A wealth of opportunities: Public real estate management as a tool for good governance

Also available in Spanish

How much are the government buildings, lands and other publicly-owned real estate of your country worth?  According to recent publications, a lot. A 2013 IMF study estimated that non-financial assets are worth an average of 67 percent of the GDP of a selection of 32 countries.

More recently, a book by Dag Detter and Stefan Fölster underscored the incredible potential of improving public wealth management. According to their calculations, a one percent increase in returns to public assets worldwide (including real estate) would generate gains equal to roughly one percent of global GDP!  In the United States, a one percent increase in yields from federal assets would be equivalent to the revenue raised from a four percent tax increase. But why are governments sitting on so much unused wealth?   And what can they do to make better use of what they have?

Seeking to reap the fruits of smarter public real estate management, representatives from twenty countries from around the world met in Mexico last September. Participants discussed how to turn the management of public real estate assets into a tool for good governance, including strategies to optimize the use of government property and generate savings in maintenance. The conference was organized by The Workplace Network (TWN), an international public real estate management network, with participation of the World Bank and the Inter-American Development Bank.

In our presentation, we highlighted how a smart use of public assets should be added to the public financial management toolkit at governments’ disposal. A “balance sheet perspective” – giving us a more complete picture of government finances – offers particularly interesting alternatives for countries facing fiscal constraints. And yet, as underscored by Nobel Laureate Michael Spence, “the asset side of state’s balance sheets remains largely invisible.”

Public assets, in particular, public real estate, are a key element of public service delivery systems. Their efficient and strategic use can enable the delivery of other critical public services without major investments in infrastructure.
At the conference, frustrated public real estate asset managers described the obstacles they face to bring these ideals to life. Among others, these include: i) the lack of detailed information about what their governments have, and what it’s worth, ii) weak institutional coordination, and iii) difficulties measuring non-financial returns (for example, how can we quantify the social value of public lands?). The main reasons for these limitations are:

• Asset management is a relatively new area for government, making it a kind of misfit of public sector management (many financial management information systems don’t even account for public assets).
• Burdensome regulations make it hard to manage public property efficiently.
• The different functions of public property (from schools and hospitals, to bridges and dams) require different approaches and solutions in terms of asset management, making it harder to apply unified standards and to evaluate performance.

Faced with these challenges, governments willing to use public real estate management to achieve good governance outcomes need to:

• Define a public real estate management strategy that describes vision, objectives, and the legal and regulatory instruments to implement it.
• Strengthen the institutional framework for public real estate management, clarifying roles and responsibilities of different government entities.
• Improve productivity of public real estate, through active demand management and a strategic policy for buying, selling, and managing assets. These approaches should borrow from the private sector, while also measuring social and other public interest outcomes beyond financial returns.
• Enhance transparency, including the modernization and professionalization of government asset registries, valuations, management and accounting, ensuring that our governments harness the true value of assets that has long been underestimated.

Over the past few years, the Governance Global Practice in Latin America and the Caribbean have engaged with governments across the region, including the State of Rio in Brazil and Colombia, to introduce these principles and shed light on the public asset management agenda. As we progress, we’ll keep you posted on unique initiatives from around the world that are pointing the way forward.   

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How much are the government buildings, and other publically-owned real estate of your country worth? ​

​Public real estate management - a tool for good governance.  

 Public assets, especially public real estate, are key elements of public service delivery systems. ​

Different types of public property, i.e. schools, roads, require different asset management solutions.