Elsevier

Land Use Policy

Volume 23, Issue 2, April 2006, Pages 123-135
Land Use Policy

Building land markets

https://doi.org/10.1016/j.landusepol.2004.07.003Get rights and content

Abstract

A primary driver in land titling and administration improvement is facilitation of a land market. Land markets are difficult to establish and to manage. Titling on its own will not create a land market, nor will a land administration system unless it is connected with the way participants think about and organise their land. Indeed, the difficulty is compounded because very little is available to explain how a land market works, particularly to identify non-technical components essential for market success. This framework article explains land markets in terms of five evolutionary stages. The ingredients of a complex and developed land market, especially social processes and cognitive capacities, are identified.

Introduction

This article explores the evolution of land markets. It identifies the important role that cognitive capacity plays in complex markets. Economists have provided the bulk of the existing literature; however, land administrators, lawyers, philosophers and social theorists have a great deal more to contribute. This article is not about the economic theory of markets. Rather, it draws on the expertise of land administration and lawyers and investigates markets from the point of view of the infrastructure underlying their operations. The approach goes beyond land rights and property theories by looking more at the institutional and social capacities that are essential to translate a simple land market into a complex market in which highly abstract commodities are traded.

Section snippets

Importance of land markets to land policy makers

Land markets are a goal of governments and international agencies because of a set of related observations: economies with successful markets generate more wealth than those without them, they are more stable, and offer more opportunity to their members. In the past these observations were debated but the failure of centralised economies where land was excluded from markets has all but silenced dissenters. This is not to argue that policy makers should assume that land markets and the

Three basic ingredients of successful land markets

Given the popularity of modern land markets, one would have imagined that there was a well sign-posted establishment path. This, however, is not the case. Usually people assume that land markets are the realm of human activity involved in buying, selling, leasing and securing land. This focus stresses the physical and directs analysis away from the social and cognitive capacities supporting successful land markets. It can lead to a naïve assumption that land is the only ingredient. In fact,

Introducing the evolutionary stages

Our explanation of how people move from being land occupiers to participants in complex land markets relies on the heuristic device of describing five evolutionary stages of development of markets shown in Fig. 1 (based on ILAP C, 1999, p. 43).

The stages are not historical or empirical. They are not scientifically bounded or rigidly separated and their appearance in reality is variable. Any or all of the stages can simultaneously appear in one nation state. A few developed countries have had

Preliminary stage 1: land

Human life depends on having land in which to live and work. In exceptional situations a cultural group can exist without having a relationship with a geographically defined location. Some groups, for example Inuit, Bedouin and gypsy, even wander across national boundaries. Some wander within state boundaries—nomadic tribal cultures still exist within national boundaries of some highly developed countries. Human groups do not need permanent land or land rights to function, though they need

Preliminary stage 2: land rights

For a market to develop, a community not only needs land as a territorial imperative, but also an organised way of thinking about its land-permitting basic functionalities of internal physical redistribution and organised admission of strangers to ownership.

Land rights on the intra country scale require the national law to recognise the opportunity of the single or group owner to prevent people entering without consent, at minimum. Land rights on a national scale require other nations to

Stage 3: land trading

Given the variety of national circumstances, a clear theoretical and practical delineation between preliminary stages and market stages is probably not available, and certainly not necessary. While markets depend on competent attention to definition of commodities in the form of land rights, processes used to achieve this are typically mixed up with land trading and marketing. For a country to achieve a land market, its policy makers must obtain public commitment to the primary functions of

Stage 4: property market

The significance of land to capitalism is now better understood. Land is a potential market asset. If a country cannot produce capital out of land, its population will remain poorer to the extent of the unrealised opportunities. Unless other sources of wealth are readily available, its people will observe expansion of the gap between their economy and economies of successful countries (de Soto, 2000, pp. 4,5).

The property market label is non-technical. It facilitates differentiation of an

Stage 5: a complex property market

An economy which reaches stage 4 has made a remarkable achievement, especially because it moved its land and resources into the market direction without the tools of the trade being explicit, identified or even stated anywhere. While invention played a part, copying, emulation, and, often, luck were also involved. Stage 5 involves developing highly specialised commercial facilities, requiring an additional set of capacities or functionalities, in addition to the functionalities in the previous

Machinery for a complex property market

A complex property market involves a complicated set of interrelated activities and outcomes. A graphic representation can be made by developing Peter Dale's (2000, p. IV) Three Pillars Diagram to include a fourth pillar which represents the cognitive capacity (Fig. 3).

When all these four functionalities are established, institutional support for new commodities develops. The opportunity to “own” land through membership of a corporate or trust vehicle is open-ended and available to individuals

Difficulties in managing markets

The analysis above demonstrates that land markets are difficult to build. Some other reasons for approaching markets with caution are identified below.

  • Grand claims made for land rights and land markets, that they are the crux of Western capitalism (de Soto, 2000), need to be balanced by high regard and respect for other means of distributing land access, particularly communitarian systems which generate human comfort and reliable food for millions. The claims also need to be set against other

Conclusion

In a modern market, the quantity of land available for the market is not the issue. Countries with developed markets create opportunities for commodification unrestrained by the volume of available land because their citizens are innovative and cognitively competent, and their governments provide both infrastructures to support trading in abstract commodities and restraints on market excesses. The multiplication of land interests and layering of opportunities create virtually unlimited

Acknowledgements

The authors acknowledge Mr R. Dougal Menelaws, project manager of Indonesian Land Administration—Project C for his contribution to the development analysis of stages of market development and accompanying diagram. The authors also acknowledge the support of the members of the Centre for Spatial Data Infrastructures and Land Administration at the Department of Geomatics, University of Melbourne, particularly Ms Kate Dalrymple. The research was supported by an research grant from the Land

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