Brazil’s New Rich Buy Up Prime Sites In Dangerous Favelas
|December 17, 2013||Posted by Staff under Economic Principles|
This 2013 excerpt of Fortune Magazine, Nov 21, is by Vivienne Walt.
Early last year a Brazilian music producer named James Cesari hopped onto the back of a motorbike taxi and roared up to the top of one of Rio de Janeiro’s favelas. There on a hillcrest in Vidigal, an area that had suffered years of gang violence, he found his dream home. Set amid a tangle of electrical wires, potholed roads, and small eateries, Cesari’s one-bedroom cost 15,000 reais (about $7,500), plus about 50,000 reais (about $25,000) to renovate. Now the living room has a view of Ipanema’s beaches and the tropical islands beyond. Cesari, who is 36, gazes out at the view from his couch and says, “This place is priceless.”
The Vidigal shantytown in Rio is gentrifying, and prices of housing are soaring.
Ed. Notes: As always, what matters most in real estate? Hint: it’s not the buildings, in this case favelas or hovels. It’s the land, or, the location, over and over and over.
Brazil being the host of the next World Cup of Futbol is causing lots of investment in the country which is driving up the value of locations, so the poor must move again.
What might make it fair would be compensating the poor for their move. That is, paying them and everyone a share of the region’s or nation’s land value. People on the most desirable sites would pay the most, and the people with the least income would benefit the most.
Plus, collecting the ground rents would spur owners to develop their under-utilized sites (in order to afford the land tax or land dues). As they build up, they must hire people, so the formerly poor could get jobs and afford to live in higher quality dwellings.
And if government also removed the counterproductive taxes on earnings, purchases, and structures, then people would be more productive and that’d drive up location values, fattening everyone’s dividend. Everyone would be better off — both the people moving up and the people moving out.