During the twelfth session of the World Urban Forum, which took place in November 2024 in Cairo, Egypt, the Cities Investment Facility (CIF) hosted its second High-Level Meeting on Financing Urban Development, featuring a session moderated by Jonathan Woetzel, Senior Partner Emeritus at McKinsey & Company. Building on these discussions, UN-Habitat interviewed Mr. Woetzel to explore innovative approaches to urban challenges, drawing from his expertise in urbanization, climate adaptation, and finance. 

An initiative by UN-Habitat, CIF connects sustainable urbanization projects with investors by preparing SDG-compliant, financeable infrastructure projects, supporting the 2030 Agenda for Sustainable Development. 

Given your research on the economic value embedded in urban areas, what innovative approaches involving land value capture mechanisms do you believe CIF could foster to help cities monetize dormant assets such as land and buildings?

The productive use of our land is the rationale for building the infrastructure. If you’re not using land to generate economic prosperity, there’s no particular need for the infrastructure itself. So, the question is, how does one connect the value of the economic activity that the infrastructure is enabling with the infrastructure itself?

What people have done historically varies by geography. Geographies where you have a strong governance model, you can often have a much more direct approach, where the value of the land is assigned from the government to the financing of the infrastructure with very little in between. That might characterize the rail plus property model that Hong Kong has. And to some extent, the way in which Singapore finances its metro or even Japan, where Asian models in general feature a relatively strong public sector and a direct approach to saying: “This land is valuable because of what I invested in this transport infrastructure,” and take some of that money back without giving all of it away.

In the US, a more market-oriented approach is used, often involving tax increment financing. This method calculates the economic activity generated, estimates future tax revenue from that activity, and brings it back to the present to enable infrastructure financing.

Ultimately, my preferred approach is to tax the land. When you tax the land, you do not get less of it, and you encourage more efficient and better usage of it. If the land tax cannot be paid, the land will presumably revert to the government, which can then use it more effectively. This contrasts with taxing buildings, where private owners might simply hold onto undeveloped land, leading to inefficiency.

This approach – understanding the real value of land and taxing it – captures value for the people while recognizing their collective effort and putting it to work.

In your article “Debt and (Not Much) Deleveraging”, you discuss the persistent growth of global debt and its implications. How can CIF support cities in managing debt sustainably while financing urban infrastructure, particularly in balancing the need for investment with the risk of over-leveraging subnational governments?

Debt is only part of the story. The leverage itself is not the problem. The funding of the leverage is the problem. It’s fine to have more debt as long as you can pay for it.

The challenge is how to rethink the purpose and use of these now incredibly expensive assets relative to the average income of city residents. This requires a different way of thinking about assets – not as ownership but in terms of their purpose and what they enable people to do, such as providing stability and participation in society.

The way to manage leverage sustainably is to increase the productivity of the assets financed by that leverage. This involves focusing on economic development, maximizing the utility of assets, and going beyond the physical to include intangibles, such as investing in the digital economy and other intangible assets.

Ultimately, giving more people access to these assets is essential. Assets that are overly concentrated or underutilized are risky. Mixed-use assets and infrastructure that serve multiple purposes can be part of the solution.

In your article “Bridging Global Infrastructure Gaps”, you highlight the critical need for innovative financing and public-private partnerships to address infrastructure deficits. How can CIF play a catalytic role in mobilizing private capital to bridge these gaps, particularly in underfunded urban areas, while ensuring projects align with sustainability and inclusivity goals?

The challenge here is that we need better public sector leadership. The public sector has to lead because it is responsible for defining the public good and ensuring it is upheld.

CIF can assist in delineating contracts that clarify project goals and specify the division of risks. For instance, the private sector might take on construction risks, but risks like ensuring affordability or access to essential services must remain with the public sector.

CIF plays a valuable role in helping governments prepare projects that are well-thought out and ready for discussion with the private sector. Many projects fail because governments present ideas that are not fully developed, leading the private sector to disengage. By turning initial ideas into carefully planned and structured projects, CIF can bridge the gap between public and private sectors and mobilize private capital effectively. 

This conversation has been edited for length and clarity.

Visit the CIF website: https://citiesinvestmentfacility.org/