Professor Dang Hung Vo: Finding hidden capital in land for urban development

Urbanization is a consequence of industrialization, so people use the level of urbanization as a measure of the success of the industrialization process. The urbanization index is the number of people living in urban areas over the total population of the country calculated as a percentage. Countries are called industrialized only when the urbanization rate reaches at least 70%. Our country has just reached the lower middle income level, the urbanization index is nearly 40%.

Panoramic view of Vinh city. Photo: Le Thang

Unlocking land resources

The urbanization rate is only a general and general assessment index. Going into details, people also consider the quality of urbanization, the form of urbanization and the efficiency of urbanization. The quality of urbanization is whether the formation of urban areas ensures the standard of urban life, and directly whether the urban area creates jobs and provides enough social amenities. In other words, a high-quality urban area must attract people to live in that urban area.

Regarding urban form, depending on each region or each development philosophy, the urban form is organized appropriately. It can be very large cities called megacities like Singapore or Luxembourg..., or it can be a network of medium or small cities that are conveniently connected like Germany has only one megacity, Berlin, the rest of the cities are medium-sized and conveniently connected with the slogan "standing anywhere, 10 minutes to a city".

Or in China, there are many megacities, but they also organize small urban networks in mountainous areas, underdeveloped rural areas with the slogan "leave agriculture but not leave home". The idea of ​​urbanization in Vietnam is still naive and lacks the calculation of connection with industrialization.

Regarding the effectiveness of urbanization, it is necessary to talk about finding the driving force for urbanization and funding for urbanization. We all know a vivid example in our country: Da Nang rebuilt the poor old city after the war to become “a livable Da Nang”, only taking money from land, not using a single dong of the budget or a single dong of borrowed capital.

Da Nang City has succeeded in tapping hidden capital in land for urban development. Photo: NGUYEN XUAN TU/ baodanang.vn

Thus, capital from land is completely sufficient to accelerate the urbanization process. A principle of capital exploitation from urban land is that the more urban development, the higher the land value. When the increased land value is extracted, it is a resource to continue urban development, and then land prices increase again, creating resources to continue urban development...

Thus, the resources for urbanization are taken directly from the increased land value brought about by urbanization. In many other countries, people often use the method of land contribution/re-adjustment to upgrade urban areas. For example, in a poor neighborhood, everyone knows that investing more in infrastructure will increase the land value. So the urban government mobilizes households to contribute a part of their land to upgrade the urban area, the upgraded urban infrastructure will increase the land value and that increased land value corresponds to the contributed land area. In fact, the land value increases higher than the estimated level to determine the land contribution ratio, meaning that the poor urban area is upgraded and each urban resident also benefits from the increased land value. Urban areas are upgraded one by one by the local land value and the consensus of the local people. Urban areas that do it well will succeed, and those that do it poorly will fail.

In industrialized countries, cities that are able to survive and develop have established urban governments, which are trusted by the people because of their many initiatives to upgrade the city and take good care of the residents' lives. Urban governments have the authority to decide on the use of local public land resources. From there, cities compete with each other in using local land resources to upgrade the city and take care of the residents' lives.

We have discussed a lot about urban government, but have not clarified the ability to develop independently using local land resources without relying on allocation from higher levels. To build a true urban government, we must not only amend the Land Law, but also amend the State Budget Law.

Urbanization process in our country

Since the renovation, the 2011-2020 period has shown that our country's urbanization rate has developed quite strongly. By September 2022, Vietnam's urbanization rate had reached about 41.5% with 888 urban areas. In general, the urban economy reached 12-15%/year, 1.2-1.5 times the growth of the entire economy, and is estimated to contribute about 70% of the country's GDP. The 5 centrally-run cities alone account for only 2.9% of the area and 22% of the population, but contributed 46.8% of GDP (in 2020), attracted 30% of the total accumulated FDI capital, and reached 32.8% of the total import-export turnover of the country.

Phu My Hung Urban Area (Ho Chi Minh City). Photo: Anh Phuong/ vietnamnet.vn

The successes in urbanization in our country are very remarkable, when comparing the current urban landscape with the urban landscape when the country began to innovate. But these successes still only have a general image, going into the substance still has not shown high quality, suitable form and positive impact on industrialization.

Many “ghost” urban areas still exist in many places. Revenue from urban land is also high, but mainly from the State mechanism of reclaiming agricultural land to hand over to investors for housing projects. The increased land value brought by urbanization creates high profits but is linked to housing business, not attracting local land and human resources to participate in urbanization. It can be seen that the effectiveness is only at a certain initial stage, this is not a sustainable solution associated with long-term effectiveness.

As the urbanization rate increases, urban development cannot continue to spread out on the flat surface, but is forced to develop vertically, both up and down underground, on the water surface and under the water. Recently, the issue of environmental protection has formed the concept of green development philosophy.

In urban development, the concept of "green city" was born with the requirement of trees, water surface, less use of industrial energy, taking advantage of natural elements such as wind, light, water... The more the city meets the criteria of green city, the higher its value.

Since 4.0 technology became a development trend, the concept of "smart city" was born with the ability to use artificial intelligence (AI) to control all urban activities so that there are no bottlenecks, all activities are effective at the most beneficial level and at the lowest cost.

Developed urban areas have been linked with connecting infrastructure, but have not yet closely followed industrial parks and economic zones. In industrialized countries, economic zones are often organized between industry, services and urban areas. An industrial park often has several universities, several cultural and sports centers. Industrialization and urbanization cannot be separated. In Vietnam, industrial parks still have to develop "isolatedly" because of fear of environmental pollution. It was not until 2018 that the Government issued Decree No. 82/2018/ND-CP dated May 21, 2018 regulating the management of industrial parks and economic zones, which for the first time includes regulations on mixed industrial - service - urban parks.

Urbanization in Nghe An

Vinh - Ben Thuy City has been considered an industrial strip of Vietnam since the French colonial period. Today, the Ministry of Construction has reported on the viewpoints, goals, and solutions for developing the urban system of Nghe An province until 2030, with a vision to 2045.

This report shows that Nghe An province has 23 urban areas; the urbanization rate is about 22%, the average annual urbanization rate is 0.8%/year. This data is calculated by administrative units that have become urban areas (wards, towns, provincial cities). If not calculated by administrative units, but calculated by urban space in the form of new urban areas, the urbanization rate of Nghe An is estimated to reach about 32%. This actual urbanization rate is higher, but still lower than the urbanization rate of the whole country (42%).

Vinh - Cua Lo Boulevard planning to become the key development axis of Vinh City (Nghe An). Perspective photo

In the near future, Cua Lo town can connect with Vinh city to become an urban area associated with industry and providing tourism - resort services. This urban area can connect further in the near future with 3 districts of Nam Dan, Hung Nguyen, Nghi Loc to become an urban - industrial - tourism service area of ​​Nghe An.

Looking further, the entire coastal area of ​​Nghe An includes the urban - industrial - tourism service area with Vinh as the center as mentioned above and linked with Thai Hoa town, along with the districts of Quynh Luu, Yen Thanh, Dien Chau, Nghi Loc, Nam Dan, Hung Nguyen to become the urban - industrial - tourism service area of ​​Nghe An.

Nghe An has a low urbanization rate, which is easy to explain. This is the largest province in the country and its population is only behind the two megacities of Hanoi and Ho Chi Minh City, but it has a very large Western region with many natural resources but is not yet developed. New urbanization is taking place strongly in the coastal areas. Between the Western mountainous region and the coastal region is the midland region that still derives its income mainly from the agricultural economy.

As mentioned above, the urbanization method needs to be selected to suit each region. The Western region must also follow the direction of "leaving agriculture but not leaving the homeland" with the ability to develop the local non-agricultural economy based on the potential of forest environmental services and natural resource exploitation. The midland region can promote agricultural and rural tourism services associated with traditional agricultural production of each region...

Urbanization always requires large funds to build infrastructure, develop or improve urban areas. We cannot wait for capital to start, we must find hidden capital in the increased land value created by urbanization itself. The problem is knowing how to create additional land value during the urbanization process and finding ways to capture this additional land value and use it immediately in the urbanization development process.