Insofar as land is a factor of production and a store of wealth, it is also a source of political power, especially in societies where access to other assets is limited. Second, it arises from infrastructure and environment-related projects, a demand often independent of land prices and determined by government objectives and other concerns. Third, it takes the form of an asset demand, in view of the financial asset characteristics of the land stock. The roles of land as a hedge against inflation, as collateral for credit operations, and as a component of the diversification strategies of economic agents are subsumed in this third type of demand. The growth of such investments is accompanied by the expansion of services derived from a given stock of land.
Regulatory constraints affect both the demand for and the supply of land.
Although recent analyses of land markets show a growing concern for policy and regulatory issues, the literature still lacks a robust framework capable of showing how land markets function, the major policy and regulatory constraints to their efficient operations, and the implications for reform. This chapter is a step in that direction. The third section describes the fundamentals of regulatory policy reform in land markets and suggests a two-phase process. In the first, regulations that are inconsistent with efficient outcomes or that drive inequitable results should be eliminated. In the second phase, a new legal and institutional framework for land administration would be created.