EXPLAINER: WHAT IS ‘VALUE CAPTURE’ AND WHAT DOES IT MEAN FOR CITIES?

 

THE CONVERSATION:  EXPLAINER: WHAT IS ‘VALUE CAPTURE’ AND WHAT DOES IT MEAN FOR CITIES?

June 22, 2016

Transit value capture is used in Hong Kong. Flickr/Kin, CC BY

Authors

Nicole Gurran
Professor – Urban and Regional Planning, University of Sydney

Stewart Lawler
Lecturer in Property and Built Environment, University of Sydney

Disclosure statement

Nicole Gurran receives funding from the Australian Housing and Urban Research Institute (AHURI).

Stewart Lawler does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

Partners
University of Sydney

University of Sydney provides funding as a member of The Conversation AU.

Value capture secures some of the benefits delivered by public investment to offset the costs of provision. The notion has been around in various forms for a while, but recently gained steam. Prime Minister’s Malcolm Turnbull’s Smart Cities Plan touts value capture as a way to better distribute “the costs and benefits in publicly funded infrastructure to facilitate a project that may not otherwise occur”.

But there’s a lot of confusion about what value capture actually means and how it might operate in Australia.

What is ‘value capture’?

Public investment in a new rail line or motorway can generate huge increases in surrounding land values. In part the increase derives from improved accessibility for existing residents and businesses. High windfalls also arise once land has been rezoned to capitalise on higher development opportunities generated by the new infrastructure.

Since public investments and decisions are intended to maximise community benefit, it seems unfair and inefficient that some private landowners profit immensely from the process while others gain little or may even be disadvantaged.

Value capture mechanisms seek to rectify this by clawing back at least some of the increased business revenue or land value. These funds are then allocated towards the initial costs of infrastructure provision. In the case of a planning change, land value uplift can also help ensure that affordable housing for low income groups is included in new development.

How does value capture work?

The PM’s Smart Cities Plan doesn’t offer much detail as to how a value capture model would operate in Australia. Several different approaches are used overseas, but their potential transferability is unclear.

Transit value capture is used in Hong Kong and Japan to fund railway lines and new town development. This is a project-based approach which packages investment in railway and housing development together. Commercial holdings along the railway line deliver an ongoing revenue stream as does long term investment in residential development. In Hong Kong, a significant program of public rental and subsidised home ownership has also been delivered as part of this model.

Project-based transit value depends on access to large swathes of low cost land (in Hong Kong the government retains land ownership, so the land component is essentially free). It also depends on ongoing residential and commercial investment along the new route over time, which in turn assumes buoyant economic growth. When the Japanese economy stagnated, the potential for railway operators to self-finance their projects did too.

Tax Increment Financing (TIF) is used widely in the US to finance new transit and urban renewal projects. The model draws on anticipated increases in business revenue or rents in areas where incremental value uplift will occur. A portion of the increase is captured via a special property tax which is then allocated to repay the debt.

Australian local governments can also introduce special purpose levies to fund specific items through property taxes or rates. The Gold Coast light rail project for instance, was partly financed via the council’s annual transport levy (now around $111). However, since the levy applies to all ratepayers, rather than confined to areas where direct value uplift occurred, this doesn’t represent value capture in the strict sense of the term.

Value capture through the planning process is another approach. Unlike development contributions, which in Australia are used to internalise the costs of servicing a particular project (like roads, carparks, or footpaths), so they aren’t borne by existing ratepayers, value capture focuses on the benefits (often called “betterment” or “planning gain”) accruing from public investment or planning decisions.

One way of capturing value created through public investment or planning is to levy the charge on the first property transaction (ie. land sale) following the change. Another is to add an additional levy to existing contributions paid by developers.

The NSW government’s foreshadowed “Special Infrastructure Contribution” for new residential development along the Parramatta Rd light rail corridor ($200 per metre of gross floor area) is a recent example.

While this amounts to around $20,000 an apartment (at most about 3% of current sales prices), industry lobby group the Urban Taskforce claim the levy will discourage development and hurt home buyers. That’s cheeky since house prices are set by the market – which in the case of a light rail corridor will rise by much more than 3%. Ultimately the Taskforce worries that value capture places “an unfair burden on particular sectors of society” by which they presumably mean landowners and developers.

What would need to happen to extend value capture models in Australia?
Besides the politics, a number of issues must be addressed if value capture is to be extended in Australia. First, calculating value uplift is complex. Often land prices rise well in anticipation of investment or a planning change, so robust framework for value capture should be in place well before such speculation might occur.

Second, value capture should not discourage development or make land acquisition more expensive. This means close attention to project viability when setting capture requirements. Third, robust mechanisms for collection through either the planning process, as an ongoing property tax, or when land is sold, are needed.

Finally, although the current conversation focuses on transport, over time there will be pressure to fund other socially beneficial infrastructure. Two obvious candidates are schools, which also improve land values, or affordable housing, which is often lost when land values rise.

However fuzzy current conversations about value capture may be, the Commonwealth’s new interest in cities and the need to support more affordable homes near public transport, is welcome. So too the recognition that public investment and policy changes in urban and regional areas generate enormous value, which can and should be shared more widely.

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SOURCE:   https://theconversation.com/explainer-what-is-value-capture-and-what-does-it-mean-for-cities-58776

 

THE TURNBULL GOVERNMENT RELEASES ITS VALUE CAPTURE DISCUSSION PAPER

 

 

THE TURNBULL GOVERNMENT RELEASES ITS VALUE CAPTURE DISCUSSION PAPER

(It has been pointed out with Value Capture the artist should have depicted high-rise!!)

FROM CAAN …

WHAT we are experiencing in this Nation and especially in NSW is a transfer … a pipeline of our Public Assets to private interests with some $130 Billion worth of public assets sold off in NSW alone!

CAAN has touched on this topic from time to time, and we offer some “food for thought” … it comes back to the “Culture which is established at the very Top” ..

Value Capture is about billing the people who get the benefit of the Infrastructure Project contrary to those in its path with Compulsory Acquisition, and being shortchanged on the market value of their properties.

WILL the “I am not a Totalitarian Government” tax those that get the benefits to give it to the people who lose their homes or businesses?

A prime example of this is WestCONnex during the construction phase of 2 – 5 years the victims have lost $Millions!

Sydney Metro accused of ‘unfair pressure tactics’ in acquiring homes

Property owners undergoing compulsory acquisition told compensation offers expire in 21 days

https://www.smh.com.au/national/nsw/compulsory-acquisition-sydney-metro-accused-of-unfair-pressure-tactics-20161028-gscowk.html

VALUE CAPTURE … it’s pernicious … it’s saying to everyone in the community “I have got this idea and I am going to make you pay for my idea”!

THE GREENS NOT KEEN ON PRIVATE HIGH SPEED RAIL PLAN WITH VALUE CAPTURE AND FOREIGN INVESTMENT

https://www.railexpress.com.au/greens-not-keen-on-private-high-speed-plan/

THIS IS WHY!

“The Greens have concerns about information absent from today’s announced CLARA proposal, apparently due to commercial in confidence considerations.

“Being asked to ‘just trust us’ is not good enough for a project of this scale.”

THE TURNBULL GOVERNMENT RELEASES ITS VALUE CAPTURE DISCUSSION PAPER

Australian Government releases Value Capture Discussion Paper
November 20, 2016

USING ‘value capture’ to help deliver more infrastructure is the subject of a discussion paper released last week by Urban Infrastructure Minister Paul Fletcher and Assistant Minister for Cities and Digital Transformation Angus Taylor.

The discussion paper examines the potential to more widely use value capture funding to supplement the billions of dollars each year already spent by all three levels of Australian governments on infrastructure.

It sets out a range of options for the Australian Government to action to stimulate the use of value capture in the development and delivery of infrastructure and describes various potential value capture approaches—including tools already in use by state and local governments.

(The NSW Government is investigating the use of value capture to help deliver the proposed Parramatta light rail project / Transport for NSW.)

Mr Fletcher said the Australian Government was seeking public and industry input on the value capture concept.

“Many states and territories already use value capture funding models to support major upgrades,” Mr Fletcher said.

“Similarly, developer charges are commonly used by local government authorities to help deliver utilities for new housing developments.

“If we are to make better use of value capture, governments must first understand why beneficiaries might be willing to pay for projects; identifying who these beneficiaries are and when they might materially gain from projects funded through this method.”

Mr Taylor said there was a need to find new funding models within the constrained fiscal environment.

“Government is getting smarter about linking transport investment with long term planning for affordable homes, closer to where people work and closer to services like schools and hospitals,” Mr Taylor said.

“Through City Deals, we are looking at changing the way we fund infrastructure.

“Encouraging public private partnerships to pay for road and rail corridors where land values will increase, can be a wise way to invest taxpayers’ money.”

Submissions on the discussion paper will be open until 3 February 2017. More information is available from the Department of Infrastructure and Regional Development website at

http://investment.infrastructure.gov.au/about/funding_and_finance/value_capture.aspx

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