may have contributed to accelerate exclusion, especially of those paying rent and/or living in slums in plots belonging to the private sector and not protected as Zeis.

Zeis as an Instrument Against  Exclusion

Theory says that an increase in demand for land or more buildable area face the rigidity of supply, generally results in a rise in land prices. The creation of UOs and the betterments and/or higher densities allowed inside their perimeter – transforming them in new centralities- determined an increase in demand for land in those areas.

Even if we do not dispose of comprehensive data about land prices in UO in São Paulo an investigation about Faria Lima OU demonstrated that the average square meter price of constructed area increased 14% comparing to the period before the approval of the UO in 1995 and after in 2001. This increase was more representative if we consider that in the same period prices had a decrease in all other areas of the city. So the relative price increment was around 26% during a period in which the real estate market in São Paulo was in a very low level (Smolka, Biderman, Sandroni 2006).

This rise in prices, which reflects the pressure of demand, is one important cause of exclusion as long as the poor families, especially those living in slums, as we remarked before could not afford to pay rent or buy the land / houses they were occupying anymore. But some of these poor households were people that owned their houses. Let see what happened to them.

The “exclusion” of owners.

Before analyzing the situation of those who were not owners of land and/or houses, let us examine what   happened with households that owned land and belonged to a segment of the low middle class. There is no specific data about how many of these households left the perimeter of the OU or were “excluded” due to higher prices of land or other forms of pressure. But indirect information may give us an idea of the intensity of this movement.

Before the approval of the OU Faria Lima in 1995 the great majority of these low middle class households  that lived in the area were single-family units (one or two floor houses) in plots ranging between 190 to 450 m2. The new projects presented, however, required much larger area to build high standard multi-familiar buildings with big footprints for apartments of 450 to 750 m2. Developers  had to buy many plots, put them together, obtain additional rights to build, pay economic compensations for them and construct triple A apartments, or commercial and services offices for their clients.

In UO Faria Lima between 1995 and 2003, 115 projects were approved demanding 657 plots, or 5.7 plots per project ( 13 ). We selected eight projects which demanded more than ten plots and the   average plots area ranged from 194 square meters to 449 square meters. The number of plots per project ranged from a minimum of 11 to a maximum of 22. This means that the UO promoted a land concentration process and this is compatible with a shift in households and businesses occupying the area: low middle class households and small shops segments being substituted by upper middle class, and high standard offices for multinational corporations. Aerial and satellite photos shows this same pattern of shift in land occupation.

But, this shift in class occupation of the area happened because former owners voluntarily sold   their properties for a very good price as stated in interviews with the author in 2005 ( 14 ). There was not the classical process of exclusion when low income families cannot afford to pay the higher prices of land/rents and have to leave for other areas.

The exclusion of non owners.

The majority of UO have slums inside their perimeter. Maybe the largest number of slums – around 13 with more than 10 thousand households – correspond to UO Agua Espraiada. New infrastructure, betterments, change to a new centrality and the consequent rise in land prices exerted a enormous pressure on the people living in slums in land that did not belong to them.

To solve or mitigate this problem the UOs approved Zeis (Special Zones of Social Interest) in the land occupied by slums, and also in some cases in vacant land adjacent to them.

This means that in areas considered Zeis the only possibility to use land is to build social houses. So it is difficult for owners to sell their plots for the regular market price. In other words, the reduced demand for them provoked a fall in prices which is favorable to finance the construction of social houses there.

In practice things are not so easy, especially when these lands belong to private owners. Their attitude is to delay its use with the expectation that in the future, revisions of the Master Plan and/or the UO may change the Zeis condition of these areas, and/or wait to be expropriated and try to obtain the normal market price of land for compensation and not the Zeis price, as we explained before.

The São Paulo 2002 Master Plan consolidated the Zeis that existed in former Urban Operations and created 964 new ones distributed in the urban area performing a total of 32 square kilometers.

Many of these zones are already occupied by slums and/or located in periphery rings (15). But as we pointed out before, in many cases these slums are in very expensive areas near or inside the most dynamic districts of the city which became new centralities in the last decades.

Land prices in these Zeis areas have a tendency to a relative drop. But evidence of this fall is not yet available because transactions with Zeis areas is not common among private owners. The evidence is indirect: the intents of owners to change this condition whenever they have the possibility to do so.

Besides, according to the approved UOs laws, the slums inside their perimeter have to be urbanized in the same place where they are, except those that have to be removed to the necessary works to construct avenues, tunnels, streets, etc.

There is another restriction in the UOs that reinforces the tendency to the urban development of slums: to finance their urban development they have priority in receiving the necessary funds originated in the economic compensation paid by developers for the additional construction rights required.

Nevertheless, the production of social houses in these Zeis areas is very slow. Since 2002 when the São Paulo Master Plan created them, only in two UOs, slums located in Zeis areas have been developed ( below we will describe one of them).

The reasons of this delay may be found not only in the expected resistance of private owners (as explained before) but also in lack of interest coming from sectors of the public administrators closely linked with the interests of the real estate market. They argue that it would be better to sell additional rights to construct in this area, obtain a very high income and build social houses elsewhere for the households removed. We will see later what “elsewhere” meant in a concrete case.

Even with all the forces that operate against it, Zeis have prevailed and constitutes one of the most effective instruments to avoid or to mitigate the exclusion process caused by urban development.

An Emblematic Example

 One of the most interesting examples of urban development of slums in Zeis area is the case of Jardim Edith slum (*) located inside the perimeter of UO Agua Espraiada. This slums, is very near one of the most expensive areas in S.Paulo (Luis Carlos Berrini Avenue) and neighbor of a new icon of São Paulo, the stays  bridge

(*) – This slum can be seen using Googlearth at 23 36’ 48.62” S and 46 41’ 39.01” W at an altitude of 420m.

Over the Pinheiros River, after many years of procrastination was finally urbanized.

Originally composed of more than 3.000 families, Jardim Edith slum occupied an area equivalent to 68 thousand square meters. When the Agua Espraiada avenue was built in 1996 the larger part of this slum was removed ( Fix 2001).

The approval of the UO Agua Espraiada occurred later and the part of the Jardim Edith slum that was not removed was considered Zeis. The 3.000 families were reduced to 600, but the UO included this slum as Zeis area and determining that it should be urbanized in the same place, and the people living there should not be taken out and sent to very distant places as  before ( 16 ).

Besides, the approval of UO Agua Espraiada included the urban development of this slum as one of its priorities. The first income resulting from the Cepacs auctions in the area were supposed to be use in two destinations: the construction of the stays bridge spanning Pinheiros River, and building social houses for the 600 families living in the slum in the same place where they were.

The Cepacs auctions in the Agua Espraiada began in 2004 (Sandroni 2010) and the income produced began to be employed in financing the bridge construction – which cost was  around 100 million dollars – but Jardim Edith slum urban development was “forgotten”.

The bridge was finished in 2010 and just before the inauguration the municipal authorities tried to take the families out so the area could be “cleaned” for the photos and videos of the occasion. They offered a small compensation for the families and an alternative of social houses in the periphery rings distant around 18 km from there.

Helped by public attorneys, representatives to the council and mainly their own social organization they refused to be removed and the municipal authorities had no alternative than to sign an agreement to build social houses in the same place where the slum was, although some families accepted the offer of the municipality to be removed.

The money to finance the construction of social houses was already provided by the auctions of Cepacs, so apparently there was no problem to begin the urban development of the area.

But a new and unexpected problem appeared. To prepare the land to build the social houses, the families had to leave the area, accept a social rent offered by the municipality and live for a time in other places until the new houses were built.

In this slum there was a group of drug dealers, and the “clearance” of the area and the occupation of it by contractors would interfere with the drugs distribution. Drug dealers then menaced with severe punishment the families that agreed to leave.  It took some months until this pressure was neutralized and contractors could occupy the area and construct the promised social houses.

In December 2012 the project was almost finished and 247 apartments of 50 square meters had been constructed at a cost of approximately 26 million dollars (17). These apartments were financed by economic compensations paid by developers which had to buy Cepacs to increase the floor area ratio of their projects.

It is not clear if the families that are supposed to occupy these apartments will pay for them and become owners, or some other kind of arrangement will be made to insure that they will stay living permanently there. The intent is to avoid “speculation” because price of land in that region that is not Zeis is around 6 thousand dollars the square meter, and the temptation to sell by these low income families (if they became owners) would be very difficult to resist (18).

Information given to the author by municipal authorities in October 2012 said that the tendency was to create a system of affordable social rent, and not selling the apartments for these families.

Other Instruments to Avoid Exclusion.

 The compulsory use of urban land.

 Areas included by the 2002 Estrategic Master Plan as destined to social housing construction were submitted to compulsory use. Specific legislation (Act 15.234 of 2010 and decree 51.920 of 2011) determined that owners of these areas located in the Urban Operation Center had one year to demonstrate the use of their land. If they did not they had five years to use the land and prove that their land has fulfilled the social function determined by the Constitution. During this period the property tax ( IPTU) is progressive  and may rise to 15% a year.  If the social function of property is not demonstrated after this time, expropriations may be paid with 10 years bonds of municipal debt, and not in cash as is the case in normal expropriations.

The intention of this instrument is to provide affordable prices of land for social houses construction in the central rings, because owners cannot go on speculating with land and taking them out of supply and wait for an prices  increase.

This process, going on inside the UO Centro is very recent and results cannot be seen yet. But, it is not difficult for owners to prove that their land is being “used” and so reducing considerably the possibility of a future progressive tax and/or expropriation and destination of land to social housing. We will have to wait to evaluate the effectiveness of this instrument.

The Right of Preference

 The 2002 São Paulo Strategic Master Plan also created 22 zones where there is the right of preemption or preference. This means that the municipality has the option to buy the land from the private landowners to build public parks and large reservoirs, to mitigate floods, and other urban betterments.

This is an instrument to improve the urban infrastructure in the periphery rings and so compensating the disadvantageous location with  betterments in these areas.

Besides, the right of preference operates as a barrier to rising prices: in areas where this right of preference may be exercised, i.e. the preference of acquisition is publics, the demand of the private sector for these plots is considerably reduced.

ZEPAMs: zones of environmental protection

Environmental protection is supposed to be ensured by the creation of ZEPAMs (zones of environmental protection), mainly in the south, where the great city water reservoirs and the sources of rivers are located, and in the north, where there are still some native forests and some water sources.

The creation of these areas should avoid, among others, the activities of urban pirates who sell land to poor families that have been evicted from best located rings. Generally the land, where it is not allowed to build and/or there is no infrastructure, and does not belong to them is sold for an affordable price and the new owners’ have to face the problems with municipal authorities.

This instrument should operate as a barrier to reduce the areas where the process of exclusion could develop.

But there is no guarantee that these areas will be respected. Besides the invasions of pirates described above, middle-class, and rich families also illegally occupy these areas, precisely because they are near forests and lakes what makes the landscape very attractive. Distance for these rich families is not quite a problem because they have their own means of transportation.

Unfortunately there is no punishment for those who flout the Master Plan. In other words, it is necessary but not enough to create official mechanisms of environmental protection to avoid new rings of periphery to occupy these areas.


The intense urban development of S. Paulo during the last decades was unbalanced, producing exclusion and shortage of public services among the poor strata of the population mainly in the peripheral zones.

The economic crisis of the country during 1980 / 90 reduced the capacity of public investments in infrastructure, social housing and maintenance of basic services, and worsened the situation of low income families.

At the same time democratization and a new Constitution brought new urban legislation, new instruments of intervention and an increase in social participation in important political decisions concerning urban development.

These new instruments allowed the public sector to recover legal and financial power to intervene and increase the capacity of attending the demands especially of the poor families living in urban areas. São Paulo city was a pioneer in approving and using the instruments mentioned above and constituted a bench mark concerning urban development in Brazil. Later, during the regulation of the 1988 Constitution and its articles concerning urban development this leadership and experience were very important to convince forces initially against these new instruments to vote in their favor in Congress (City Bill).

From the perspective of exclusion mitigation, it is fair to say that the Interlinked Operations constituted a first step to eliminate the worst elements of slums eviction. The funds provided by the owner/developer economic compensation allowed an intermediate solution: conditions to finance social housing construction in reasonable locations.

Urban Operations contributed to a contradictory result. From the financial perspective they helped the administration to capture value which in other circumstances would be appropriated by owners and/or developers.

This helped the public administration to build infrastructure and social houses inside the perimeter of the UO without exerting pressure over taxes and budget resources. But they accelerated the rise in prices of land and increased the pressure against poor families living in slums and also low middle class segments to go elsewhere.

The low middle class segments that were owners and sold their properties for a good price left the area voluntarily and relatively benefited by increased prices. Those who were not owners had to leave against their will. They were not protected and the process of exclusion operated against them.

The introduction of Zeis in the majority of UO and in other areas of the city helped to mitigate these expelling tendencies, but even this instrument presented some setbacks. At judiciary level in case of private land expropriations, courts have considered the price of land as the normal market price and not the price considering the highest and best use of plots as social house construction.

This means that the municipality has to spend much more money in building social houses. Besides, the legal process of expropriation may take a long time.

The preference right and the establishment of Zepams also helped to mitigate exclusion but we can say that their influence has been marginal.

The compulsory use of land in determined area of the city indicated in the Strategic Master Plan of 2002 also may help to provide affordable prices of land to build social houses in central rings of the city, but this process is relatively recent – 2011- and may take also a considerable time to result effective.

The efforts made in São Paulo during the last decades to compensate exclusion tendencies were remarkable. A new legislation, instruments and urban practice helped to mitigate the exclusion tendencies promoted by the market oriented urban development. But the forces operating against them are far from being neutralized and if the social and political movement does not participate in their defense their efficiency and mere existence may be jeopardized.


Biderman, Ciro, Paulo Sandroni, and Martim Smolka (2006). Large-scale urban interventions: The case of Faria Lima in São Paulo. Land Lines18(2):8–13, Lincoln Institute of Land Policy, Cambridge, Mass.

De Miranda EE, Gomes EG, Guimarães M ( 2005) . Mapeamento e estimativa da area urbanizada do Brasil com base em imagens orbitais e modelos estatísticos. Embrapa monitoramento por satélite, Campinas. Available at  http://www.urbanizacao.cnpm.embrapa.br

Fix M (2001) Parceiros da Exclusão. Boitempo. São Paulo.

Montandon, Daniel T., and Felipe F. De Sousa ( 2007). Land readjustment and joint urban operations. São Paulo: Romano Guerra Editores.

Sandroni, Paulo( 2000). La operación interligada West-Plaza: Un caso de apropiación de renta en la ciudad de São Paulo. In Los pobres de la ciudad y la tierra, eds. A. X. Iracheta Cenecorta and Martim Smolka, 99–114. El Colegio Mexiquense, and Cambridge, MA: Lincoln Institute of Land Policy,Mexico.

Sandroni, Paulo  (2010). A New Financial Instrument of Value Capture in São Paulo: Certificates of Additional Construction Potential in “Municipal Revenues and Land Policies”, Ed. Gregory Ingram and Yu-Hung Hong. Lincoln Institute of Land Policy, Cambridge, Mass.


1 – Censos Demográficos 1940 – 1980; Fundacão Seade, Informe Demgráfico 18. São Paulo.

2 – Censo das Favelas do Municipio de São Paulo 1987, in Prefeitura Municipal de São Paulo,”Crise e Mudanca” 1992.

3 – Base, fotografia aérea digital. São Paulo, 2004.

4 – Banco Central do Brasil, Balance of Payments selected years. Brasília, 2003.

5 – Fundacão Prefeito Faria Lima (CEPAM) (1997), O Solo Criado/Carta do Embú. São Paulo.

6 – de Ambrosis C ( 1999) Recuperacão da Valorizacão Imobiliária Decorrente da urbanizacão, in: o Municipio no século XXI: cenários e perspectivas. Fundacão prefeito Faria Lima, CEPAM, São Paulo, and De Azevedo N, Domingos T (1994) O Jogo das Interligadas. Uma pol[itica pública em avaliacão: a Lei 10.109/86 do Municipio de São Paulo. FGV São Paulo.

7 – The UOs operating in São Paulo until 2012 are: Anhagabaú – Centro Act 12.349/1997 with 450 ha.; Agua Branca Act 11.774 / 1995 with 500 ha.; Faria Lima Act 11.732 / 1995 with 450 ha.; Agua Espraiada Act 13.260 / 2001 with 1,425 ha, and Rio Verde-Jacu Act 13.872 / 2004.

8 – Prefeitura Municipal de São Paulo: data available in www.prefeitura.sp.gov.br

9 – One of the most emblematic works financed by Cepacs income is the Stayed Bridge over the Pinheiros River which cost was around 100 million dollars. The income destined to urban development of slums was around 200 million dollars until 2012.

10 – Prefeitura Municipal de São Paulo op.cit.

11 – If they are public areas it is not difficult to transform them in areas destined to social houses. In case they are private the necessary expropriations require a more complicated and expensive process because courts not always consider that the expropriation price should be the Zeis price of the land. If courts decide in favor of “normal” market prices, which are much higher, government has to pay more for the land and makes it more difficult to keep these families in the same place.

12 – In one of the these UO, ( Agua Branca ) many years after its approval the municipality created an urban plan for the area but there is no reliable information if this plan has been followed or not.

13 – Empresa Municipal de Urbanizacão (EMURB), Prefeitura Municipal de São Paulo 2003 ( Sandroni 2010)

14 – Except those that were expropriated for the necessary works of the UO. Actually, some owners decided to sell their land because the changes of densification/uses in the neighborhood -intensity of traffic, noise, restaurants, night clubs, hotels, parking cars on streets etc. – broke the calm life they had before.

15 –There are 4 categories of Zeis. Areas occupied by slums is one of them and there are 292 of this kind occupying around 13 square kilometers. The other areas are of vacant land or located in environment protected areas.

16 – The families that agreed to be transferred received a very small compensation or/and were sent to social houses located more than 30 km from there ( Fix 2001).

17– Besides the apartments, the project included health facilities, a nursery , a gastronomic school and a garden.

18– In this case the process of exclusion would be quite different: with this considerable amount of money these families could buy houses well located in other areas of the city. Anyhow, for families living in slums there are other things besides the economics to take into consideration when the decision to leave or to stay have to be taken. Their social, historical, and cultural relations in the community some times determines their decision and not only the economic considerations.

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