How the combined use of non-negotiable and negotiable developer obligations affects land value capture: Evidence from market-oriented urban redevelopment in China

Abstract

The combined use of non-negotiable (N-NDOs) and negotiable developer obligations (NDOs) has become a principal instrument for land value capture in most countries. In this circumstance, this study seeks to examine how the combined use of NDOs and N-NDOs affects the practical results of land value capture within the context of market-oriented urban redevelopment in China. The ordinary least squares (OLS) estimation and two spatial regression models (SLM and SEM) are applied to parcel-level data samples of all redevelopment projects in Shenzhen, China, for evaluating the practical results of DOs. The outcomes suggest that, in some ways, the combined use of NDOs and N-NDOs leaves room for market players/applicants and the local government to negotiate DOs and other development possibilities. Compared with old factory owners as the applicant, the portion of DOs is higher if developers are the applicant. The applicants who contribute more DOs will strive for a higher floor area ratio bonus, especially when developers act as the applicant. In addition, redevelopment projects located in less developed regions are required to contribute more DOs than those in highly urbanized areas. Our research findings also demonstrate that, in other ways, negotiation disappears, and obligations are charged through non-negotiable statutory urban redevelopment planning. Specifically, projects redeveloped for residential use contribute more DOs than those for industrial use. Moreover, redevelopment projects in higher density zones must contribute more portions of DOs than those in lower density zones. This study provides valuable guidance for policy makers and practitioners to pursue well-designed and properly regulated DOs in urban redevelopment and ultimately achieve sustainable public infrastructure financing.