A Report on Land-Use Planning in Portugal: Why Are We Repeating the Same Errors

A REPORT ON LAND-USE PLANNING IN PORTUGAL: WHY ARE WE REPEATING THE SAME ERRORS

By João Miguel Ferreira Henriques | Sponsored by Robert Schalkenbach Foundation [email protected] | http://schalkenbach.org/

ABSTRACT After 2008, the economic and financial sector goes into crisis in several Western Nations. The issue was discussed but the conclusions fell short. In Portugal, the political option has always been to avoid recognize the real cause of the crisis: the land bubble. As this political option is not compatible with the reality, the report shows both that the land bubble is the real source of the economic crisis and the size of the phenomenon through the application of the “real-assets” model developed by Gaffney (2015). The description of the impacts of the last land cycle helps to explain why Portugal has a disorganized territory. In turn, this proves that the land-use (or zoning) policy has shown opposite results to the goals that it is supposed to achieve. Although the Portuguese Government does not recognize the land bubble, it decided to proceed in order to review the Land Law. The Reform was approved in 2014, yet the obstacles remain: the legal and economic beliefs still support the new law. The report explains why this New Land Law still is inefficient through a critical approach, which can be used as a basis to develop alternative proposals to improve the land-use regulation system. Key-Words: Land, Zoning, Land-use, Speculation.

Index 1. The Financial and Economic Crisis ...... 1 1.1 The rise and fall of Real Estate Prices...... 2 1.2 Investment in Peripheral Areas: The premature subdivision phenomenon...... 25 1.3 The diversion of monetary flows: diversion from investments on short-maturity capital to concentrate on investments of long-maturity capital...... 54 1.4 The Liquidity Crisis ...... 56 2. The Zoning (Land-use) Policy in Portugal ...... 59 2.1 What is a disorganized territory? And why has Portugal a disorganized territory? ...... 59 2.2 The Land Law Reform: Why are we still repeating the same errors? ...... 66 3. References ...... 71

1. The Financial and Economic Crisis The “Great Crisis of 2008” has internal sources in each of the markets of the Western Nations. In United States, Ireland and Spain, it is recognized that the main cause was the land bubble (or the real estate bubble, because the land values are not collected). However, in Portugal, the Government always refused to accept that the land bubble was the main cause of the financial and economic crisis. So there are some data that must be revealed to show how the Portuguese crisis had similarities to remain Countries crisis. To contextualize, the Table 1, shows the Gross National Product in four Countries. The focus of this Report is Portugal, which in turn, is matched by Spain, Ireland and United States for comparison purposes and due to the reasons given above (related to the source of the economic crisis). As it is one of the aims of this work demonstrate the relation between the economic crisis and the land bubble, the choice of these countries was not random. Thus, the Table 1 shows that all Countries had an uninterrupted period of economic growth between 1990 and 2008, except Ireland. This last one reached the economic peak in 2007. Strictly speaking, the Irish economic crisis was in 2008 and the Portuguese, American and Spanish crises were in 2009. With this, it is eliminated the hypothesis of the Western Nations’ crisis has only one main cause (external to each European Countries): the economic downturn of the world’s largest economy (American Crisis). Ireland’s recession began first than observed in other countries. It is not possible to extrapolate that the “Irish crisis” was the explanation for the Portuguese, Spanish and American economic downturn. However, all of them fell in crisis because of the same internal cause: the real estate bubble. To complement this conclusion, Krugman (2012) refer that many Countries would be in crisis at this same period, regardless of the global financial crisis (entitled “sub-prime crisis”), due to the existence of bubbles in their respective real estate market. Therefore, Harrison (2010: 189) argues that the doctrine which advocates that the crisis began in United States is based on a myth: “[The Crisis began in America] It did not. It began in UK. It began in Spain. In Ireland (…) each one of these Countries was responsible for cultivating its home-grown crisis, located in the domestic land market”. Like it is said above, in Spain, Ireland and United States, this cause was recognized. So the focus here will be to demonstrate why the Portuguese crisis had the same source. The method that will be used to identify the real source of the crisis is “The Real-Assets Model of Economic Crises” developed by Gaffney (2015). According to the author, this model can be validated through four hypotheses: “(i) A rise and fall of land values, resulting mostly from autonomous real economic changes. These are less visible and less measurement than purely monetary and fiscal changes, which may reflect and reinforce the real changes but not initiate them; (ii) investment in projects at the margins, both in terms of geographic location and value; (iii) concomitant changes in the structure of capital investment to favor structures with long payout period; and (iv) an increase in bank leverage ratio as a result of lower capital turnover, leaving many banks technically in default by the time the land bubble burst” (Gaffney, 2015: 327).

Table 1 – Gross National Product Evolution in Portugal, Spain, Ireland and United States (1990-2015)1

Portugal Spain Ireland United States 1990 55.978,9 327.803 37.894,5 5.979.589 1991 64.317 359.461,3 39.321,5 6.174.043 1992 72.459,7 387.148,2 41.778,9 6.539.299 1993 76.214,8 400.539,5 45.124,4 6.878.718 1994 82.550,3 425.995,8 48.530,4 7.308.755 1995 89.037,3 459.337 54.820,3 7.664.060 1996 94.351,4 487.992 60.195 8.100.201 1997 102.356,9 518.049 69.367,3 8.608.515 1998 111.385,2 554.042 80.319,7 9.089.168 1999 119.639,2 594.316 92.629,4 9.660.624 2000 128.466,3 646.250 108.359,8 10.284.779 2001 135.827,5 699.528 121.893,3 10.621.824 2002 142.631,4 749.288 135.946,4 10.977.514 2003 146.158,3 803.472 145.779,8 11.510.670 2004 152.371,6 861.420 156.176,2 12.274.928 2005 158.652,6 930.566 169.977,7 13.093.726 2006 166.248,7 1.007.974 184.923,3 13.855.888 2007 175.467,7 1.080.807 197.053,7 14.477.635 Financial and 2008 178.872,6 1.116.207 187.547,2 14.718.582 Economic Crisis 2009 175.448,2 1.079.034 169.431,7 14.418.739 2010 179.929,8 1.080.913 166.157,5 14.964.372 2011 176.166,6 1.070.413 173.940 15.517.926 2012 168.398 1.042.872 174.845,3 16.163.158 2013 170.269,3 1.031.272 179.447,7 16.768.053 2014 173.446,2 1.041.160 189.045,9 - 2015 179.409,6 1.081.190 - - Source: Adapted from OECD STAT (2016).

1.1 The rise and fall of Real Estate2 Prices A. The National Level

If a Bubble consists of the overvaluation of an asset during a short period of time, so what happens with real estate market in Portugal? To expose the facts, there are two operating modes: (i) the Aggregate level (national scale); and (ii) the Disaggregate level (regional and urban/local scale). The first is demonstrative of the dimension of the bubble and must be illustrative enough to prove the theory, while the second is used to understand the real dimension of the phenomenon through a

1 The numbers marked in red correspond to estimates. The numbers for all Countries are expressed in millions. In all of the countries, the GNP is calculated according to current prices for every year. Only in United States, the numbers are presented in United States Dollars ($), while in the remaining Countries, the monetary values correspond to Euros (€). 2 There are no records of the land values in Portugal. Gaffney (2015) advocates the use of a proxy like indicators representing the evolution of construction activity to apply the model. However, there are records of the formal real estate transactions in Portugal, which are published by the INE. It is this kind of information that can validate the land bubble hypothesis.

deepening of the problem: “real estate booms are local and reactions from booms are local” (Harmon quoted by Hoyt, 1933: 223). In Portugal, any city or town has similar problems (related to the boom-bust cycle), but there are territories that can explain better the land bubble than others. This does not mean that the selected sample represents the only cases where the bubbles are proved. That is why it is a sample. The interesting will be to replicate this model in other cities not only in Portugal but over the World to identify and study the phenomenon.

According to Table 2, which represents the records for the average value of all Real Estate Properties Transactions in Portugal3 between 2000 and 2014, the real estate values reached a peak in 2007: between 2000 and 2007, the real estate values increase 97%, or by other words, duplicate. During this period, the real estate values increase, by year, on an average of 10,20%. The values of the properties does not fell steeply after the peak of 2007, which is why it is not the date for the bubble burst as it had been seen in the Table 1. For example, the average values of all transacted properties between 2006 and 2008 are high and differs little from year to year: with an average for the three years considered equivalent to 103.217,33€. So the bubble burst in Portugal was in 2008. From this year to 2009 there was a fall of 11% of the average values of transacted properties. Comparing the records for 2008 and 2012 (which is the year with the lowest average values of transacted properties), the fall was of 34%.

Table 2 – Average value (€) of Real Estate Properties Agreements for Purchase and Sale in Portugal (2000-2014)

Urban Rural Mix-Use Properties Total Properties Properties 2000 62.662 21.507 116.675 53.344 2001 66.957 18.943 112.812 55.705 2002 71.398 19.893 109.599 60.805 The Bubble 2003 81.532 22.787 119.504 69.275 Expansion 2004 96.634 25.602 165.986 84.064 2005 111.347 24.635 168.741 93.464 2006 121.298 31.286 208.373 103.009 2007 124.405 35.372 244.971 105.308 The Bubble 2008 125.992 27.598 205.179 101.335 Burst 2009 115.405 21.666 167.402 90.134 The Recessive 2010 118.345 14.750 152.176 91.491 Phase 2011 100.709 13.315 136.040 73.379 2012 95.297 11.911 132.475 66.809 2013 99.869 21.503 121.817 75.249 2014 114.701 11.608 133.074 81.590 Source: Adapted from INE (2015a).

To complement the above information, the Table 3 shows the records for the numbers of agreements for transactions of Real Estate Properties between 2000 and 2014. If it is considered only the expansion phase of the bubble, the lowest number of traded properties was in 2007. This may seem contradictory with the data of the average real estate values: comparing the years of 2000 and 2007, the annual numbers of agreements falls by 64.823 (or 18,72%). There was a trend of reduction on the

3 Purchase and Sale Agreements signed and related to properties situated in Portuguese Territory (INE, 2015a).

number of agreements since the first year of the records. However if it is considered a mean for the number of agreements to the years of the expansion phase (including the bubble burst year of 2008), it is concluded that there was an annual average of 298.506 agreements for purchase and sale of real estate properties. This number is higher by around 120.000 agreements per year than the verified in the recessive phase4 (including the years of 2008, 2013 and 2014).

Table 3 – Number of Agreements for Purchase and Sale of Real Estate Properties in Portugal (2000-2014)

Urban Rural Mix-Use Properties Total Properties Properties 2000 255.406 85.418 5.364 346.188 2001 240.426 81.326 4.980 326.732 2002 254.645 70.679 3.977 329.301 230.063 65.532 4.510 300.105 The Bubble 2003 Expansion 2004 219.726 52.684 3.882 276.292 2005 230.925 64.764 4.355 300.044 2006 219.466 61.945 4.072 285.483 2007 210.892 66.173 4.300 281.365 The Bubble 2008 173.579 63.551 3.910 241.040 Burst 2009 146.062 56.810 2.570 205.442 The Recessive 2010 151.957 55.025 2.339 209.321 Phase 2011 112.062 53.259 2.175 167.496 2012 90.809 49.368 1.876 142.053 2013 95.058 45.047 1.734 141.839 2014 98.512 48.049 1.957 148.518 Source: Adapted from INE (2015b).

To conclude, these numbers proved that Portugal had a land bubble like other Western Nations and that the land bubble is the “real source” of the internal economic crisis. Although these numbers had already been proven the real estate bubble, it is possible to extract more information from them: (i) according to Table 2, the average values of the mix-use properties are higher than the urban properties, which in turn, are higher than the values of rural properties; (ii) the Table 3 shows that the number of traded properties is higher in urban properties than in rural properties, which in turn, have, substantially, more traded properties than the mix-use properties. Apparently this data is not very understandable. However, this is perhaps the most relevant content of such data: (i) the mix-use properties match with real estate that have inside the same boundaries, an urban parcel (which the primary use is not directly linked to farm activities) and rural parcels. The definition is generalist, but it covers properties like farmsteads (particularly those adjacent or within the limits of the cities). That’s the explanation for the low records of transactions and for the high average values per property. (ii) The urban properties include different kinds of properties located whether in urban settlements whether in rural landscapes. If it is for the residential use in a city, it will be an apartment, a single dwelling building or a vacant lot5. If it is for the commercial use, it must be a store, a mall or a vacant lot5. And so on. (iii) The rural properties include the biggest discrepancies

4 The average for this period was 179.387 agreements per year. 5 The vacant lot is the construction site explicitly served by infrastructures (sidewalks, roads, street lighting, pipelines, etc.). This is important to say because there are other kind of vacant lots in urban land: the juridical lots in parcels of raw

4 between properties, although it may go unnoticed. There are the farming parcels, the forestry parcels and the urban vacant parcels. It appears to be messy, but the parcels located inside the city limits that remain in a raw state can be classified for tax purposes6 as rural properties. The same can be said for the rural properties (even without any plantation) classified as urban properties or available for urban development in the land-use (zoning) models. It is here where is established the link between the aggregate level and the urban scale.

B. The Regional Level

At the urban scale, and using the same type of information, it will be possible to prove some evidences about the real problem of land market. Therefore, the scale of analysis is the Lisbon Metropolitan Area. This is the largest urban concentration in the Country: Lisbon is the Administrative Capital of Portugal, and has about 500.000 inhabitants, inside its boundaries7. The Lisbon Metropolitan Area has, at all, about 2.800.000 inhabitants (Table 4). Though there are 18 Municipalities, the metropolitan area has only 17 cities. So, there are Municipalities that have more than one city and Municipalities that do not have any city. Of these 17 cities, only two have more than 100 years: Lisbon and Setúbal (INE, 2001). Until 1990, there were only 7 cities in this metropolitan region. The other 10 cities acquired their status during the last real estate cycle. The city of Lisbon is located on the north (or right) bank of Tagus Estuary. The city of Setúbal is located on the north (or right) bank of River Sado (located south of Tagus Estuary). Since the conclusion of 25 April Bridge (1966), the two cities began to be separated by 50 kilometers both by road and by railway. The great urban growth, of the municipalities located in the vicinities of the route that link these two cities, is mainly explained by the proximity to the Capital. The effects of the artificial scarcity are regional on the case of the city of Lisbon and only local on the case of the city of Setúbal. This means that the city of Lisbon explains the growth of the 16 agglomerates that became city over the past 50 years, while Setúbal cannot explain the development of any agglomerate that had become a city. These can be proved by direct observation: for example, comparing the boundaries of Setúbal (as a City) with the Administrative Limits of the respective Municipality (Map 2). Through this method, it is demonstrated that currently the extension of Setúbal (as a city) is not enough to reach the limits of the Municipality. Even with an urban growth centered on the peripheral land, Setúbal cannot explain by itself, the development of any new city. At most, this city can only explain the formation of small scattered settlements and/or suburb settlements in nearby municipalities, particularly in Palmela, which, in turn, has no city and is mainly characterized by areas of rural land and scattered settlements (Table 4). The example of Setúbal's influence is comparable to that seen in other Portuguese cities as Leiria or Coimbra. These cities did not reach the administrative limits (and are, in most cases even far from doing so), so the effects of the artificial scarcity are only visible at local scale. This local scale is the city and his surroundings or other settlements close to the city through fast routes (even if they are located in other jurisdictions). In land available for urban uses. The juridical lots are constituted through land subdivision permits issued by the Municipalities. If an owner of rural land available for urban development does not implement the development works after the land subdivision permit be issued, he has the parcel subdivided in several lots, yet only in a juridical basis. 6 For tax purposes, in Portugal, all the real estate properties are classified as rural properties, mix-use properties and urban properties (Lei n.º 66-B/2012 de 31 de Dezembro). 7 The City already surpassed the administrative/official boundaries. That is the reason why exists a metropolitan area, which in turn, is comprised by 18 municipalities: Lisbon, Alcochete, Almada, Amadora, Barreiro, Cascais, Loures, Mafra, Moita, Montijo, Odivelas, Oeiras, Palmela, Seixal, Sesimbra, Setúbal, Sintra and Vila Franca de Xira (Map 1).

5 statistical terms, the cities, which are not included in a metropolitan area, are irrelevant. The territorial units, where the data are available, are too extensive to explain the reality at city scale level. Why is this explanation important? It is to understand the monetary value of real estate transactions at an urban scale. With this explanation, the conclusion is that the municipalities’ administrative boundaries rarely match with the limits of the cities, even in a large metropolitan area. So there are only a few municipalities where the transaction’s values of rural properties can explain the high proportion of land values, due to urban pressures in the total value of real estate. These Municipalities are Lisbon, Almada, Barreiro, Amadora, Odivelas, Cascais and Oeiras. And among these, there are municipalities that do not have cities: Cascais and Oeiras. However, these two are densely populated municipalities (at this scale) – Cascais had 209.376 inhabitants and Oeiras had 172.959 inhabitants, both in 2014; Cascais was the 6th Municipality with the highest population density (nearly 2.150 individuals per square kilometer) and Oeiras was the 4th on the same indicator (nearly 3.770 individuals per square kilometer). Despite not having cities, they are, at least, large suburbs of Lisbon. These features are visible in its larger settlements: (i) in the Municipality of Cascais there are the Towns of Cascais-Estoril and Parede; and (ii) in the Municipality of Oeiras there are the Towns of Oeiras, Algés and Carnaxide (Map 3). As a whole, these settlements occupy the most of municipalities’ territory and that is why they are representative to demonstrate the fact that the land values have a significant weight in the market value of real estate.

Table 4 – Resident Population by Municipality in Lisbon Metropolitan Area (2001, 2011 and 2014)

Jurisdictions 2001 2011 2014 Alcochete 13.010 17.569 18.658 Almada 160.825 174.030 170.139 Amadora 175.872 175.136 175.952 Barreiro 79.012 78.764 76.775 Cascais 170.683 206.479 209.376 Lisbon 564.657 547.733 509.312 Loures 199.059 205.054 204.695 Mafra 54.358 76.685 81.199 Moita 67.449 66.029 65.288 Montijo 39.168 51.222 54.600 Odivelas 133.847 144.549 152.840 Oeiras 162.128 172.120 172.959 Palmela 53.353 62.831 64.019 Seixal 150.271 158.269 163.737 Sesimbra 37.567 49.500 50.601 Setúbal 113.934 121.185 118.166 Sintra 363.749 377.835 380.934 Vila Franca de Xira 122.908 136.886 139.918 LMA 2.661.850 2.821.876 2.809.168 Portugal 10.394.669 10.542.398 10.374.822 Source: INE (2015c).

Map 1 – Lisbon Metropolitan Area and the 18 Municipalities’ Members

Lisbon Municipality

20 Km Other 17 Municipalities of Lisbon Metropolitan Area.

Lisbon Metropolitan Area.

Source: Author (2016).

Table 5 – Number of Cities per Municipality in Lisbon Metropolitan Area (2015)

Jurisdictions Number of Cities Identification of the Cities Alcochete 0 Without Cities Almada 2 Almada (1973) + Costa da Caparica (2004) Amadora 1 Amadora (1979) Barreiro 1 Barreiro (1984) Cascais 0 Without Cities Lisbon 1 Lisboa (1184) Loures 2 Loures (1990) + Sacavém (1997) Mafra 0 Without Cities Moita 0 Without Cities Montijo 1 Montijo (1985) Odivelas 1 Odivelas (1990) Oeiras 0 Without Cities Palmela 0 Without Cities Seixal 2 Seixal (1993) + Amora (1993) Sesimbra 0 Without Cities Setúbal 1 Setúbal (1860) Sintra 2 Agualva-Cacém (2001) + Queluz (1997) Vila Franca de 3 Póvoa de Santa Iria (1999) + Alverca (1990) + Vila Franca de Xira (1984) Xira LMA 17 - Portugal 159 - Source: INE (2001); INE (2016).

Map 2 – Setubal's City Boundaries and Respective Municipality's Limits framed at a Regional Scale

Setúbal’s City Limits

10 Km Lisbon Metropolitan Area Municipalities’ Limits

Lisbon Municipality

Source: Author (2016).

Map 3 – Settlements by Type located in each Municipality of Great Lisbon8 (Lisbon Metropolitan Area)

Lisbon Metropolitan Area 12 Km Municipalities’ Limits

Lisbon Metropolitan Area Boundaries Cities in Lisbon Metropolitan Area

Lisbon City

Towns in Lisbon Metropolitan Area

Settlements in Lisbon Metropolitan Area

The Main Settlement of each Municipality

Other kind of Settlements located in each Municipality

Source: Author (2016).

8 Lisbon Metropolitan Area is composed of two sub-regions: Great Lisbon and Setúbal’s Peninsula. Each one has 9 Municipalities.

Table 6 – Municipality's Area and Population Density (2014) – Based on Administrative Limits of 2014

Jurisdictions Territorial Units’ Surface (square Population Density (Residents per square kilometers) kilometer) Alcochete 128,36 145 Almada 70,21 2.423 Amadora 23,78 7.399 Barreiro 36,39 2.110 Cascais 97,4 2.150 Lisbon 100,05 5.091 Loures 167,24 1.224 Mafra 291,65 278 Moita 55,26 1.181 Montijo 348,62 157 Odivelas 26,54 5.759 Oeiras 45,88 3.770 Palmela 465,12 138 Seixal 95,5 1.715 Sesimbra 195,47 259 Setúbal 230,32 513 Sintra 319,23 1.193 Vila Franca de Xira 318,19 440 LMA 3.015,24 932 Portugal 92.225,64 112 Source: INE (2015d; 2015e).

Furthermore, there is more information to confirm this observation. In 2011, there were 1.459.272 individuals living in the 17 cities of Lisbon Metropolitan Area (Table 7). This information has many imperfections if the aim is to get the total of population living in urban settlements (cities, towns and suburbs), because the population living in the main settlements of Cascais and Oeiras are not considered, neither the population living in Mem-Martins (Sintra). Then it is possible to extrapolate that more than 51,71% of the individuals living in Lisbon Metropolitan Area currently reside in predominantly urban areas. Anyway this data confirms that, in 2011, there were 1.459.272 individuals living in only 9% of the surface of Lisbon Metropolitan Area (Table 7). Even considering the defects of information already recognized, it can be concluded that the Lisbon Metropolitan Area is not an urban densely occupied region, compared to other worldwide metropolis. Because it is only a small fraction of its total area, that is occupied by cities, towns or suburbs. For example, the second Municipality with most inhabitants of Lisbon Metropolitan Area is Sintra, which has two cities and both have a higher population density than Lisbon (Table 7). However the population density of the Municipality is very low (1.193 individuals per square kilometer) comparing with the data verified whether in its two cities9 whether with the number of inhabitants. The reason is that there are two extensive sections of the municipality where the predominant land-use is not the urban use: the Natural Park of Sintra’s Hills (which extends to the Municipality of Cascais) and the rural area proliferated by several small settlements (usually of the scattered kind). The two cities were

9 In 2011, the two cities (Agualva-Cacém and Queluz) had about 44,49% of the total of inhabitants of the Municipality.

12 implemented in the vicinity of the main routes to Lisbon (the Sintra Railway Line and the Complementary Itinerary 1910) and together occupy only a small fraction of the Sintra’s Municipality area11. Even if it will be considered the area of the two cities plus the area occupied by the Mem- Martins Suburb, probably it will not exceed the 20% of the Municipality’s area12. So the second most populated municipality of the Lisbon Metropolitan Area has only an area between 10 and 20% of its territory occupied by areas that match with a predominantly urban land-use. The large size of the administrative areas for which has been collected the information is not compatible with the size of the cities (with few exceptions). This can be observable even in a Metropolitan Area13. Therefore, the values of the real estate transactions analyzed at a municipal scale do not show the full impact of the land speculation. Nevertheless, it is possible to demonstrate the real impact of land speculation derived from urban pressures through two complementary approaches (disaggregate level): at the regional scale and at the city/urban scale.

Table 7 – Inhabitants, Population Density and Surface of Cities in Lisbon Metropolitan Area (2011)

Cities’ Surface Cities’ Surface Population Cities’ Population Jurisdictions in square per Municipality Inhabitants living in Identification Density kilometeres (%) Cities (%) Almada 14,7 20,94% 96.404 6.558 55,40% Almada Costa da Caparica 4,6 6,55% 122.11 2.655 7,02% Amadora Amadora 23,8 100,08% 175.144 7.359 100,00% Barreiro Barreiro 10,9 29,95% 63.351 5.812 80,43% Lisbon Lisbon 100,1 100,05% 552.752 5.522 100,92% Loures 11,8 7,06% 43.127 3.655 21,03% Loures Sacavém 3,9 2,33% 24.822 6.365 12,11% Montijo Montijo 9,1 2,61% 36.163 3.974 70,60% Odivelas Odivelas 4,3 16,20% 56.846 13.220 39,33% Seixal 8,6 9,01% 29.373 3.416 18,56% Seixal Amora 5,4 5,65% 40.513 7.502 25,60% Setúbal Setúbal 38 16,50% 98.116 2.582 80,96% Agualva-Cacém 10,4 3,26% 116.681 11.219 30,88% Sintra Queluz 6,7 2,10% 51.413 7.674 13,61% Póvoa de Santa Iria 4,6 1,45% 29.348 6.380 21,44% Vila Franca Alverca 10,4 3,27% 34.946 3.360 25,53% de Xira Vila Franca de Xira 4,8 1,51% 13.831 2.881 10,10% Lisbon Metropolitan - 272,1 9,02% 1.459.272 5.363 51,71% Area Source: Adapted from INE (2015f; 2015g).

10 It is a Highway with a parallel path to the railway. 11 About 5,36% (Table 7). The Map 4 represents a larger area because it is based on the urban continuity and not on the administrative boundaries like it is the data of the Table based on information collected by INE. 12 The numbers are conservative because the real limits of the cities can be larger than the administrative limits used by INE as it is explain before. 13 “Google Earth and similar satellite photography can now demonstrate even to casual observer that urban development is such a small fragment of the total land area” (Fischel, 2012: 273).

Map 4 – Municipality of Sintra: Cities, Towns and Suburbs

Lisbon Metropolitan Area Boundaries

Municipalities’ Administrative Limits 6 Km

Lisbon City Limits

Cities Limits (Sintra) Suburbs and Towns Limits (Sintra) Colares Village Limits (Sintra)

Sintra Town

Other Settlements located in Municipality of Sintra

Source: Author (2016).

The Table 8 shows the average value of the Real Estate Transactions within the administrative limits of Lisbon Metropolitan Area. Thus, it is verified that the real estate bubble burst in 2008: between 2000 and 2008, the average value of all transactions of properties inside this administrative limits, increased by 96,70% (almost doubled the initial average value) and by year, during this same period, the increase is equivalent to 8,82%. From 2008 to 2012 or during the recessive phase of the land cycle, the average value of the properties transacted dropped down 17,50% or about 4,70% by year.

By type of properties, the urban and rural properties reach the peak in the same year: 2008; and the mix-use properties reached the peak in 2006, yet it still had high values until 2010. The value of urban properties increased by year at 8,69% between 2000 and 2008 or 94,76% considering only the changes between the values recorded to these two years. The value of rural properties increased 168,56% during the same period or at a rate of 13,14% by year. Considering the same period to the mix-use properties, the increase was of 78,18% or 7,49% by year. After the peak of 2008, it entered on the recessive phase of the cycle: the urban properties reach the bottom in 2011 like the average value of all properties transacted, but the values of 2012 can also explain the fall of the real estate values (the transacted values are similar between these two years for all kinds of properties). Hence, the average value of all urban properties transacted fell at a rate of 4,06% by year between 2008 and 2012 or 15,26%, considering the two years. The average value of rural properties average values fell at a rate of 18,79% by year or 56,50% between the two years of the same period (fell to about half). Similar trend is verified in the mix-use properties, whose average value fell by 54,25% in this period or at a rate of 17,76% by year.

The data is obvious: There was a land bubble in the real estate market that broke out in 2008. This had already been confirmed with aggregated data and the regional approach validates the evidence. The Table 8 represents the information of a metropolitan region because the land bubble must be evidenced at the urban scale (Hoyt, 1933). However, it is been demonstrated that the urban land, in particular, the land occupied by Cities, even in this Metropolitan Area, is only a small fraction of all the land available. Besides these facts, from the comparison between the data available for national and metropolitan scale, there is more information that deserve to be withdrawn: (i) the average value of the urban properties, transacted between 2000 and 2014, located in Lisbon Metropolitan Area corresponds to 162,75% of the average value of the same type of properties transacted on the National level; (ii) the average value of the rural properties, transacted upon the same period, located in Lisbon Metropolitan Area corresponds to 957,37% of the average value of the same type of properties transacted on the National scale; (iii) the mix-use properties average value, during the same period, matches to 486,57% of the average value of the same type of properties transacted on the national level. Considering all the transactions, by including all the types of properties, the properties transacted in Lisbon Metropolitan Area had, in average, the double (207,16%) of the value of properties transacted on national scale.

The great reference of this analysis is the difference of values between the rural properties and the mix-use properties on the regional scale and the same type of properties on the national level. These real estate values does not differentiate the land values of the capital values, which means that if the land values has a significant weight on the national scale transactions prices, so in the Lisbon Metropolitan Area (Regional level), the land values are more inflated by far. This confirms and validates the Henry George’s theory: “So enormous are the advantages which this land [the city’s

15 land] now offer for the application of labor, that instead of one man with a span of horses stratching over acres, you may count in places thousands of workers to the acre, on floors raised one above the other, five, six, seven and eight stories from the ground, while underneath the surface of the earth, engines are throbbing with pulsations that exert the force of thousands of horses. All these advantages adhere to the land; it is on this land and no other, that they can be utilized, for here is the center of population – the focus of exchanges, the market place and workshop of the highest forms of industry. The productive powers which density of population has attached to this land are equivalent to the multiplication of its original fertility by the hundred fold and the thousand fold. And rent, which measures the difference between this added productiveness and that of the least productive land in use, has increased accordingly” (George, 2009 [1882]: 217); “In the urban context, these dynamics [the paradox based on the fact that economic progress leads to more poverty] are particularly grave because large amounts of rent are generated in cities. Cities are where investment flows, where population concentrates, where pressure mounts on urban land, and where, in turn, rent rises the fastest. Consequently, it is also where the poverty concentrates the most. Aside from income inequality, caused by having to pay high rents to landowners, cities are where access to land can be most restricted” (Odeng-Odoom, 2015: 555); “George saw cities as foci of communication, cooperation, socialization, and exchange, which he considered the basis of civilization. He saw the cities as the new frontier, an endless series of new frontiers, because the city as a whole enjoys increasing returns. The presence of people with good mutual access associating on equal terms expedites cooperation and specialization through the market. Multivariate interactions in cities are synergistic. Indeed while each part – each parcel of land – is developed in the stage of decreasing returns, the composite city is generally in a stage of increasing returns, thanks to synergy. The whole is greater than the sum of its parts; and increases to the whole yield more than the sum of increase to the parts” (Gaffney, 2001: 63); “[the] individuality, this single being of one city regarding to others, clearly, has material roots, originated not only by the site, the location (although there are similarities, there cannot be two equal places), but also by its own city structure, which by the time, is giving rise to a second nature. The own city resists perishing, it is one of the most immortal human creations” (Chueca Goitia, 2008 [1982]: 31). All these citations let be conclude that the engine of the material progress is the development of the city, and this level of progress is shown by the land values (which in turn, represents the productivity of the cities). It is in the cities where the land values are higher, because it is there, where the people can achieve more and better opportunities to apply their labor and capital. On a national scale, Lisbon and the Lisbon Metropolitan Area are the place where these gains can be offer more frequently: Lisbon as a city is the largest human mass of Portugal and this is the reason why the values of its properties are so higher than those recorded at national level. The difference is measured by the land values or by the rents that can be obtained in one place and outside this same place. This does not invalidate the fact that the land inside and surrounding other cities located outside the metropolitan areas (Lisbon and Oporto) also has a speculative value, because there, “to buy title to land, the people pay prices that look very high relative to current cash flow” (Gaffney, 2001: 64). However, in Portugal these places have difficult to be statistically relevant even at the local scale (Municipality), because the area covered by the city (and his surroundings) does not reach, in many cases, half the administrative area where they are located. This issue was already advanced in this article and the author (Henriques,

2015) demonstrates the evidence of the land speculation phenomenon in a small city14 located outside the metropolitan areas, where it was possible to confirm the statistical weight of the land values upon the local scale, because the city and its surrounding areas already exceeded the boundaries of the Municipality (the Municipality of Entroncamento is, in area, the second smallest Municipality of Portugal), so the information collected for the Municipality scale can be used to explain the fluctuations of land values upon the city scale.

Table 8 – Average value (€) of Real Estate Properties Agreements for Purchase and Sale in Lisbon Metropolitan Area (2000-2014)

Urban Rural Mix-Use Total Properties Properties Properties 2000 87.494 81.223 331.366 88.276 2001 94.800 68.771 287.425 94.020 2002 95.697 72.370 328.242 95.496 2003 109.173 107.446 263.636 109.651 The Bubble Expansion 2004 132.591 144.600 336.623 133.739 2005 149.413 156.625 369.727 150.342 2006 163.457 205.755 744.389 166.410 2007 169.797 190.531 578.280 171.911 The Bubble 2008 170.399 218.131 590.419 173.638 Burst 2009 153.682 120.543 537.059 153.653 The Recessive 2010 157.900 103.251 457.639 157.294 Phase 2011 141.224 124.794 250.651 141.060 2012 144.390 94.879 270.108 143.245 2013 142.285 539.423 318.006 155.789 2014 165.055 109.596 185.398 163.587 Source: INE (2015a).

Despite it is recognized the land bubble on the metropolitan scale, if the analysis would be carried out only on the basis of the information available in the Table 8, it can create some misunderstandings: for example the average value of the real estate transactions considering, the two periods of the land cycle (2000-2008 and 2008-2012), reveals that the average values of the transactions are higher during the recessive phase than during the bubble expansion phase15. Considering the total values, there is a difference of 17.341,88€ between the average values obtained for the total of properties transacted during the recessive phase and during the bubble expansion phase. This could be used to demote the conclusions of this article; however the Table 9 will help to explain this numbers. Before advance to that phase, one last singularity of the data about the transactions average values: although the average values of all the transactions could be higher in the recessive phase, the fact is that both the values of the rural properties and the values of the mix-used properties fell comparing with the average values of the land bubble expansion phase. Naturally, this also proves the theory that the fall of the land values is steeper in the peripheral areas than in the

14 The city of Entroncamento, which had about 20.000 inhabitants in 2011. 15 For the bubble expansion phase, the average values of transactions are: 130.313,44€ for urban properties, 138.383,56€ for rural properties, 425.567,44€ for mix-use properties, and 131.498,11€ for the total, while during the recessive phase, the average values of transactions are: 149.299,00€ for urban properties, 110.866,75€ for rural properties, 378.864,25€, and 148.813,00€ for the total.

central areas: “In addition to confirming the general hypothesis that land value peaks precede depressions, Hoyt also reveals the differential pattern within a city (…) The data clearly show that land values shift to more peripheral locations during boom periods – it is not in whole city, while some areas are going change at a fast pace, by annexation of rural land, other areas tend to decline, due to obsolescence of buildings – and contracts more severely in those same areas after a crash. Thus, land values in the central business district did not even double from 1910 to 1928, but land for housing and outlying business districts grew by a factor of 4.5 and 6.7, respectively. The subsequent crash was also much greater in outlying areas. This shows that the volatility of land prices is in newly-developed marginal lands” (Hoyt, 1933: 347 quoted by Gaffney, 2015: 338). The maintenance of high values reflects also the subsidies for the purchase of real estate by speculators (Real Estate Investment Funds) and by foreign investors or residents16. These subsidies shall be allocated to a demand with high purchasing power, which is the one that can operate upon a freezing market situation (after the bubble burst and without using borrowed capital). In turn, this kind of demand purchase the most properties in the larger cities (Lisbon and to a lesser extent in Oporto), the small palaces or new luxury apartments located in the Portuguese Sunshine Coast (Cascais and Oeiras Municipalities) and the accommodations in resorts and luxury apartments located in the main tourist area of Portugal: Algarve Region. This led to the concentration of large capital flows in a few areas and for a limited number of properties, which may give rise to erroneous conclusions about the average level of prices in the real estate market.

Table 9 – Number of Agreements for Sales and Purchases of Real Estate Properties in Lisbon Metropolitan Area (2000-2014)

Urban Rural Mix-Use Total Properties Properties Properties 2000 78.354 6.479 440 85.273 2001 71.341 5.153 385 76.879 2002 74.672 4.374 370 79.416 2003 70.160 3.840 273 74.273 The Bubble Expansion 2004 67.824 2.347 258 70.429 2005 74.111 2.085 254 76.450 2006 71.711 2.164 219 74.094 2007 66.446 2.479 232 69.157 The Bubble 2008 53.516 1.882 215 55.613 Burst 2009 44.331 1.417 119 45.867 The Recessive 2010 47.593 1.262 131 48.986 Phase 2011 31.927 1.063 110 33.100 2012 24.173 879 117 25.169 2013 26.829 914 72 27.815 2014 30.593 864 79 31.536 Source: INE (2015b).

16 Law no. 75-A/2014, September 30th (Estatuto dos Benefícios Fiscais): it allows real estate investment funds of paying only a half of both the property and transaction tax (regulatory arrangements, ironically, include in the chapter VI entitled: Tax Incentives for Productive Investments). The Golden Visa (PLMJ, 2015): regulates the foreign individual investment in Portugal, being one of the requirements, the purchase of real estate properties with a price equal or higher than 500.000,00€.

The verification of the previous reasoning is given by the number of transactions (Table 9): (i) during the bubble expansion phase, the average number of transactions was of 73.509 per year, while in the recessive phase (the values of this approach include the years of 2013 and 2014), this number dropped to 38.298 transactions per year (a fall of 47,90%, or almost half of the number of transactions); (ii) the average number of rural properties transactions fell by 65,44% between these two periods; (iii) the average number of urban properties transactions fell by 46,99%; and (iv) the average number of mix-used properties transactions fell by 59,04%. This numbers validate again the land bubble theory and the moment when the bubble burst (between 2007 and 2008). On this scale, although the average values have not fallen steeply, due to the reasons advanced before, the fact is that the number of transactions drops steeply: the market is frozen, because the credit is not available, due to a banks’ liquidity crisis generated by the bubble. The transactions are very restricted and only cover a limited set of agents (framed in demand segment with high incomes).

C. The Lisbon city’s level

The city of Lisbon already surpassed the administrative limits of the Municipality. The Map 5 illustrates the alignment of the city limits superimposed on administrative boundaries. The delimitation was based on satellite images observation using the criterion of urban fabric continuity. More rigorously, the author as it was advanced before defends other limits to the city of Lisbon (covering a large number of suburbs, towns and also the most of the metropolitan cities), however these limits do not have a statistic and administrative structure from which would be possible to collect and develop information to validate the proposed definition. Face the limitations, the approach must be centered in the Lisbon Municipality and the delimitation of Lisbon as a city follows a simple methodology.

Taking into account all the information previously worked, it is known that the peak of real estate prices occurred in 2007 and 2008. In 2007 the land values reached the peak and the bubble burst during the year of 2008. This is explained by the values of the properties transacted and by the number of transactions. So what is the information that can better explain these facts at the local scale? It is the information published for the city scale. Then if the Lisbon city already reached the administrative limits of the Municipality, so it is one of the best evidences to prove the theory of the land bubble.

The information of the Table 10 allows the confirmation of this theory: between 2000 and 2008, the total real estate properties average value rose 103%17 (more than duplicate), but the peak was not in 2008. The peak of the average value for all the properties transacted covering the different kinds of real estate (urban, rural and mix-use properties) was in 2007. For this reason, the land bubble reaches the peak in that year, not in 2008. Considering the years between 2000 and 2007, the real estate average values increase about 133%18. The urban properties value grew up 132%19. On the rural properties the growth reached 360% and on the mix-use properties the growth was of 347%20. From 2007 to 2008, the properties average values fell by 11,82% on urban properties, 81,76% on rural

17 In absolute terms, the average value of all properties transacted, in 2000, was 137.755,00€ and in 2008, it was 279.810,00€. 18 From 137.755,00€ to 321.697,00€. 19 From 136.155,00€ to 317.055,00€. 20 Rural Properties: from 345.159,00€ to 1.589.879,00€; Mix-use Properties: from 749.936,00€ to 3.352.347,00€.

19 properties and 79,27% on mix-use properties transactions21. As a whole, the real estate properties transactions fell 13,02% in only one year22. Between 2007 and 2012, the real estate average values of all transactions fell 30,36%: the urban properties fell 30,49% and the mix-use properties fell 32,16%. In the opposite direction the rural properties appreciated 73,01% (Table 10). This may seem confusing, but the explanation for the differences between the changes of the values in these types of properties is the low representativeness of the rural and mix-use properties over the total of real estate transactions (Table 11). In this situation, the main volume of transactions is focused on urban properties, because it is this type of properties that command the fluctuations of real estate market: for all the years for which there are records, the urban properties represent 99,73% of the total volume of real estate transactions. Other undeniable fact is that the abrupt changes of the fluctuations in real estate market are related with the land values: they affect urban property values and thus also the general price, however there is on the rural properties where the weight of land values is more evident, because these properties inside the city limits are often under-improved, so the capital is only a small fraction of their global real estate value. Nonetheless, there are some conclusions that should be taken from these records: (i) the average value of the rural properties transacted between 2000 and 2014 is greater than two and a half times the average value of the urban properties transacted in the same period23; (ii) the average value of the mix-use properties transacted between 2000 and 2014 is greater than almost 4 times the average value of the urban properties transacted in the same period24; (iii) the average value of rural properties transacted in Lisbon is greater than 25 times the average value of the same type of properties transacted in Portugal and greater than three and a half times the average value of the same type of properties transacted in Lisbon Metropolitan Area25; (iv) the average value of the mix-use properties transacted in Lisbon is greater than five and a half times the value of the same type of properties transacted in Portugal and greater than more than twice the average value of the mix-use properties transacted in Lisbon Metropolitan Area26.

With these facts, it is possible to extrapolate that the tax policy gives huge subsidies to the landholders of rural and mix-use properties. That is the only explanation for the difference in average values between urban properties and rural and mix-use properties in two dimensions: (i) at the regional and national scale comparing the same type of property; (ii) and at the local scale, between the different types of properties. The loophole is simple to explain: the properties are classified for tax purposes as rural properties or urban properties (the mix-use properties are a designation used to classify properties where it cannot be possible to distinguish if the properties are being used mostly as urban or rural land). The urban properties classified for tax purposes are assessed based on the value of the improvements (buildings), while the rural properties are assessed based on the current income/yield value through a rural productive use (plantations). So if the properties are inside the city, only in the cases where the land cannot be transformed into urban uses (small obsolete parcels

21 Urban Properties: from 317.055,00€ to 279.571,00€; Rural Properties: from 1.589.876,00€ to 290.045,00€; and Mix- Use Properties: from 3.352.347,00€ to 694.776,00€. 22 From 321.697,00€ to 279.810,00€. 23 The average value of the urban properties for all the years covered is 215.942,00€ and the average value of the rural properties for the same period is 544.577,00€. 24 The average value of the mix-use properties for all the years covered is 853.066,00€. 25 The average value of all rural properties transacted in Portugal is 21.491,00€ and 155.862,00€ in Lisbon Metropolitan Area (Tables 2 and 8). 26 The average value of all mix-use properties transacted in Portugal is 152.988,00€ and 389.931,00€ in Lisbon Metropolitan Area (Tables 2 and 8).

of land, where the building process is not feasible because of the size of the lot; and land located in areas affected by floods27) are that these properties have a market value close to the value of the assessments for tax purposes. However, the New General Plan of Lisbon (CML, 2012) confirmed that all the land inside the Lisbon Municipality Boundaries matches with urban land (inside this classification, there are several categories as land allocated to recreational uses or greenspaces, but probably most of this kind of land is already part of the municipal or State property and is currently allocated for these purposes). This leads to a great conclusion: there is incompatibility between the zoning policy and the tax policy. If the land is classified by zoning policy as urban land (available for development) and it remains classified as rural land for tax purposes, this is a huge loophole: the Picture 1 illustrates some kinds of properties inside the city limits which are considered by zoning as urban properties but probably are classified as rural properties for tax purposes28. The owners of rural land inside the city limits receive huge tax benefits, which are mainly visible in the cities, towns or other areas where the value of rural land is high enough to promote their transformation into urban land. The price or the value of the transactions of rural or mix-use properties is the great evidence of this major tax problem. Probably, this matter could be reported if the Country had a complete and updated land registry, which is not the case of Portugal. The assessments frequency is also very slow, so during an expansion phase of the land cycle, the properties, in general, benefit from an even more favorable tax treatment. The conclusion is that there are only a few individuals or companies that can buy and develop the vacant land currently existing in Lisbon. The most of them are land speculators which hold the properties indefinitely without any use or development and the others who invest in the construction or remodeling of building structures practice selling or leasing prices inaccessible for the most of effective demand.

Table 10 – Average value (€) of Real Estate Properties Agreements for Purchase and Sale in Lisbon Municipality (2000-2014)

Urban Rural Mix-Use Properties Total Properties Properties 2000 136.155 345.159 749.936 137.755 2001 136.672 232.744 804.151 137.907 2002 143.302 318.167 141.670 144.188 2003 156.176 586.472 242.589 158.877 The Bubble 2004 200.116 148.975 544.221 200.244 Expansion 2005 221.149 338.327 1.684.683 221.840 2006 253.802 1.160.293 187.000 254.371 2007 317.055 1.589.876 3.352.347 321.697 The Bubble 2008 279.571 290.045 694.776 279.810 Burst 2009 232.856 2.000 50.000 232.816 The Recessive 2010 258.568 60.998 71.575 258.343 Phase 2011 214.618 20.794 1.910.154 214.683 2012 220.378 2.750.640 2.274.079 224.044 2013 217.836 5.205 50.000 217.756 2014 250.889 318.965 38.819 250.895

27 These issues should be identified in the Zoning Instruments. 28 There are more evidences in other neighborhoods of the city: Olivais, Chelas, Olaias, Benfica.

Source: INE (2015a)

The Table 11 has more data about the real estate market: (i) comparing the volume of transactions of all kinds of properties in Lisbon (Municipality) with the same indicator at the regional scale (Lisbon Metropolitan Area), it shows that in 2000, the volume of properties transacted in Lisbon, represents only 16,12% of the total volume of properties transacted in Lisbon Metropolitan Area, while in 2014, this indicator rose to 31,77%. This proves that during the market freeze phase, it is restricted to the movements of high income operators from both sides (supply-demand). They benefit from the subsidies mentioned above and are operators with few borrowing requirements. The transactions cover mainly properties located in the “prime areas” of the city29: Parque das Nações (Nations’ Park), Marquês de Pombal, Avenida da Liberdade (Liberty Avenue), Baixa Pombalina (Downtown), and Saldanha. In turn, this also explains, why the average values of transactions remain relatively high, yet they are still far from the peak values reached in 2007 or even the values reached in 2008. The changes in the volume of transactions complement the argument development here. (ii) On average, the number of properties transacted by year on the expansion phase of the cycle (2000- 2008) was 15.15530 and on the recession phase was 9.272. There was a difference of 5.882 transactions per year between the two periods or a fall of 38,82% of the annual number of transactions inside the Lisbon Municipality administrative limits. This number is lower than the fall recorded at the regional level, which validates all the argument developed in this paragraph.

Table 11 – Number of Agreements for Sales and Purchases of Real Estate Properties in Lisbon Municipality (2000-2014)

Urban Rural Properties Mix-Use Properties Total Properties 2000 13.661 70 12 13.743 2001 14.929 61 19 15.009 2002 15.305 78 7 15.390 2003 16.264 100 14 16.378 The Bubble 2004 15.916 54 14 15.984 Expansion 2005 17.165 14 7 17.186 2006 17.392 11 1 17.404 2007 14.346 31 9 14.386 The Bubble 2008 11.419 23 6 11.448 Burst 2009 10.427 1 1 10.429 The Recessive 2010 11.174 8 5 11.187 Phase 2011 8.160 6 1 8.167 2012 6.371 6 4 6.381 2013 7.343 2 1 7.346 2014 10.014 4 1 10.019 Source: INE (2015b)

29 Term used to identify the sections of the city with higher value per square meter. These are the central areas of the city and at the same time, are the areas where the land values remain high even after the bubble burst. Or more accurately, it is where the fall of land values was lower. 30 If it is not considered the data for 2008, the annual average number of transactions was 15.622.

Map 5 – Lisbon City Limits

Municipalities’ Administrative Limits 4.50 Km

Lisbon City Limits

Lisbon City

Source: Author (2016).

Picture 1 – Vacant Parcels in Carnide Neighborhood, Lisbon

Source: Google Earth (2007) and Bing Maps 3D Aerial Views (2016).

1.2 Investment in Peripheral Areas: The premature subdivision phenomenon The second explanatory factor of the real assets model can be implemented through two approaches: (i) from a reliable database with the geographical and statistical information of all the subdivisions developments by jurisdiction (by municipality) and by city. The required information are the location of the subdivisions, the date of the permits issued, the records of the property development works date (beginning of work and completion of infrastructure works31), the number of lots in each section of the city and/or jurisdiction, the number of lots occupied by buildings and the number of lots that remain vacant, the buildings' conservation status, the age of the buildings, the number of vacant lots with building permits and the number of buildings with rehabilitation/renewal permits32. However, none of this exists or is not disclosed. For this reason it is not possible to quantify, with accuracy, the dimension of construction in peripheral land and the dimension of construction in central areas; (ii) from direct observation, supported by photography and satellite pictures, it is possible to demonstrate the overbuilding and premature subdivision phenomenon, mainly visible in the peripheral areas and the vacant lots, obsolete structures and parcels located in central areas that are not available for development and use, which shows a contradiction: the overinvestment in peripheral land and the underinvestment in central areas. But, it is precisely this relationship that explains the phenomenon. The underinvestment (the productive real estate investment for transformation, upgrading, rehabilitation, improvement of existing buildings and for the building of new structures) in central areas pushes this kind of investment for marginal areas (peripheral land). Since the means are not met to develop the first approach, then it is understood that the natural choice is to use the second method.

The overbuilding can be demonstrated by the subdivisions in peripheral areas of urban centers. A significant amount of these subdivisions remain with the most of the lots and blocks completely empty. As a result, the residents, traders, workers and consumers that was supposed to meet regularly in these places are slow to arrive. In consequence, the subdivisions are abandoned both by the subdivider and the municipalities (which share responsibility for maintain these areas). The scenario is bleak. It is not just overbuilding, but it is also overbuilding in the wrong places. The cities extend prematurely, long before the required: “Large areas of land, suitable as yet for extensive uses of a rural type, have been subdivided far in advance into hundreds of thousands of parcels, fitted in shape and size to allow only intensive urban uses. One inevitable by-product of the premature subdivision was the creation of hundreds of miles of unneeded and unused streets, equipped out of the proceeds of bond sales with all of the public improvements essential to health, welfare and safety of an urban population which has not yet arrived” (Cornick, 1938: 290); “As a matter of American History, excess land subdivision has several times gone to incredible extremes. Probably in no other market can one find comparable excesses” (Gaffney, 1956: 108). So, why this scenario does deserves special attention?

First, the economic and financial crisis was originated by the land bubble and the premature subdivision phenomenon is the main feature of a land bubble: “the most characteristic feature of a real estate boom is the speculation in acre tracts and the sale of lots in subdivisions to small

31 If they are not completed, then it is important to check the license expiration date. 32 Both with the time factor associated (issue and expiration dates of permits and the date of beginning and conclusion of the construction process).

25 investors” (Hoyt, 1933: 163). A huge amount of capital and labor were wasted on the building of the infrastructures (sidewalks, street lighting, roads, wires, pipes) that do not serve anyone. The capital applied for buy the tracts33, the capital invested in the construction process (materials and equipment) and the labor (number of workers, knowledge and working hours) wasted in large proportions on these processes. Furthermore, the most of these investments were developed with borrowed capital34: “the credit that was secured by tracts available for development, urban vacant lots, and unfinished buildings is estimated that it is higher than 80.000.000.000,00€35 (80 billion) and with very high impairments” (Pardal, 2014: 19). These are the kind of capital that is tied up in projects which do not generate any return for several years.

Second, the municipalities have high costs with the management of these surpluses. These costs abruptly increase with the economic recession, which means that the taxpayers have to pay more for living in Portugal. The high costs degrade the quality of other public services (street cleaning, event organization, blocks the human resources qualification and institutional progress). Other example is the inflation of the public services without a corresponding improvement in the quality of the service: the increase on the prices of water distribution and wastewater collection and the rise on public transport fares. Although some services are not provided by the Municipalities or the State itself, the distribution of electricity, natural gas and telecommunications36 are also inflated by this waste. The street lighting extends overused, because there are an excess of street lamps in areas where there are no users, and the municipalities have to put, in their budgets, the monetary value of that excess of energy consumption37. These wastes require increasing tax revenue, left less revenue to allocate to the improvement of public services.

Third, the territorial consequences generated by the excessive weight that these areas have in cities and its surrounding areas. The premature subdivisions are failed projects. The lots, the size of the streets, sidewalks, the gardens and public parks, the projects of planned buildings are obsolete. The most of these subdivisions were promoted over than ten years ago. It is likely that the market is no longer re-interested in the type of planned projects, even the people, who like to live or work (or both) in the city limits, can no longer be interested in these type of projects. The result will be the fall into oblivion until there is someone available to restructure the whole subdivision. If this happens, perhaps it cannot be the worse for the city. Because it would be a sign that there would be a change in the functioning of the market, through an increase on the new and renovated buildings market in the more central areas of the cities. The people who seek to live in areas where there is greater diversity, where the choose options for leisure and consumption are multiple in a few blocks away of their dwelling unit, can find an affordable housing supply that meets the quality standards of the new building projects.

33 In some cases, have been the original landowner, who starts the subdivision operation. By original landowner, it is understood the individual or Company, who owns the property since the time when that market value would not be higher than the market value of other rural properties in use. 34 The main building cost is the loan interest (Gaffney, 1973; Gaffney, 2009). 35 By comparison, the amount of the loan agreed between the Government of Portugal and the International Monetary Fund, European Union and European Central Bank was of 78.000.000.000,00€ and the majority of this amount was used to finance the State itself. Only 12.000.000.000,00€ had been allocated to capitalized the banks. 36 Managed and traded, in Portugal, by Private Companies. 37 Which is payable to the network operator.

The rural uses have not viability for the market in the areas surrounding the growing settlements. There are the parcels which are processed prematurely in urban lots (where the conversion is difficult) and the parcels which remain empty without use. As it is been shown inside the Lisbon City Limits, there are also a huge amount of properties beyond the limits of urban land, which remain unused. The owners38 have no interest in use the properties for farming purposes, because they can get a higher value for the property, if it remains without use than if it is to be used for rural purposes (Pickard, 2015). The outcome is the freezing of extensive land sections, which remain unproductive. This force the farmers to seek land in remote areas (far away from the markets – cities), generating more waste of resources because of the same cause.

Other inevitable consequence is the depreciation and obsolescence of the oldest areas of the cities. Although, in some cases they can generate large capital flows, the truth is that the most of it is applied only on the properties transactions. Then, only a residual part is applied on the modernization, upgrading, renovation, and construction of buildings: “[the] money can help build inherent success in cities. Indeed, it is indispensable (…) [the] money is a powerful force both for city decline and for city regeneration. But it must be understood that is not the mere availability of money, but how it is available, and for what, that is all important” (Jacobs, 1992 [1961]: 292).

So the question is: what is the weight of the premature subdivision upon the urban areas in Portugal? So far, there is no accurate and official quantification for any city or settlement. Henriques (2015) demonstrated that the city of Entroncamento had, in 2014, at least 351 unused lots (9 occupied by unfinished buildings and 342 vacant). However, this data is based only in a limited number of subdivisions (used as a sample), which means that do not cover the entire city limits. It is true that these data while covering only a fraction of the city, represents the most extreme examples. It is not a coincidence also that these subdivisions (Picture 2) are mainly located in the peripheral areas of the city.

38 In some cases, the owners are not farmers and the most of them have no interest in performing lease agreements. Neither the farmers are able to pay for those properties, more than the amounts required to successfully apply their work in these parcels.

Picture 2 – Four examples of Premature Subdivisions in Entroncamento City, Portugal

Source: Author (2014). The report will go further and show other examples of premature subdivisions that are directly related to the expansion of Lisbon: the Montijo – Alcochete – Pinhal Novo Section (The New Frontier); the oversupply of Warehouses (Castanheira do Ribatejo); and the New Urbanization Fronts in the Old Suburbs (the Western Corridor: Amadora, Oeiras, Cascais, Sintra).

A. The Montijo – Alcochete – Pinhal Novo Section (The New Frontier)

The three settlements share a set of common characteristics, yet the most striking is the impact of the changes in the development of Lisbon on the speed of transformation process of these urban centers: Montijo becomes a city in 1985 (INE, 2001); Alcochete grew rapidly since 2001; Pinhal Novo becomes the largest settlement of the Municipality of Palmela: this municipality won almost 10.000 inhabitants between 2001 and 2011 and it will be possible to extrapolate that a significant part of this increase was absorbed by the Pinhal Novo’ Town.

The next doubt is why are these settlements classified as “the new frontier”39? Before answer to this question, it is required to understand a little more about the origin or evolution of each one: (i) Montijo became a city before the start of the last land cycle (1990-2008). This settlement is separated from Lisbon by the Tagus Estuary, and then the main link between these two settlements was always through fluvial transportation40. This particular feature had a significant role in the development of Montijo. Other factors like the opening of the 25 April Bridge and the consequent urban explosion in Setubal’s Península Settlements (generating new cities like Almada and Barreiro) had an effect of accelerating the urban development expansion in Montijo; (ii) Alcochete is a Town, which is located not far from the City of Montijo. The link between Alcochete and Montijo was essential for the urban evolution of the first settlement. That is because Montijo had functioned like the main gateway to Lisbon. The urban explosion in Setubal’s Peninsula did not arrive to Alcochete, because it was too far away from the main route to Lisbon (both by road and rail link). Thus, until the start of the new land cycle, the urban pression exerted by the development of Lisbon (artificial scarcity phenomenon), was residual in Alcochete, which explains why it have, even now, the lowest number of inhabitants of all Lisbon Metropolitan Area Municipalities (Table 4). Contrary to other municipalities and settlements of Setubal Peninsula, the effects of urban development expansion (related with the artificial scarcity in Lisbon) did not radically accelerate the transformation process of this settlement; (iii) Pinhal Novo is a town, which is known as a railway center. It has links to Lisbon, Setubal, and Barreiro. Again the relationship with the transport infrastructure had a significant weight on the urban development process of this settlement. Likewise it was verified in Montijo, there were pressions for urban development, before the last land cycle had started (Pinhal Novo acquires the town status in 1988). Thus, the effects of the development of Lisbon marked, clearly, the urban transformation process of this settlement.

Now answering the previous question, the reasons are: (i) the public investment options; (ii) the link to the new centralities; (iii) the private investments (Shopping Malls); and (iv) the land subdivided available for development and the parcels available for subdivision or urban expansion.

The Public Investment options, during the last land cycle, were implemented towards generate an excessive appreciation of the land values in this section. The West Industrial Section of Lisbon was the subject of a huge urban renewal project that transformed an urban obsolete area into a new modern center with a great dynamism41. This area matches with Parque das Nações Neighborhood and it is where are located the headquarters of major national and international companies (mainly enterprises linked with technology sector and advanced services). The concentration of users in this city area is relevant at the daytime, due to the high number of jobs and to the preponderance of same spaces that concentrates a wide retail offer. This neighborhood absorbed new residents and innovated by bringing large scale modernity into the city (it was the reverse of the general trend – the new structures, with the highest modern standards were incorporated in an area within the boundaries of the city, instead of being developed on their peripheries). However, this produces one problem: the diversity, the density and the dynamic of this neighborhood blocked the entrance to people with average income levels (who wants to live there) and even the establishment of small businesses in

39 The term is responsibility of the author. 40 Nowadays, the intensity of this kind of link has been reduced, because of the reasons that will be advanced next. Although the public transportation service more fast and accessible to downtown of Lisbon remains the fluvial transport. 41 This Project was developed, during the 90s, to receive a great event: the EXPO 98.

29 surfaces (shops, offices) without use. The Vasco da Gama Bridge was inaugurated in 1998 as part of the EXPO 98 Project (like the Urban Renewal Project) and linked Lisbon and Sacavém (Loures) to Alcochete and Montijo, which became to be separated by only 17 kilometeres through road transport. This project was also part of the building of a highway (Highway 12), which extends to Algarve (through Highway 2), crossing Setubal Peninsula in a North-South direction.

There are other public investment options that have not been realized, yet they gave a contribution to the acceleration of the land boom in this section: (i) the New Lisbon International Airport which was designed to be built in Alcochete or in Rio Frio (Palmela); (ii) the TGV (High-Speed Train) Project that was supposed to came to Pinhal Novo on a line that should connect Lisbon to Madrid; (iii) the third bridge crossing over the Estuary entitled “Chelas-Barreiro” that would just serve the TGV Line Project. Nowadays, these projects are frozen, but they were much discussed during the land boom period, which contribute to accelerate the land speculation phenomenon that feeds the bubble42.

During the last land cycle, the city of Lisbon had been changed and during that process, it created new centralities. The bigger centrality43 that is created was the Parque das Nações (or “Nations Park”) Neighborhood. This urban development process, inside the city, linked with the new bridge to the other margin of the Tagus Estuary, approached Montijo, Alcochete and Pinhal Novo from a new center. The reference is not just the downtown of Lisbon or the Marques de Pombal Area, but principally the new modern center of Parque das Nações. This process overheated the land markets in these three settlements with the consequences that will be visible below.

The last land cycle have other particularity: the building of shopping malls. The last land cycle occurred between 1990 and 2008 as has been demonstrated. Then, the information of the APCC44 (Table 12) reveals that of the 85 Shopping Centers existing in Portugal, 58 were built during the last cycle (the Malls opening in 1990 and 2009 were not consider). In average, there were inaugurated 3 shopping malls per year, while after the bubble burst there were only 1,5 (or between 1 and 2) shopping malls inaugurated per year (2009-2013)45. This is a relative difference of -53% between the periods. If it is considered only the period of greatest acceleration of the land bubble (2000-2008), the findings are: (i) in 9 years were built almost half of the existing malls (48%); (ii) in average, by year, there were inaugurated 4,5 (between 4 and 5) Shopping Centers; (iii) the overcome is a fall of 2/3 (or 66,7%) on the opening rhythm of new Malls in Portugal after the bubble burst (2009-2013).

Turning now to the Section Montijo-Alcochete-Pinhal Novo, during the last land bubble, there were developed two Shopping Malls: Freeport Outlet located in Alcochete (2004) and Forum Montijo located in Montijo (2003).There are no data about the investment that was applied to develop this two Malls. But, there are some references in newspaper articles about transactions involving these Malls: The Forum Montijo was purchased in 2015 by Blackstone Fund on a transaction of

42 The TGV Line Project came forward in a short section inside the City of Lisbon between the Parque das Nações (“Nations Park”) Station and Braço de Prata Station, but with the crisis, the Portuguese Government decided to cancel the project implementation. 43 It was a root developed process. 44 Portuguese Association of Shopping Malls: http://www.apcc.pt/centros/. 45 Five of the eight Shopping Malls that were inaugurated after the bubble burst (2009-2013), opened in 2009.

200.000.000,00€ (this transaction value also covers the purchase of Almada Forum)46; and the Freeport Outlet was purchased in 2007 for 230.000.000,00€ and later, in 2015, the Hammerson will have paid 57.000.000,00€ for three Malls, among which, are included the Freeport Outlet47. The only settlement which has not absorbed any Shopping Mall was Pinhal Novo. Nevertheless Pinhal Novo is inside the area of influence of Forum Montijo (and probably even to the Freeport), which is accessible by the National Road 252 that links Montijo to this settlement. The Mall is located on the peripheral land of the city inside the Montijo Industrial Park (Map 6). The Freeport Outlet followed the same location trend, which is implanted in the limits of the settlement (Map 6). These kinds of investment projects are huge to the scale of the settlements where they are located. As a result, the value of land available for development (and even the land that is not available for development – the land values in general) accelerated by the creation of new centralities, which overshadow anyone of the areas developed so far. The people who do not reside or work in Alcochete, if for some reason they have to go there, the most likely is to moving to the Mall. This reflects on the one hand the innovation of shopping centers as meeting, consumption and work places and the other, the slow adaptability of the old structures (the oldest areas of settlements) to respond to this type of projects and also the poor response given by the new subdivisions promoted. The retailers seek the best areas, which are those that can join diversity with the largest number of users. So, if the new developments and the old sections of the settlements fail to improve/achieve these determinant elements, of course that the retailers will continue to prefer the Malls to operate.

Table 12 – Shopping Malls in Portugal (General Features)48

Opening Gross Leasable Number Investment Identification Location49 Opening after Area (sqm) of Shops Value (€) Renewal S. João da 8ª Avenida Madeira 28.009 133 2007 - - (OMA) Albufeira Albufeira Shopping 11.577 45 1989 - - (Algarve) Amadora Alegro Alfragide 39.760 131 2007 - 50.000.000,0050 (LMA) Alegro Castelo Castelo 19.604 53 2008 - 40.000.000,00 51 Branco Branco Albufeira Algarve Shopping 42.535 126 2001 - 42.000.000,0052 (Algarve) Almada Almada Forum 78.815 250 2002 - - (LMA) Amoreiras Center Lisbon (LMA) 26.454 233 1985 - -

46 http://www.idealista.pt/news/financas/investimentos/2015/05/13/27359-almada-forum-e-forum-montijo-vendidos-a- gigante-blackstone. 47 http://observador.pt/2015/01/07/freeport-de-alcochete-vendido-grupo-britanico-hammerson/. 48 The List with the Shopping Malls does not include all of these kinds of project currently existing in Portugal. These are only the members of the APCC. 49 Legend: OMA is Oporto Metropolitan Area and LMA is Lisbon Metropolitan Area. 50 http://www.tvi24.iol.pt/grupo-auchan/immochan/auchan-inaugura-primeiro-centro-comercial-alegro. 51 http://www.jornaldenegocios.pt/empresas/detalhe/centro_comercial_em_castelo_branco_inaugura_com_40_das_lojas_fe chadas.html. 52 https://www.publico.pt/economia/noticia/algarveshopping-inaugurado-amanha-20182.

Portimão 106.000.000,00 Aqua Portimão 35.499 118 2011 - (Algarve) 53 Arena Shopping Torres Vedras 17.531 86 2007 - - Armazéns do Chiado Lisbon (LMA) 10.436 54 1996 - - Vila Nova de Arrábida Shopping 60.623 195 1996 2006 - Gaia (OMA) Atlantic Park Setúbal 10.978 11 - - - Setúbal (LMA) Braga Parque Braga 52.800 180 1999 2007 e 2009 - Oporto Campus S. João 4.834 36 2005 - 4.000.000,0054 (OMA) Cascais CascaiShopping 73.583 205 1991 2003 25.400.000,0055 (LMA) Centro Comercial Amadora 19.675 38 1987 - - Continente Amadora (LMA) Centro Comercial Loures (LMA) 39.277 75 2002 - - Continente Loures Centro Comercial Portimão 13.538 59 1990 - - Continente Portimão (Algarve) Centro Comercial Lisbon (LMA) 31.398 33 1990 - - Continente Telheiras Centro Comercial Valongo 12.360 42 2008 - - Continente Valongo (OMA) Centro Comercial Maia (OMA) 28.022 30 - - - Jumbo Maia Centro Comercial Vila Franca de 13.596 17 - - - Jumbo Alverca Xira (LMA) Centro Comercial Cascais 12.660 28 - - - Jumbo Cascais (LMA) Centro Comercial Setúbal 25.622 48 - - - Jumbo Setúbal (LMA) Centro Comercial Vila Nova de 7.630 12 - - - Jumbo Famalicão Famalicão Centro Comercial Vila Nova de Pão de Açucar - - - - - Gaia (OMA) Canidelo Centro Comercial Santo Tirso Pão de Açucar Sto. - 12 - - - (OMA) Tirso Central Park Oeiras (LMA) 2.802 39 - - - Centro Colombo Lisbon (LMA) 120.220 387 1997 - - Centro Comercial Vila Nova de 22.112 36 1990 - - Gaia Jardim Gaia (OMA) Centro Comercial Maia (OMA) 18.941 21 2009 - - Maia Jardim Centro Vasco da Lisbon (LMA) 48.927 171 1999 - - Gama City Park Leiria Leiria 6.207 5 2008 - - City Park Penafiel Penafiel 5.887 7 2008 - - Coimbra Retail Park Coimbra 12.750 14 2003 - 13.000.000,0056

53 https://casa.sapo.pt/Noticias/Inauguracao-do-Aqua-Portimao-cria-1.570-postos-de-trabalho/?ID=15733. 54 http://www.bragaparque.pt/sobre/urbaminho.aspx. 55 http://sonaesierra.com/uploadfiles/pressreleases/00F54CBE3C9F6EA7DBB7D69E9D166F88_622004161723.PDF. 56 http://www.sonaesierra.com/uploadfiles/pressreleases/B92395AD92FAD860AECF46F993361F9F_62200415582.PDF.

Coimbra Shopping Coimbra 26.491 67 1993 - - Dolce Vita Coimbra Coimbra 42.182 120 2005 - - Dolce Vita Douro Vila Real 30.266 115 2004 - 70.000.000,0057 Dolce Vita Oeiras (LMA) 5.691 60 2002 - - Miraflores Dolce Vita Lisbon (LMA) 5.539 39 2002 - - Monumental Dolce Vita Ovar Ovar 20.567 68 2007 - - Oporto Dolce Vita Porto 38.216 122 2005 - - (OMA) Amadora 300.000.000,00 Dolce Vita Tejo 122.000 282 2009 - (LMA) 58 Espaço Guimarães Guimarães 48.000 134 2009 - - Estação Viana Viana do 19.182 101 2003 - 45.800.000,0059 Shopping Castelo Forum Algarve Faro (Algarve) 40.000 116 2001 - - Forum Aveiro Aveiro 17.500 86 1998 - - Barreiro Forum Barreiro 17.756 109 2008 - 72.000.000,0060 (LMA) Forum Castelo Castelo 17.463 176 2007 - - Branco Branco Forum Coimbra Coimbra 48.000 148 2006 - - Funchal Forum Madeira 19.857 74 2005 - - (Madeira) Montijo Forum Montijo 57.200 160 2003 - - (LMA) 170.000.000,00 Forum Sintra Sintra (LMA) 57.508 182 2011 - 61 Forum Viseu Viseu 19.690 81 2005 - - Alcochete Freeport Outlet 73.215 153 2004 - - (LMA) Vila Nova de Gaia Shopping 59.672 161 1995 - - Gaia (OMA) Galerias Saldanha Lisbon (LMA) 7.436 79 1998 - - Residence Guimarães Shopping Guimarães 30.911 111 1995 - - Funchal La Vie Funchal 15.961 71 2007 - - (Madeira) LeiriaShopping Leiria 43.919 123 2010 - 79.000.000,0062 LoureShopping Loures (LMA) 38.948 121 2005 - 66.000.000,0063 Funchal MadeiraShopping 26.701 106 2001 - 41.600.000,0064 (Madeira) MaiaShopping Maia (OMA) 28.906 102 - - -

57 http://www.tvi24.iol.pt/amorim-imobiliaria/17-10-2004/amorim-inaugura-dolce-vita-douro-num-investimento-global- de-100-milhoes. 58 http://www.dn.pt/economia/interior/dolce-vita-tejo-abre-na-amadora-apesar-da-crise-1218664.html. 59 http://www.sonaesierra.com/uploadfiles/pressreleases/74F2B6C44EA3B9A90EC35683B3D1F43B_622004155116.PDF. 60 http://www.cm-barreiro.pt/frontoffice/pages/719?news_id=1720. 61 http://jornaldaregiao.blogspot.pt/2011/04/forum-sintra-ja-abriu.html. 62 http://sonaesierra.com/uploadfiles/pressreleases/a4d5f99b-7cb3-4af1-a6cc-3f77af86cba7.pdf. 63 http://www.tvi24.iol.pt/shopping/15-09-2004/sonae-investe-66-milhoes-num-novo-centro-comercial-em-loures. 64 http://sonaesierra.com/uploadfiles/pressreleases/3A04DEAC7C235F044D6679AA7BA55724_622004172541.PDF.

Matosinhos 170.000.000,00 Mar Shopping 102.000 210 2009 - (OMA) 65 Minho Center Braga 21.424 65 2004 - - Matosinhos Norte Shopping 73.275 274 1998 - - (OMA) Oeiras Parque Oeiras (LMA) 34.479 163 1998 - - Palácio do Gelo Viseu 73.500 152 1996 - - Ponta Delgada Parque Atlântico 22.341 100 2003 - 36.000.000,0066 (Açores) Gondomar 120.000.000,00 Parque Nascente 63.500 152 2003 - (OMA) 67 Picoas Plaza Lisbon (LMA) 5.545 48 2007 - - Pingo Doce Algés Oeiras (LMA) 3.525 14 - - - Barreiro Pingo Doce Barreiro 2.500 21 - - - (LMA) Pingo Doce Costa Oporto 2.400 10 - - - Cabral (OMA) Retail Park Abrantes Abrantes 4.421 5 2008 - - Olhão Ria Shopping - - 2009 - - (Algarve) Rio Sul Shopping Seixal (LMA) 44.392 141 2006 - 68.000.000,0068 Serra Shopping Covilhã 17.678 85 2005 - 27.600.000,0069 Shopping Cidade do Oporto 15.064 93 1994 - - Porto (OMA) Spacio Shopping Lisbon (LMA) 20.213 87 1995 2009 - Strada Shopping and Odivelas 38.848 156 2003 2012 - Fashion Outlet (LMA) TorreShopping Torres Novas 11.997 70 2005 - - ViaCatarina Oporto 11.639 91 1996 - - Shopping (OMA) Viana do Viana Retail Center 5.946 4 2006 - - Castelo Vila do Conde The Vila do Conde 28.495 136 2004 - - Style Outlets (OMA) Source: Adapted from APCC (2016).

65 https://www.marshopping.com/pt-pt/about-the-centre/press-release/mar-shopping-abre-a-16-de-outubro. 66 http://sonaesierra.com/uploadfiles/pressreleases/9A62A0BBF5E48E1BCFB026C25EBD52F8_922004132559.PDF. 67 http://www.jornaldenegocios.pt/empresas/detalhe/parque_nascente_comercializado_a_100.html. 68 http://www.sonaesierra.com/uploadfiles/pressreleases/97bc043f-7a81-4d1a-8e2e-798a98655acc.pdf. 69 http://www.sonaesierra.com/uploadfiles/pressreleases/d3f5b69c-1829-4193-ba5c-35f4bd0f9024.pdf.

Map 6 – Montijo - Alcochete - Pinhal Novo Section

Montijo City Limits

Alcochete and Pinhal Novo Towns Limits 3,70km

Montijo City and Alcochete Town Centers

Pinhal Novo Town

Shopping Malls Location National Road 252 Vasco da Gama Bridge Source: Author (2016). The problem of premature subdivision of property can explain, by itself, the economic and financial crisis, without having to resort other indicators (the real estate market prices, the evolution and structure of mortgage loans, and the pace of building). Even without detailing the problem, the evidences collected (sample) validate the formulated hypothesis: the financial crisis was originated by the land bubble developed in the Portuguese real estate market.

The author moved to a set of subdivisions located in this Section and the results of the direct observation approach can be found through the Pictures 3, 4 and 5 and Maps 7, 8, 9, 10, 11, 12 and 13. The maps are simple to interpret: (i) ones (Maps 7, 10 and 12) framed the premature subdivisions area over the total area of urban settlements. In any case, revealing that these samples occupy not only a large proportion of the peripheral land areas, but also a considerable area of the global land occupied by each urban settlement. This shows the weight of the subdivisions for urban development in the building and real estate market dynamics. (ii) Others (Maps 8, 9, 11 and 13) show the amount of continuous lots of empty land: Montijo has twenty six-vacant parcels distributed by three subdivisions (Subdivision 1: 14 parcels, Subdivision 2: two parcels; Subdivision 3: 10 parcels); Alcochete (S. Francisco Settlement) has five parcels concentrated in one subdivision; and Pinhal Novo has thirty-six vacant parcels concentrated also in one subdivision. There is no publication about the developed projects, so it is not possible to query the land-uses foreseen for each empty space or even the precisely number of vacant lots70. Certainly there is much land available for urban development purposes (apartment buildings, single-dwelling units, apartment buildings with stores, public facilities, shopping centers and supermarkets or other retail outlets, green spaces and gardens, and in some parcels – where the subdivision is not completed – even roads, parking lots and sidewalks) that is far from the use for which it was planned. The images (Pictures 3, 4 and 5) confirm that the empty lots are abandoned, generating the proliferation of weeds for sidewalks. This time also the municipalities have to allocate a large share of its revenue to performing maintenance of these areas. But most likely they do not have means to do the cleaning of the city public spaces as often as necessary. The outcome is the state of neglect of the main entrances in each of urban settlements. This confirms the excessive waste of public and private resources in the development and maintenance of areas that are used by nobody (or much less people than coveted) and this existing capacity let’s give both a bad image of the settlement and a huge contribution to the freezing of local economy.

70 If globally there are 67 vacant parcels in these 5 subdivisions, so it can be estimated that there are, at least, many hundreds of vacant lots in these set of subdivisions. These subdivisions cover directly the data of only one City of the 17 that exist in the Lisbon Metropolitan Area.

Picture 3 – Premature Subdivisions and Vacant Parcels in Montijo

Source: Author (2016).

Map 7 – Subdivisions in Montijo at the City Scale

Montijo City Limits

Subdivisions Limits (Sample) 1 Km

Montijo City Center

Forum Montijo Shopping Mall

Vacant Land Parcels (Sample)

Source: Author (2016).

Map 8 – Subdivisions 1 and 2 (Montijo)

Montijo City Limits 250 meters Subdivisions Limits (Sample)

Vacant Land Parcels

Source: Author (2016).

Map 9 – Subdivision 3 (Montijo)

Montijo City Limits

Subdivision Limits (Sample) 200 meters

Vacant Land Parcels

Source: Author (2016).

Picture 4 – Premature Subdivision in S. Francisco (Alcochete)

Source: Author (2016).

Map 10 – Subdivision in S. Francisco at the Settlement Scale

S. Francisco (Alcochete) Settlement Limits

Subdivision Limits (Sample) 220 meters

S. Francisco Settlement Center

Vacant Land Parcels (Sample)

Source: Author (2016).

Map 11 – Subdivision in S. Francisco (Alcochete)

S. Francisco (Alcochete) Settlement Limits

Subdivision Limits (Sample) 100 meters

S. Francisco Settlement Center

Vacant Land Parcels

Source: Author (2016).

Picture 5 – Premature Subdivision in Pinhal Novo (Palmela)

Source: Author (2014).

Map 12 – Subdivision in Pinhal Novo framed at the Town Scale

Pinhal Novo (Palmela) Town Limits

Subdivision Limits (Sample) 750 meters

Pinhal Novo Town Center

Vacant Land Parcels (Sample) Source: Author (2016).

Map 13 – Subdivision in Pinhal Novo

Pinhal Novo (Palmela) Town Limits

Subdivision Limits 200 meters

Vacant Land Parcels

Source: Author (2016).

B. North Lisbon Logistical Platform (Castanheira do Ribatejo). The subdivision occupies an area of 1.025.956,86 square meters or 102 hectares. The section, where it is integrated (Alverca – Vila Franca de Xira – Castanheira do Ribatejo – Carregado – Azambuja), is characterized by being a mixture of two dominant land-uses: housing and warehouses71. So this project is an expansion of the land already occupied by this last land-use. Thus, it is not a new type of investment: this was supposed to contribute to a greater economic specialization in this field. However and until now, there are no benefits. The project is one of many examples of premature subdivision of property. The property is a parcel located on the side of the railway line72 that is facing the bank of Tagus River and it was subdivided in 13 blocks (Map 14). The 13 blocks, according to the planned, should be used as Warehouses, Offices or Commerce structures (IAD, 2007). These blocks are subdivided in 44 lots and all of them are vacant (Map 14). The capital was applied on the construction of the infrastructures, but it was not built any warehouse or office and retail building (Picture 6). The main conclusion is that this is, indeed, a megaproject like several Governing bodies (local and central administration) made it highlight, yet the problem is that this is a megaproject to nobody (Despacho n.º2837/2008).The businesses that had been expected to come and invest in these lots do not exist or do not meet the required conditions to make a transfer or an expansion of its storage/production facilities. This also confirms that it was not just the land available for housing development, which was overvalued and prematurely subdivided, because there are other land-uses involved in the land bubble. Another concern is about the size of the property (before the subdivision): 102 hectares. Facing the numbers, it can be extrapolate that the division of rural property is low or the concentration of property is high. When turns out that there are properties with 100 hectares located on the floodplains of Tagus River, near to Lisbon, being underutilized, then this is the conclusion that can be drawn73. This also can be one of the main reasons to the lack of political initiative to conclude and update the cadaster of real estate property. Picture 6 – Premature Subdivision in Warehouses Development Projects (Castanheira do Ribatejo)

71 In urban settlements. 72 North Line, which links Lisbon to Oporto. 73 Although it is located in an area with high natural fertility and even had not been classified as land available for urban development on the first General Plan of Vila Franca de Xira, the clues point to the fact that it was not invested anything in plantations for a number of years previous to the project approval (IAD, 2007).

Source: Author (2016).

Map 14 – Subdivision of Lisbon North Logistical Platform

Subdivision Limits

Vacant Parcels/Blocks available for 120 meters Warehouses and Retail Land-Uses

Vacant Lots Available for Office Development Vacant Blocks Available for Warehouse Development Source: Author (2016)74. C. Premature Subdivisions in the Old Suburbs: the Western Corridor The Western Corridor is a Section which covered an extensive area with the several settlements located on the Southside of the Municipalities of Amadora (Carnaxide Hills) and Sintra (S. Marcos) and the Northside of the Municipalities of Cascais (S. Domingos de Rana and Alcabideche) and

74 With support on the data available in IAD (2007).

Oeiras (Barcarena, Porto Salvo, Queijas-Carnaxide). This section has the following boundaries: North – Complementary Itinerary 1975, South – Surrounding areas of Highway 576, West – Sintra- Cascais Natural Park, and East – Monsanto Forest Park (located inside Lisbon Municipality). For reasons already explained, the corridor narrows as it moves away from the City (Lisbon). Then, the problem is concentrated in the Municipality of Oeiras or in the particular areas of other municipalities that are located near to this one (surrounding areas). Even without data collected directly in the local, there are evidences of premature subdivisions that can be demonstrated by the Maps 15, 16, 17 and 18: (i) the Map 15 show the dimension of the subdivisions at the settlements scale. This proves that alone, the subdivision of S. Marcos (Sintra) has sufficient capacity to double the size of S. Marcos as a settlement. The size and the isolation of this subdivision do remember the development process of a new settlement. The number of parcels and lots advanced77 are enough (once occupied) to being considered as a new independent suburb (Map 16). Considering S. Marcos as a neighborhood integrated in territorial unit of the city of Queluz, so this new subdivision cannot be part of the city, because it has no relation of continuity and ensemble that is what makes the cities. The low land-use intensity reveals that in addition to not being a City, it is not a suburb. In the background, it is nothing more than a monumental waste of resources. (ii) The other subdivision is one more annexation, but this time consists in the expansion of the Settlement of Porto Salvo (Oeiras), which is composed by isolated urbanizations without sufficient links to form a cohesive whole. The neighborhoods seem like urban peninsulas, where the most of the buildings remain isolated (surrounded by land with rural features) and where there are only a few roads (in some cases even without sidewalks) to give a small continuity to the settlement. The new annexation produces more urban land without contributing to its densification and diversification, causing waste78 (Map 17). (iii) The new subdivision of Carnaxide Hills looks like the repetition of a non-sense: The previous urbanization could be taken into account as a bad example, but this new subdivision was not only developed as also has occupied the double of the area of the other (Map 15 and 18 and Picture 7). The subdivision is turned back to the city that granted the license (Amadora), while it is not connected with the Town of Carnaxide. The conclusion is that it is isolated. It is not possible to walk on foot, if you want to go to the center of Amadora or to the center of Carnaxide, because there is no diversity of land-uses and the pedestrian links are uncomfortable or inexistent. At least, there is no diversity of uses (or the level of diversity required) to generate a minimum of cohesion and thus promote the movement of people and the regular use of space. Considering for example Carnaxide, this is the problem of a Town that was born from a Suburb: the residential density is high and spread over several neighborhoods (high, if it is considered the average number of dwellings built by structure), there are two industrial parks, there is one section where the dominant land-use is the retail warehouses (the Alegro Alfragide Mall, the Media Markt, the Leroy Merlin, etc) which is located on the edge of the town (close to the National Road 117 that separates Carnaxide from Amadora City (Alfragide Neighborhood), and there are several schools. But there is not any link between these uses: there is no kind of union in the settlement; there are no streets that can support a small business. These facts taken together explain the choice of building a civic center (2004) for trying to create a center in a town that had no reference. This option of public development does not

75 It is a Highway, which links Sintra to Lisbon. 76 This one links Cascais to Lisbon. 77 There are 32 vacant parcels in this subdivision. 78 The subdivision has 20 vacant parcels.

49 solve the problem, but recognizes that it exists. So why are the new subdivisions still repeating the same mistakes of the past? Even when the premature subdivisions will be occupied, it will still exist urban problems for which there are no solutions. In addition to all these problems, the fact is that there is one more subdivision of a wide area that remain abandoned and far away from the expected occupation: there are no buildings, so all of the lots remain vacant79. Map 15 – The Premature Subdivisions located in the Western Corridor

Lisbon City Limits

Amadora, Queluz and Agualva-Cacém (Cities) Limits

Carnaxide, Algés, Oeiras, Carcavelos and Mercês (Towns) Limits

Subdivisions Limits (Sample) 2,30 km Amadora City Center

Agualva-Cacém, Queluz and Carnaxide Centers

Settlements/Neighborhoods close to the Subdivisions

Vacant Land Parcels (Sample)

79 The subdivision has 8 parcels and all remain vacant.

Source: Author (2016). Map 16 – Subdivision 1 in Western Corridor (S. Marcos, Sintra)

Queluz City Limits

700 meters Subdivision Limits

S. Marcos Neighborhood

Vacant Land Parcels

Source: Author (2016).

Map 17 – Subdivision 2 in Western Corridor (Porto Salvo, Oeiras)

Subdivision Limits 230 meters

Vacant Land Parcels

Source: Author (2016).

Map 18 – Subdivision 3 in the Western Corridor (New Carnaxide Hills, Amadora)

Amadora City Limits

Carnaxide Town Limits

400 meters Subdivisions Limits

Neighborhood of Carnaxide Hills (Amadora) Vacant Land Parcels

Source: Author (2016).

Picture 7 – Carnaxide Hills Neighborhood

Source: Adapted from Bing Maps 3D (2016). 1.3 The diversion of monetary flows: diversion from investments on short-maturity capital to concentrate on investments of long-maturity capital. This chapter is already, to some extent, demonstrated upon the evidence developed on the previous points: the market value of the properties and the number of transactions; and the number and size of premature subdivisions. The mentioned facts, confirmed that the real estate transactions had a substantial weight on the business volume of the several economic sectors and that the building sector had an equivalent weight upon the total of industrial production in Portugal80. So why does it happen? Gaffney (2015: 330) gives an explanation to this in simultaneously with the description of the phenomenon of artificial scarcity81: “During an economic boom, as land prices are raising, an immediate effect is hoarding of good locations. If land prices are expected to rise at 20 percent per year, and other investments yield only 10 percent, owners have an incentive to hold land off the market until the growth of land prices falls below the return on alternatives”. This process describes the behavior of the owners of the most advantageous locations for the development projects (vacant

80 This was found during the expansion phase of the land cycle. 81 The explanation about the Theory of Artificial Scarcity is developed in Chapter 2 of the present report.

54 lots and parcels, or blocks and lots occupied by obsolete structures). But the same process can describe the behavior of investors (both those who are already intervening directly in the market as also new players looking for the best deal to invest). “As the price of land rises relative to construction materials82, builders will substitute capital goods (mostly buildings and equipment) for land (…) when land prices start to rise during a boom, investments in circulating capital are shifted to fixed capital. The later now suddenly seems more profitable than mundane investments in the circulating capital of productive enterprises. This illusion of highly profitable construction is created by conflating the increase in land values with returns on construction, an easy mistake to make since revenues do not announce themselves as payments for location as opposed to structures. In fact, the return on construction will be negative for many buildings produced in a boom period, since construction on peripheral areas is often abandoned or delayed for many years. As in a Ponzi Scheme, some early construction may turn out to be profitable, but much of the capital invested in construction is simply wasted, gone forever” (Gaffney, 2015: 332, 334). The players who are already intervening directly in the real estate market will take the opportunity to expand their activity while the new players are attracted by the spread of the profits obtained from the property development business. The consequence is that they “buy more land than is necessary for current development plans because are reacting defensively to the anticipation of higher prices” (Gaffney, 2015: 332). A kind of players who are already intervening directly in the real estate market are the landowners- developers. A significant portion of these players can hold the title to properties available for development without bank financing and expand their business through the acquisition of other properties and with the investment in new and ever larger construction plans. The new players cover a large number of companies and individuals. They can be the new merchant, which instead of lease, choose to purchase the store (even demanding a much higher financial effort) or the Car Manufacturing Company which prematurely purchases new lots to expand its facilities or the Company with several business areas, which decides to add the real estate business to its Portfolio or who chooses to concentrate investments in this sector due to generated returns (or reports spreads by other agents). All this explains the concentration of investment in the long-maturity capital with prejudice to capital of short-maturity. This behavioral issue is what explains why mainly during the bubble, “the real estate market was a transfer channel of financial capitals from the productive economy to non-produtive players dedicated to pure arbitrage of land values” (Bingre do Amaral, 2011: 7-8). The contagious effect is the bubble acceleration engine, but the real source of the problem is the continued increases in land values: in Portugal, the real estate activities are by far the most profitable economic sector. During the period between 1995 and 2013, the real estate sector had an average of 0.75 of Gross Profitability. It means that for every 1,00€ invested in the Portuguese Real Estate, on average it generates a return of 0,75€. In turn, this matches with a profitability higher than 629% of the average profitability of the construction sector and higher than 344% of the average profitability of all economic sectors (Graphic 1). This superiority overshadows other business alternatives, so it ends up absorbing a significant amount of the capital available to investment projects.

82 It has been found that the land values are the locomotive of economic growth. In times of prosperity, they grow annually at a higher rate than inflation (Gwartney, 2014).

In conclusion, the bubble is formed in the segment of real estate development, but it spreads faster to other sectors that contribute directly to the development of the boom: the banks. “The real estate financing conditions are usually more favorably than those existing to acquire another type of assets. The buyer has the possibility to borrow from financial institutions to finance the real estate transaction, using the mortgage of the property as collateral, reducing the risk of the loan83, allowing the financial institutions to practice lower interest rates. The Lending Banks has a deep involvement in the real estate market financing process, both to the development and to the acquisition by the end consumers” (Carvalho das Neves et al, 2009: 26). Graphic 1 – Gross Profitability per Economic Sector in Portugal (1995-2013)

1,00

0,90

0,80

0,70 Ramo de actividade 0,60 Construction Sector Construção 0,50 RamoReal deEstate actividade Sector Actividades imobiliárias 0,40 All Economic Sectors Ramo de actividade Total 0,30

0,20

0,10

0,00 1995199719992001200320052007200920112013

Source: PORDATA (2016)

1.4 The Liquidity Crisis In 2010 Portugal had a public debt of 90% of Gross National Product and a private debt of 260% of Gross National Product. “Banks that financed this build-up in debt now have the highest loan-to- deposit ratio” (Portuguese Government et al, 2011: 1). These levels of debt are the outcome of the myth built upon the fact that the land values never stop rising. The work developed on the previous sub-chapters had to have financial support and the level of debt is clearly that support. During the last land cycle (1990-2008) the volume of mortgage lending increased from 5.000.000.000,00€ to 104.000.000.000,00€ (As a percentage, it was an increase higher than 2000%) (PEH, 2008; BdP, 2009; and Luciano Amaral quoted by Bingre do Amaral, 2011). The pace of debt was much higher than the rate of economic growth. With these financial numbers, naturally the Portuguese Banks ended up having a lot of problems: there were four banks that failure (BPN, BPP, BES and BANIF) and there were other three banks that needed special credit lines granted by Estate (through the bailout loan granted by the IMF, ECB

83 The myth that the land values constantly increase leads to conclusions like this: the mortgage can reduce the risk of the loan.

56 and EU). Although these cases had always been reported as derived from acts of mismanagement84, the fact is that the financial system problems are directly related with the real estate market and in particular, with the burst of the land values: “The difficult of access to financing are particularly felt in the real estate market (…) going through an unprecedented crisis. By the way it is on the construction sector that is the biggest problem of bad debt for the national banks (…) In every 1000€ of loan, 134€ are in default on the banks. It is the sector with the highest rate of default, hand in hand with real estate development, together, the two activities are responsible for over half of all bad loans attributed to the business sector” (CIP, 2012: 14). The signs seem to be obvious, but how did the banks reached to this situation? Of course there were: (i) loans to promote the open of small businesses that eventually failed; (ii) loans to promote the expansion and internationalization of successful companies that ended up not meeting expectations; or (iii) even loans to buy capital stock of companies that which have failed. Nonetheless, they continue to have a small weight compared to the problems caused by the land bubble. The explanation must be found through an analysis to the distribution of provided credit by the different players of real estate market. The economic progress that generate a gradual increase of income associated with the financial incentives (interest rates and tax subsidies) for the purchase of new homes, the social issues (exhaustion of personal relationships, opportunity to move to a new place reaching the maximum of modern and comfort standards) and the myth that house prices never fall ended up creating a natural investment option: a kind of safe haven for the households income. These are some reasons that explain why the households tend to apply their income on home buying and often risking with a high level of debt. Then also the banks tend to provide interest rate benefits for house purchase because of the myth already explained. But the observed reality is that the end consumers are not the source of the myth. The landowners or the real estate developers are the big winners and propagandists of the myth (this does not mean that people cannot make much money with their apartments/single-family dwellings, which may have been purchased from the builder several years ago, and recently sold for a much higher value, without having done any works of refurbishment, conservation, maintenance, and modernization). The landowners have parcels located closed to the city (which are attractive to promote development) and may ask a price for them much higher than the current cash flows of the property generated upon the present land-use. So this creates an incentive up to pure speculators to purchase this type of properties. Fortunes are made through the purchase and sale and the sale of such properties (without having been any added value). In this process, there is borrowed money in several ways: (i) the landowner mortgage85 its property, but do not developed as planned, because it could sell, in a relative short period of time, the property for a higher price than the amount that was in debt; (ii) the buyers, although they may have other assets to mortgage or capacity to deal with high equity, the fact is that they also have access to credit lines. At the same time, some of those parcels are subdivided86 and the lots are transacted directly to small investors and builders. The builders (which are non-owners) rely on borrowed money to operate (Gaffney, 2009). The small investors can

84 By the Media, the Central Bank of Portugal and the Portuguese Government. 85 With the possibility of developing some huge building project. 86 Usually with use of borrowed money.

57 be speculators, who want to transact the lots for a much higher value (in some cases it will be instantly, while in other there is greater holding capacity) or households and companies who wish to develop and manage their own plan for that space (houses or business facilities). In either case, there are borrowing capital, both to finance transactions and building processes. Within the initial parcels that were subdivided, there are developers (landowners) that had running the project until the end. They provide all the structures and gardens that were envisaged in the project before starting the sale process87. These are usually bigger real estate developers or if they are not, then they have to work with large amounts of borrowed capital. In turn, the buyers of new end products, generally, are also dependent on loans. From here it can be concluded that when the economic growth is depended of the development of real estate market, the banks that help the leveraged growth of this sector would have liquidity problems as a result of a structural issue of its financing model (Gaffney, 2009). The banks which account to real estate, a substantial part of the loans they make, stay with liquidity problems for failing to mediate between short-term and long-term loans: the banks receive loans from other banks that mature in the short term, then by concentrating credit granting on long-term investments, they create problems to pay their own debt (Gaffney, 2009). This situation is aggravated when a significant portion of the loans were granted to land speculators88: after the crash of the land bubble (and during the recessive phase of the land cycle), “if Banks were required to “mark to market” (assign current market value to their real estate assets), large numbers of seemingly healthy banks would have been bankrupt in 2010, meaning their liabilities would have exceeded their assets and their equity would have been negative” (Gaffney, 2015: 336). The same happened with households that bought homes, with builders that bought vacant lots, with subdividers that bought and developed parcels and with land speculators that mortgaged the property or used borrowed capital to buy real estate89. Gaffney (2015) offers a solution that fits in the dominant paradigms: “one simple response that would restore an economy to normalcy in short order would be to require all banks to value their assets at current market value. Banks that lent wisely instead of joining the mob at the height of the boom would have nothing to fear. By contrast, banks that supplied land speculators with credit would face bankrupt, and equity holders would lose their investment in the bank”. This solution would be supported by the Central Bank until the toxic assets disappear (Gaffney, 2015: 349). In Portugal, this solution is not possible, because, accordingly to the sources of the presenter of the media program entitled “Negócios da Semana” if there was a rigorous assessment to all real estate assets of the Portuguese Banks, then it would be the collapse of the entire financial system (Gomes Ferreira, 2015). The argument gives rise to the thesis that banks are “too big to fail”, but also turns out to be the confirmation that the banking system (including the Portuguese Banks) fiercely fueled the land bubble that burst in 2008, in the Portuguese Real Estate Market. In turn, this explains the economic paralysis that has marked the few past years.

87 There will be probably some exaggeration here, because the sales process follows the entire development of the project. However, the developer puts up for sale, only the end products of its project. The developer does not put the lots on the market, because the aim is to be him to develop them. 88 In the cases of the Banks that failure like BES, BPN or BANIF, the list of the largest debtors shows the predominance of real estate speculators (SIC, 2014; Santos Guerreiro and Vicente, 2015). 89 “Households, Real Estate Developers and even Banks find themselves ballasted by “negative equity” whenever the real estate value on which the mortgage was performed fall below the amount of credit granted. This is particularly serious towards the lenders that supplied credit to acquire properties of bare land available for urban development, which, in turn had lose most of their value” (Bingre do Amaral, 2011: 28-29).

2. The Zoning (Land-use) Policy in Portugal It is recognized that Portugal has a disorganized territory. Thus the point is: what is the link between the land bubble and the disorganized territory or by other words, what are the territorial consequences of the current economic development model? To answer to these questions, first it will be clarified why Portugal has a disorganized territory, and then it shall be possible to validate the link between the disorganized territory and the land bubble. At the end, the Report tries to anticipate what will be the impacts of the “structural changes” implemented (The New Land Law Reform) in the last few years.

2.1 What is a disorganized territory? And why has Portugal a disorganized territory? An obvious fact is the lack of publications with a detailed diagnosis model about the reality of the Portuguese cities. There is limited information about the development model of cities and its consequences. More than lack of technical expertise, the reasons are political. The disclosure of detailed results about the recent evolution of Portuguese cities will put uncovered the real estate (land) market failure. That is the same as say that the real estate market cannot allocate the land to its best use, even when it is regulated by the current public policies. A demonstration of the state of Portuguese territory can be shown by the fact that “[the acknowledgement of territorial units] is difficult enough in urban territories, due to the sprawl and fragmentary dynamics of expansion, which are not compatible with administrative boundaries (…) The described phenomenon’s like fragmentation and urban and functional sprawl are common towards the generality of growing cities and, even, to some cities with economic and demographic decline” (Carvalho et al, 2009: 161). Besides the general diagnosis can be applied to the reality, the mentioned authors conclude that the urban sprawl was imported by Portugal from the cities and urban areas around the World: “This dynamic is, therefore, widespread due to the cultural, economic and financial globalization90 and to the growth of mobility based on the use of private car” (Carvalho e Pais, 2009 quoted Carvalho et al, 2009: 161). Indeed, Portugal have a lately process of urbanization comparing with the majority of the Western Nations, so the models of urban development and urban redevelopment applied in Portugal were based on the mainstream urban models, which was and had been applied worldwide (in the cases where there was a model): the Garden City of Ebenezer Howard and the Radiant City of Le Corbusier. However this does not explain at all, why there are large-scale sprawl in Portuguese urban areas. The car was an invention, which was developed to give a kind of solution to the problem of urban sprawl (Jacobs, 1992 [1961]). So the car is not the main source of the sprawl neither is the dominant urban models. This does not mean that they do not contribute to the amplification of the phenomenon. The point here is that they are not the main cause of the urban sprawl. Taking the approach to a more detailed scale, Sá Marques, T. et al (2009: 132) observed that there was an excess of housing in Portugal and the explanation was as follows: “A set of social and economic transformations have fostered the continual growth of housing market: the household fragmentation, translated by the reduction of the number of residents per dwelling, the reduction of

90 Surprisingly, this seems to be the main cause of cities failures: “Our urban areas suffer the decline of traditional industries, the social exclusion, the unemployment, the urban sprawl, the decline of the urban centers, the delinquency, the intense pollution, and the environmental degradation. These trends, both in cities and rural areas are related with the globalization phenomenon” (EUSP, 2013: 10).

59 the interest rate to support the purchase of houses and the growing demand for second homes”. The quoted authors, in turn, conclude that these were the factors, which taken together, “contributed to the uncontrolled growth of wide built-up areas, but also to the current levels of vacant dwellings, in the order of half a million across the country”. Again, the conclusions were limited because they were centered only in the housing market and they continue without mention what is the main source of both: the excess of houses without demand in the real estate market and the disorganized occupation of space. It was not exposed any relation between the urban sprawl and the number of vacant lots or parcels situated between the built up areas. Neither was done any reference to the land occupied by obsolete structures. Other fault in the diagnosis is verified when the analysis appears to be concentrated in only one kind of land-use: this segmental view can induce to a partial completion of the problem by conclude that the overbuilding phenomenon has manifested only on the residential structures. This is a partial truth because the overbuilding phenomenon extended to other uses (subchapter 1.2). If the urban sprawl, the overbuilding, the unused land and the obsolete structures are striking features of the Portuguese Urban Areas, then what were the failures of the zoning policy to have reached these results? First to contextualize, is important to make a brief reference to the Portuguese Zoning System. Accordingly, in Portugal, the Zoning Policy is established by the Central Administration on a National and Regional Scale, which in turn, are responsible for establish the guidelines through the definition of land-use models that are binding only for public entities. Therefore it is the Municipalities (Local Administration), at the local scale, which developed the instruments that regulate the use and transformation of land. These instruments are of three types: (i) The General Plan, which is the main instrument and covers the entire area of the municipality (both rural and urban land); (ii) The Urbanization Plan, which is centered on the urban scale; and (iii) The Detailed Plan, which is usually implemented in the urban scale, both to program the lateral expansion of a neighborhood located in the limits of the city or to promote the restructure or renewal of an urban unit (block, neighborhood) situated in the inner city. The first one of these instruments is legally required. The local scale will be the focus of this reflection. The first experiments with General Plans occurred in the 80's. However it was in the 90's, that the great majority of Portuguese Municipalities have approved their own zoning plan. What were the main features of these regulatory instruments? And what kind of territorial consequences they cannot avoid? Silva (2013) reveals that the first generation of General Plans was produced in an economic and demographic growth context91. Some of these instruments92 delimited generous urban perimeters and in some cases without distinguish between urban consolidated land and land available for development93 (Silva, 2013). It is true that the land-use policy anticipated a land bubble much bigger than actually came to be seen: “The land available for development, which is already undeveloped (or transformed into an urban use), corresponds to 71% of the total of land available for development

91 This issue is relevant to the current problems. 92 Silva (2013) was conservative, because the delimitation of “generous urban perimeters” was a common rule to all these instruments. 93 The Municipality of Entroncamento, where the Author lives, is, until now, one of those cases.

60 defined by the General Plans” (DGT, 2015: 10). This means, that only 29% of the land available for development was effectively transformed. However, this study omits the amount of vacant lots existing both, in the previously consolidated urban areas and in the new urbanized land. Like has been shown, the premature subdivision of property for urban uses has a brutal impact in the peripheral areas of the Portuguese Settlements. Then, it is possible to extrapolate that the new urbanized areas (included in the 29% of land mentioned before) has an amount of vacant land much high to be ignored (Subchapter 1.2). If it is referring that 29% of the land available for development was urbanized when a substantial portion of the same land remains vacant, so the conclusion is that the approach used is simplistic. Other author accuses the General Plans of inducing land speculation: “the retained urban land properties created by the first generation of General Plans, generated the objective conditions to achieve the generalization of the land speculation phenomenon, even in remote villages, inflating the component of land on the final cost of building – which in turn, reaches absurd values while induces the demand for rural land [not available to promote the urban development] to build” (Jordão, 2009: 112). Indeed, it is the confirmation that the land speculation has not been mitigated by the zoning policy. However it is a mistake assign the source of land speculation to the General Plans: George (2009 [1881]) developed the theory of artificial scarcity, where the best land (the land located in the best spots of the cities: can be historic centers/downtowns or a dynamic new neighborhood) tends to value at a much faster rate than inflation (Gwartney, n/d; Ribeck, 2002) and on what a significant number of the owners with properties in these areas or in the surrounding areas, armed with these information, choose to wait, instead of transact or develop for his initiative the properties, leaving it to deteriorate (or remain in these conditions many years beyond what is required). The owners, who are available for negotiate their properties, generally require monetary values totally misfit from the current cash flows of the properties: about the urban renewal issue, Pardal (2014: 13) identifies that “the unavailability of land and the disinterest of the owners of obsolete buildings or buildings in a neglected state, on recover, use or sell them, choosing to maintain their degradation (…) are the main obstacle that hinders the urban renewal (or remodeling)”. And who can bid with this level of prices are only the speculators or the large companies and institutions. In the case of the owners, who only retain the properties, they will wait several years until they choose to transact or to develop the property, and when this time comes, the same problems will be placed. The small and medium business and the citizen with average income will be unable to pay for these lands. But, they need a place to live and a place to invest and the natural market solution is the peripheral land (it various, naturally, from city to city, but generally, this is the rule). In turn, an unconscious combination, but common (in the sense of being simultaneously), between the owners of best land, produce an artificial scarcity of land in the best places of the cities and then creates a massive transfer of demand. This transfer of demand from central to peripheral land generates an appreciation on the rural land located beyond the limits of the cities. The land appreciates such that becomes more profitable to keep it without use than to exploit it extensively for farming or forestry purposes. And this is a long cycle without end. For this reason, it can be concluded that the General Plans did not create the land speculation. This phenomenon is prior to the implementation of a Zoning Policy: “It is not explained94 why the land market forces that it would be need two hectares of land for every

94 It should also refer that the quoted author was describing the pattern of urban growth in Lisbon during the 1960s and the beginning of 1970s decade.

61 three hectares that are real and actively occupied” (Solans, 2002 quoted by Pereira, 2004: 138). As it is demonstrated, the General Plans are not the source of the problems. The problem is that the General Plans or the public zoning policy did not contain the effects of land speculation. In some cases, gave it the legal status (visible with the flood of expansionist zoning plans approved all over the place) and in other cases, worsens the natural effects of the land market: in Lisbon, it is recognized, as a positive factor, that its first General Plan95 “imposes rules of urban management aimed to the stabilization of historical areas, braking the building replacement dynamics and the mischaracterization of urban morphology” (CML, 2009: 39). This is one example of aggravation of the artificial scarcity phenomenon provoked by the General Plan's. Indeed, this decision is only a way of lead to the city's degradation, instead of its stabilization96. The New General Plan of the City (CML, 2012) contradicts to some extent, what is said in the other diagnosis (CML, 2009), because it considers that one of the main weaknesses of the city is “the lack of parking for residents, in particular in the central areas” (CML, 2012: 14). So, if it is not possible to modernize the buildings (adding garages) located inside the central areas (where the major of buildings do not have garages for parking), the residents are forced to park their cars on the streets. This leads to congestion of roads and worse, it removes circulation space to people by reducing the size of sidewalks. Naturally, this discomfort for people is a loss to the city. Then, what are the consequences of these failures? First of all, is the limitation of the land supply by the artificial scarcity phenomenon: “in the Portuguese case, there is a clear distinction between the potential supply and the real supply – this difference gives us the dimension of speculative tensions that install themselves” (Guinote, 2008). The definition of large urban areas (including rural land available for urban purposes) through the General Plans does not mean an increase in supply, because the landowners are not forced to develop their land or to sell them to someone available to use it. The property tax is not connected with the Zoning Models (which integrate General Plans), so the expansionists General Plans are only an implicit subsidy to the great landowners of urban land97. However, the discriminatory allocation of subsidies is not the purpose of the zoning policy neither of any kind of public policy. Other consequence is the urban sprawl: “the exaggerated size of the urban perimeters and the lack of

95 Since 2012, this City has a new Instrument, which arises from the review of the first General Plan. 96 This is a problem of other kind of doctrine: “Historic Districts provide one way for a distinct neighborhood to establish additional land use regulations that are resistant to citywide changes (...) the more serious difficulty with historic districts is that they offer excessive protection from change. Residents in some locations fear that future modifications of their property may be unduly restricted” (Fischel, 2013: 345-346). The urbanism has a doctrine that understands the city as a form of art. The problem is not the art itself, but rather the extreme fundamentalist of some of its followers. An important warning should be done: “Inside the city can exist buildings that are magnificient works of art; even full neighborhoods that have achieved the permanence and stability of a complete stylistic city; however the city, as a whole, expression of instability and fluency of the collective soul, will never reach the works of art level. The rare cases where it does not happen are the death cities, artificially preserved. Only when they die, the cities achieve the works of art requirements” (Chueca Goitia, 2008 [1982]: 35).The Urban Planners, who lead this doctrine to the extreme point, tend to ignore people and to block the progress and development of central areas of the cities. Consequently, it ends up creating, in general, more problems than benefits generated through the obligation upon the maintenance of urban morphology and the features of buildings. This issue deserves another kind of reflection that is not suitable to the present work. It must be developed in future researches. 97 Considering a two-dimension plan: the landowners of rural land (general with properties of relevant size) are the great beneficiaries. By including a three-dimension plan: there are also the owners of urban vacant lots, parking lots, vacant parcels, obsolete buildings, small structures, who can get an appreciation of their real estate through the implementation of new urban parameters. In turn, the urban parameters match with the permission to build with higher levels of density.

62 programming of the same proved to be disastrous: provided the proliferation of urban non- consolidated spaces, affected landscapes, which have remained stabilized for decades and generated infrastructure needs with costs near from the unaffordable for the Municipalities, for the citizens and other users” (Silva, 2013: 1). One natural consequence of the market is the sprawl, and the Zoning Policy should prevent or at least, control this trend. This was not the case. In addition to the fact that the urban perimeters are extensive, there are no kinds of control about the transformation of rural parcels into urban uses. To explain the issue of the lack of programming, it will be used an illustrative situation (Scheme 1). If the owner of the Parcel A located close to the boundaries of the city L initiated the development of his property and the owners of Parcels B, C and D, in the same situation, decided to keep the current use, this situation does not prevent the owners of the Parcels X, Y, and Z, if they want to develop their properties before the owners of Parcels B, C and D, which are in the best locations. If there was no zoning policy, the results will not be very different. So, here are the consequences: “the new peripheries are characterized by the fragmentation of space coexisting different uses with several social contents (marginality fringes, residential elitists’ complexes, and new centralities). These pieces even more autonomous are distributed discontinuously, in free interstitial spaces more or less extended, which results in low average gross densities (…) These territorial organization models [distended, discontinuous and fragmented urban systems] introduce territorial and environmental weaknesses unsustainable in the long term, because they are great consumers of land and energy, with high infrastructure and services management costs given the extensive areas which serve, causing a progressive reduction of open spaces and the degradation of the rural landscapes, where they mix” (Pereira, 2004: 131-133); “Something is evident: we pay with the public purse the high infrastructure and provided services costs to the diffuse settlements, without the equivalent benefits, that is: we have many kilometers of installed infrastructure, many kilometers covered by garbage truck, by the postman, by the school bus, etc., to serve relatively few people. In short: high investments and costs versus proportionally low levels of service (Jordão, 2009: 112).

Scheme 1 – The Land Speculation and the Excessive Liberalization of Zoning contributions to the Urban Sprawl

C A

D L

Actual City Limits Potential City Limits

Properties available for Development with active owners

Properties available for Development with absentee owners Source: Author (2016).

In a more detailed scale, what were the consequences of the last land bubble in Lisbon (the subchapter 1.2 shows some evidences on the suburbs)? “Between January, 1986 and 2005, Lisbon lived a period of great urban development. The urbanized area of the city increase, with relevant interventions on the north of Second Ring Road98 (…) this change was sustained by the European Funds, the Foreign Investment on Real Estate and the easy access to credit by the national developers. It was a period in which the Lisbon Metropolitan Area spread on oil slick and the City Center was been emptied, which led to the increase of the vacant and obsolete buildings in built city until middle of twentieth century. The credit to buy houses was affordable, the houses and lots prices were lower in the Periphery than in the City Center (…) The increase of the land values between the City Center and the neighboring municipalities created, in the developers, the expectation of obtaining capital gains, through the replacement of old buildings by new buildings with more volumetry (...) By growth on oil slick, the Lisbon Metropolitan Area creates a massive waste of resources, especially of energy and land (…) With the stagnation of public and private investment and with a frame of investment trends to zero over the next years, the urban development model based on the sprawl and on the buying of own-houses declined” (CML, 2012: 9-10). So, the consequences are: (i) the City lost population to the untidy peripheries; (ii) the land values provided capital gains99 to a few builders/developers that replace the old buildings by new ones, generally with greater intensity of land use; and (iii) an increase of the vacant and obsolete buildings in the city already built before 1986100. According to the Lisbon Municipality, the causes are the flow of investments to the real estate market, because the urban development model based on the sprawl ended up with the crisis. However, there is no recognition about the failures of current Zoning Policy. The diagnosis is not perfect: still be missing several points and the Municipality does not recognize the effects of the land speculation phenomenon on the urban development. Then, if the current urban development model creates a massive waste of resources, what are the solutions to fix this problem? How can it be possible to reverse the trend? Or will be the only one solution to stop economic growth? Apparently there are no doubts about the new direction that must be adopted by the Public Zoning Policy: “It is required that the building occupation of the territory adjust to the real needs of population and economics and that the expansion needs to be limit by containment criteria – by the profitability of the existing infrastructure and by the rationality of new buildings – and concentration [criteria] – by the compaction and consolidation of the areas previously urbanized” (Sá Marques et al, 2009: 134). The recognition that the outcomes of the zoning policy are not compatible with the purposes of such public policy, are demonstrated by the need to review, deeply, the legal framework: this investigation already supports the need for a huge reform in the current zoning and tax policies options. Indeed it was approved a New Reform of Land Law in 2014 on which relapsed many expectations: “the promotion of an urban compact occupation of the territory found himself limited by the absence, during this period, of a legislative review which would be [capable] to demote the massive investment in urban development through an [instrument develop] to limit the private

98 It corresponds to the more distant ring (considering a concentric evolution approach) inside the municipality administrative limits. The road (Second Ring) is just used as a reference or a physical barrier that to delimit the territorial unit. 99 The term Capital Gains derives from a misperception of economic theory, well explained by George (2009 [1881]: 27- 43) the land values do not provide capital gains, but rents. 100 Does not it have also a significant amount of vacant new buildings, developed during the last land bubble?

65 capture of the urban capital gains101. The slowdown that was verified during this period [2007-2013] resulted, prior to a financial crisis context which limit the credit access to the Portuguese businesses and households, rather than from the full and coherent reverse of the urban development model, which until then found legal host and economic rationality, in particular, in its integration with the dominant model of own-home purchase by the Portuguese households” (DGT, 2014: 198). The same Report further shows more optimism about the New Land Law: “[Despite] the strong investment in legal framework and Community [European Union] Funding in the urban regeneration and rehabilitation, (…) the delay of a new Land Legal Framework saved, during this period, the misappropriation logic of capital gains resulting from the reclassification of land and urban development, therefore keeping the framework of economic incentives that led to the oversized expansion of the areas available for development and developed in the national territory” (DGT, 2014: 212). So now the issue is to know if the Reform of Land Law is a real solution to the Problem. 2.2 The Land Law Reform: Why are we still repeating the same errors? When it is observed that “in a dynamic society, the correct solution to the problem about what is, at a given moment, the highest and best use of a given piece of land never can be a permanent solution” (Cornick, 1938: 2), so the question is why does still exist a high rigidity on the Portuguese Zoning Models? There are two reasons: (i) the legal (or juridical) belief and (ii) the economic belief. There are no flexibility in the Zoning Models (or lack of strategy and adaptation to innovation processes), because this public policy is more directed to protect the “acquired rights” of a few landowners than to develop solutions that will help to encourage the progress of society. A simple diagnosis, as performed before, leads to the conclusion that it was necessary to reform the Land Law. Following the diagnosis, the Portuguese Government concludes this reform in 2014. However this regulatory framework keeps some inefficiency, which result from the contradiction between the goals and the means to achieve them. Starting with the legal issue: the property rights prevented the zoning policy of achieved its major goals. The problem is not the property rights as a whole. But the property rights as a legal basis for land speculation are the real problem. When it is concluded that the land available for urban development is excessive, the simple solution would be the contraction of these areas. But to accomplish the reduction of land available for urban development, the landowners must be compensated by the losses (these losses are mainly fictitious or land values) according to what is stipulated in articles 3rd, 4th and 17th of the Land Law. The point 1 of article 3rd sets out the general principles, including, “intragenerational and intergenerational solidarity, ensuring the quality of life and a balanced economic development to the present and future generations; economics and efficiency, ensuring the rational and efficient use of natural and cultural resources, as well as the environmental and financial sustainability of the zoning plans' options; equity, ensuring the fair distribution of benefits and burdens resulting from the implementation of zoning plans; juridical security and reliable protection, assuring the legal systems stability and the respect for existed and legally consolidated rights”. Following these principles, the number 3 of article 4 (about the private property rights) advocates that “the imposition of restrictions on the right of private property and on

101 Rents.

66 the other rights to land is subject to payment of fair compensation under the terms and according to law”. To complete, the number 1 of article 17 determine that “the sacrifice of existed and juridical consolidated rights can take place only in cases expressly provided by law or in the applicable zoning plans and through the payment of compensation”. Thus, the Land Law Reform continues to feed a relationship of legal dependency between the Zoning Plans and the landowners. One reason to generate distrust about this can be demonstrated by past events: the first generation of Portuguese General Plans elaborated and approved, mainly, during the 90's, had the same legal concern. That is one of the explanations for can be found large areas available for urban development in anyone of these plans. The Municipalities or the specialized entities with responsibility for drawing up the Plans are originally based on the subdivision permits issued by the Municipalities (even when the time of the permits already had expired and the landowners continued to hold the property without any kind of use or development). In other words, even if the landowner had a permit (in a given moment), which at the present moment was expired (and he did not built anything on the property contrary to the proposed), the political option of the Municipalities was to include this properties in the area of land available for development, with the argument of does not contradict legal expectations. The results of this doctrine are visible and they were exposed on this report. However, it is important to know why does a wrong doctrine still prevail? And how does this doctrine blocks the achieving of the main goals of the zoning public policy? The first question can be answered with the lack of deep diagnostics, which reflecting the reality of the evolution of territories. This lack of studies hinders the knowledge about the real problems of the Portuguese Society, in its different dimensions. Finally, the second question needs other kind of reflection. The goals or ends of the zoning public policy are “enhance the land potentialities, safeguarding its quality and the fulfillment of its environmental, economic, social and cultural functions (…); guarantee the sustainable development, the territorial economic competitiveness, the creation of employment and the efficient organization of rural land market102, in order to avoid harmful practices of general interest; reinforce the national cohesion, organizing the territory in order to contain urban sprawl and scattered building (…); rationalize, requalify and modernize the urban centers, the rural settlements and the consistency of the systems in which they are located; ensure the rational and efficient use of land, while scarce natural resource and enhance the biodiversity; boost the farm, forest and grazing areas; renewal the territory, promoting the urban requalification of blighted areas and the retrofitting of urban areas with illegal genesis” (article 2nd of Law no. 31/2014 of May, 30th). These goals can be summarized in one single goal: guarantee the highest and best use of land compatible with the public interest. So with this doctrine, how is it possible to achieve these goals? If the Municipality contains the urban areas available for development without the payment of any compensation, the landowners can challenge the decision in Court and with the current legal framework, the most likely is that they will get assent. As this Reform did not cover the Expropriations Code (and even if it did, the results would be identical), the landowners, who hold rural land parcels that were available for transformation in urban uses, but who are no longer, with the approval of a new Zoning Plan (or an alteration) can receive all of the speculative value (land value) of their properties by doing nothing. This value does not include only the share of land values generated by the proximity to the city or

102 Rural land market is a term used to treat the land market cash flows and assessments: the rents and land values.

67 other urban settlements, as also include the development costs according to the urban parameters laid down in the previous plan. Again, it is visible through this legal belief that the land values belong by right to their private owners, even when they have done nothing to achieve this values. This Law reveals some instruments that are totally ineffective like expropriation for public development or subsidies and tax exemptions to promote the refurbishment of buildings. Any of these solutions does not solve the problem, because those who proposed them never understood the real source of the problem. To conclude, if these are the only solutions, so the problems will never be solved and the zoning public policy will never be efficient. By other words the Society may never benefit, according to the current political conditions, of an organized territory, where the land is, as a rule, allocated to its best use. The other wrong premise is the “economic belief”. This economic belief matches with the understanding by regulators, that the high land values are the engine of the economic development. In a certain way, it is true. However there are two ways of generating high land values: (i) ignoring the land market; and (ii) improving the quality of the urban elements and the complementarities between different uses of land. Like Gaffney (1964: 117) referred: “when the Planners advocate about the maintenance of urban land values, I am afraid that they have not carefully distinguished between two different means to achieve the same end: improve the quality and efficiency of urban space is one; limiting the total supply of land is other. The first is of general interest, urban and rural, owner and tenant, employer and employed. The last one is only a partial advantage to the urban land owners against the other groups, so it is a radically different concept (…) the urban containment is desirable to enhance the quality and efficiency of urban life, but not to the redistribution of the values to benefit the owners of urban land”. Logically, the problem is not to keep the land values high, but the way used to reach that goal. In Portugal, the option is limiting the total supply of land. How can this be possible, if the zoning policy is expansionist? The General Plans created an oversized area of land available for urban development with the argument that it would be need “to secure a higher supply than demand avoiding monopolists effects and the flight of investment opportunities” (Pereira, 2004: 140). This approach ignores the artificial scarcity theory, like it is explained before. By ignoring that, the zoning policy cannot understand the land market functioning. So the expansionist character of the General Plans does not avoid the monopolists effects of land market, at least maintains the same effects as if there was no zoning policy103. Pardal (2006: 72) says that “the Territorial Plans cannot regulate the market because, in its substance, they ignore it completely”. However this is not ignoring the market, because there is a belief that supports the expansionist character of the plans104: the belief that the expansionists’ general plans promote the economic development. So they do not ignore the market. The problem is that they do not understand its functioning. This is the explanation for the management mistakes that continue to have coverage and with the results that have been described throughout this Report. The truth is that “the approbation of a General Plan does not determine that the properties situated in the area of land,

103 It can aggravate the effects with other restrictions as are also seen before. 104 However, if this phrase would be contextualized on the author's full reasoning, it makes sense. Because the zoning policy, even when it assumes an expansionist character and considering only the effects upon the owners class, establishes large differences between uses and limitations to the development of the property. So, this means that there are owners, which are more benefited than others and some may even be harmed by the plan. The New Land Law Reform takes into account these differences. The understanding is that the benefited owners should keep their rewards, while the harmed owners must be compensated by the Municipalities (the taxpayers). A land tax could be a more fair and efficient solution to this problem.

68 which was covered by the plan, are immediately available (…) leading to the speculative holding, because the owners judge that the value of their lands will increase in the medium/long term, in order to maximize their capital gains105 (Guinote, 2008)”. Inside the economic belief is the argument that the zoning policy needs to remain stable to no harm the long-term investments. Here there are two basic fundamentals: (i) the advocates of the introducing of higher flexibility to zoning policy to absorb new investment opportunities that are not covered by the plans; (ii) the advocates of the stability to ensure confidence. Although they may seem contradictory, these are the foundation of the current zoning premises. The introducing of higher flexibility to zoning policy is argued when it is need to raise some restrictions to urban development in some sections of the territory. It can be, for example: the promoter A has a property that is classified as rural land or is placed in a flood plain or is classified as “heritage of public interest”, so, according to the zoning plan B, he cannot transform his land (on the first two cases, he cannot build a permanent structure upon the property and on the last case, he cannot demolish the existing structure). The main argument to circumvent the restriction is that the zoning policy should not block the progress. Therefore, it is necessary to make lower restrictions to absorb more investment. This current of thought is most clearly seen during the expansion phase of land cycle. In turn, the argument about stability gains strength when the land cycle inverts the trend: by other words, get in the recession phase. The reason given is that “from the financial stability point of view, it cannot be ignored that the banks are the main source of financing to the real estate sector and to the buying of properties by the businesses and households, whereas negative adjustments on the real estate prices lead to a deterioration in the quality of the assets held and can contribute to the increase in defaults of mortgage credit, with impact on the profitability and solvency of the banks” (CMVM et al, 2013: 4). Naturally, the concern of the advocates of stability is that the shrinkage of the areas available for development will cover a large number of mortgaged properties. These properties were used as collateral during the expansion phase of land cycle and the banks do not want to recognize that the market value of these properties fell sharply in the last years. To prevent the recognition of the land bubble, one of the instruments used is the zoning policy. Through the maintenance of these properties classified as land available for urban development, the banks can substantiate the value recorded in their balance sheets to avoid the exposure of their toxic assets. The banks can hold and speculate with these types of properties because the taxes are very soft, even when they are not exempt from the payment of the property tax. In a certain perspective, although these two fundamentals appear to be opposite, the reality is that they are complementary to one another. The approach varies depending on the phase of the land cycle, but the goals are the same: (i) show that there is no alternative economic model to the current economic model, which is based on the urban development in peripheral land106; and (ii) the breakdown of the model will collapse the financial system107. Unfortunately, this means that the current models (economics and zoning) never will recognize the real source of the crisis and of the territorial problems. For this reason, the land cycle will still exist in the future and also their effects.

105 The correct term, in the view of the author, is rents not capital gains. 106 The economy has to grow and the only viable option is this. 107 That is why it is necessary the stability of the zoning policy and its instruments (plans).

To conclude, during the 50s, Whyte, W. (1993 [1957]: 133) established an interesting parallelism between the economic development and the urban sprawl (due to the observation about the growth of American Metropolis), even without the bridge directly to the land cycle (however coming to a similar conclusion that of George (2009 [1881])), which is applicable to the Portuguese reality and to what might be the future if nothing structural was done: “Already huge patches of once green countryside have been turned into vast, smog-filled deserts that are neither city, suburb, nor country, and each day (…) more countryside is being bulldozed under. You cannot stop the progress, they say, yet much more of this kind of progress and we shall have the paradox of prosperity lowering our real standard of living”.

3. References A. Books, Chapters, Articles

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INE – Instituto Nacional de Estatística (2015a) “Valor médio dos prédios transaccionados por localização geográfica e tipo de prédio”, Anual – Direcção Geral da Política de Justiça.

INE (2015b) “Número de prédios transaccionados por localização geográfica e tipo de prédio”, Anual – Direcção Geral da Política de Justiça.

INE (2015c) “População (Nº) por local de residência, sexo e grupo etário”, Anual – INE, Estimativas Anuais da População Residente.

INE (2015d) “Superfície (km2) das unidades territoriais por localização geográfica”, Anual – INE, Instituto Geográfico Português.

INE (2015e) “Densidade Populacional (Nº/km2) por local de residência”, Anual – INE.

INE (2015f) “Superfície (km2) das unidades territoriais por localização geográfica”, Decenal – INE, Recenseamento da População e Habitação.

INE (2015g) “Densidade Populacional (Nº/km2) por Local de residência”, Decenal – INE, Recenseamento da População e Habitação.

INE (2016) “Cidades (Nº) por localização geográfica”, Anual – INE, Sistema Integrado de Nomenclaturas Estatísticas.

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C. Legislation and Regulations

Despacho n.º 2837/2008 de 05 de Fevereiro, Diário da República, nº25 – 2ª Série, Ministério das Obras Públicas, Transportes e Comunicações, e Ministério do Ambiente, do Ordenamento do Território e do Desenvolvimento Regional.

Lei n.º 56/2008 de 4 de Setembro, Diário da República nº171 – 1ªSérie, Assembleia da República.

Lei n.º 66-B/2012 de 31 de Dezembro, Diário da República nº252 – 1ªSérie, Assembleia da República.

Lei n.º 75-A/2014 de 30 de Setembro, Diário da República nº188 – 1ªSérie, Assembleia da República.

Lei n.º 31/2014 de 30 de Maio, Diário da República nº104 – 1ªSérie, Assembleia da República.

D. Videos

SIC (2014) “BPN/Depois da Fraude 2ª Parte: a Cobrança”, Grande Reportagem SIC, available in https://www.youtube.com/watch?v=BLAFm707vv8.