Municipal Land Allocations: Legally Problematic but Economically Efficient? A Study of the Relation Between Land Allocations and State Aid.

Abstract

Exploitation of municipal-owned land may be done through distribution of land allocations. A land allocation means the sole right for developers to negotiate with municipalities regarding how a specific area of municipal-owned land should be exploited. The aim during negotiations is to formulate a detailed development plan that both parties are satisfied with, normally leading to the land area being transferred from the municipality to the developer. Swedish regulations stipulate that municipalities shall adopt policies to clarify the playing field for developers in order for them to foresee how to receive land allocations. However, there are no sanctions when municipalities fail to comply with their own policies. Moreover, decisions concerning land allocations can only be challenged through legality procedures, meaning that decisions cannot be changed – only repealed. This thesis examines the Swedish land allocation system’s relation to competition law and economic efficiency: In particular, it’s relation to EU state aid regulations and the transaction costs theory. The main purpose of the thesis is to examine whether the system could be competitively problematic and/or economically efficient. The thesis also suggests improvement in order to reach the ideal of having a system that means little risk for municipalities to breach state aid regulations while still being economically efficient. The majority of land allocations are performed through direct allocations, where only one developer gets the chance to negotiate with the municipality regarding how to exploit the land. Another method that is almost as commonly used is tender allocations that allows for many developers to bid in order to receive the land allocation. The predominant use of direct allocation, and the loose framework regulating how land allocations should be performed, means that municipalities run a risk of breaching EU state aid regulations in various situations. A situation that is competitively problematic can, however, be economically efficient. The thesis concludes that Sweden does not have an efficient system to prevent unallowable state aid in land allocation procedures. Suggestions for improvement include stronger incitements for actors to challenge land allocation decisions in court, a clearer regulation regarding what situations that allow for municipalities to perform direct allocations and a stricter framework regarding how to perform land allocations to avoid elements of unallowable state aid.