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Using land values and property development to pay for infrastructure

1881 Views 2 Replies 3 Participants Last post by  AG
The question of how to pay for infrastructure has been raised from time to time in this forum, especially with respect to underground railways e.g. metros. One way to achieve this would be to tax land values, as a fair proportion of land value arises from the provision of infrastructure and services. Another related way, for railways, would be to allow station redevelopment.

Professor Peter N-e-w-m-a-n** and Dr Jeff Kenworthy in their booklet "Winning Back the Cities" proposed a "value capture" system whereby some of the increase in property values due to new rail lines could be "captured" (taxed) to help pay for them.

In Hong Kong new developments over the MTR help to pay for it, and this has been done above a few stations in Sydney by selling the "air rights" over them e.g. St Leonards ("The Forum" development), North Sydney, Bondi Junction, Rockdale, Kogarah and Hurstville. There is a similar proposal for Chatswood station, too.

In the above example the rail operator would have to actually own the real estate in order to take advantage of this method. Alternatively, the government could levy a broad-based land value tax (LVT) on the unimproved value of all privately-owned land, exempting places of worship, charities etc.

When the London Underground's Jubilee Line was extended through south London and the Docklands area the value of some properties near the new stations increased by up to four times! :shocked: This was a windfall gain for the lucky few property owners, and could have been taxed to help pay for the line's construction, as argued in the booklet "Taken for a Ride" by Don Riley, himself a property owner in that area. Note, developers around the Canary Wharf station did contribute to the cost of its' construction.

LVT, also known as site rent, could be applied to bus systems too.

To get an idea of what I mean check out the following:

Although the opinions expressed are those of the authors and I don't necessarily endorse everything they say, I believe they make a valid case for using LVT to help finance new or upgraded infrastructure and services.

An advantage of a broad-based LVT is that the cost of the infrastructure or service would be spread over all privately-owned land parcels (except those owned or used by places of worship, charities etc.) in the area that it benefits. It alone may be sufficient to cover all or most of the cost, without requiring any rezoning or redevelopment at higher densities, although that may occur anyway. A disadvantage would be that, due to its' broad-based nature i.e. including land under owner-occupied homes, it would most likely face stiff opposition, not just from home owners but the real estate industry as well. Existing land tax systems have their problems too e.g. valuations, but this should be a reason to fix them, not abolish the system.

An advantage of "air rights" or station redevelopment is that other land-owners would not be taxed. However, the cost, or part thereof, of the infrastructure could only be recouped from a relatively small number of sites (as opposed to LVT), and the amount recovered may thus be considered insufficient. To recover a more reasonable proportion, redevelopment may have to be at higher densities e.g. high rise (requiring rezoning), which might encounter local opposition.

Whatever the pros and cons, I believe that these funding methods have the potential to expedite the provision of new (or upgrading of existing) infrastructure and services e.g. metros, and could possibly be self-financing.

There may be other good points, problems or possibilities that I am unaware of. My knowledge in this area is incomplete. I welcome the views of others. :)

**Why does this forum censor that name/word when spelt the usual way i.e. without hyphens? :? The same thing happened to me the other day.
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In perth the land is being sold for heaps to developers for urban renewl, but thats it's indervidual situation and thats how it should be looked at.

Yes it's a issue but i dont know a heap.
A lot of the property that rail operators such as the MTR in Hong Kong and JR in Japan is usually shopping centres and large apartment towers or office buildings. I don't see how we can exactly do this or find demand for it at many suburban locations on rail networks. Selling only a few houses or small lots of property above stations isn't going to do much to help recoop the cost of new rail projects, it has to be large property for it to work.

Probably the best example at the moment of development above stations by rail operators is Union Square in Hong Kong. The MTR is involved in developing the Union Square complex above it's Kowloon Station on the Tung Chung and Airport Lines, including the 490m tall US7. IIRC, the International Finance Center project on the other side of the harbour on HK Island was also undertaken by the MTR above it's Hong Kong Station (also Tung Chung and Airport lines). There's also more examples along the Tseung Kwan O Line.
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