When we build new infrastructure that connects places to useful destinations or opens up development opportunities, it lifts the value of properties in the surrounding areas. This is pretty intuitively sensible: Holding all else equal, most people would be willing to pay a bit more for the convenience of having, say, a fast and reliable public transport route nearby.

How and why does this happen? If you want to know a bit more about that, I suggest you read the research paper that I wrote on the topic (with my colleague Karl Baker) for a 2015 conference. But a more interesting question is: What should we do in response to this?

Many people have observed that uplifts in land value create a potential source of revenue to recoup some of the costs of infrastructure development. Intuitively, this seems fair: If a project benefits nearby landowners, then they should help pay for those benefits.

However, it’s also possible for value capture to be unfair if it’s not designed right. Let’s consider a hypothetical example. Say that the government announces that it will start building a light rail line immediately. People who own properties around the stations rejoice: their properties will now be worth more. Some of them choose to sell up before the project is completed, banking the expected property value gains.

Now assume that the government has decided that it needs more funding to complete the project. So it announces that it will levy a tax on property values around the planned stations to capture some of the uplift in land values. This comes as a surprise to the people who bought land in the area after the project was announced: They are being taxed on gains that accrued to the people they bought the land from!

As it happens, this isn’t a hypothetical example. Auckland is in fact considering building a new light rail line between the city centre and the airport. Auckland Council has announced its desire to build the project sooner, while the current government thinks it won’t be needed until the 2040s. And since there’s an election on, political parties have an incentive to announce that they’ll build the project, either sooner or later.

The other week, in response to the news that the America’s Cup is coming back to Auckland, the Green Party announced that they would fast-track light rail to the airport.

Interestingly, the Greens’ announcement announced that they would use value capture to help fund the project:

Transport spokeswoman Julie Anne Genter said her party would make the $2.3b rail line a project of national significance and would begin construction this year. It would partly be funded by recovering the increase in property values from neighbouring areas.

This is a good move. Setting clear expectations that value capture will be used to help fund projects means that the fairness problems I discussed above are much less likely to arise. Anybody who sells or buys in the area should be aware that they may be taxed a bit more to help pay for the project.

The current Minister of Transport also seemed to be on board with the value capture concept:

Transport Minister Simon Bridges said today that there was a possibility that light rail could be brought forward on the route. That was likely to depend on demand for train services.

“It could well be sooner rather than later, and I’m very open to that,” he told reporters at Parliament.

His Government had already proposed the sort of land value capture that the Greens were proposing, he said. It might also seek funding from the airport and from Mt Eden businesses along the rail line’s route.

“If we did a serious public transport project … there would be other parties that would benefit significantly from that. Around the world … they’ve looked at how they’ve managed to help fund the project through those sort of things.”

Making value capture work is undoubtedly politically and technically challenging. There are many potential points of failure, the first of which is that expectations about who will be asked to pay for what aren’t clearly set in advance. So it’s encouraging to see some in-principle agreement that value capture should be on the table for major new projects.

What do you think about the pitfalls and potential of value capture?

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61 comments

  1. Not such a fan of it being applied to infrastructure where sheer ineptness has seen parts of Auckland go without. The constant clamour for rail to the shore spring to mind, when it already has one more busway than anywhere else.

  2. As you say the winners and losers will be at the announcement. My hypothetical would be say property around Kumeu which has already increased in value because of the major road building and the new employment opportunities at Westgate but if there was a commitment to a high speed train to CBD it would increase far more. Many locals would move on because they enjoy Kumeu for its quiet village ambience but they would be out numbered by investors buying in so they would benefit financially. The main problem is imbalance in information – the investors tend to know what the planners are planning or might be planning whereas the home owner will not. There is also the danger of plain insider trading.
    These kind of concerns are amplified by having a unified large council that seems distant from the average householder and is less trusted than the smaller councils where you had a higher chance of actually meeting the people who are making the decisions. Note the greater the PR the less the trust.

    On balance I’d put it down as a reasonable idea that would be hard to implement in practise. For example a major transport improvement in Highbury which is 2km away from my home. Does that benefit me or actually handicap me – local street congestion making it harder to access Highbury shops and restaurants, more pollution and noise. OK you are proposing taxes based on average property price changes not specific individuals but even then it might depend on if or when parking is increased. New properties will be built which in turn change nearby property values. So it all gets messy in the detail.

    In the long term rates are related to property prices so effectively in the long long term it sorts itself out with more tax raised from the beneficiaries.

    1. I tend to agree with Bob: the devil is in the details.

      I’m not completely opposed, but i question merits of VC on two dimensions: 1) it’s not a particularly efficient way to fund transport in general because users are not charged accurately, and 2) its not a particularly effective way to finance specific projects because of high transaction costs.

      In terms of airport rail:

      Q1. Is value capture an effecfive way to finance rail to airport? Probably not given transaction costs involved and the stated desire to get it built quickly. In this context a targetted rate or infra bond seems better.

      Q2. Is value capture efficient way to fund transport improvements in general? Probably not given transaction costs and fact more effective and efficient alternatives (like fuel taxes and road pricing).

      My conclusion: VC seems like a third best policy!

      1. I agree with Stu and Bob -in theory the increase in capital value for every beneficiary property owner could be calculated and they would be taxed accordingly. But in practice that is not an easy task.

        Having good quality infrastructure is a serious challenge for NZ cities -lets not make it harder by using third rate funding mechanisms.

      2. Some of the benefits of transport investment accrue to users, who may or may not live near the stations/onramps/whatever. But some benefits *also* accrue to the areas in the immediate vicinity of the investment, due to better agglomeration potential or higher levels of public amenity. Those benefits get captured by landowners, rather than users.

        Hence it’s possible for value capture to increase the economic efficiency of transport funding, provided that it’s used to fund a part of the cost rather than the entire thing. So for instance for a major PT project you might try to achieve something like 50% user funding, 25% value capture funding, and 25% subsidy from fuel taxes to reflect the balance of beneficiaries.

        Also, having thought long and hard about this I’ve come to the conclusion that targeted rates *are* the most likely method to capture value in the NZ context. Under certain conditions, the two are equivalent. So the distinction you draw in Q1 is a bit artificial.

        1. Equivalent only in terms of outcome; I’d argue the process underlying targeted rates is likely to be more efficient than that usually associatred with VC, which typically involves a lot of time, lawyers, arbitration, hearings, and negotiation. Until we have a concrete proposal for the latter it’s hard to know, which is why I’m sceptical.

          In terms of the breakdown of user benefits, I think you highlight why I consider it to be third-best policy. Road congestion gives rise to PT subsidies, which is a second-best policy. I’d argue that it may be that the combination of congestion and subsidies give rise to the value premium that you identify, at least in part.

          So I’m reluctant to make arguments based on observing something that is two distortions removed under the current situation. It may be that using road pricing to address congestion, and in the process reducing subsidies for PT would tend to reduce the value premium that we observe around PT. Or maybe not? Either way I think it’s best to focus on the main distortions first …

          Ultimately a national road pricing scheme and a national land tax based on marginal annual increase in real land values would seem to be an efficient and effective way to capture a lot of stuff! Otherwise, the mechanisms we have is not too bad, although I’d be keen to know why targeted rates aren’t used more often.

          1. Again, I’d see targeted rates as a *method* for value capture, rather than a different type of policy.

            In practice, targeted rates are subject to a lot of the same problems as value capture via contractual mechanisms. If landowners object, or don’t perceive a benefit from the project, they will be able to push back either politically or through the courts. Under legislation, it’s necessary to prove that the money you’re raising from targeted rates goes towards a project that benefits the landowners you’re applying them to. So the reason they don’t get used more often is that transaction costs are high!

            Lastly, I don’t understand your objection to raising a share of project funding from landowners given that there are some agglomeration benefits (and other odds and sods) that are reflected locally in land prices – distinct from any congestion reduction benefits. I seem to recall reading a master’s thesis by a certain S Donovan that investigated this…

  3. I can see it working if there’s some set formulas laid out – perhaps like CGT in the UK where your purchase price is known, then a few years later your selling price is known, you then minus off a few deductibles, then apply a tax rate to the leftover ‘profit’. If there’s nothing left, then there’s no tax to pay.

    The main flaw will this is that it would take a while for the money to start rolling in. If you’re wanting to get some payments for infrastructure while its being built then that system may not provide enough capital to help with the infrastructure costs, at least in the early stages. Once the system is in place for a while though there should be enough money swirling around in a central fund to contribute to ongoing projects all over the city.

    The alternative – assessing property values at regular intervals, e.g. yearly, comes with high overheads for assessment and collection.

    Also, adversely, would there be an incentive for planning authorities to limit the supply of housing through regulation to keep prices high and therefore collect more tax?

    Not saying its too hard, just that it would need to be worked out transparently and that it should be seen as a way to gain some contribution to infrastructure, not pay for all of it.

  4. Great ideas, more taxes, thats the way.
    Problem is its not raising enough money quickly enough, ideally we would want to have a substantial proportion of infra cost banked well before construction starts.
    To this end I’d suggest a Future Infrastructure Property Notional Value Enhancement Levy to be implemented immediately after a new professional body assesses the routes, stations and catchment advantage areas for future transport in 50 to 100 years from now.
    The body must consist of experts such as economists, town and transport planners, statisticians and retired politicians and judges, all people we know we can trust to get things right.
    The dosh would start rolling in and with wise investment in property could make future infra happen less painfully…

    1. I really don’t like the idea of council’s taking money from all Aucklanders, and using it to create property windfalls for a privileged minority.

      I think we are trying to solve the wrong problem here – the problem is a lack of quality public transport for most of the city, and an imbalance in the way it is managed by AT in favour of the isthmus. In my view, we should separate out AT’s costs the way we have separated out Watercare’s costs. If AT are only allowed to invoice households that have access to frequent public transport, then they have an incentive to make such access more widely available, with a revenue stream that would increase to match the number of new customers.

      The VC idea is along the same lines, but it won’t cover enough of the infrastructure costs and it is still subject to project favouritism rather than naturally pushing investment toward the many parts of Auckland suffering from absent public transport.

      1. But the frequent lines are more likely to cover costs with the fares collected, the subsidy is higher for all of the coverage routes.

  5. It would create situations that are unfair on some people. I’d prefer a straight CGT on all property with no exceptions, or nothing.
    The status quo means the increase in property values results in higher rates, so there is still an increase in income to local government regardless.

  6. This would add another layer of bureaucracy to the system as someone would have to be responsible for deciding which properties benefited and by how much. Also they would have to deal with the inevitable challenges from people who think they are being charged too much.

    There is already an existing system of value capture – rates, as the property price goes up relative to others they pay more rates.

    1. There are a couple of problems with the rating system vis-a-vis charging people who benefit most from improvements:

      1. Rates include a uniform annual charge – ie a flat tax on all properties. That doesn’t change when relative property values change.

      2. In order to raise more money from rates, councils have to decide to increase them. Any increase in rates will be distributed throughout the city in proportion to *total property values* rather than the *increase in property values*. This means that rates-funded investments will distribute costs broadly between both people who benefit and people who don’t.

      Consider a numerical example. Let’s say that council decides to raise rates by (say) $1000 to fund a project that raises the value of my property, but not yours. Say that we’re the only two landowners in the city, and that our houses are both worth $500,000 before the investment, and that the value of my house goes up by (say) $2000 after the investment.

      In a fair world, council would try to recoup the full cost from me, as I was the main beneficiary. But instead, they distribute the cost almost evenly – you pay a bit less than $500, and I pay a wee bit more. So in effect, the rates system has redistributed wealth from you to me.

      In reality, councils are pretty careful to spread investments around to avoid accusations of gross unfairness. But that’s a sub-optimal approach as well!

      1. I see your point. However, my main point was the bureaucracy generated and the idea that someone sitting in council offices will know better as to how costs should be apportioned, it would bring a smile to the face of Steven Joyce that’s for sure.

        1. We do a fair amount of that anyway. I’m sure that rates-setting already involves a fair bit of obscure bureaucratic argy-bargy!

          One thing that I was trying to highlight in the post is that value capture – regardless of how you do it – would be perceived as a new charge and thus would get more pushback than existing mechanisms. So it’s probably a bit more likely to attract scrutiny by the people who are most affected.

  7. They already have it through Betterment in the Public Works Act. Except it doesn’t work as it is almost impossible to prove a direct link between the works and the increased value. So instead Betterment just gets trotted out as a threat when someone asks for compensation. The method the Requiring Authority use is let the owner know that they (the Authority) have far more money for lawyers than the owner does and so they had better take the paltry offer.

  8. Definitely worth considering. It seems that the majority of transport infrastructure is benefiting those in the central suburbs (which does make the most sense however the rest of the city is paying for it and those owners in the central suburbs are getting the capital gains out of it and the most benefits).
    There could be ways to VC that also achieve other aims (ie make it based on the area and value of land so that proportionately higher density pays less per unit than a single home property to encourage more medium-high density).

    The beauty of VC is that it allows for more infrastructure to be built while charging those that get the most benefit from it a bit more to be fairer. I don’t know if I would go so far as to include things like water services in this since those are necessary either way although a targeted rate on a development to help pay for its new infrastructure in greenfields developments does make sense.

    1. Not sure you are correct that the central suburbs get the majority of benefit from recent public transport projects.

      Britomart – benefited people living anywhere along the Southern, Eastern and Western lines as it allowed better train services in these areas. Also it results in a shorter journey to the CBD for those living near the Western line.

      Northern busway – benefited anyone using buses along this corridor

      Project Dart – benefited people living anywhere along the Western line as it allowed more frequent trains.

      CRL – will further benefit people living long the Southern, Eastern and Western lines as it allowed better train services in these areas.

      There are significant areas of the isthmus that have had very limited benefit from transport projects.

      1. When I say central I’m referring to the old ACC area… which goes all the way out to New Lynn and South to Onehunga/Otahuhu etc. Any of those places anywhere near rail have benefited greatly from the improvements made to both the infrastructure but also the actual trains themselves. Majority of cycle-ways are in this area too. Britomart did help people further out but it also allowed for people in the CBD to have access to rail (and the growth to over 50,000 residents can attest to that).
        Airport Rail would also benefit those anywhere near the existing rail network although if it is LR then less benefit for those on the existing network but benefit to those along Dominion Road area but yes also those in Mangere.
        About the only major AT project that has been completed that doesn’t really benefit those on the isthmus is the NEX (although it does give them easy access to get over to the shore).

        1. The old ACC area had the biggest population in Auckland and with the highest value land (well before PT improvements) contributes disproportionately to rates. However, despite this I can’t see any evidence of bias towards the old ACC area.

          Basically the bias you have pointed out is towards people living near the railway lines that were built between 1860 and 1930, and the designation for the Northern Busway. This is common sense as these are the easiest pieces of infrastructure to upgrade/build.

          Cycleways are a red herring as they are a tiny proportion the transport budget. Thankfully AT have focused on the network effect with these rather than trying to please each area with isolated projects.

    2. The CRL delivers the biggest property gains to West Auckland, The NW busway to the Shore, AMETI to East Auckland, Airport Rail to the Airport and SW suburbs.

      This infrastructure increases the value of outer suburbs by linking them to the already higher value inner suburbs.

    3. In terms of PT spend, maybe it benefits central suburbs more (it mainly benefits people who work in the city the most). But in terms of overall transport spend, all those expensive motorways are mainly being built for those in the outer suburbs. If you add it up over the last 30 years, I’m sure you’ll find the central suburbs (excluding central city) have been hugely neglected in transport spend.

  9. Surely the best form of value capture is to just charge more of the rates bill based on unimproved value? The value accrues to the site, not the dwelling as the value is in increased potential for development, so this is far more fair than charging the rates on improvement value. Further, by capturing value this way there is less capital gain on any property due to the expectation of higher holding cost so there is no windfall.

    Value capture as typically imagined is just a really inefficient way to collect tax.

    1. I would agree that moving to unimproved rating value (land value) rates and gradually getting back increased rates from those areas which benefited from improved public amenities is probably the best that can be achieved by taxing or charging land and capital.

      After that policymakers should look at some other mechanisms -a widespread congestion road charging system. Fuel taxes. Stop subsidising car use by imposing car parking minimums…..

      Local governments overseas have much more diversified revenue sources -not just various forms of capital/land value capture/rates/charges. When I lived in Helsinki I paid PAYE to my local government. In parts of the United States GST goes to State government etc.

      There is lots of mechanisms that could help fund infrastructure -lets not get stuck on something that is superficially appealing but in practice will just provide never ending arguments/distraction.

    2. I prefer this method as it is simpler to administer and therefore more of the funding is likely to go through to the projects than be soaked up in administration costs.

      I also think that it should charged on all properties as the value is not only to those close to the infrastructure being build but also increases the attractiveness against international peers, benefiting everyone in the longer term.

    3. In general I like this idea – it encourages development and discourages land banking.

      One problem with it, though, is that we don’t have enough small parks integrated throughout the city. A lot of our green infrastructure is from underdeveloped sites, owned by people who don’t consider themselves land bankers at all.

      We need a much more aggressive buy-up of land to be retained for green infrastructure and green public spaces. If you tax unimproved land higher, maybe there also has to be an easy way to sell that land to Council.

      1. We have heaps of land already in public ownership that can be used for that purpose. We just need to replace the parked cars that sit on it with some trees.

        1. True in mixed use areas. Perhaps not so true in some of the residential areas?

          But again, if the carparks are owned privately, and taxed higher to encourage development, what’s the incentive to turn them into parks? What’s the incentive to do the parks well so that the parks help regenerate the city from many water, ecological diversity and social perspectives? How do we retain the decision based on where there is need for a park and where there is need for increased development?

          1. I was talking about streets, which are publically owned and wasted on car parking. These are the perfect places for the green public space and green infrastructure that you were talking about.

          2. Yup. Streets are perfectly placed to take the street runoff into bioswales, too. However, it’s hard enough to get the streets for the required cycleways and better pedestrian amenities. So I’d go further than just the streets. Somehow any new mechanism has to include both incentives: good mixed-use higher-density development AND the provision of well-designed, well-maintained small parks so everyone is able to kick a ball around or have a public picnic or whatever, within a 4 minute walk, from both home and from work.

          3. … or 300 m plus 2 x 30 second waits at traffic signals, or … it will quite often need to be closer due to navigating around cars.

          4. 30 seconds? I wish, that would make walking around in the CBD a lot less cumbersome than it is now.

            Count at least 1, maybe 2 minutes for each signalised intersection you cross. Double that if you cross diagonally. Add waiting time for each side street (no pedestrian priority there). If you have to cross a main street that alone may eat up those 4 minutes, including some very unpleasant time waiting in the middle of the street.

            Yes we can make walking more pleasant than it is now. And no we won’t. Wrong culture. Case in point, in Takapuna there is no zebra crossing at the playground, the adjacent piece of Hurstmere Road is still open for cars with a 50 km/h speed limit.

            And then we have real estate agents boasting a 1 minute drive to the shops or the beach, and I’m not surprised by that.

    4. Local government getting GST on construction also has a kind of logic to it, too.

      For instance light rail down Dominion Road to the airport will make the adjacent corridor more attractive. This will induce greater intensification in the area -which will generate higher tax revenue -through the GST on the extra construction. If local not central government received the benefit of that tax on construction -then this may well pay for the light rail upgrade.

      Even better a local GST construction tax would encourage local bodies to negotiate with local residents to remove land-use restrictions -to get more GST revenue -to pay for better amenities/more infrastructure.

      GST on local construction should be relatively easy to collect compared to value capture. Final construction GST payers would just need to record a location where their work occurs.

      The one downside I see is that construction GST would be highly pro-cyclical. Tax revenue during times of economic growth could be much, much higher than during economic downturns.

    5. Yes that increase land banking holding cost and encourage higher density development.

      The infrastructure levy should be based on land value alone. So for an apartment tower, the levy per dwelling would be shared and the final levy per dwelling would be very cheap.

      That solves a lot of problem for getting rid of those unimproved wastelands near our major train stations.

  10. Should we have a Devalue Capture mechanism too, for those places where proximity to infrastructure devalues the property relative to what it would have been? 🙂

    1. Agree, we compensate people who loose land to motorway projects, but I don’t think we are very good at compensating those who live nearby and have to put up with the noise.

    2. Exactly. Currently we have a system of legalised theft of value. The Public Works Act assumes a willing buyer and willing seller. That assumes away the higher value an incumbent owner places on their own property.

  11. Taxing land directly is one way. There is another way.

    In Japan and Hong Kong, Rail operator are also property investors.

    The rail company fund and build the tracks, trains and stations and operate it, in return they buy the future station cheap land way ahead, and get the capital gain of the surrounding land of the stations.

    They then master plan the area and sell the develop rights to other developers (like hobsonville). There will be mix used high density complex with a huge station integrated shopping mall, high rise office, surrounding with residential apartments.

    The key point is the government pays nothing.

    1. Same model seemed to be used in Canada (and elsewhere, presumably?) when the streetcars were put in. Not sure how it works for LR through built up areas, for example.

      1. If NZ stopped subsidising cars by building massively expensive urban motorways in some delusional belief that this will not induce more congestion. If we implemented a widespread road congestion charge instead. If we stopped subsidising car parking by enforcing property owners give away valuable privately owned land for free to comply with car parking minimum rules…. Then public transport might start to be competitive with cars. That has been the experience in Tokyo and elsewhere.

        For instance, if this was done in Greater Christchurch. Ngai Tahu who owns the shopping centre around Addington’s Tower Junction train station (currently just for the Tranz-Alpine route) -this being former railways land, which was gifted to Ngai Tahu as a Treaty settlement. Ngai Tahu being commercially savvy could decide they would get more customers into this shopping centre by investing in bringing back commuter rail to Christchurch. They might join a consortium that includes investors from Hornby and Northland Malls which are also adjacent to Christchurch train lines. In Christchurch’s case the consortium could include developers interested in building transit oriented development housing developments. Add in a good commercially run cycle rideshare scheme -coupled with CCC investment in cycle infrastructure and this could be transformative for Christchurch…….

        There is no reason this couldn’t work in lots of place in NZ. Auckland, in particular.

  12. TOP Party tax policy would address this.
    If an infrastructure increased property values, the equity (property value – mortgage) in the property would increase and therefore the CCIT tax. Roughly 1-1.5% of equity per year.
    http://www.top.org.nz/top1

    1. Isn’t that just an inducement to leverage properties to fund consumption? I could see it having some perverse effects.

      1. I suspect *not* taxing equity in property is driving consumption. Mortgage debt is at extraordinary levels (up 9% in one year two years ago) and one of the highest in the OECD because people 100% believe the house prices will never fall. So they borrow against the house for the car, the boat, the holiday etc.

  13. “His Government had already proposed the sort of land value capture that the Greens were proposing, he said. It might also seek funding from the airport and from Mt Eden businesses along the rail line’s route.”

    Dear Dominion Road businesses: AT and central government want to remove your on street parking for an LRT line. And they want you to pay for it.

    Not that I’m against the idea. But you’ve obviously never tried removing on street parking before, Mr Bridges.

    1. I live on an arterial road, and I would gladly pay money to remove parking from the street. Any minor gain I get from parking on the street for an hour or two on the weekend is far outweighed by the frequent annoyance and inconvenience of being on a bus stuck in a queue of traffic just after the bus lane hours have ended. Or the danger of being doored while cycling on the road.

    2. Dear Dominion Rd businesses: removing carparking and building better cycling and public transport infrastructure on Dominion Rd will allow more people to access your businesses. Cars are visible, but they are a very inefficient way of enabling customers to visit your business.

      1. I believe most of us readers of Greater Auckland are generally agreed on the principle that better PT infrastructure = better footfall.

        Having said that, us in the Council are struggling to find research which shows a correlation between PT and actual shop revenue. In addition, the severely decreased revenue brought by disruption during the construction period is also a very real fear amongst businesses.

        I am totally in support of value capture and other methods of funding to get these projects off the ground but mitigation is certainly a major area where we probably aren’t doing very well, in addition to the lack of research which confirms PT = > revenue for (the right) businesses.

        Benjamin Lee
        Albert-Eden Local Board

        1. I support Council initiatives to obtain such data. There are plenty of current town centre upgrades and cycleway additions that are ripe for data collection right now.

          Retailers are right to be concerned about disruption during construction periods. The permaculture principle of slow and small steps is important here. Transition Town Pt Chevalier submitted on some alternatives to the AT Walking and Cycling Improvements Project, for example. Being cheap and reversible, they could be implemented with the aim of investigating the effects. Jeff Tumlin recently spoke in Auckland, including to AT, about the need for experimentation, and for having a failure mentality, ie willing to risk failure and to change tack as required.

          You may find this article useful:

          https://www.citylab.com/solutions/2015/03/the-complete-business-case-for-converting-street-parking-into-bike-lanes/387595/

          In Transition Town, we are very keen to support our local retailers, as they enable us to live a local, lower-carbon lifestyle. Community conversations would be aided by better data. What we do know from the Beca study (part of the above link, but unfortunately 4 years old now, when there should be recent data on O’Connell street, etc), is that NZ retailers overestimate two things:

          -the proportion of their customers who drive
          -the need for parking right outside the store, when driving customers are actually happy to park away from the shop, but want better pedestrian amenity.

        2. You raise some good questions!

          To be frank, the literature on the effect of PT and active mode upgrades on retail activity (or local economic outcomes more broadly) is pretty thin. CityLab reviewed the available research a few years back: https://www.citylab.com/solutions/2015/03/the-complete-business-case-for-converting-street-parking-into-bike-lanes/387595/

          The best local evidence seems to suggest that spending per person didn’t vary that much by access mode, at least in some contexts. (The paper’s cited by CityLab; given the sample sizes involved I’m not sure we can conclude that any differences are statistically significant.) Intuitively, this would seem to suggest that more people = more spending, regardless of how they get there.

          I think it would be possible to do a much more robust study given the data that’s now available. You could, for instance, combine electronic card spending data (available at the shopping centre level for at least the last 5 years) with data on PT service changes and HOP card use to see if retail spending trends differed in areas that saw PT improvements versus areas that didn’t, and if those changes correlated with increases in PT arrivals.

          And of course Albert St is giving us a great case study of the impact of major roadworks on local retail activity!

  14. I think this is a great idea as long as it is applied as part of an overall policy in a holistic and consistent manner. Otherwise, if some pay and others do not, that would be a severe disadvantage in what is a competitive real estate market across the city.

    That being said rail and LRT in particular lends itself to this approach because of the evidence for property value uplift of around 8% to 15%. Busways do not have as much effect (some Brisbane busway land benefits were documented) and arterial roads virtually none at all except for commercial property.

    A final concern is that this will only HELP pay for LRT, it will not completely pay for it. I have never heard of more than 15% to 20% of the cost of an LRT delivered by value capture in any OECD country.

    1. Yeah, I think that’s an excellent point – value capture will recoup a portion of the cost, but obviously many benefits accrue to people outside of the immediate area.

      1. Stu thanks, I had not seen some of those. I did not mean to imply that busways had no effect, just less than rail. The South East Transit in Brisbane did have measured uplift impacts on property values near stations too, though also some negative impacts, I think due to the visual bulk of the infrastructure. Overall though, my understanding is that rail still has stronger beneficial impacts on land values because of the improved surface amenity as well as improved accessibility. The Brisbane study is here.
        http://soacconference.com.au/wp-content/uploads/2016/02/Zhang.pdf

        A Beijing example directly comparing bus and rail land benefits is here.
        http://discovery.ucl.ac.uk/1414446/1/2201.pdf

        I would still say that, looking at the research as a whole, fixed rail investments (heavy or light) have better city shaping and land value benefits than BRT.

  15. Is there any meaningful distinction to be made between increases in land value that come from particular projects, and increases that come from other sources, such as scarcity (artificial or otherwise), changes in the availability of finance, planning rules, population growth, etc.?

    Regardless of how it happens, capital gains on land (as opposed to the improvements) are always an unearned and undeserved windfall that do not reflect any action on the owner’s part. Such land value increases are also undesirable for society at large, in that by allowing people to make investment returns by doing nothing, we enable land-banking at the expense of the productive use of land and the productive use of available investment.

    I’d think by far the easier solution is simply to tax all capital gains on land value, at the very least at least the top rate of income tax and preferably much higher. This captures any value increase provided by any project of any size, or regulatory changes, by any level of government, as well as other windfall gains that may not be due to government action. You avoid needing to try to determine the boundaries of areas that will get different benefits.

    If you think that a more predictable system is also fairer (and I agree), a universal system is far more predictable: you know any gains will be taxed, without needing to wait for announcements of the details of particular projects.

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