Understanding the Potential Role of the Property Tax in Addis Ababa

Project Researchers: Gabriella Yolanda Carolini, Fitsum A. Gelaye, Massachusetts Institute of Technology & Tigist K. Temesgen, Addis Ababa University

Urban real estate markets on the African continent are booming with construction and international investment (Bradford, 2014; Davis, 2015; National Association of Realtors, 2016; Salinas, 2013; The Business Year, 2014a, 2014b). A few trends spur this bullish approach to urban Africa real estate. First, demographic estimates for the continent—including urban population growth and the proportion of the youthful population—are widely read as critical indicators of future economic growth (United Nations Economic Commission for Africa, 2017). Africa, along with Asia, hosts the most rapidly urbanizing population – located in small and medium-sized cities, and the continent’s urban population is predicted to triple by 2050 (UN 2015). Second, related to urban population growth, a growing middle class population in a number of countries is expected to boost both demand for services as well as supply, with important consequences for housing and commercial real estate markets (Deloitte, 2011; National Association of Realtors, 2016). Third, from a relative perspective, African luxury real estate in particular is considerably cheaper than other markets in Asia or Latin America (Jansen, 2015), spurring a boom in markets geared toward international investors even while affordable housing for domestic populations remain under-financed (Lall, Henderson, & Venables, 2017). While of course major challenges remain, including the extension and upgrading of critical infrastructure in both urban and rural areas, this picture of urban African real estate markets is increasingly driving international speculation on land and fueling revisions of city futures on the continent (Carolini, 2017; Watson, 2014). This research project seeks to understand how to facilitate wide benefit from this boom in African cities. The central premise of the proposed work is that the distributive potential of Africa’s urban real estate boom depends on the strength of governments to socialize project benefits. Worldwide, the municipal property tax is widely recognized as a critical mechanism that holds the potential to effectively address this distributive challenge.