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Rising Property Taxes in São Paulo, Amongst Poor Municipal Planning

After a court barred a proposal to increase property taxes in Rio de Janeiro, the administration of Mayor Fernando Haddad (PT) chose another way to raise taxes. The administration proposed an increase in the calculation basis of the ITBI tax, to be levied in cases of a real estate transfer. According to a report published today by the newspaper Folha de Sao Paulo, the increase has reached 173% in some areas of the city and should affect 42,000 properties.

North view of Rua  Tonelero, Alto da Lapa neighborhood, city of S?ao Paulo, Brazil

The logic behind the increase is that the value of real estate has risen, and therefore it would be fair that the owners, who benefited most, be taxed proportionally. There are, however, some issues that merit discussion. The first is the high property value. For example, the value per square meter of a property in the Alto da Lapa, in the West Zone neighborhood, more than doubled in just the last four years. However, this economic recovery was not due to investments made by homeowners, nor was it the result of municipal investments. The Alto da Lapa is still a neighborhood with awful sidewalks where pedestrians bump into trees, posts, steps and holes, and are often forced to walk in the middle of the street. The distance to the train or subway is difficult to be covered on foot, especially because of the rough topography and the deserted streets. A form of garbage collection which could prevent the clogging of storm drains (with the use of containers, for example) was not implemented, nor is there a project to bury electrical wiring. There are no programs in place to support small business owners, in terms of credit and exemption, or to re-develop the ground floor of buildings into mixed use in order to encourage pedestrian movement and improve security. Kindergartens, public schools and health clinics also do not justify the valuation of the district.

The group that really invested in the region were the developers, building residential buildings of high standards and placing pedestrian zones in the epicenter of frenetic urban growth. The urbanization that the citizens of São Paulo know is shaped by the real estate market. There is no municipal planning and the development of entire regions have a lasting impact on traffic and landscape. The side effects caused by clusters of enterprises along the same perimeter are mostly ignored by the municipal administration. The Alto da Lapa is appreciated in value, but the traffic has gotten worse and there is no efficient public transport to meet local demand.

In some cases, the municipality requires developers to undertake traffic reducing public work projects to reduce these effects. But the cost of these projects is passed on through the escalating price of real estate. There is no free lunch: those who pay the bills are the already over burdened São Paulo citizens.

View of Alta de Lapa in Sao Paulo, Brazil

In a city that has suffered such an intense appreciation, it is interesting that it has facilitated the acquisition of property, instead of making it more expensive. This is especially important in cases where the traffic is chaotic and public transportation is inefficient, because if people can live near where they work, they will take fewer trips and help reduce traffic congestion and improve air quality.

Likewise, when you can not afford to inhabit certain places because of high prices, the population is pushed further from the city center, or even to other regions where they are subjected to commutes which consume three to four hours daily. As a consequence of the worsening traffic, the quality of life can decrease. In over priced areas the infrastructure becomes underutilized, while the deficit of infrastructure in more peripheral locations only increases. Everything is more expensive both for citizens and for the government.

We can not forget that behind the ITBI proposal, as well as the previous proposal to increase the property tax, there is a commendable effort by the current administration to seek alternative funding to keep the bus fare to three real ($1.35 USD), which was one of main demands of the protests of June. But you can not admire the municipality for proposing another property tax increase without detailing the city plan that awaits the population in the wake of these measures. With the discussion of the Master Plan in progress, it is a good opportunity to clarify where the city is going.

How do property taxes affect development in your city?

Original article, originally published in Portuguese, can be found here.

Credits: Images and data linked to sources.