Urban development is a multidimensional phenomenon influenced by numerous factors ranging from socio-economic dynamics to environmental considerations. Understanding the determinants of urban development is crucial for policymakers, planners, and stakeholders to create effective strategies for sustainable urban growth. Even though urban development issues have been a subject of scientific investigation for many years, an initial bibliographic analysis of Scopus-indexed journals performed by the authors of the paper revealed that the topic continues to attract increasing attention (scientific papers dealing with urban development issues growing over the last five years by over 1500 %) within four areas visualized by different colored clusters – see Fig. 1.
The fact has been summarized by Zhang et al. (2023) as “various studies have focused on different aspects of urban innovation and development. However, they are often limited to a relatively narrow research scope when interpreting the complex phenomenon of how an urban environment undergoes the process of development”. By contrast, Alhaddi (2015) draws attention to some advantages of that approach, stating, that the limited perspective of research allows an in-depth analysis of some specific urban development-related factors. The current state-of-the-art literature analysis has indicated that one of the areas that needs further exploration from the perspective of urban development is the social dimension (Brindley, 2003, Sharifi, 2023).
There is not only a gap in scientific knowledge but also questionable representativeness of the analytical results obtained. For this reason, the principal motivation of behind this paper is to discuss urban development determinants from the perspective of largely neglected social aspects and they can be influenced one particular factor – property valuation principles. This paper objective is to fill this gap by providing an in-depth analysis of two distinct property valuation approaches used for betterment levy assessments in Warsaw: the comparative approach and the parametric method. The study’s contribution lies in demonstrating how the choice of valuation method affects the accuracy of assessments, the implications for municipal revenue generation, and the broader consequences for urban development policy. By highlighting the significance of consistency in property valuation policies, this research offers insights for policymakers on optimizing valuation practices to support sustainable urban development and enhance financial stability at the municipal level.
The following thesis was formulated: the adoption of certain property valuation principles can have a detrimental influence on urban development. Analysis was carried out on the example of land value capture mechanisms, principally betterment levy. The evidence used analysis of official administrative data in the form of property valuation reports, the public register of real estate prices, and open street map (OSM). For the analysis results visualization, the authors utilized the following software: Qgis, RStudio, and Statistica.
The paper is structured in the following way: Section 1 provides an overview of the recent literature on urban development determinants to justify the need for the adopted approach to scientific investigation. Section 2 concentrates on the description of the local governments’ own revenues with respect to betterment levies. Section 3 is devoted to an explanation of two property valuation approaches used in betterment levy in Poland – the comparative and the “parametric” method. Section 4 sets out the methodological approach adopted. Section 5 sets out the results obtained. The conclusions drawn, presented in Section 6, provide a novel contribution to the field by linking property valuation techniques directly to urban development outcomes, emphasizing the importance of coherent policy frameworks to ensure valuation accuracy, equitable taxation, and effective land value capture.
Urbanization is a defining feature of the modern era, with more than half of the global population residing in urban areas. The unprecedented rapidity of urban growth presents both opportunities and challenges for societies worldwide. Understanding the underlying determinants of urban development is essential for navigating the complexities of urbanization and promoting inclusive and sustainable urban environments (Miao, 2023, Jian and Yang, 2024, Korah et al., 2024, Xu, 2024).
Urban development is a key driver for promoting the industrial, economic, and social development of cities (Zhang, 2023) and its also influenced by a wide range of economic, social, and environmental factors. Understanding the mechanisms and reasons for urban populations to grow over time is crucial across a range of academic and policy domains, encompassing migration, economic development, and environmental change. Improved comprehension would furthermore enable more accurate forecasts regarding the course of urbanization and its impacts on both society and the environment (Zhang, 2023). From housing affordability to transportation infrastructure, from environmental degradation to social inequality, urban development is shaped by a complex interplay of factors. Identifying and understanding the determinants is paramount for addressing the challenges of urbanization and steering urban development toward desirable outcomes. Researchers point to different conceptions of urban development arising from the context of different disciplines and research perspectives. For example, Zhao and Li (2003) in their research emphasized that urban development refers to and depends on a socio-economic system conditioned by the interdependencies and interactions of its various elements (Zhao and Li, 2003, Zhang, 2023), which include institutions and organizations such as enterprises, governments, universities, scientific research institutions, and intermediary organizations, and also non-subject elements. Natural factors, social factors, and economic factors take different positions in the process of urban development by interactively and coordinately influencing urban innovation and development from different sides (Fig. 2).
Understanding the dynamics of urban economies and their interconnections with broader socio-economic trends is essential for promoting inclusive growth and reducing disparities across urban areas. Moreover, environmental sustainability is increasingly recognized as a critical dimension of urban development.
Urban development involves interactions between multiple participants and multiple levels. Sun et al. (2023) indicate that the urban development system includes the following five dimensions: population, economy, land, ecology, and society. The effectiveness of urban development policies and strategies is contingent upon the institutional frameworks and governance structures in place. Transparent, accountable, and participatory governance mechanisms are essential for fostering collaboration among stakeholders, ensuring equitable access to resources, and aligning interests towards common urban development goals. Strengthening institutional capacity and governance systems is therefore critical for enhancing the effectiveness and legitimacy of urban development interventions. Urban governance is the sum of the many ways individuals and institutions, public and private, plan and manage the common affairs of the city. It is a continuing process through which conflicting or diverse interests may be accommodated and cooperative action can be taken. It includes formal institutions as well as informal arrangements and the social capital of citizens (UN-HABITAT, 2002). The Global Campaign on Urban Governance underlined that good urban governance is characterized by the principles of sustainability, subsidiarity, equity, efficiency, transparency and accountability, civic engagement and citizenship, and security and that these principles are interdependent and mutually reinforcing (Fig. 3). As was underlined above, urban development is a complex and dynamic process that is influenced by a wide range of economic, social, and environmental factors, as well as policy decisions and governance structures. Richmond Vale Academy (2022) emphasizes that economic growth is probably the most important factor, especially in developing countries. There is a significant link between urban development and municipal finances. Financial resources availability and distribution are crucial in influencing cities growth. In recent times, fiscal challenges have transitioned from the national to the local government level in many countries. This shift has compelled cities to adopt practical measures that may impede long-term goals and sustainable progress (Davidson, 2019). Simultaneously, economic instability and urban sprawl introduce considerable fiscal strain on cities globally, potentially compromising the standard of urban services (Xue and Wu, 2015, Yan, 2022).
The increasing complexity of urbanization and the rising property values necessitate robust property valuation techniques that can accurately reflect market dynamics. Inconsistent valuation practices can lead to disparities in revenue collection and undermine the effectiveness of municipal financing. There is a strong and multidirectional relationship in this area (Trojanek et al., 2024). Urban development can have a significant impact on property values in various ways. However, the literature has not sufficiently explored the impact of valuation policy consistency on the accuracy of property assessments and its broader implications for urban development. The value of a property depends, among other things, on the level of economic development of the area, the degree of urbanization, and urban development (Gargiulo and Ciutiis, 2009, Guan and Peiser, 2018, Abdulla et al., 2023). Overall, urban development plays a crucial role in shaping property values also through factors like accessibility, amenities, design qualities, and proximity to green spaces. Property valuation provides a foundation for local governments to make informed decisions about land use planning, infrastructure investments, and revenue generation. Up-to-date and accurate property valuations are essential for local governments to manage their finances effectively and improve the well-being of their communities (Tomal, 2022). This demonstrates the importance of efficient land administration and property valuation in supporting local governments’ ability to respond to community needs and improve socioeconomic indicators. Property valuation is integral to local government revenue generation, particularly through mechanisms like property taxes and betterment levies. Accurate and up-to-date property valuations enable municipalities to make informed decisions about land use, infrastructure investments, and fiscal planning. However, the effectiveness of these decisions is heavily influenced by the consistency of property valuation policies. To enhance the predictability and fairness of tax assessments, municipalities should adopt standardized property valuation practices. These practices will reduce disparities in assessments and ensure a more equitable distribution of tax burdens. Municipal policymakers should consider enacting regulations that mandate regular updates to valuation methodologies to reflect current market conditions. This approach would directly benefit municipal revenue systems by stabilizing income from property taxes and betterment levies, thus supporting sustainable urban financing.
The role of a municipality is to satisfy the basic needs of its inhabitants and to improve their well-being (Ziniewicz, 2012). Urbanization tends to increase the need for public expenditure due to the need to provide the services needed to enable large numbers of people to live safely in close proximity at a high density. Local governments should bear more responsibility in providing public services for a growing number of urban residents (Benito et al., 2010, Jian and Yang, 2024).
The budget of a municipality plays a significant role in shaping the long-term economic prospects of the region. It serves as the key instrument for municipal management, particularly in ensuring the efficient delivery of public services, infrastructure projects, public safety, education, and other services needed for the well-being of its inhabitants. There has been growing interest in the expansion of global investment in urban areas, and the financialization of urban development, both of which bring new business logic to the production of the built environment and shape urban outcomes (Robinson, 2021).
The effective implementation of public tasks by local government units requires financial resources. Tasks carried out by public bodies can be financed through tax revenues, including zoning fees and betterment levies. An essential element of local government finance is own source revenues (OSRs), which include the taxes and fees that a local government is authorized to collect. OSRs are strategically important for transformative urban development because they often support the operation and maintenance of local assets. Ensuring proper budget allocation for the financial, human, and material resources to manage assets over their lifespan is critical because it allows continued delivery of essential services for citizens, such as transport, water and sanitation, public health protection, and solid waste management. Regarding the immediate fiscal status of municipal administrations, the literature tends to focus on the revenue and expenditure dynamics, particularly focusing on the capacity of revenues to offset expenses (Turley et al., 2015, Rodríguez Bolívar, 2018, Paniagua-Molina, 2021). Entities that fail to maintain a balance between revenues and expenses are inherently financial unstable and may fall outside the regulatory framework governing local governments (Donatella and Karlsson, 2024).
Local governments derive their revenues from various sources (Trenovski et al., 2022), while property taxes are often the largest sources (Devas, 2008). Charges, such as fees for services like sewerage and parking, provide a significant portion of local general revenues. Any charge for a service that is in excess of the cost of delivering it can be regarded as a hidden form of taxation.
One source of the municipality’s own revenue is the betterment levy. Betterment levies are charged on the benefits received by the owners of the plots of land (Król, 2017), particularly when there has been a rise in value as a result of a decision by municipalities, such as development consent or permission for a change in use. A betterment levy typically takes the form of a one–time tax or charge imposed by a government on the owners of a selected property, typically land, to capture part of the land-value gain attributable to infrastructure investment. The levy is designed to divide the benefits from the increase in the property’s value between the property owner and the community, reflecting the principle of the common good. Betterment levies have been used in various countries, including Poland. They are a form of land value capture and can be used to finance public works and infrastructure investments based on the idea that property owners should pay for the benefits they receive from such developments. The amount of tax imposed depends on how much the property owners benefit from the new facility, and it is calculated based on the increase in the property’s value resulting from specific infrastructure development. How this is calculated reflects the property valuation principles that are adopted and the means of levying them can have a profound impact on the nature and level of development that private developers are willing and able to undertake. Betterment taxes exist in various forms with differing degrees of success (Hernik, 2021).
In Poland, the regulatory framework governing betterment levy mechanism has evolved, reflecting changes in both market conditions and policy priorities. Historically, the use of market-based comparative approaches was predominant, but recent legislative adjustments have introduced alternative methods, such as the parametric approach, particularly when market data is limited. While these adjustments aim to accommodate data constraints, they also highlight the challenges of maintaining consistency in valuation practices.
The Polish legislation sets out three fundamental cases when a unit of territorial government can charge a betterment levy: as a result of dividing a property (up to 30 percent of the value increase); in respect of consolidation (up to 50 percent of the value increase); and infrastructure construction (up to 50 percent of the increase of the property’s value) (Property Management Act, 1997, Hernik, 2021). The betterment levy can be charged on all properties regardless of their kind and location, except properties dedicated in the local plan for agricultural and forest purposes or being used for these purposes in the absence of a plan. The charge is payable only when property’s value as determined by independent property valuer is judged to have increased, The revenue can be used to cover capital expenditures related to construction, and it is a way for citizens to recover some of the costs of infrastructure (Gawroński and Prus, 2005).
The historical evolution and policy changes in Poland’s betterment levy system underscore the importance of consistent valuation practices. Variability in the application of valuation methods can lead to inaccuracies, undermining the equitable distribution of tax burdens and affecting municipal revenue forecasts. A standardized approach, combined with a robust legal framework, is essential to enhance the effectiveness of betterment levies as a tool for land value capture and urban development financing. Betterment levies have proved to be difficult to administer due to challenges in identifying the value gains resulting from public works projects. As a result, betterment levies have fallen out of favor as a significant source of revenue in many countries. The challenges in estimating value gains have led to a decline in the use of parcel-by-parcel betterment levies, with some countries modifying the approach by bundling different investment projects together or even banning the use of betterment levies, including stealth ones imposed using planning obligations on developers.
Urban development theories, such as land rent theory (Alonso, 1964) and growth machine theory (Logan and Molotch, 2007), emphasize the role of property value appreciation as a key driver of urban expansion. Effective property valuation methods are crucial for capturing land value increases, enabling municipalities to generate revenue through betterment levies. However, policy changes and inconsistent valuation practices can disrupt this process, undermining financial stability and urban planning efforts. The relationship between policy stability and property valuation is critical. Stable policy frameworks provide consistent guidelines for valuation, ensuring accuracy and transparency in land value capture (Dye and England, 2010). In contrast, frequent policy changes can lead to valuation discrepancies, reducing investor confidence and complicating urban development (Smith and Huang, 1995). Comparative studies, such as those conducted in the UK and Germany, show that regions with stable valuation policies achieve better revenue predictability and support sustainable urban growth (Reinert, 2021). The rapid development of automated valuation models and other advancements in property valuation are also not without significance (Dimopoulos, 2020, Dimopoulos and Bakas, 2019, Dimopoulos and Bakas, 2019, Walacik et al., 2013, Walacik and Chmielewska, 2024, Walacik, 2024)
Betterment levies, constituting passive land value capture mechanisms (Lee and Locke, 2021), represent a significant tool in urban development financing, aiming to appropriate part of the increase in property value resulting from either public infrastructure investments or property divisions on behalf of the community (Grover, 2018, Hernik, 2021). Determining the appropriate valuation principles for betterment levies is essential for ensuring fairness, efficiency, and transparency in the assessment process, constituting fundamental elements for real estate good governance principles implementation (Zakout et al., 2006, Gross and Lin, 2020, Nissim, 2022, Modise, 2023), and ensuring that productive investment is not discouraged. Drawing upon insights from international practices (Peterson, 2013, Aparna et al., 2021) and scientific literature (Król, 2017) regarding particular valuation principles (Wisniewski and Brzezicka, 2020) and their application to betterment levy assessments, it has been identified that the methods predominately used are the comparative approach based on market values and normative approaches determined by legislation or regulation. In Poland, the latter is given the name in the regulations of the “parametric” approach, though this should not be confused with parametric statistics. If there are no sales transactions of similar properties, the value of the real estate before the division for the purpose of determining the betterment levy, is determined parametrically, by taking the value determined after the division and applying a coefficient to reflect the change in the value resulting from its division and the costs of division. The procedure of both methods’ utilization were presented in Fig. 4.
The differences of both methods’ utilization were subject of investigation further investigation.
The comparative approach in property valuation for betterment levy determination relies on analyzing comparable properties in the market to estimate the value of the subject property, taking into account a variety of market attributes predominately categorized in scientific literature into extrinsic and intrinsic ones (Gabrielli et al., 2017, Usman et al., 2020). The procedure for implementing the comparative approach requires the creation of a set of similar properties (IVS International Valuation Standards, 2021, EVS, 2016, RICS, 2021). In the following analysis, the unit prices of the ith property are denoted as cj, while the values of the ith attribute are denoted as aj. The implementation of this step of the procedure allows updating the transaction prices of the property as of the valuation date, but it should only be done after all the attributes of the property have been established. The next step is to determine the market characteristics, along with determining the range of rating scales for each characteristic and assessing the magnitude of their impact on price differentiation. The magnitude of the impact is expressed as the weighted share of features (attributes) in explaining the variation in transaction prices, i.e. standardized percentages, denoted as kj (with the sum of them being 100 %). The performance of this stage of the analysis makes it possible to select from the created set of properties the most similar in terms of market characteristics to the subject property in terms of its characteristics. Conducting comparisons of the property to be appraised with the properties selected for appraisal and determining the size of the corrections resulting from any differences requires determining the spread of unit prices of the properties accepted for comparison according to the following formula:and then determining the quota shares of the considered attributes:
The calculation of the adjusted price of each property accepted for comparison using certain corrections precedes the determination of the difference in the attributes of the valued property and the comparison property and then multiplying it by which gives a correction to each attribute . The sum of the corrective adjustments of all attributes added to the transaction price of the property considered in the pair determines the adjusted transaction price, which should correspond to the unit market value of the appraised property from the considered pair, i.e. . If all the stages considered above were written in the form of a single expression, t unit market value estimated from one of the pairs is expressed by the following formula:
Having completed the procedure at this stage, it remains to calculate the unit value of the appraised property as the arithmetic average of the adjusted transaction prices obtained from pairwise comparisons of properties, or the weighted average if the reliability of the results obtained varies. The formulated principle of determining the reliability of the adjusted unit price of real estate in the considered pair requires an analysis of the variance of the relationship. Applying the principle of summation of variances to this function, we obtain the following relationship:
If the assumption is made that the effect of individual attributes on price variability in the base is equal, then for all replacement considerations it is possible to assume equality of variance:under the assumption that the variance of the price of the comparable property is 0.5 of the variance of the corrective amendment, i.e. , the formula for the reliability weighting of the adjusted price estimate takes the following form:
Thus, reliability weights for adjusted prices are determined according to the following formula:Where: nPK is the number of corrections occurring in the ith pair.
The comparative approach holds significant promise for estimating property values in the context of betterment levies. By leveraging market data and comparable sales (French and Gabrielli, 2018), this approach offers a transparent and objective method for assessing property values. However, challenges may arise in identifying suitable comparables, making adjustments for differences between properties, and accounting for external factors such as changes in market conditions or planning regulations (French, 2023). A legally permissible alternative solution may to adopt what legislation calls the parametric method as last resort method if no comparative market data is available.
Parametric methods are widely used in data analysis and statistical modeling, where it is assumed that the phenomena under study are described by certain parameters, such as mean or variance (Altman and Bland, 2009). Parametric methods in real estate valuation “are proposed by many authors merely as direct instruments of market property valuation, and not as methods supporting the comparative analysis” (Anderson, 2001, Gaca, 2018). The main assumptions in using parametric methods in property valuation include linearity, independence of errors, homoscedasticity, normality of errors, no multicollinearity, stationarity, and random sampling (Fan and Yao, 2003). It is important to underline that violating these assumptions can lead to biased estimates, incorrect statistical inferences, and unreliable predictions. Therefore, practitioners should carefully assess the validity of these assumptions and take appropriate steps to address any violations through data transformation, model specification, or robustness checks (Li, 2022). The parametric method relies on statistical techniques and econometric models providing a rigorous framework for estimating property values. Parametric models can account for spatial heterogeneity, reflecting differences in property values across different locations within an urban area. By considering spatial factors, such as proximity to amenities, transportation networks, and economic centers, parametric methods can provide more nuanced valuation estimates. The parametric method can capture temporal trends in property values, allowing for adjustments to reflect changes in market conditions over time. This flexibility enables practitioners to account for fluctuations in property values and ensure that levy assessments remain relevant and up to date (Li, 2022).
Parametric methods rely heavily on the availability of comprehensive and reliable data, including property characteristics, sales transactions, and market trends. Limited or incomplete data can undermine their accuracy and validity, particularly in data-scarce or regions with underdeveloped markets. The models may present challenges in interpretation and communicating findings to stakeholders. Complex statistical outputs and technical terminology can obscure key insights or undermine the transparency of the valuation process, potentially leading to misunderstandings or mistrust among stakeholders.
The utilization of the parametric method in property valuations for betterment levy determination in Poland differs from the general comprehension of the methodological statistical modeling term explained above. The term parametric is used in the legislation. The approach used does not appear to be based on statistical parametric models. It is an alternative method of single property valuation, when a property valuer draws the conclusion based on property market analysis that no comparative market data is available. The valuation for betterment levy from a property division determination is based on the following formula:Where WI is the market value of properties’ land before division, WII is the market value of properties’ land after division, and E is the coefficient of change in the value of property, expressing the economic benefit of subdivision resulting from the facilitation of the sale of real estate, determined according to the predominant use of land within the range of 0.02–0.06, and KP costs of property division determined according to data from the market of surveying services. The E coefficient from the perspective of mathematical articulation can be expressed in the following way:Where each function (ranging from 1 to 3) is a distinct yet interrelated function, intricately dependent on the variables x1 number of plots, x2 number of plots divided for public roads, and x3 predominant land use.
All these methods have advantages and limitations, and their use depends on the specific problem and the characteristics of the data. It is important to examine carefully whether the assumptions are fulfilled before applying the parametric method and to properly adapt the model to the data being analyzed (Coelli and Perelman, 1999).
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