Reinforcing uneven development: The financialisation of Brazilian urban redevelopment projects

Abstract

Chinese

The entrepreneurial city discourse has been adopted around the globe by policymakers, with the urban redevelopment project as one of its most representative symbols. The predominantly favourable discourse revolving around this new political economy of urban space is supported by claims that newly regenerated areas bring multiple benefits to the city and its citizens. These narratives have been used in Brazil to justify increasing reliance on an urban planning tool known as Urban Operations. This planning tool, developed in the 1990s, seeks to facilitate cooperation between public and private actors in the production of new urban spaces. While projected by some as a ‘magic formula’ that enables major urban redevelopment projects without public expenditure, the outcomes of Urban Operations often differ significantly from expectations. The cases of Água Espraiada (São Paulo) and Porto Maravilha (Rio de Janeiro) are used to demonstrate that regenerated areas, as preferred spaces for the penetration of financialised practices into the built environment, have brought forward new dynamics that are serving to reinforce pre-existing social inequalities and to exacerbate uneven development in Brazil’s main cities.

Keywords

Brazil built environment finance financialisation redevelopment regeneration urban operations urbanisation and developing countries

Introduction

Since the 1980s, urban redevelopment projects have become centrally important to the self-reinvention of cities. This process has its origins in the USA from where it rapidly expanded across the world. Cities that were confronted with de-industrialisation and sought new sources of growth pioneered this entrepreneurial approach to urban redevelopment (Harvey, 1989). These urban interventions, therefore, aim to render cities suitable for accumulation, being usually backed by comprehensive strategies that involve stimulating inward investments, attracting tourists, re-branding efforts and, ultimately, repositioning the city in the international urban hierarchy. Many terms – flagships, urban redevelopment projects, mega-projects – are used to refer to the same phenomenon: intensive interventions in the built environment in a predetermined part of the city, often composed of mixed-use spaces, iconic architecture and with international appeal, aiming to develop affluent spaces targeted at global elites (Olds, 1995; Orueta and Fainstein, 2009).

Reliance on such projects has become a global trend in contemporary urbanism. It has even been said that such interventions are perceived as a ‘medicine for urban decline’ (Moulaert et al., 2005: 2) or as ‘creators of growth’ (Savini and Aalbers, 2016: 880). This is indicative of a new political economy of urban space production (Swyngedouw et al., 2002), reliant on place-specific interventions, which Harvey (1989) considered a shift towards an entrepreneurial city paradigm. Alliances between public and private actors are central in this new model (Hall and Hubbard, 1996; Sagalyn, 2008). These so-called Public–Private Partnerships (PPP) are discursively supported by a claim that public institutions acting alone are no longer able to provide services. Instead, new, private agents, which are considered more competent and efficient, are brought in. This new governance model, however, does not entail the withdrawal of the state, but its reconfiguration (Aalbers, 2016; Raco, 2013).

Supporters of the entrepreneurial approach suggest that it enables cities to bring regenerated spaces back into the urban fabric. They also argue that by creating jobs, attracting tourists and investment, and producing a more pleasant local image, these projects have a positive impact on cities’ economic and social conditions. Eventually, such benefits are expected to be socialised and bring prosperity to the city and its citizens as a whole, regardless of class (Moulaert et al., 2005; Sanchez and Broudehoux, 2013).

The reinforcement of uneven development through such projects is an outcome that is often omitted (or even camouflaged) by proponents of this entrepreneurial approach. As experience has repeatedly shown, urban redevelopment projects tend to solidify and perpetuate unequal development at the city-scale, rather than producing the desired ‘trickledown’ effect.¹ The reclamation of a blighted area, often composed of poor households, via upscaling, frequently has significant social impacts, such as removals, evictions and, ultimately, gentrification (Smith, 1996; Weber, 2010). Resistance movements sometimes occur before and during the implementation of such projects; however, rarely with concrete political success.

The rise of an entrepreneurial city is often studied through place-specific high-end projects. While Fainstein (2001) has argued that urban redevelopment projects receive too much scholarly attention, we believe that the financial logic behind these interventions, especially in the global periphery, remains under-researched (Goldman, 2011; Shatkin, 2017). In this paper, we will analyse the implementation of an urban redevelopment policy framework in Brazil’s two biggest cities, São Paulo and Rio de Janeiro (Rio henceforth). We show how this has enabled the absorption of previously peripheral spaces into the global economy. Moreover, we argue that in Brazil these urban redevelopment projects are also emblematic of another related trend, the financialisation of the built environment. We interpret the expansion of finance-led practices to the realm of urban governance as an intensification of the entrepreneurial city depicted in the 1980s. Today the reproduction of urban spaces crucially serves as a spatial fix for globally mobile capital (Chu and He, forthcoming).

But what does financialisation mean and how does it relate to the built environment? Among other things, it presupposes the popularisation of financial metrics, rationalities and methods in previously non-financial sectors (Aalbers, 2017). In regard to the real estate sector, this new modus operandi has facilitated the transformation of real estate from fixed and illiquid into liquid and mobile assets (Gotham, 2006). Recent debate has raised the issue of an overstretching of the financialisation concept as unhelpful (Christophers, 2015). We understand this call for caution. However, we believe a more variegated financialisation literature is beneficial to the development of this specific debate (Aalbers, 2015; Fairbairn, 2015). The core literature on financialisation has thus far been produced in the Global North; in this sense it is understandable that the cases and experiences that derive from this context are taken as ‘standard’. This paper questions the ‘locatedness’ (Robinson, 2011) of these practices, demonstrating how this phenomenon is shaping the Brazilian built environment.

We study the financialisation of the built environment in Brazil through the urban policy tool known as ‘Urban Operation’ (UO). UOs facilitate the constitution of coalitions for urban redevelopment projects and highlight the link between redevelopment, financialisation and gentrification. The UO mechanism is scrutinised in the next section, together with the discourses that accompany the use of this mechanism in the Brazilian experience. Then, two case studies are presented to demonstrate how the tool is implemented in the cities of São Paulo and Rio. Lastly, we show that, despite claims to the contrary, UOs are reinforcing and exacerbating uneven development and socio-economic exclusion.

The Brazilian formula for urban redevelopment

Large-scale urban redevelopment projects in Brazilian cities have increasingly relied on a planning instrument called Urban Operation. This regulatory tool was originally conceived by the municipality of São Paulo at the beginning of the 1990s and in 2001 it was incorporated into the City Statute.² Since then, this instrument has become a popular regulatory device for urban redevelopment in large and medium-sized cities across the country.

As we shall demonstrate, this planning tool relies on hegemonic narratives and policy arrangements related to contemporary urban development, such as: the need for a pragmatic and territorially constricted approach; the imaginary of a competitive and entrepreneurial city; the rise of governance frameworks reliant on the cooperation of public and private agents; and the use of seemingly innovative financial mechanisms to raise private investments and redress the fiscal constraints of the public sector. In-depth analyses of concrete cases in which this instrument has been employed often show that many of the supposedly innovative attributes credited to UOs exist only in rhetoric (Alvim et al., 2011; Fix, 2001). Nevertheless, the image of an up-to-date urban governance arrangement contributes to the diffusion of this instrument as a policy device, despite the negative socio-spatial impacts that will be discussed in later sections.

One can identify both global and local elements in the ‘genetic code’ of UOs. Even though this policy device has been conceived locally – it is not a replica of governance schemes adopted elsewhere – it partially embodies elements of foreign experiences, articulating them in a specific and somewhat original way. As discussed in the literature on policy mobility, the causal mechanisms behind the diffusion of policies are complex and variegated (Cochrane and Ward, 2012; González, 2011). In this sense, policy mobility is shaped by the interplay of structural features that manifest at the global scale combined with the agency of policymakers and other relevant stakeholders at the local level, being driven by multiple causal factors (Ward, 2018).

The trajectory of UOs in Brazil is also useful to analyse the dynamics of global policy diffusion. The analytical approach followed in this work is not aimed at providing a comprehensive account of all policy experiences that might have been influential in the conception of UOs. Rather, our objective is to provide evidence of convergence in the underlying rationale of policy devices at the global scale through these examples. By emphasising the convergence of policy arrangements in different contexts we identify which logics and paradigms are diffused and why. In this sense, while referring to planning tools that share some similarity with UOs we do not necessarily claim that the latter were directly inspired by the former, but that their common aspects may be key to grasp broader trends in the field of urban policy.

The Urban Operation

An UO typically consists of the financing and implementation of a set of improvements within a delimited area of a city by selling titles that can be converted into additional development rights inside its perimeter. Its creation requires the enactment of a specific law by the local government defining its main aspects. This law addresses issues such as the perimeter of the intervention, the zoning and building rules applied inside it, the aggregate stock of development rights, the conditions for negotiating these rights, the general guidelines for infrastructure improvements, and the basic governance framework to manage the project. As an urbanisation plan targeted at a specific fragment of the city, and managed through mechanisms of cooperation between the private and public sectors, this policy tool follows a logic similar to the French zone d’aménagement consertée (Urban Development Zone) (Oliveira, 2009). Both policies are representative of a shift from an urban policy paradigm centred on a comprehensive plan towards one centred on strategic projects (Ascher, 2004; Brenner, 2000; Swyngedouw, 1992).

One of the main reasons for the dissemination of UO in Brazil relates to the financial mechanism it introduced, based on the capitalisation of building rights. The establishment of relatively flexible zoning rules inside the perimeter of the UO is one of the key elements of this framework’s financial engineering. The mechanism works as follows: the zoning rules applicable inside the perimeter of the UO define standard and maximum floor area ratios³ (FAR). After buying the land a developer can carry out, free of further charge, a project in which the total built area does not exceed the standard FAR. Projects that exceed this ratio are also admissible if the developer purchases additional development rights. Nevertheless, such additional development rights cannot exceed the maximum FAR limit. The acquisition of additional development rights is effected through the purchase of financial titles issued by the municipal government, called CEPACs.⁴ An UO’s law defines the total amount of CEPACs that can be issued during its implementation. It also sets different parameters for the conversion of CEPACs into development rights, regulating their spatial distribution within each intervention.

CEPACs are issued by the municipal government and sold through public auctions. These titles are tradable securities that can be bought and sold by anyone, without necessarily being attached to a specific project. An investor can purchase them, even when his objective is to trade them on the secondary market rather than using them for a concrete development.⁵ Usually, CEPACs are sold gradually: cities hold successive auctions where they sell a certain amount of CEPACs;⁶ the capital collected in each auction allows them to accomplish a certain step of the envisaged urban improvement plan, following this procedure up to the completion of the project.

The monetisation of additional development rights based on the establishment of a standard and a maximum FAR is a practice that does not apply exclusively to UOs; this mechanism is widely employed by Brazilian municipalities to enhance revenues and fund urban policies and improvements. However, there are two aspects in the specific case of UOs that turn this fiscal mechanism into something qualitatively different.

First, all funds raised through the sale of CEPACs must be reinvested inside the perimeter of the intervention. By locking the investment of these resources within the UO, this funding scheme removes the possibility of targeting such revenues to cross-subsidisation and more redistributive interventions (Massoneto, 2003). The second difference relates to the securitised form of these additional development rights. Outside an UO, someone intending to build a development that exceeds the basic development rights of a plot simply pays a fee to the municipality. Meanwhile, in the case of an UO, development rights are traded independently of any connection to a concrete project. The rights, therefore, assume the form of a financial asset with autonomous value, detached from concrete real estate production. In other words, besides land and real estate property, the building right itself becomes an object of financial speculation.⁷

The CEPAC is fundamentally a title of fictitious capital issued by the state and through which the latter capitalises on future expectations. It does not consist of a public debt bond or a claim upon any future revenue stream. Instead, it is an asset that can only generate the envisaged returns for an investor if there is market demand for additional building rights during the lifespan of the UO.⁸ The valorisation of these assets is ultimately dependent on an increase of real estate prices within the perimeter of the project. The issuance and commercialisation of CEPACs is a way of anticipating revenues that would be collected in the future if a market demand for the purchase of additional development rights in the area actually existed.

Anticipating revenues: A magic formula

Speeches by enthusiastic policymakers, real estate developers, and even scholars proclaim that this framework enables city governments to carry out developmental plans without spending public resources. It is frequently portrayed as a kind of ‘magic formula’ that provides means of implementing large-scale urban projects at the same time as freeing city governments from paying for them (Fix, 2003).

In the words of Rio’s former mayor Eduardo Paes,

The Porto Maravilha project breaks two paradigms of how urban development has occurred in Rio. First, it brings growth back to the city center. Second, it relies on the private sector as an ally in the recovery of a very important area without burdening the municipal budget […]. The model allows access to private resources to recover blighted areas. The expected rise in real estate values, once the area is revitalized, is what finances the infrastructure’s renovation.⁹ (Translated and emphasis added by the authors.)

One aspect that is commonly neglected in these accounts is that compromises must be made if urban redevelopments are funded primarily by private investments. Caught in an entrepreneurial logic, the state ends up assuming roles and risks that are barely distinguishable from those of developers and speculators, directing all its efforts towards a continued increase in real estate prices – a necessary condition for paying off interventions through a financial scheme based on the sale of CEPACs. UOs exhibit many aspects in common with other regulatory tools related to an entrepreneurial paradigm of urban planning that have spread in the wake of neoliberal reforms (Harvey, 1989). This scheme follows the same logic as Tax Increment Financing (TIF), a regulatory tool that has become increasingly popular in American cities since the 1980s (Weber, 2010). TIF consists of a mechanism in which city governments raise upfront cash for financing urban improvements through the securitisation and sale of future increments on property tax revenues within a specific district. Despite the differences concerning the sources of returns on TIF bonds and CEPACs, ultimately, they both represent a bet on increasing real estate prices in a certain part of the city. For governments, these mechanisms also represent the anticipation of future revenues, which will be reinvested in urban improvements that are likely to stimulate the increase in property prices. In this sense, CEPACs and TIFs may be regarded as indirect and non-explicit ways for local governments to access credit since they are not accounted as conventional public debt obligations and are not subject to the same fiscal controls. In other words, these titles facilitate the circumvention of traditional regulatory restrictions and the adoption of leveraging practices within municipal finances that may lead to rising indebtedness in the long run.

In both cases, any intervention that does not help to boost real estate valorisation becomes exceedingly difficult to fund and justify (Hodkinson, 2011; Raco, 2013). In this context, the interests of private actors become increasingly dominant vis-à-vis city governments and inclusionary urban policies.¹⁰ As identified in studies of Urban Redevelopment Projects – including UOs – social housing provision is rarely a priority in these interventions and local residents are often (directly or indirectly) expelled (Fix, 2001; Moulaert et al., 2005). In that sense, it could be argued that the state is induced to perform as an active agent of gentrification (Smith, 1996; Weber, 2010).

Cases: Água Espraiada and Porto Maravilha

The trajectories of Urban Redevelopment Projects and UOs in Brazilian cities are closely tied. Both arose as integral parts of the mainstream urban policy agenda at the turn of the century. Moreover, every large-scale redevelopment project implemented over the last two decades in Brazil has involved the use of UO. Interventions adopting regulatory arrangements that could be depicted as embryonic forms of UOs trace back to the late 1980s. Since then, a long list of ambitious urban projects has been identified across the largest Brazilian cities, most of them not (or only partially) implemented. Among the few that have thrived, some have played highly influential roles as benchmarks in the continued and incremental development of policy arrangements. This section presents an overview of two of the most important interventions of this kind in terms of territorial scale, budget and visibility (Figure 1).

Figure 1.

São Paulo and Rio de Janeiro’s metropolitan regions and the location of the Água Espraiada and Porto Maravilha Urban Operations.

Água Espraiada Urban Operation (São Paulo) – AEUO

This urban redevelopment project was launched in 2001 during the market-friendly left-wing administration of Marta Suplicy. It encompasses an area of 1400 ha in southwest São Paulo that had already been going through significant transformations, driven by the combined effects of public investments in urban infrastructure and private real estate developments, particularly office towers.

The UO is structured in two main axes, giving a ‘T’ shape (Figure 2). The shortest axis, along the banks of the Pinheiros River, is 6 km long. It is intersected by Marginal Pinheiros, one of the main roads of the São Paulo Metropolitan Region (SPMR) and a burgeoning business centre. The longest axis, adjacent to the Água Espraiada stream, is 9 km long. This UO is marked by strong socio-economic contrasts, because of the presence of poor informal settlements as well as wealthy neighbourhoods. The core motivation of the AEUO dates to the 1970s, when a new road, connecting Marginal Pinheiros to the Immigrants Road,¹¹ was envisioned.

Figure 2.

Perimeter of the Água Espraiada Urban Operation and a few snapshots of ‘what is inside’ this intervention.

The construction of this new road began before the launch of the AEUO. The first stretch of the new road was concluded in 1996, during the extreme-right administration of Paulo Maluf. At that point, the region was already undergoing significant changes and the launch of the UO, five years later, served to legitimise the intervention, intensifying a valorisation process that was already underway (Fix, 2001).

According to official reports directly related to the UO, its purposes comprised a diversified set of actions, including: the completion of the aforementioned road; construction of new bridges and tunnels, subway stations, tramlines, bus corridors and other public transportation facilities; new sanitation and drainage systems; provision of parks and other green areas; implementation of slum re-urbanisation projects and the construction of social housing units. This UO involved an estimated issuance of 3,750,000 CEPACs, equivalent to 3,250,000 m² of additional development rights.

Regarding the socio-spatial structure of the city, the area of the UO features as a place of transition between its most affluent neighbourhoods and its poor south-western periphery. Being metaphorically portrayed as a frontier (Fix, 2001) it exhibits a very heterogeneous and complex urban morphology – including corporate towers, upper- and middle-class residential neighbourhoods, derelict industrial sites, slums and other kinds of low-income settlements.

Since the 1990s, and especially after the AEUO was launched, this area has featured as one of the main hubs for high standard real estate developments in the city (Santoro and Rolnik, 2017). It has attracted a considerable number of financial institutions and productive service firms in general, making it one of the main clusters of advanced tertiary activities within Brazil’s biggest urban agglomeration. The spatial concentration of iconic buildings and public interventions on a monumental scale has given rise to an opulent urban scenario, which has also provided a strong, even if dubious, image of economic dynamism (Ferreira, 2005). The sumptuous landscape of the Pinheiros River waterfront emerged as the most symbolic spatial materialisation of the discourse claiming global city status for São Paulo.

The UO was crucial not only in the process of raising funds and providing a coordinated and strategic way of making investments in the territory but also for the achievement of a certain level of consensus around the envisaged project. From the very outset, spatial transformations were permeated by conflicts. Systemic interventions promoted in the area have engendered several conflicts, especially regarding the displacement of poor communities associated with the construction of new infrastructure and the gentrifying impact of property speculation (Fix, 2001; Santoro and Rolnik, 2017). The precise number of people who have been displaced as a result of the AEUO is contested. The Removals Observatory estimates that 11,000 households have already been displaced and 8000 more are targeted for eviction.¹² Meanwhile, a municipal report estimates that 4782 families have been displaced since 2008.¹³

Among the several guidelines formally established in the AEUO law, there was a commitment to channel part of the resources collected from CEPAC auctions for the provision of social and affordable housing within the perimeter of the project and for the improvement of the informal settlements within it. Moreover, the law stated that displaced dwellers should be resettled in neighbouring areas (Municipal Law 13,260/2001).

The UO arrangement fostered a specific dynamic in which almost all actors involved were understood to be interested in the appreciation of property prices. Developers would directly benefit from it; the local government would gain with the sales of CEPACs at higher prices, allegedly enabling the implementation of an ambitious urban redevelopment project with minor budgetary impacts; and poor local communities would profit from housing and slum improvement initiatives paid for via the CEPACs. Under this reasoning, actions driving the valorisation of property prices seemed beneficial to all parts. As Fix (2003) somewhat ironically put it, this instrument arose as a ‘magic formula’ for city-making, as if it could set the conditions for non-conflictual processes of urban transformation in which all stakeholders involved/affected would benefit.

The realities of the project’s implementation deviated substantially from such a win–win social agreement. The obligation to provide social and affordable housing was loosely defined, which resulted in a lack of means to enforce and demand previously agreed social benefits. The very logic of the financial engineering involved worked as a faceless coercive power, driving investment decisions away from redistributive goals (Fix, 2001).

To convince potential investors to buy CEPACs, the city government was constantly forced to prioritise interventions that could boost property prices, which led to repeated postponements and delays in activities related to social housing provision. The construction of the monumental Octavio Frias Bridge is exemplary of this speculative dynamic. More than a mere improvement in the local road system, this massive public work was conceived as something that could significantly impact the urban landscape and make it attractive for high-end real estate projects. As the then mayor, Marta Suplicy declared in a campaign debate, the bridge was supposed to become the city’s new postcard.¹⁴ Much more than a functional infrastructure, it was fundamentally an aesthetic device acting as an anchor for the local real estate market. The decision to build this expensive bridge also meant that investments in social policies such as housing, sanitation and public transportation were postponed.¹⁵ Of the 9297 social housing units initially planned for the area, only 710 were delivered by the end of 2016, whilst 2066 units remained under construction. The development of these social housing projects cost roughly R$166 million; the construction of three bridges in the area cost approximately R$544 million in the same period.¹⁶

Thus, the lack of social housing provision within the AEUO is not only a matter of conflicting priorities. One must also have in mind that the presence of poor dwellers in these areas features as an obstacle to the achievement of the envisioned social and economic transformations (Sanchez and Broudehoux, 2013), even if this kind of conflict is never openly addressed in the discourse of agents ahead of such projects. In this sense, displacement and gentrification are not merely accidental by-products of UOs, but underlying conditions for the success of this planning tool – it is a war of places and a war for places (Rolnik, 2015).

Porto Maravilha Urban Operation (Rio de Janeiro) – PMUO

This ambitious Urban Redevelopment Plan was launched in 2009 with the general purpose of transforming Rio’s old port area into a lively and economically dynamic place. More than a local intervention, it is portrayed as a strategic project for the city because of the area’s unique morphologic, economic and symbolic attributes (Andreatta, 2010). The redevelopment of Rio’s port area has been a longstanding goal. Since the 1980s a handful of private and public-led projects have been proposed. However, only minor interventions were implemented, such as the ‘Samba City’ and a sports venue for local residents. Major projects, Rio’s Guggenheim Museum being the most emblematic, never took off.

The globally hegemonic imaginary and discourses of urban renaissance of the late 20th century exerted considerable influence over debates about the revitalisation of Rio’s port. The desire to emulate prominent waterfront redevelopments such as the iconic cases of London’s Docklands and Barcelona’s Port Vell, or the more modest experience of ‘peers’ such as Buenos Aires’ Puerto Madero, was pervasive (Oliveira, 2012; Vainer, 2000). The diffusion of policy ideas in this agenda-setting process unfolded not only in the assimilation of port redevelopment as a general formula for urban recovery but also in the attempt to incorporate specific regulatory tools and arrangements which were reputedly helpful in making previous experiences of this kind successful (Andreatta, 2010). The list of so-called ‘good practices’ from other cities employed in Porto Maravilha includes the creation of a public company with the specific responsibility of coordinating the redevelopment plan’s implementation, the outsourcing of infrastructure improvements, and services delivery through a comprehensive PPP scheme, the unlocking of public land value and the use of financial innovations to connect capital markets with urban infrastructure and real estate development (González, 2011; Olds, 1995).

The PMUO comprises three neighbourhoods totalling 5 million m² near Rio’s downtown area (Figure 3). The project was feasible because of an unprecedented alignment between the municipal, state and federal governments. Cooperation between the three spheres of power was paramount in the establishment of this project because public bodies were the main landowners in the area. Moreover, a semi-public fund (FGTS¹⁷) was the sole purchaser of all the CEPACs issued in this Operation – guaranteeing the necessary capital before the project even began. More than simply replicating São Paulo’s experience, Rio went further in terms of setting in place a complex institutional and regulatory arrangement for large-scale urban redevelopments. In short, this scheme combined the financial mechanism of UOs, the bidding of the whole improvement plan through a single PPP contract and the presence of a Real Estate Investment Trust (REIT Porto Maravilha), owned by FGTS. The latter assumed the obligation to bear all the costs of the PPP in exchange for the total amount of CEPACs plus a set of public plots embodying a significant share of the overall building potential of the area.

Figure 3.

Perimeter of the Porto Maravilha Urban Operation and some snapshots of ‘what is inside’.

This scheme allowed for the renovation of urban infrastructure to occur faster than in the previous projects carried out in São Paulo. Nevertheless, this arrangement clearly contradicts the rhetoric of fiscal neutrality proclaimed by UO advocates. The PMUO demanded substantial amounts of (explicit and hidden) public resources (Pereira, 2015; Royer, 2016) – the risk taken by FGTS is emblematic of the role epitomised by the public sector in contemporary urban governance arrangments. Rio’s real estate market has been severely affected by the Brazilian economic crisis of the mid-2010s (Rossi and Mello, 2017). Because of that, the exposure of this semi-public fund to the systemic risk of the redevelopment plan means it is facing massive losses, leading to the socialisation of the project’s costs (Rolnik, 2015).

As with other contemporary urban interventions, this project relies on the development of a mixed-use neighbourhood which aims to combine high-standard office spaces, shopping malls and other types of retail facilities, touristic and cultural venues, hotels and housing. In this specific case, cultural and touristic venues were developed as anchor projects (Museum of Tomorrow, Rio’s Art Museum and an aquarium), setting the tone for the entire project. AAA office towers were some of the first developments to be announced; hotel chains and shopping malls were also progressively attracted to the area. An issue that always challenged Porto Maravilha was housing provision – even though official sources anticipated a population increase of 70,000 people by 2025 (CDURP, 2015). However, unlike the AEUO, the PMUO did not anticipate the provision of social housing or any other mitigating solution that would allow traditional residents to remain in the area. Thus, one can infer that what was expected was the replacement of the local, mostly poor, residents, by middle- and upper-income households, who would live in new luxurious towers, yet to be developed.

The most populated areas within the perimeter of the operation are located on the hills that surround the city’s port, with Providência Hill (a slum) the most densely occupied. Both formal and informal dwellings are also located in the flat areas (single family houses, squatted public buildings, tenements). In comparison with Água Espraiada, within Porto Maravilha there is a relatively homogeneous socio-economic composition; 94% of families earned less than R$2640¹⁸ in 2015 (CDURP, 2015). Faced with a strong contrast between the Porto Maravilha as it exists and as it is envisioned, active measures have been taken by the municipality to address this. Owing to the informality of most of the existing dwellings, eviction processes have been much less bureaucratic, and more violent, than in other parts of the city (Faulhaber and Azevedo, 2015).

The main difference between the flat and hilly areas within the PMUO is that, even though the hills are densely populated, they offer no direct capital gain possibilities to developers and speculators. CEPACs cannot be used in these areas and no major development is expected to occur. The main issue here is that the ambiance of the new project is compromised by the presence of slums. A first report issued by the municipality in 2011 demanded the demolition of more than 800 houses on Providência Hill – almost half of the community. The main alleged reasons were ‘safety’ and ‘urban improvement works’. However, a counter-report, requested by the Public Defender’s office, demonstrated that there was no imminent threat to these families; nor were the urban improvements actual responses to the citizens’ demands. Nevertheless, in 2014 alone, more than 200 houses were demolished.

Meanwhile, in the flat areas, where CEPACs can be used, squatters and other informal settlements were removed to make way for the new tower blocks. The number of squatted buildings and the number of residents in these occupations is unclear, but an estimate produced by Rio’s Popular Committee¹⁹ indicates that almost 1000 families were evicted from the seven main squatting sites in the area during the first year of the project. Three options were given to evicted households: relocation to newly built houses more than 70 km away, social rent allowances, and indemnity payments for their houses.²⁰ Regardless of the choice, all options constrained residents to move away from the port area, either by granting them new houses far from the PMUO, or by giving them allowances and indemnities that would not suffice to rent a new property within/near the project.

A social housing plan (SHP) was proposed for Porto Maravilha in 2016. But rather than being a choice from local agents, it was a determination from the federal government, which conditioned UOs, financed with FGTS funds, to create an SHP. However, the plan was established almost six years after the inauguration of the PMUO and after the eviction of thousands of people. According to the SHP, 5000 housing units would be built in 20 years, but there is no clear determination of who would pay for all these units, how many of these dwellings would be targeted towards lower income ranges, or if previous residents would have preference in accessing these new units. Core practical issues regarding the successful implementation of the plan were omitted, demonstrating that this initiative was just a bureaucratic response to new legislative directions, rather than a new approach to the housing issue. Today, three years after the plan’s approval, none of the units envisioned have broken ground (Observatório das Metrópoles, 2017).

Because of the peculiar arrangement adopted in this UO, where all the CEPACs were sold at once and for the price of the full PPP cost, there is no resource within the project’s budget to subsidise the production of affordable housing. In a general sense, this urban intervention is helping to amplify spatial inequalities and segregation rather than fulfilling the promises of social inclusion and generalised benefits that were mobilised to legitimate it.

Conclusion

The main goal of this paper was to present to a broader international audience the Urban Operation mechanism, an urban planning tool that is being increasingly employed in Brazilian cities. As argued, this mechanism is largely inspired and influenced by foreign practices. ‘Successful’ international urban redevelopment projects were the main drivers of the narrative that became dominant in Brazil and promoted the liberalisation of urban development frameworks in order to facilitate cooperation between public and private actors. The two cases presented, Água Espraiada and Porto Maravilha, are frequently portrayed as successful experiences. After all, the state was able to provide new urban areas which it could claim, albeit incorrectly (see Fix, 2003; Pereira, 2015), did not incur significant public expenditure. Meanwhile, real estate developers, contractors and infrastructure providers were able to conduct their businesses in a favourable and secure environment. Nevertheless, the social benefits generated by these projects are questionable.

The promised positive socio-economic impacts of these UOs are often used to justify their implementation. However, in existing projects social demands are often set aside in favour of market-related interests. The mechanism that supports UOs is a clear facilitator of this logic: after all, the state becomes an active agent in the valorisation and speculation of land and real estate assets. More than being indifferent to market demands and interests, the state has become a key articulator in speculative city development schemes (Chu and He, forthcoming).

An entrepreneurial approach to city management has become commonplace worldwide (Harvey, 1989). However, the consequences of this approach largely depend on pre-existing urban conditions, especially when assessing social impacts. Broadening the argument made by Büdenbender and Zupan (2017), when discussing the penetration of neoliberal policies into post-socialist societies, in Brazil, spatially specific projects are now tools for the infiltration of financialised business dynamics into the built environment, serving to support elite groups, while reiterating and exacerbating pre-existing social inequalities.

The supposed social benefits related to these projects rarely materialise. This lack of social commitment is not coincidental nor exceptional. The presence of social housing and slums within the perimeter of an UO is irreconcilable with the envisioned image and with the business taking place in these designated areas. Thus, even though an inclusive discourse exists and is frequently mobilised to ensure public support, it is irreconcilable with the broader expectations revolving around these projects. The public sector, constrained by a ‘neoliberal straitjacket’ (Hodkinson, 2011), is also incapable of challenging such scenarios, becoming an accomplice to the consolidation of increasingly uneven urban development.

The construction of the Urban Operation framework was inspired by ‘best practice’ arrangements employed abroad. Now, AEUO and PMUO themselves have become ‘best practice’, replicated in other Brazilian cities. Directors and managers of the company that coordinates the Porto Maravilha Operation, CDURP,²¹ are often invited to give lectures and advice to municipalities interested in learning more from Rio’s experience (Chen Pinghui, 2013; Pereira, 2015). Other Brazilian cities are developing their own projects, hoping to put in place this urban redevelopment ‘formula’. However, one aspect that is likely to be overlooked when such celebrated experiences are reproduced is their significant impact on exacerbating pre-existing inequalities. Instead of producing more egalitarian, well-integrated and socially mixed cities – as the official discourse claims – Urban Operations are proving to be an institutionalised planning tool that accentuates uneven development across Brazilian cities.

Footnotes

Acknowledgements

The authors would like to thank the ‘Real Estate/Financial Complex’ research group for their comments on earlier drafts of this paper. We are especially grateful for the insights of Manuel Aalbers, Mirjam Budenbender and Callum Ward throughout this process. We also appreciated all comments and suggestions made by the anonymous reviewers.

Declaration of conflicting interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: This research was supported by FAPESP (grant 2016/01487-9) and CAPES (grant 13086/13-8).

Notes

ORCID iD

Mayra Mosciaro

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