Land Value Capture in Practice: Reflections on Ethiopia’s Urban Land Lease System
Pangram verdict · v3.3
We believe that this text is a mix of AI and human-written content.
AI likelihood · overall
MixedArticle text · 1,358 words · 31 segments analyzed
Regular readers know the goal that drives this newsletter: land value return, making sure the value of land, which the community creates, flows back to the public rather than to private speculators. There are two broad ways to get there.
One is to tax it, through a land value tax.
The other, at the opposite end of the same spectrum, is for the public to own land outright and lease it back.
We've written about that leasing end before, from Jeff Fong's case for land leasing to Singapore's innovative land policy, and it runs through Elle Griffin's work we sponsored, Let Cities Build Utopia, and her argument that land should be a public good.
Ethiopia takes that idea far. Under its constitution, all urban land is publicly owned and leased back to residents and businesses rather than sold.
It is a very large, real-world experiment that most of our readers have never heard of, and we think it's important to tell the story of a country set up to keep the value of land in public hands. From 2008 to 2012, Wudu Muluneh served as District Municipal Manager of Bole Sub-City, one of Addis Ababa's fastest-growing districts, where he ran the land tenders and administered the lease system firsthand. Today he lectures and researches at the Institute of Land Administration at Bahir Dar University. As you'll see, Wudu offers a comprehensive - and at times critical - account of the potential and the shortcomings of Ethiopia’s land leasing system. We directly commissioned this report from Wudu, something that is only possible thanks to your continued financial support. If you'd like to see more deep research efforts like this in the future, please consider becoming a paid subscriber, or make a donation. —Greg & LarsWhen I started my career as a District Municipal Manager in Bole Sub-City of Addis Ababa City Government in 2008, I did not think I was stepping into one of the most ambitious land value capture experiments in Africa.
At the time, my primary responsibility was managing municipal services, overseeing land administration activities, and responding to the daily concerns of residents and investors.
However, it soon became clear that many of the challenges facing the city from infrastructure financing to land speculation and tenure insecurity were closely connected to Ethiopia’s urban land lease system.Over the last 17 years, I have worked with this system from multiple roles and responsibilities.
Between 2008 and 2012, I served as a District Municipal Manager and elected council member in Bole Sub-City Administration. From 2008 to 2018, I taught urban land administration courses at various public universities in Ethiopia including the former Kotebe Metropolitan University (the now Kotebe University of Education). Since 2018, I have been a lecturer and researcher in the Department of Real Property Valuation at the Institute of Land Administration at Bahir Dar University.
These roles have given me a unique opportunity to reflect on how Ethiopia’s urban land lease system works not only in law but also in practice.This blog is not simply a review of Ethiopia’s lease proclamations.
It is a reflection on how successive legal reforms attempted to solve real problems that I observed as a practitioner.
Looking back, the story of Ethiopia’s urban lease system is also the story of a country’s effort to capture land value for public benefit while confronting the realities of rapid urbanization, institutional limitations, and competing interests.
Proclamation No.
80/1993: The Birth of Ethiopia’s Urban Land Lease SystemThe military government known as Derg , which is an Amharic word for committee, came to power in Ethiopia in 1974 following the overthrow of Emperor Haile Selassie.
Influenced by socialist ideology, the regime viewed private ownership of land under the imperial regime as a source of inequality, exploitation, and speculation.
In pursuit of its vision of social justice and state-led development, the Derg nationalized all rural and urban land through a series of land reform measures, including the 1975 Government Ownership of Urban Lands and Extra Houses Proclamation No.47/1975.Members of the Derg military junta in 1975.
Following the 1974 revolution, the Derg nationalized all urban land and extra houses through Proclamation No.
47/1975, replacing private ownership of urban land with state ownership.
This principle of public ownership became the foundation of Ethiopia’s subsequent urban land lease system.
Source: Wikimedia CommonsUnder this system, urban land could not be bought, sold, or mortgaged.
Instead, the state became the sole owner of all urban land and exercised extensive control over its allocation and use. In practice, a person wishing to build a house, establish a business, or undertake another form of urban development could not purchase a plot on the open market. Rather, land had to be obtained through administrative allocation by government authorities. Once allocated, users were granted rights to occupy and develop the land, often subject to conditions imposed by the state. Land users paid only nominal land rent, and their continued access depended largely on compliance with government regulations.The system was intended to promote equity by preventing land concentration and eliminating private speculation. However, the absence of market-based allocation mechanisms created significant challenges. Administrative allocation often resulted in bureaucratic delays, inefficient land use, corruption, and informal transactions outside the formal legal framework. Because transfer rights were highly restricted, urban land had little functioning market value, and municipalities generated limited revenue from land. As urban populations expanded and demand for serviced land increased, the shortcomings of the system became more apparent.In 1991, the Derg regime fell after years of civil war, economic decline, and political instability. It was replaced by the Ethiopian People’s Revolutionary Democratic Front (EPRDF), which introduced a series of economic and institutional reforms aimed at transitioning the country toward a more market-oriented economy while maintaining public ownership of land.
Upon assuming power, the Transitional Government of Ethiopia took a decisive step away from the Derg’s permit system by enacting the first urban land lease holding law, Proclamation No.
80/1993.
The reform reflected a broader effort to introduce market-oriented mechanisms into urban land management while maintaining public ownership of land.Unlike the Derg-era permit system, under which urban land was allocated administratively and users generally held indefinite occupancy rights subject to state control, the lease framework introduced market-based valuation, competitive bidding, benchmark pricing, and contractual tenure arrangements for fixed periods. Under the new system, individuals and businesses no longer received land primarily through administrative allocation. Instead, urban land was increasingly allocated through public tender, whereby interested applicants competed by submitting bids, and the highest qualified bidder obtained the right to lease the land for a specified period.In practice, this meant that someone wishing to build a house, commercial building, or industrial facility could compete for a plot by offering a lease price.
However, winning a bid did not confer ownership of the land itself.
The land remained publicly owned, and the successful bidder acquired only a leasehold use-right (See FDRE Constitution, Art. 40(3)) for a defined period, typically varying according to the intended use of the land.
The leaseholder was required to comply with contractual obligations and make payments in accordance with the lease agreement.A particularly significant innovation was the formal recognition of the transferability and mortgageability of leasehold rights.
As stated under Article 10 of Proclamation No.
80/1993, the leaseholder could transfer, mortgage, or contribute the lease right as capital only up to the value of the lease rent already paid.
The law was deliberately designed to prevent land speculation and windfall gains from urban land.
This means that if one acquired a lease from the government and later wanted to transfer it, he/she is not supposed to auction the lease to the highest bidder and pocket a large profit. For example, if a person obtained a leasehold plot from the government by paying 100,000 birr and, several years later, the market value of that lease right increases to 500,000 birr, the leaseholder will not simply transfer the lease for 500,000 birr and keep the additional 400,000 birr. Rather, the leaseholder has the duty to pay the difference that is the income which is higher than the rent already paid (in this example 400,000 birr) to the urban administration.