Owning the City: Property Rights in Authoritarian Regimes

By Marsha McGraw Olive

Competition between democratic and authoritarian systems is playing out in global cities, where real property rights influence regime legitimacy and economic performance. Two questions inspire debate.Why does the property-owning middle class, which was integral to democratic development in the West, support illiberal governments? Do differences between political systems affect the success of global cities?

Marsha McGraw Olive unravels these questions by comparing urban land governance in Europe and Eurasia. Democracies largely, but not exclusively, perform better than hybrid or authoritarian regimes on real property rights, land-related regulations, and citizen engagement in urban planning. Case studies of Moscow and Istanbul show that urban real property is fundamental to regime stability, bringing wealth to average citizens and favoured elites. This formula, perfected by President Putin, bestows economic but not political benefits to middle-class property owners.

The book argues that all cities need to improve land governance to cope with twenty-first century urban challenges. Cities that respect property rights and put citizens at the centre of urban planning achieve better outcomes. In contrast, illiberal leaders who rely on opaque property deals are inciting public backlash and slowing economic growth. In the global political competition, real property rights are a chink in the authoritarian armour.

• Language: English
• Publisher: Agenda Publishing
• Release date: Jul 7, 2022
• ISBN: 9781788214704

Marsha McGraw Olive

Marsha McGraw Olive is Adjunct Professor of European and Eurasian Studies at the Johns Hopkins University School of Advanced International Studies in Washington, DC.

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Owning the City

Understanding Europe

The Council for European Studies book series

Series Editor: Mark Vail, Wake Forest University, North Carolina

This series of books in association with the Council for European Studies publishes research-based work that contributes to our understanding of contemporary Europe, its nation states, institutions and societies. The series mirrors the CES’s commitment to supporting research that plays a critical role in understanding and applying the lessons of European history and integration to contemporary problems, including those in the areas of global security, sustainability, environmental stewardship and democracy.

Published

European Studies: Past, Present and Future

Edited by Erik Jones

Owning the City: Property Rights in Authoritarian Regimes

Marsha McGraw Olive

Owning the City

Property Rights in Authoritarian Regimes

Marsha McGraw Olive

For David, Andrew and Philip

© Marsha McGraw Olive 2022

This book is copyright under the Berne Convention.

No reproduction without permission.

All rights reserved.

First published in 2022 by Agenda Publishing

Agenda Publishing Limited

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ISBN 978-1-78821-468-1

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Printed and bound in the UK by CPI Group (UK) Ltd, Croydon, CR0 4YY

Contents

Acknowledgements

List of figures and tables

1Introduction and argument

2Globally successful cities

3Urban political economy in historical perspective

4Urban land governance: liberal and illiberal patterns

5Cautionary tale: Moscow

6Cautionary tale: Istanbul

7Conclusions and prognosis

Bibliography

Index

Acknowledgements

First and foremost, I am grateful to David, Andrew and Philip for their unwavering love, patience and support as the project unfolded over the course of a decade. This book is dedicated to the three most important men in my life.

The intellectual odyssey began in the 2000s with lectures at the World Bank by leading scholars such as Daron Acemoğlu, Douglass C. North, Elinor Ostrom, James Robinson, Dani Rodrik, John Wallis and Francis Fukuyama. Their theoretical insights into the role and function of institutions in political and economic development helped me make sense of property conflicts I had observed between state and society in the former Soviet Union and central and eastern Europe, where I worked for over 25 years as a World Bank officer and foundation executive. I am indebted to their scholarship.

Numerous World Bank colleagues provided knowledge and guidance that shaped the research at an early stage in the 2010s. These include Brian Levy, Jana Kunicova, Kimberly Johns (governance), Alain Bertaud, Gavin Adlington, Malcolm Childriss (urban land policy), Indermit Gill, Chor-Ching Goh (economic geography), Vera Matusevich, Gregory Kisunko, Juan Navas-Sabater, Sylvie K. Bossoutrot, Tatyana Ponomareva (Russian land relations and ways of doing business) and Georgi Panterov (data analysis).

More recently the wisdom and vision of several scholar-practitioners helped me broaden the argument following my post-doctoral research at the Istanbul Studies Center from 2015 to 2017. My deepest appreciation goes to Professor Dr Himmet Murat Güvenç, director, Istanbul Studies Center; Alain Bertaud, fellow at the Marron Institute and author of Order without Design: How Markets Shape Cities (2018); and Bruno Lanvin, president of the Smart City Observatory,¹ creator of the Global City Talent Competitiveness Index (GCTCI) and co-founder of the Portulans Institute.

Without thoughtful mentorship during my doctoral studies and advice as I transitioned to academia, I would not have the qualifications to produce a book of this wide-ranging scope. Very special thanks go to Bruce Parrott (professor emeritus of European and Eurasian studies at the Johns Hopkins School of Advanced International Studies (SAIS); Peter Rutland (professor of government, Wesleyan University) and Erik Jones (director of the Robert Schuman Centre for Advanced Studies at the European University Institute and professor of European studies and international political economy (on leave) at Johns Hopkins SAIS.

I am grateful to Erik Jones for his suggestion to submit a book proposal on this topic and to Alison Howson at Agenda Publishing for her comments on the manuscript and guidance during the publication process. The suggestions of an anonymous reader and the careful eye of Peter Rutland on the Russia case study were most appreciated.

Finally, without tireless research and editorial support from Sobir Kurbanov and graduate students at Johns Hopkins SAIS I could not have achieved the standards set by Agenda Publishing. My warmest thanks go to Maya Camargo-Vemuri, Steph Tarnovetchi, Howard Berkowitz and Alperen Eken. You all have very promising futures as scholars or practitioners.

Marsha McGraw Olive

1. See www.imd.org/smart-city-observatory/Home (accessed 14 December 2020).

List of figures and tables

Figures

2.1Moscow and Istanbul lag on talent competitiveness indicators

2.2Governance indicators in global cities

4.1Population density profile of Moscow and Paris

4.2Quality of property registration in post-transition Europe, 2020

5.1Russian Federation: structure of land ownership for individual housing, 2019

5.2Top ten Moscow real estate developers, 2015

5.3Top ten Moscow real estate developers, 2020

5.4Moscow comparative governance indicators, 2020

5.5Index of housing costs in Moscow in different currencies, 2000–21

5.6Protests for non-political causes, Moscow and Moscow Oblast, 2006–16

6.1State income from privatization of real property in Turkey, 2004–20

6.2Occupancy permits in Istanbul for private and public buildings by area and value, 2000–20

6.3Istanbul is yours, decision is yours

6.4Ankara governance indicators

6.5Turkey and the European Union: construction and real estate trends, 2005–20

6.6Istanbul: trends in per capita GDP, 2004–19

Tables

2.1Global competitiveness of cities: selected indices

4.1State housing rentals in selected former Soviet bloc countries (as a percentage of all housing)

5.1Obstacles to land access in Russia and Europe, 2008

5.2Land ownership and ease of property registration in selected Russian cities, 2011

5.3Land ownership in Moscow, 2010–19

5.4Quality of land administration: Moscow compared to global megacities, 2019

5.5Housing per capita in Russia, 2012–19

6.1State income from privatized and expropriated real property in Turkey, 2015–20

6.2Quality of land administration in Istanbul, 2016 and 2020

6.3Social infrastructure in Istanbul versus global standards, 2020

6.4Structure of land ownership in Istanbul, 2006

6.5Structure of land ownership in Istanbul, 2016

6.6Public and private land ownership in Istanbul, 2006–16

1

Introduction and argument

What we call land is an element of nature inextricably interwoven with man’s institutions. To isolate it and form a market out of it was perhaps the weirdest of all undertakings of our ancestors … [Land] invests man’s life with stability; it is the site of his habitation; it is a condition of his physical safety; it is the landscape and the seasons. We might as well imagine his being born without hands and feet as carrying on his life without land. And yet to separate land from man and organize society in such a way as to satisfy the requirements of a real estate market was a vital part of the utopian concept of a market economy.

Karl Polanyi, The Great Transformation (1957 [1944])

Cities¹ are the pulse of nations. The greatest among them – London, Paris, New York, to name a few – have long captured the imagination of historians, novelists and travellers. Yet the importance of cities as global actors and their centrality in shaping human affairs has ebbed and flowed over the centuries, along with their fortunes. Venice, the centre of Mediterranean commerce for hundreds of years, faded into a tourist haven; Lisbon, once the capital of world voyagers, lost its leadership after the 1755 earthquake; Florence, the birthplace of the Western Enlightenment, evolved into a picturesque provincial city. In more recent times Detroit, the Motor City capital, has been struggling to reinvent itself, like many other manufacturing rust belt cities. Others have been destroyed by war or fire, such as Berlin (1618–48, 1945), Moscow (1571, 1611, 1812), Istanbul (1569, 1660), Tokyo (1657, 1945), London (1660) and Chicago (1871). Yet they recovered, and now thrive as twenty-first-century metropolises.

This book is about the fortunes of cities, told not from the standpoint of calamities or commerce or culture but from the shaping and moulding of urban land through the social convention of property rights. How does an invisible, intangible force over physical space affect urban life? And why should we care?

The short answer is that the way major cities govern land is a barometer of the economic and political health of any state. Governance rests on real property rights, which define the legal framework for control and use of real estate (land and buildings). As a source of wealth and power, urban real estate is an arena ripe for contestation. To balance conflicting rights, contestation of land use decisions by any individual or organization, whether landowning or not, is a principle of democratic land governance. But, for leaders in authoritarian states, the manipulation of real property rights is the coin of politics and fundamental to regime stability. The durability of that assumption is now in question following street protests, publicity about corruption and the abuse of real property rights in several authoritarian states. A general aim of the book is to unravel the puzzle of private real property and political support for authoritarian regimes. It argues that contestation over real property rights is increasingly a chink in the authoritarian armour.

Policy-makers largely overlook city land as a foundation and driver of political and economic trends, whether in liberal or illiberal regimes. This force will accelerate globally as depopulation challenges declining cities and population growth puts a premium on scarce urban land in others. The heart of the matter is how urban land is governed – that is, who owns, develops, regulates and benefits from real property. A city’s vitality and sustainability depend fundamentally on urban land governance.

One reason for the absence of attention to urban land governance is that nation states have long overshadowed cities as a unit of analysis. Cities comprise only 1 per cent of the planet’s land endowment, yet they symbolize the human condition in all its glories and failures. We care about cities because they steer global trends, fuel national economies, nurture local cultures, reflect our histories and define our identities. We also care whether our environment is beautiful and healthy and livable. The governance of real property rights affects each of these outcomes by determining what structures can be built, where and for what purpose. Rights influence property wealth, the environment and ease of transport, which are vital to households, investors and politicians. Moreover, rulers in capitals care about social peace in large metropolitan areas because unrest related to land use can have national ripple effects. As discussed in Chapter 2, academia is now catching up and affording greater attention to factors that constitute city success.

In addition, because urban land governance is dispersed between several academic disciplines, it is not studied as an integrated concept. Land use falls under geography, economics and ecology. The relationship of land to political power is the province of political science or sociology. Property rights, which are essentially socially recognized rights of action (Alchian & Demsetz 1973), are addressed in sociology as a background condition – for example, as a source of inequality. Nevertheless, sociologists do not rigorously examine the legal life of place or the social life of property (Herbert & Orne 2021). Governance is most at home in political economy, but as an elastic concept, scattered among numerous subfields.

The dispersal in academia is also evident among professionals working in urban development. Urban planners often overlook the role of land markets in city design, economists tend to disregard the market impact of real property rights on urban efficiency, and political scientists are rarely engaged in urban land use, although decisions are inherently political. For this reason, the book develops and applies an integrated land governance model not found in urban planning, urban economics or political science.

Finally, we lack a theoretical framework to postulate the intersection of city success and real property rights. Nobel-Prize-winning authors such as Douglass C. North, Elinor Ostrom, Herbert Simon, Ronald Coase and Oliver Williamson laid the micro-analytical foundation of institutions as formal and informal constraints on social action. This impressive literature in neo-institutional economics has not been applied to the governance of urban real estate, to my knowledge. Nevertheless, it offers key insights that help explain how democratic and authoritarian regimes differ in their approach to land governance.

Most pertinent is the theory advanced by North, Wallace and Weingast (2009) and elaborated by Levy (2014) that institutions and rents operate differently in countries at different income levels and political settings. Institutions, or rules of the game, can either be personalized (informal), designed to favour specific parties, or impersonal (formal) and codified in law. Property rights are a prime example of institutions, and in liberal democracies they are generally applied and enforced impersonally. The pursuit of rents, defined as earnings that exceed economic or social necessity, is a spur to innovation and new products in competitive markets, but, [i]‌n settings where impersonal institutions have not yet taken hold, the discretionary conferral, and threat of withdrawal, of access to these rents is the glue around which the polity is organized (Levy 2014: 23). In contrast, in impersonal settings commonly found in liberal democracies, rents are accessed on the basis of initiative, talent and access to capital (Levy 2014: ch. 2; North, Wallace & Weingast 2009: 264–5).

These distinctions speak to a major argument in the book. As discussed in the chapters on Moscow and Istanbul, authoritarian regimes in the twenty-first century have mastered the manipulation of institutions and rents in the lucrative business of urban real estate. Their personalized regimes control elite access to land rents that stabilize relations within the ruling coalition, while technocratic bureaucracies that oversee property registration protect middle-class property owners. Both practices enhance the political support and power of authoritarian leaders.

Notwithstanding these insights, we need historical enquiry to understand why democratic and authoritarian perspectives differ. A brief synthesis of Weber (1978 [1922]) and Polanyi (1957 [1944]) reveals diverse patterns that are developed throughout the book. Most important for our purposes are the history of private land in cities and the transformation of land into a commodity in a market economy.

As discussed in Chapter 3, private land rights developed in tandem with political rights in western European cities beginning in the eleventh century. In a virtuous circle, landowning merchants in chartered free towns created wealth and demanded stronger property protections, which in turn fuelled more growth by attracting migrants and investment. These medieval burghers laid the foundation for democratic institutions by usurping authority from traditional rulers and instituting a sworn community of the ruled. This revolutionary assumption and legitimization of municipal power did not occur in the Near East or Asia (shortened in the book to Eurasia). It was a novel characteristic of the Occidental medieval city (Weber 1978 [1922]). The extension of property rights to commoners developed over the course of five centuries in England (North, Wallace & Weingast 2009). Nation states grew on the foundation of wealthy cities.

Polanyi (1957 [1944]) argues that the history of nineteenth-century Europe consisted largely in civilization’s attempt to throw off the social dislocation wrought by the establishment of a market economy. Markets are empirically defined as actual contacts between buyers and sellers (72). Its two pillars, economic liberalism and individual property ownership, required the transformation of man and nature – labour and land – into commodities sold at prices called wages and rent. Resistance arose through social protection and land laws or other interventionist measures to shield individuals from the ravages of this transformation. Countermoves began in England in the fifteenth century, when Parliament responded to the enclosure of common land into private plots (34–5), and later in western Europe, when towns fought the centralization of internal markets as nation states formed (64–5). Political parties and social classes veered either to the individual or collectivist perspective. Eventually the middle classes were the bearers of the nascent market economy … [whose] business interests ran, on the whole, parallel to the general interest (133). During the Industrial Revolution, the British Parliament responded to public demand for the reorganization of property rights and passed laws to reflect liberal market conditions (Bogart & Richardson 2011).

Paradoxical as it sounds, in the 1830s and 1840s the liberal state intervened to repeal restrictions on free trade, not just of international goods but of domestic land and labour. Thus, "laissez-faire itself was enforced by the state through massive new government bureaucracies rather than parliaments. It turned out that the introduction of free markets, far from doing away with the need for control, regulation and intervention, enormously increased their range" (Polanyi 1957 [1944]: 139).

Polanyi does not discuss the role of property rights in the transformation, yet we may conjecture that, what the market took from society, property rights gave to individuals in the form of new freedoms, constraints and security. The liberal economic principles that drove industrial progress in nineteenth-century Britain, and later across Europe, came with a parallel philosophy to protect landownership through property rights. The legal concept of private real property in urban space derived from Roman antiquity. Roman law offered diverse property concepts, which were studied by jurists in nineteenth-century continental Europe. They sought to adapt and modernize Roman models to meet the emerging market economy, then turbocharged by the Industrial Revolution. These concepts ranged from absolute private control, favoured by liberals, to limited entitlements that mitigated injustices, favoured by social jurists. The tension between personal possession and social purpose was resolved according to local preferences, resulting in different solutions geographically (di Robilant, forthcoming). Thus, as society succumbed to a self-regulating market, real property rights addressed frictions that arose when landownership changed hands and reordered social and power relations.

It may seem a long distance from ancient Rome to medieval Europe to modern real estate markets, yet the concept of freehold real property, a privately owned building attached to land, held up remarkably well over 20 centuries. With a few exceptions, such as the Netherlands and Britain, where leasehold is common, it is inconceivable in advanced democracies to own a house or apartment and to pay rent on the underlying land to a landowner. Landowners can be unscrupulous in any society, including in London. What matters for the functioning of a market economy is absolute confidence in the continuity of the titles to property (Polanyi 1957 [1944]: 234). The strength of legal and enforcement traditions varies locally, and, if the landowner is the state, so does exercise of the rule of law. In the United States and western Europe the landowner is predominantly private, whereas in China it is the state. As Herbert and Orne (2021) observe, Legal regulation directly enables or prohibits use, and by regulating property, the state allows some ghosts but dispels others.

Several developments relating to urban land governance in the history of western Europe are largely missing in illiberal regimes up to the twentieth century. With some exceptions, urban land was not widely owned privately, cities were vassals of a strong state rather than independently chartered regions, property laws were not modernized for capitalist markets, and a strong state bureaucracy did not develop to protect and regulate private land rights. These historical patterns should not matter in modern market economies so long as tenure is long (over 49 years), security is protected and regulations on zoning or construction are applied impersonally. Consequently, the most important signposts to distinguish democratic and authoritarian regimes on property rights and land use relate to governance.

Governance is defined as the set of formal and informal institutions that determine who gets what in a given country – in other words, how public goods are allocated. Governance orders range from open access with inclusive participation to closed access with exclusive participation (Mungiu-Pippidi 2014: 21).² Although there are several indicators but no single formula for city success, as discussed in Chapter 2, several global reports make governance a primary factor in city competitiveness.

Governance characteristics in liberal democratic cities differ from those in many middle-income or authoritarian systems because of the national political system, and these translate into planning systems that are either top-down (authoritarian), as determined by the state, or bottom-up (democratic), and subject to public participation and contestability. To see the importance of public input, one need only look to the spectacular architecture in city-building projects of new autocratic leaders in Nur-Sultan, Kazakhstan, or Ashgabat, Turkmenistan, which sit astride districts that lack public water; to view the Chinese-supplied coal plant built next to a park in Dushanbe, Tajikistan; or to compare downtown Chicago, where the public enjoy a pristine undeveloped shoreline on Lake Michigan, with Istanbul, which has the smallest green area of any European city. Poor land policies lead to unsatisfactory social and economic outcomes, and these are reflected in global rankings. Corruption is another key governance criterion that drags down cities in most authoritarian regimes, and also cities in some democracies, such as Rome.

Moscow and Istanbul present emblematic examples that form the empirical basis of the book (Chapters 5 and 6). They share a long history of state-owned land that sporadically gave way to citizen ownership during the late nineteenth and twentieth centuries. Presidents Erdoğan and Putin accelerated the privatization of urban land and expanded formal titles to real property rights at the turn of the twenty-first century. Both gained the loyalty of voters, who appreciated the economic benefits of property as a store of wealth. Against theoretical expectations and Western experience, however, urban middle-class property ownership did not bring a dividend in terms of greater citizen voice. Economic benefits did not translate into political benefits. Rather, influence rose for connected elites, who secured land in corrupt deals that encroached on the property rights and environmental concerns of common citizens. The public outcry led to street protests in Istanbul and Moscow, cities that are crucial to regime support.

China represents a mixed picture. The Chinese constitution officially acknowledged the right to private property ownership for the first time in 2004, but, as specified in the title to article 10, land in cities belongs to the state. At the same time, millions of Chinese middle-class owners invested deeply in a capitalist market and realized significant gains in terms of property wealth. The land for China’s massive real estate boom was expropriated by local governments from city perimeters and sold as a land use right to developers for a one-time payment, generating 31 per cent of municipal income in 2020 (Webb 2021). The excessive debt of developers and a weakening property market (about 25 per cent of economic activity) is a drag on national growth in 2022 (Xie 2021). The underlying weaknesses in the property system are coming home to roost. These include overleveraged developers, overbuilt and underoccupied ghost towns, an absence of property taxation and reliance on finite land for revenues. In 2022 middle-class property owners face the prospect of collapsing housing values for existing units and forgone investments in new units that may never be constructed as a result of developer bankruptcy. Cities will intervene to staunch potential unrest. As of this writing, the Chinese model of property development is precarious on economic, financial and social grounds. As in Russia and Turkey, it has not translated into political benefits.

Private real property thus presents an anomaly in authoritarian regimes. Although the propertied middle class has grown in countries such as Russia, Turkey and China, so has the power of authoritarian leaders. In the absence of meaningful public participation in decision-making, social media reports about questionable land use or property deals are widespread. Social protest is a rising threat, as illustrated by mass demonstrations in Istanbul in 2013 (against construction in Gezi Park), Shanghai in 2017 (against changes in property rules) and Moscow in 2017 (against the demolition of private apartments) (Korzhova 2017). The risk to regime stability is real, precisely because these events occur in large cities and often serve as a springboard for wider grievances.

At the same time, liberal democracies are not immune to contestation over property rights or corruption in urban development projects (Zinnbauer 2019). Whatever the political system, high-value urban land is rife for abuse. Social protest linked to land use and housing access also occurs in big cities, such as Berlin (Young African Journalists’ Accelerator Program [YAJAP] 2019).

Rethinking the city from a comparative political economy perspective serves three objectives. First, it underlines the importance of urban land markets