Copenhagen has generated billions of dollars to invest in public infrastructure by transferring land to By & Havn, a publicly-owned, privately-run corporation, for development. The land is rezoned for commercial and residential use to boost its value, then By & Havn takes huge loans against it to be used for developing infrastructure and further increasing its value. By & Havn subsequently sells or leases the land to developers, and the revenues generated are used to service their debt. Thus, billions of dollars have been invested in infrastructure — without a raise in taxes.
Results & Impact
Since 2007, By & Havn has overseen half of all redevelopment projects in the city. Funds generated have been invested in infrastructure, including roads, a huge extension of the metro, and other recreational and public amenities. The land has also been used for thousands of energy-efficient housing units and the waterfront has been developed into a multi-use area for the public.
Copenhagen By & Havn Corporation, City of Copenhagen, State of Denmark
The government transfers public land to By & Havn and rezones it for residential and commercial use, causing the land to increase in value. By & Havn then borrows, generally on favourable terms from the Denmark National Bank, based on the increased value of the land. This money is used to develop local infrastructure or is transferred to the metro construction company for broader transit investments. This further increases the land’s value. Then By & Havn facilitates development through a range of mechanisms, including land sales to or lease agreements with developers, or in some instances develops the land itself. Finally, the revenues generated by this are used to service their debt.
Cost & Value
Running since 1992
Haifa, Israel, is pursuing a similar strategy in its own port area.
Copenhagen has financed inner city regeneration and multi-billion dollar investments in infrastructure by transferring land to the publicly-owned, privately-run By & Havn corporation for development.
By & Havn, the CEO of which is a former mayor of Copenhagen, has developed a model for regeneration that combines public sector motivation with private sector management — and could be exported to other cities across the world.
The process is simple and replicable, and in its basic form runs as follows.
The government transfers public land to By & Havn and rezones it for residential and commercial use. This causes the land to increase in value. By & Havn subsequently borrows billions of dollars based on the increased value of the land and either transfers this to the metro construction company or uses it to develop local infrastructure. Then, it facilitates development of the land in a number of ways, including land sales to or lease agreements with developers, or it may develop the land itself. Finally, the revenues generated go back to service the debt.
This process has been used to develop numerous areas. Since 2007, By & Havn has overseen half of all redevelopment projects in Copenhagen.
One example is the ongoing transformation of North Harbour. Eventually, this area will include residential, commercial and office space for 40,000 inhabitants and 40,000 workers. Moreover, it is largely built on surplus soil that was pulled up during the metro construction funded by earlier developments. So much soil was deposited that the land is a meter higher that it was, providing a buffer against climate change and rising sea levels.
North Harbour also illustrates how By & Havn’s activities tie into the city’s broader strategy.
Any new buildings there must adhere to Copenhagen’s ambition to be the first carbon-neutral capital city by 2025. Developers must ensure that materials are locally sourced and that building insulation is effective. Moreover, local law also dictates that 25% of any new housing be set aside as social housing for lower-income residents.
The city also worked in a clever mechanism to ensure that the public receives a share of any property value increases driven by the continuing improvements to infrastructure. This means that the profits from the development of the transit system don’t just go into the hands of developers, but also into the city’s pocket.
In essence, Copenhagen’s model is effective because it is part of a long-term strategy that triggers a virtuous cycle. The public sector benefits as land and asset values appreciate, thanks to their own smart investments.
In the 1980s, when the city first began paving the way for By & Havn, Copenhagen had unemployment at 17.5% and an annual budget deficit of $750 million. Today, it is one of the wealthiest and happiest cities in the world. By & Havn played a significant role in that turnaround.
The model cannot easily be transplanted anywhere, however. Copenhagen had numerous conditions in place that were instrumental to By & Havn’s success.
The first was the coordination of local and national government, and the devolution of power to the city. This allowed government to bundle public assets and merge public companies, thus consolidating ownership of public land. This was crucial to boost the city’s ability to raise capital for urban development.
Then, By & Havn’s access to cheap loans and its ability to keep operating despite massive debts was key. This was reliant on the high credit rating of its owners: the city of Copenhagen and the state of Denmark.
Finally, being a private company gave By & Havn the flexibility to make coherent and long-term plans, relatively free from political interference.
With those conditions in place, By & Havn has enjoyed substantial success. The model is not without its critics, however. At first, the developments tended towards providing luxury housing that did not meet the city’s most pressing needs. In 2015, the city introduced regulations specifying that 25% of units must be affordable, meaning rent would be fixed at 60% the local market rate. But in a very expensive neighbourhood, that still prices many out of the market.
Others have criticised the developments as lifeless, with little sense of community. Environmentalists have also – successfully – protested the decision to develop ecologically important wetlands.
These problems are real, but not intractable. The model can take them into consideration and evolve.
(Picture credit: Flickr/Kristoffer Trolle)