tag:theconversation.com,2011:/africa/topics/value-capture-25815/articlesValue capture – The Conversation2019-10-14T19:08:41Ztag:theconversation.com,2011:article/1237572019-10-14T19:08:41Z2019-10-14T19:08:41ZRail works lift property prices, pointing to value capture’s potential to fund city infrastructure<p><a href="http://www.rtbu.org.au/innovative_funding_models">Value capture</a> has been <a href="https://theconversation.com/paying-for-infrastructure-means-using-land-value-capture-but-does-it-also-mean-more-tax-58731">advocated</a> as an innovative way to fund infrastructure, including <a href="https://www.afr.com/property/malcolm-turnbulls-value-capture-plan-for-infrastructure-splits-developers-20160429-goic5m">by the Australian government</a>. However, its <a href="https://theconversation.com/value-capture-a-good-idea-to-fund-infrastructure-but-not-easy-in-practice-74545">effectiveness in Australia has been questioned</a>. Our research, based on railway <a href="https://levelcrossings.vic.gov.au/">level crossing removals in Victoria</a>, suggests infrastructure projects do lead to higher property values, which could be captured to contribute towards project funding. </p>
<p>At sites close to where level crossings were removed, property values increased by as much as a quarter. This highlights the opportunity to use a value capture model. </p>
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Read more:
<a href="https://theconversation.com/explainer-what-is-value-capture-and-what-does-it-mean-for-cities-58776">Explainer: what is ‘value capture’ and what does it mean for cities?</a>
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<h2>What’s the idea of value capture?</h2>
<p>Infrastructure investment improves connectivity, leading to higher land or property values in areas that benefit from this. Value capture taps into this increased value – usually using some form of taxation – to help finance the infrastructure responsible for the increase.</p>
<p>Value capture has been widely used overseas. In the <a href="https://www.infrastructure.gov.au/cities/smart-cities/plan/files/Smart_Cities_Plan.pdf">United Kingdom and Hong Kong</a>, it has proved to be an effective way to fund major infrastructure. </p>
<p>This approach is <a href="https://www.prosper.org.au/land-value-capture/value-capture-a-historical-perspective/">not common in Australia</a>, where most infrastructure projects are government-funded. Gold Coast Light Rail was <a href="https://theconversation.com/gold-coast-light-rail-study-helps-put-a-figure-on-value-captures-funding-potential-65084">developed with the aid of a levy on ratepayers</a>. </p>
<p>However, a lack of funding means many large-scale infrastructure projects are <a href="https://www.infrastructure.gov.au/cities/smart-cities/plan/files/Smart_Cities_Plan.pdf">not being funded at the same time</a>. This highlights the need to find innovative ways to fund infrastructure, which includes exploring the potential benefits of value capture. </p>
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Read more:
<a href="https://theconversation.com/why-gold-coast-light-rail-was-worth-it-its-about-more-than-patronage-78190">Why Gold Coast light rail was worth it (it's about more than patronage)</a>
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<p>Financing infrastructure by value capture has been <a href="https://www.aph.gov.au/Parliamentary_Business/Committees/House/ITC/TransportConnectivity/Report_1/section?id=committees%2Freportrep%2F024018%2F24073">widely discussed</a> and was <a href="https://www.aph.gov.au/Parliamentary_Business/Committees/House/ITC/TransportConnectivity/Report_1/section?id=committees%2freportrep%2f024018%2f24073">considered by a parliamentary inquiry</a>. The concept features prominently in the federal government’s <a href="https://www.infrastructure.gov.au/cities/smart-cities/plan/files/Smart_Cities_Plan.pdf">Smart Cities Plan</a> and would <a href="https://www.aph.gov.au/Parliamentary_Business/Committees/House/ITC/TransportConnectivity/Report_1/section?id=committees%2freportrep%2f024018%2f24073">complement the Smart Cities vision for 30-minute cities</a>. </p>
<h2>Would it work in our low-density cities?</h2>
<p>But there is a debate over how well this model would work in Australia. It’s argued the low-density nature of Australian cities would result in a lower level of value creation to be captured. Nevertheless, little empirical evidence is available on value creation in Australia. </p>
<p>Despite clear policy interest in how much land values increase following a new rail investment, and to what extent this can be attributed to the investment, much remains to be explained. </p>
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Read more:
<a href="https://theconversation.com/value-capture-a-good-idea-to-fund-infrastructure-but-not-easy-in-practice-74545">Value capture: a good idea to fund infrastructure but not easy in practice</a>
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<p>Our research based on the <a href="https://levelcrossings.vic.gov.au/">level-crossing removal project</a> in Victoria found property values near each site could be enhanced significantly. The state government began the project in 2015. It aims to eliminate 75 dangerous and congested level crossings to improve traffic flows across metropolitan Melbourne. Our yet-to-be-published research is to be presented at the <a href="http://www.prres.net/index.htm?http://www.prres.net/Conference.htm">Pacific Rim Real Estate Society annual conference</a>.</p>
<p>Importantly, this is one of the largest rail infrastructure projects in the state’s history. As of December 2017, the estimated budget for removing 50 level crossing sites was <a href="https://www.theage.com.au/national/victoria/level-crossing-removal-program-poor-value-for-money-auditorgeneral-andrew-greaves-20171214-h04ed0.html">A$8.3 billion</a>. The ultimate cost is likely to be greater as another 25 sites were added to the project in 2018 and 2019. </p>
<p>The work has caused inconvenience to local residents during construction and has limited capacity to ease traffic congestion. The pace of progress and budget blowouts “present risks to achieving value for money”, the state auditor-general <a href="https://www.audit.vic.gov.au/sites/default/files/2017-12/20171213-Level-Crossings.pdf">reported</a>. </p>
<p>Despite the temporary inconvenience during the construction phase, transport connectivity will be enhanced once the project is complete. </p>
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Read more:
<a href="https://theconversation.com/the-sky-rail-saga-can-big-new-transport-projects-ever-run-smoothly-54383">The 'sky rail' saga: can big new transport projects ever run smoothly?</a>
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<h2>House values have risen, but variably</h2>
<p>To offer some empirical evidence on the benefits created by level crossing removal projects enhancing housing value, we considered four sites in Bayswater, Mitcham, Glen Iris and St Albans. </p>
<p>We found the completion of a level crossing removal leads to an increase of 9% in house value, on average, within the area surrounding the site. This positive impact diminishes as the distance from the site increases. It vanishes beyond 1,400 metres. </p>
<p>We also found the impact of level crossing removals varies from site to site. House values in surrounding affected areas increased by 8.81% in Bayswater, 28.6% in Glen Iris, and 10.5% in St Albans, but by only 2.1% in Mitcham. </p>
<p>Comparable evidence is found for units in these areas: prices increased by 2.35% in Bayswater, 7.3% in Glen Iris and 6.53% in St Albans, but there was no significant increase for Mitcham.</p>
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<a href="https://images.theconversation.com/files/295933/original/file-20191008-128652-18nnxo5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/295933/original/file-20191008-128652-18nnxo5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/295933/original/file-20191008-128652-18nnxo5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=393&fit=crop&dpr=1 600w, https://images.theconversation.com/files/295933/original/file-20191008-128652-18nnxo5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=393&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/295933/original/file-20191008-128652-18nnxo5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=393&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/295933/original/file-20191008-128652-18nnxo5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=493&fit=crop&dpr=1 754w, https://images.theconversation.com/files/295933/original/file-20191008-128652-18nnxo5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=493&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/295933/original/file-20191008-128652-18nnxo5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=493&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Locations of the four level crossing study sites in Melbourne.</span>
<span class="attribution"><span class="license">Author provided</span></span>
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Read more:
<a href="https://theconversation.com/paying-for-infrastructure-means-using-land-value-capture-but-does-it-also-mean-more-tax-58731">Paying for infrastructure means using 'land value capture', but does it also mean more tax?</a>
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<h2>Key takeouts</h2>
<p>There are three takeouts from our research.</p>
<p>1) The level crossing removal project in Victoria did lead, in general, to higher property values. This highlights the need for a comprehensive plan aimed at maximising value capture opportunities. </p>
<p>2) Value capture is potentially a feasible model despite the low-density nature of Australian cities. However, its likely effectiveness varies considerably with location. This reinforces the importance of a comprehensive plan. </p>
<p>3) Given infrastructure is critical for urban development, governments should consider using value capture to fund infrastructure in a way that helps meet urban development needs and reduces the shortfall of dwellings in Australia.</p><img src="https://counter.theconversation.com/content/123757/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Value capture depends on infrastructure increasing the value of affected areas in the first place. Victoria’s level crossing removal project shows the impact on property values can be significant.Chyi Lin Lee, Associate Professor of Property, UNSW SydneyJerry Liang, Lecturer in Property and Real Estate, Deakin UniversityKang Koo, Lecturer in Property and Real Estate, Deakin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/781902017-05-29T20:08:20Z2017-05-29T20:08:20ZWhy Gold Coast light rail was worth it (it’s about more than patronage)<figure><img src="https://images.theconversation.com/files/170715/original/file-20170524-5752-1x5m65f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Southport station, Nerang Street, soon after the light rail began running in 2014.</span> <span class="attribution"><span class="source">Matthew Burke</span>, <span class="license">Author provided</span></span></figcaption></figure><p>Gold Coast’s light rail scheme has attracted great interest since the streets of Surfers Paradise were torn up and stations and track were built. Was it worth spending <a href="http://www.abc.net.au/news/2016-05-13/gold-coast-light-rail-stage-three-state-and-federal-questions/7411588">A$1.5 billion on 13km</a> of light rail and more than $40 million a year in subsidies? </p>
<p>Are we right to be spending another <a href="http://www.goldcoastbulletin.com.au/news/gold-coast/the-first-sod-has-been-turned-on-420-million-light-rail-stage-2-as-tate-plans-stage-3/news-story/2520cd82de301a34498552b6a6e7dde5">$420 million on an extension</a> to Helensvale in time for the Commonwealth Games? Should we be taking it all the way down to Gold Coast Airport?</p>
<p>Another question is whether gains in property values served by the project could be “<a href="https://theconversation.com/explainer-what-is-value-capture-and-what-does-it-mean-for-cities-58776">captured</a>” to fund such infrastructure. </p>
<p>Previous studies of property values in areas serviced by the light rail showed only modest gains after it opened. <a href="http://sydney.edu.au/business/research/grants/funding_on_the_line">Our research</a> cast a wider net back to when we first started planning the system in 1996 through to the latest data we could get in 2016. </p>
<p>The results were intriguing. We found that prices in the catchment areas started to increase in the earliest planning phases. The effects of the light rail were to push up property values within 800 metres of the stations by more than 30% in total from 1996 to 2016. </p>
<p>This is well above most previous estimates of a light rail system’s effects. This is mainly because we looked earlier for the property value gains and used a carefully designed control to make the comparison. </p>
<h2>Impact after opening seemed modest</h2>
<p>These findings cast a different light on the apparently modest impact of the light rail after it opened. </p>
<p>When the first stage from Broadbeach to our university at Parkwood opened it was well received. But the behaviour change we all hoped for was rather modest at first. After opening in 2014, patronage did not surge compared to bus ridership on the route in earlier years.</p>
<p>New passengers got on board, but it was an uphill climb for the new system. <a href="http://www.brisbanetimes.com.au/queensland/translink-fare-hike-to-make-brisbane-australias-most-expensive-20140103-30910.html">Fare increases of almost 50%</a> from 2010 to 2014 pushed passengers off public transport across southeast Queensland, especially on rail. </p>
<p>Not all passengers enjoyed improved service for their particular journeys either. Those who used to travel through the corridor in a bus now had to break their journey at the light rail terminus and transfer, adding travel time and annoyance. </p>
<p>In the second year of operation, however, <a href="http://www.goldlinq.com.au/news-and-media/g-that-s-successful">patronage jumped 16%</a> and our contacts suggest third-year patronage is tracking well. Subsidies per passenger are falling. The decision to add the connection to Helensvale looks a sound one.</p>
<p>But, seemingly, other changes everyone expected weren’t there. The Bureau of Infrastructure, Transport and Regional Economics analysed property values in the corridor <a href="https://bitre.gov.au/publications/2015/files/is_069.pdf">from 2000 to 2013</a> using a coarse geography and didn’t find much evidence of any uplift. This gave many cause for concern. </p>
<p>Reassuringly, Cameron Murray <a href="https://theconversation.com/gold-coast-light-rail-study-helps-put-a-figure-on-value-captures-funding-potential-65084">used valuation data for a similar period</a> using a different geographical scale and found a 10% increase for properties within 400 metres of the new stations. But there was still uncertainty. </p>
<p>Our new research backs up and expands on Murray’s findings, suggesting there was substantial positive impact.</p>
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<span class="caption">Gold Coast light rail under construction at Surfers Paradise in 2013.</span>
<span class="attribution"><span class="source">Author</span></span>
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<h2>What did our research look at?</h2>
<p>Our research team in the <a href="http://sydney.edu.au/business/research/grants/funding_on_the_line">Funding on the Line</a> Australian Research Council Linkage Project took a different approach. </p>
<p>In a peer-reviewed paper, which will shortly be presented at the <a>World Symposium on Transport and Land Use Research</a>, led by Barbara Yen, we used sales data for residential properties along the corridor. Our study compared areas within 800 metres of the stations with a control area containing locations a little further away but still in the same vicinity. </p>
<p>We used a longitudinal methodology to see when the value uplift occurred from back in 1996, when planning of the system first started, through to the latest 2016 data. Property prices in the catchment areas started to increase very early in the planning phase. The property value uplift was highest in the locations between 100 and 400 metres from the stations. </p>
<p>Values went up 11.9% in these locations compared to our control areas between 1996 and the feasibility study’s announcement in 2002. They increased a further 26.3% from 2002 to 2006 over the control areas when the feasibility study was completed. Prices rose only 2.3% from 2006 to 2011 when the formal funding commitment was made and construction began, and then by another 5.4% after the line opened to the end of the study period in 2016. </p>
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<span class="caption">Timeline of the planning and development of Gold Coast Light Rail Stage 1.</span>
<span class="attribution"><span class="source">Authors</span></span>
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<p>The areas less than 100 metres from the stations, and between 400 and 800 metres also recorded strong increases compared to the control areas, though not quite as much. </p>
<p>This is to be expected. Sites closest to the stations received some nuisance from the light rail and road corridor; sites further away obtain fewer advantages in travel time savings for passengers. </p>
<h2>What are the funding implications?</h2>
<p>The property value gains attributable to the project from 1996 to 2016 of more than 30% are very significant. Yet it’s pretty much only the landowners who benefit. </p>
<p>The City of Gold Coast recoups some of its <a href="http://www.goldcoast.qld.gov.au/rapid-transit-6004.html">$120 million investment</a> in the light rail through its rates and its <a>public transport levy on urban residents</a>. The Queensland government may end up getting a little slice via stamp duty as properties are sold. The few pieces of government-owned land likely rose in value. </p>
<p>But the state and federal governments generally have no other mechanisms to take a small sliver of the increased property value their investment generated to help pay for the light rail system or reinvest in public transport elsewhere. We’ve <a href="https://theconversation.com/what-brisbanes-ferries-can-teach-us-about-funding-public-transport-30874">written about this previously</a> in The Conversation and suggested ways we could change the system. </p>
<p>A recent <a href="http://www.aph.gov.au/Parliamentary_Business/Committees/House/ITC/TransportConnectivity/Report_1">federal parliamentary inquiry</a> and moves to set up “<a href="http://www.luticonsulting.com.au/projects/value-sharing-mechanisms-review-nsw/">value sharing</a>” units in the <a href="http://www.dilgp.qld.gov.au/infrastructure/value-sharing-in-queensland.html">Queensland</a> and <a href="https://www.greater.sydney/digital-district-plan/679">New South Wales</a> governments suggest we are now getting serious about generating alternative funding for public transport. </p>
<p>Our study’s results only add more support to these initiatives. Get it right and we should be able to deliver more metros, busways and light rail to serve our growing population and its increasingly urban way of life.</p><img src="https://counter.theconversation.com/content/78190/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Matthew Burke receives funding from the Australian Research Council, the Queensland Government Department of Transport and Main Roads, the Motor Accident and Insurance Commission, Transport for NSW, Gold Coast City Council, Logan City Council, Queensland Airports Limited, Lend Lease, and Springfield Land Corporation. </span></em></p>The light rail project pushed up property values within 800 metres of the stations by over 30% from 1996 to 2016. Gains on this scale offer a potential source of finance for public transport.Matthew Burke, Associate Professor, Cities Research Institute, Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/745452017-03-19T19:27:08Z2017-03-19T19:27:08ZValue capture: a good idea to fund infrastructure but not easy in practice<p>Is “value capture” a wonderful untapped opportunity to fulfil all our infrastructure dreams? Or is it just a new way to sting the taxpayer? Our <a href="https://grattan.edu.au/">new report</a> casts a cold, hard gaze over value capture, and finds that it’s a good tax in theory, but will prove very hard to put into practice.</p>
<p>Value capture is the name given to a policy whereby governments capture some of the increased value of land that results from building a new piece of infrastructure. Typically, the money the government “captures” is used to help fund the project.</p>
<p>At first glance, value capture seems marvellously fair, because it applies only to those who benefit from the particular project. So the people of western Sydney do not help fund a new railway station on the North Shore. But look a little closer: it also means that affluent inner-city residents don’t help fund a better railway station in Melbourne’s outer northern suburbs.</p>
<p>Federal ministers from the prime minister down are enthusiastic about value capture and are pushing the states to embrace it. Only last week, Urban Infrastructure Minister <a href="http://minister.infrastructure.gov.au/pf/speeches/2017/pfs002_2017.aspx">Paul Fletcher reiterated</a> that the Commonwealth does not want to be “just an ATM” for the states. But if the federal ministers face up to some home truths, they may find value capture less to their liking.</p>
<h2>Value capture is a tax</h2>
<p>Home Truth No. 1 is that a value-capture scheme is a tax. That’s how it raises revenue. Politicians tend to shun the “T word”. They prefer to present value capture as an innovative financing mechanism. Sorry, it’s a tax.</p>
<p>Some advocates point to Hong Kong, where a private company builds and operates the rail lines, in return for cheap access to development rights around the new stations – a non-cash subsidy. Yes, integrating new infrastructure with rezoning and other planning changes is a great idea. But a similar model in Australia would have to be much smaller in scale. </p>
<p>That’s because in Hong Kong the government owns all the land. In addition, the city is dramatically denser than Australian cities: more than 7 million people live in a built-up area of around 285 square kilometres, compared with Sydney’s population of about 5 million in around 2,000 square kilometres. In a very dense city, good access to mass transit is highly valued.</p>
<p>Others in the value-capture camp point to tax increment financing (TIF) schemes. These have been <a href="http://infrastructureaustralia.gov.au/policy-publications/publications/files/Capturing_Value-Advice_on_making_value_capture_work_in_Australia-acc.pdf">used in the US with mixed success</a>.</p>
<p>TIF schemes don’t involve a new tax, or indeed a funding source of any kind. Instead, they are financing schemes that earmark an expected increase in future revenue from existing taxes, such as land taxes, which can be attributed to a new piece of infrastructure. This increase is then used to repay special-purpose bonds. </p>
<p>But TIF schemes are of little value in the Australian context, since Australian governments have strong credit ratings and can borrow at extremely low rates of interest – more cheaply than private sector financiers can. Not only this, but TIF schemes generally do not offload project risk. They may instead come with a hidden government guarantee.</p>
<h2>Family home would be captured</h2>
<p>Which brings us to Home Truth No. 2: to raise a reasonable amount, a value-capture tax would need to include the family home. Owner-occupied housing accounts for around 65% of total land values in Australia, and increases in its value are taxed very lightly (see the chart below).</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/161042/original/image-20170316-20491-1fsjall.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/161042/original/image-20170316-20491-1fsjall.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/161042/original/image-20170316-20491-1fsjall.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/161042/original/image-20170316-20491-1fsjall.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/161042/original/image-20170316-20491-1fsjall.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/161042/original/image-20170316-20491-1fsjall.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/161042/original/image-20170316-20491-1fsjall.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/161042/original/image-20170316-20491-1fsjall.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>To minimise the distortions value capture could have on the economy, it should be charged on unimproved land value, as a flat proportion of the land-value uplift attributable to the new infrastructure, with no exemptions.</p>
<h2>A tricky question of who’s in and who’s out</h2>
<p>Home Truth No. 3 is that many taxpayers are likely to feel aggrieved. Property prices go up – and down – for many reasons.</p>
<p>Drawing a boundary around a new piece of infrastructure to distinguish between those who must pay the new tax and those too far away to benefit is bound to involve rough justice. </p>
<p>Also, it won’t be easy for governments to convince people that their new tax bill still leaves them better off. Homeowners get the benefit of the new project on paper, but have to pay the tax bill in cash. Is this sounding like a political nightmare yet?</p>
<h2>A way to reduce the political heat</h2>
<p>There is, however, a way to implement value capture that could take a bit of the political heat out of individual decisions. Governments could pass general legislation that applies value capture to every transport infrastructure project with certain characteristics: </p>
<ul>
<li><p>an identifiable beneficiary catchment</p></li>
<li><p>a project that’s expected to makes an area significantly more accessible</p></li>
<li><p>the amount of revenue to be raised far outweighs the cost of administering the scheme. </p></li>
</ul>
<p>So, for example, value capture might apply to all urban passenger rail projects costing over A$50 million. The tax might then be levied on all properties within 800 metres (i.e. walking distance) of a new station. </p>
<p>Once such legislation is in place, each value-capture tax may be slightly less politically fraught. This approach will minimise the opportunities for rent-seeking or corruption that arise from designing bespoke schemes for every individual project.</p>
<h2>Broad-based land tax is better still</h2>
<p>A better answer still could be a broad-based land tax. Such a tax is highly efficient, because land is an immobile tax base (see the chart below). </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/161043/original/image-20170316-20523-5e9xex.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/161043/original/image-20170316-20523-5e9xex.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/161043/original/image-20170316-20523-5e9xex.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/161043/original/image-20170316-20523-5e9xex.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/161043/original/image-20170316-20523-5e9xex.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/161043/original/image-20170316-20523-5e9xex.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=565&fit=crop&dpr=1 754w, https://images.theconversation.com/files/161043/original/image-20170316-20523-5e9xex.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=565&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/161043/original/image-20170316-20523-5e9xex.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=565&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>While it would not zero in on the beneficiaries of new infrastructure, a land tax would capture the effects of all infrastructure, old and new, as these translated into land values, making it scrupulously fair. A broad-based land tax would also be simpler to administer than a value-capture tax. That’s because there would be no requirement to police the geographic boundary of the catchment area. </p>
<p>So a broad-based land tax has some distinct advantages over a value-capture tax. </p>
<p>Some will say our conclusions are pessimistic, that a little more creativity could devise a way to design value capture so it painlessly funds public infrastructure. To which we would say: there’s no magic pudding when it comes to public money – the only sources of funding for public infrastructure are user charges or a tax. Value capture may involve taxing beneficiaries more than the general taxpayer, but it’s not a bucket of free money.</p>
<p>Yes, if value capture is done the right way, as a tax that embraces the principles of equity, efficiency and simplicity, it could make a positive contribution to infrastructure funding in Australia. But the truth is, there is nothing easy about capturing value.</p>
<hr>
<p><em>Marion Terrill and Owain Emslie are the authors of the new Grattan Institute report, What price value capture?, available <a href="http://www.grattan.edu.au">here</a>.</em></p><img src="https://counter.theconversation.com/content/74545/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Grattan Institute began with contributions to its endowment of $15 million from each of the Federal and Victorian Governments. In order to safeguard its independence, Grattan Institute’s board controls this endowment. The funds are invested and Grattan uses the income to pursue its activities.</span></em></p><p class="fine-print"><em><span>Marion Terrill and Owain Emslie do not work for, consult, own shares in or receive funding from any other company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond the academic appointment above.</span></em></p>Consider these home truths: value capture is a tax, it would need to apply to the family home and deciding which areas it covers would be politically contentious. A broad-based land tax is simpler.Marion Terrill, Transport Program Director, Grattan InstituteOwain Emslie, Associate, Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/652472016-09-21T04:14:08Z2016-09-21T04:14:08ZSydney Metro’s Sydenham-to-Bankstown line – nirvana or nightmare?<p>At first glance you’d be forgiven for thinking the new <a href="http://www.sydneymetro.info/">Sydney Metro</a> rail line will turn the suburbs <a href="http://www.sydneymetro.info/citysouthwest/sydenham-bankstown">between Sydenham and Bankstown</a> into an urban paradise. </p>
<p>Amid cheerful community facilities and cycle paths, the <a href="http://www.planning.nsw.gov.au/Plans-for-Your-Area/Priority-Growth-Areas-and-Precincts/Sydenham-to-Bankstown-Urban-Renewal-Corridor">Department of Planning’s zoning brochure</a> shows a colourful mass of new higher-density zones. Every town centre along the route – including Campsie, Lakemba, Canterbury and Belmore – is in line for a facelift. A raft of new apartment towers, pavement cafes and boutiques will crowd around the Metro stations.</p>
<p>All cities need renewal and no-one would argue that this part of Sydney isn’t crying out for it. However, the Baird government needs to explain what the changes will mean for existing residents. Compared with the rest of the city, they are typically poor, older and renters. What’s in it for them?</p>
<p>And who’ll profit from the <a href="https://theconversation.com/drafts/65084/edit">value uplift</a> that will flow from the massive investment of taxpayers’ funds, both from higher land values resulting from the new density and from being snug up against a new Metro line?</p>
<p>These are just two of the outstanding questions to which the government should already have articulated some answers. That’s because, as each day passes, developers are doing their maths based on the existing scenario set out by the Department of Planning. Soon it will be too late to retrofit any changes.</p>
<h2>Where do existing residents fit in?</h2>
<p>To understand the reality, it’s worth taking a closer look at the area along this stretch of the new Metro. </p>
<p>The Sydenham-to-Canterbury corridor is home to one of the largest concentrations of lower-income renters in Sydney, compounded by a large population of retirees on fixed, low incomes. Gentrification, the driver for urban renewal across much of Sydney, has not come knocking on these doors – yet.</p>
<p>So, what percentage of the <a href="http://www.smh.com.au/nsw/frequent-trains-and-taller-apartments-in-plan-for-bankstown-line-20151013-gk7t7d.html">36,000 new apartments</a> and other dwellings along the renewal corridor has been allocated for affordable housing? We can be sure they won’t be pitched at the pockets of those who live there now. </p>
<p>And as new investment comes in, so rents will rise. Without a significant affordable housing component, many of the essential workers who live there today – the mechanics, care attendants and shop workers – will be pushed further towards Sydney’s periphery. That will leave the rest of the city <a href="https://theconversation.com/high-housing-costs-create-worries-for-city-tourism-and-hospitality-57347">struggling to get the lower-paid workforce</a> it needs to function productively.</p>
<p>In comparable renewal projects in cities like London and New York, a significant proportion of new stock is set aside as affordable housing, precisely to avoid such problems. It’s accepted as completely reasonable that lower-income working families should also benefit from new housing delivered as a result of public investment. </p>
<p>The Baird government must make it clear to developers exactly what proportion of the new homes will be set aside for this purpose – and quickly. The case for a zoning policy that mandates a proportion of all new homes as affordable has never been clearer.</p>
<p>The government also needs to show us where it is placing services, such as the new schools that the expanded population will need. With the government’s zoning map not identifying where these services will go, land-owners will rightly question any subsequent proposal for a school or park that would diminish their profits from possible residential development.</p>
<p>The government has not yet provided any explanation of the expected amount of the massive value uplift that will come from the Metro and all the amenity upgrades. </p>
<p>Nor have we been told whether any of it will be used to fund the Metro itself or investment in the infrastructure that will be needed to make this extensive new precinct vibrant and liveable – let alone whether it will be used to provide for affordable housing.</p>
<h2>A model for inclusive renewal</h2>
<p>Let me suggest a way the government can tackle all this.</p>
<p>We need a new model of inclusive renewal. Why not establish an arm’s-length, non-profit corporation to work in consortia or joint ventures with councils, landowners, businesses, residents (particularly in older strata properties), developers and the community housing sector? </p>
<p>Innovative funding for new infrastructure could come through hypothecated value-capture mechanisms. These could take the form of up-front levies on land and property sales and public borrowing supported by the increased local rates that will be collected. In this way the value uplift will be properly shared and paid for over the longer term.</p>
<p>Planning should be devolved to the newly amalgamated council in line with the <a href="http://www.greatersydneycommission.nsw.gov.au/What-We-Do/Greater-Sydney-District-Plans">district plans</a> being drawn up by the Greater Sydney Commission. Affordable housing would be the responsibility of community housing providers, working with developers and the new agency. The model would also apply to other town centre and corridor renewal projects.</p>
<p>The new Sydney Metro promises a revolution in mass transit. However, the accompanying renewal of this corridor will affect one of the most socially and economically disadvantaged communities in Sydney. Perpetuating – or indeed enhancing – that disadvantage through wide-scale displacement and unaffordable apartment building would be disastrous. </p>
<p>This new urban paradise must not be just for those with deep pockets.</p><img src="https://counter.theconversation.com/content/65247/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bill Randolph receives funding from the ARC and AHURI.</span></em></p>Who’ll profit from the value uplift arising from the huge investment of taxpayers’ funds in creating better-serviced, higher-density suburbs? And what will the changes mean for existing residents?Bill Randolph, Director, City Futures - Faculty Leadership, City Futures Research Centre, Urban Analytics and City Data, Infrastructure in the Built Environment, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/650842016-09-19T19:59:25Z2016-09-19T19:59:25ZGold Coast light rail study helps put a figure on value capture’s funding potential<p>Value capture actually can work when it comes to funding new transport infrastructure. My research on the Gold Coast light rail provides the figures to demonstrate the size of the gains to nearby land values, which were around 25% of the <a href="http://www.gclrstage2.com.au/about">A$1.2 billion capital cost</a> in <a href="http://www.goldlinq.com.au/gclr.html">stage one</a> of the project. </p>
<p>Value capture is the idea that new transport infrastructure can be financed, or at least partly, by increases in land value around the project. It’s something Prime Minister Malcolm Turnbull <a href="http://www.afr.com/real-estate/malcolm-turnbulls-value-capture-plan-for-infrastructure-splits-developers-20160429-goic5m">has promoted</a> and industry experts have <a href="https://www.google.com.au/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwjX5La5xIvPAhWDGj4KHXARCwAQFggdMAA&url=http%3A%2F%2Fwww.theaustralian.com.au%2Fnews%2Fnation%2Fvaluecapture-process-could-help-fund-building-of-very-fast-train%2Fnews-story%2Fadc815db4c51947ed8e401d014c33669&usg=AFQjCNGUjdRodpx9IQg_JkCKWL49WTiMTg">come out in support</a> of, but the proof has so far been elusive. </p>
<p>To shed some light on the potential scale of such property value gains, <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2834855">I studied the changes</a> in Gold Coast land values following the opening of the light rail project in July 2014.</p>
<h2>Why land values?</h2>
<p>The case for this type of “beneficiary pays” view is a moral one more than an economic one. The moral case is that publicly funded transport projects should not be undertaken for the benefit of a select group of landowners. </p>
<p>For example, we know that the planning system is <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2604391">susceptible to favouritism</a> because it gives windfall gains to landowners. The same holds for transport investments. Thus, there is a fairness argument for taxing these “unearned” gains to fund the transport investment that caused them.</p>
<p>A <a href="https://theconversation.com/explainer-what-is-value-capture-and-what-does-it-mean-for-cities-58776">number</a> of <a href="https://theconversation.com/paying-for-infrastructure-means-using-land-value-capture-but-does-it-also-mean-more-tax-58731">recent articles</a> at The Conversation have described some of the options for translating land value gains into a revenue source. </p>
<p>But while we know that transport investments typically increase land values in areas that become more accessible, does a new rail line increase land values by 5%, or 50%? Taken together, what proportion of the transport investment costs can be funded by these gains? Are they 10%, or even perhaps 100%? </p>
<h2>Who benefits, and by how much?</h2>
<p>To answer the question of how large land values gains are, I used the full suite of statutory land valuations data available in the Gold Coast to tease out the land value variation over time at different distances from the light rail stations. By doing this I could see the path of relative land values for properties within 100 metres of the stations, between 100 and 200m, and so forth, up to 2 kilometres. </p>
<p>I found that land within 400m of the stations increased in value by 7% more than land between 400m and 2km from the stations in the year after the light rail began operation. This is in keeping with the results of some previous international studies. </p>
<p>By applying the price deviation to the total value of land in those areas (a little over A$4.2 billion in 2015), I could then estimate that the absolute change in land value was A$300 million. This is the once-off gain to the owners of the 1,324 plots of land within 400m of the light rail stations as a result of this transport investment. </p>
<p>This estimated value gain is net of additional rates and charges that arise automatically from increasing land values. It is also net of the additional charge levied citywide to help fund transport investment in the city. </p>
<h2>How much funding can value capture deliver?</h2>
<p>At a 5% market interest rate, those capital gains are equivalent to an annual revenue stream of A$15 million. This is the total possible revenue from a funding system that perfectly captured all land value gains. </p>
<p>However, state governments already levy taxes on land values, though in Queensland there are many exemptions, including for land holdings under A$600,000 in value. After this, the marginal rate is between 1% and 1.75%. </p>
<p>It is possible to estimate the additional revenue available to the state government from land value gains due to this investment in the hypothetical situation where there are no exemptions. At a 1% land value tax rate, this would be an automatic increase of approximately A$2.5 million in annual land tax income from the value gains due to the light rail. At a 1.75% rate with no exceptions, the revenue would be A$3.9 million per year.</p>
<p>Overall, the land value gains from the Gold Coast light rail were around 25% of the capital cost. One of the simplest ways to capture these land value gains is to expand the existing state land tax system to remove exemptions. That would automatically capture 17-26% of the potential revenue from the value gains.</p><img src="https://counter.theconversation.com/content/65084/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Cameron Murray 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.</span></em></p>Land value gains following the opening of stage one of the Gold Coast light rail project were worth around 25% of its cost.Cameron Murray, Economist, The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/633302016-08-02T00:41:49Z2016-08-02T00:41:49ZHigh speed rail plan still needs to prove economic benefits will outweigh costs<p>The <a href="http://www.clara.com.au/">CLARA private consortium</a> claims a high speed rail network between Sydney and Melbourne could be paid for at no cost to the government through a technique known as <a href="https://theconversation.com/explainer-what-is-value-capture-and-what-does-it-mean-for-cities-58776">value capture</a>. What is still not clear is whether there will be enough value created by the project to capture in order to pay for the project.</p>
<p>Value capture is well established techniques used by governments to offset some of the costs of new transport infrastructure, for instance the taxes paid on apartments built near a new train station help to offset the cost of the transport investment. The taxes paid by warehouses or factories built near new freeways are another good example of value capture.</p>
<p>CLARA’s proposal is that the high speed rail can be paid for by purchasing land cheaply in regional New South Wales and Victoria then developing a string of new towns alongside the High Speed Railway. The sale of land would fund the High Speed Railway’s construction and the new residents would provide patronage for the railway. </p>
<p>This form of development was once common place with the suburban railways of London and the urban railways of Tokyo and Hong Kong being the most famous examples. However, this sort of value capture by private investors is much rarer today and unprecedented on this scale. </p>
<p>The first stage proposal involves a A$13 billion link from Melbourne to the Greater Shepparton region of Northern Victoria, the full link to Sydney with a branch to Canberra would cost many times this much. The CLARA consortium is claiming the exact figure as commercial in confidence, but a cost of around $200 billion has been suggested in the <a href="http://www.abc.net.au/news/2016-07-14/high-speed-rail-linking-sydney-and-melbourne-one-step-closer/7627990">media</a>.</p>
<p>CLARA haven’t released the full business case for the network but value of the project can be assessed by its benefits and whether or not the project will capture them.</p>
<p>High speed rail creates benefits for two types of travellers, longer distance commuters and intercity travellers. Previous proposals for high speed rail have floundered in Australia because the benefits to intercity travellers have just not been enough to justify the costs of developing and running it. </p>
<p>Australian cities are just too far apart for a high speed rail to be competitive on travel time and fares with aviation. Perhaps this will change over the 40 years that it will take to build the network but there is no evidence that this is happening at the moment.</p>
<p>Unlike previous plans, CLARA is emphasising the potential of the longer distance commuter market (e.g. Canberra or Goulburn to Sydney). There is a developing market for commuting by <a href="http://www.londonreconnections.com/2016/high-speed-buffers-part-3-limits-commuting/">High Speed Rail in the UK</a> amongst other countries. </p>
<p>There is no doubt that high speed rail would be faster over these sorts of distances than the alternatives (ordinary rail, coaches, private car) although it might be a challenge to schedule high speed intercity services alongside slower commuter services and building dedicated high speed rail lines into the Central Business Districts of Sydney and Melbourne will be very expensive. These travellers will gain benefits from a faster service and also from being able to purchase houses in more affordable regional areas.</p>
<p>Land prices are a capitalisation of the benefits that accrue to people who use that land. In the case of residential land, it reflects the benefits to be had in terms of access to schools, jobs, recreation facilities, etc. </p>
<p>Improved transport services reduce the time it takes to get to existing jobs and activities plus makes it possible to travel to additional jobs and activities within a reasonable time and, finally, encourages new jobs and activities to be created through the process of economies of scale and agglomeration. </p>
<p>Some of these benefits accrue to the travellers, others to the owners of the businesses who can hire from a bigger pool of potential employees and service a bigger pool of customers. Because of these benefits travellers and businesses bid up the price of land in places near the improved transport services thus sharing the benefits with the land owners (and with governments in the form of the taxes paid on income, property transactions and developments). It is this increase in land that CLARA hopes to tap into to fund the new high speed rail. </p>
<p>This project will only be successful if the new rail service generates enough benefits and this will only happen if people really will be prepared to pay higher fares for high speed rail or prefer lower fares on traditional train services from cities closer in (i.e. Wollongong). If not, will governments have to ban development in other cities to force people to move to CLARA’s townships in order to support the developers of the HSR?</p>
<p>Value capture is a rediscovered form of financing major projects that could prove an innovative source of funds but it does not remove the need for a project’s benefits to exceed its costs.</p><img src="https://counter.theconversation.com/content/63330/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Geoffrey Clifton 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.</span></em></p>The private consortium CLARA is proposing a high speed rail network between Sydney and Melbourne paid for by value capture but it still relies on the benefits outweighing the costs.Geoffrey Clifton, Lecturer in Transport and Logistics Management, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/625412016-07-18T03:43:57Z2016-07-18T03:43:57ZHigh-speed rail? At $200 billion we’d better get it right<p>As an urban rail activist, academic and commentator, including a spell on Infrastructure Australia, I can say from the start I was delighted that we have a consortium prepared to have a go at high-speed rail using <a href="https://theconversation.com/explainer-what-is-value-capture-and-what-does-it-mean-for-cities-58776">value capture</a>. </p>
<p>Consolidated Land and Rail Australia (CLARA) is the first group in Australia to <a href="http://www.abc.net.au/news/2016-07-14/high-speed-rail-linking-sydney-and-melbourne-one-step-closer/7627990">suggest that a major rail option</a> can be funded without government capital. This fits with what we have been saying for a number of years (for example, the <a href="https://theconversation.com/want-to-build-better-cities-get-the-private-sector-involved-in-rail-projects-52204">entrepreneur rail model</a>).</p>
<p>It is not just a way of bringing financing groups like superannuation funds into such major infrastructure projects where governments have no hope of finding the cash, but it is also a better way: it inherently integrates with land development opportunities to make less car-dependent cities. </p>
<p>High-speed rail is needed. We are the last major developed area without it. </p>
<p>It is now a well-established technology that can simultaneously reduce car use and plane use. It is a way to reduce our oil dependence and to help us meet our greenhouse emissions, as have <a href="http://www.ipcc.ch/pdf/assessment-report/ar5/wg3/ipcc_wg3_ar5_chapter8.pdf">Japan, China and Europe</a> in recent decades. </p>
<h2>Key issues to be overcome</h2>
<p>However, some issues need to be resolved for this proposal and, indeed, the other three consortia that I have heard are also keen to build high-speed rail in Australia. </p>
<p>First, it’s not a project that should be an unsolicited bid with all its high commercial-in-confidence process. Such a project will have huge public significance and demands that we address the full implications – A$200 billion over 40 years is a lot of money for infrastructure and land development.</p>
<p>If this project goes ahead, many other infrastructure projects and land developments will not happen in the competitive marketplace of our cities and rural areas. This project will need to show great public benefit as well as enabling the private sector to take the risk and do the investing. </p>
<p>Second, what are we looking for from infrastructure like this? Surely we want it to build up our cities and the regional towns in between to have a more sustainable, productive and liveable future. </p>
<p>This project is very light on detail, understandably, about how it would come into the cities (it seems to just go from airport to airport on the urban fringes). It completely <a href="http://www.news.com.au/finance/business/australia-could-soon-get-its-own-dormitory-towns-thanks-to-fast-rail/news-story/17674fcabf605308faea9d9164a23ded">misses all the major regional centres</a> like <a href="http://www.theaustralian.com.au/news/fast-train-sydney-to-melbourne-in-110-minutes/news-story/e7ca20287a5b60974c99f6127dd0942f">Canberra, Wagga Wagga and Albury-Wodonga</a> in order to go much faster and cheaper <a href="https://theaustralianatnewscorpau.files.wordpress.com/2016/07/web-news-main-rail-map.pdf">through farmland</a>. </p>
<p>The Canberra Times <a href="http://www.canberratimes.com.au/act-news/how-clara-links-canberra-to-sydneymelbourne-high-speed-train-20160714-gq5dx5.html">reported</a> a CLARA spokesperson saying:</p>
<blockquote>
<p>The project would be privately funded on a value-uplift model. This needs new city development where maximum uplift in land values is available, which is not available in existing cities like Canberra, with elevated real estate prices. ‘They must be greenfield.’</p>
</blockquote>
<p>Value capture worldwide and in our model is done to facilitate urban regeneration, not to create new car-dependent greenfield suburbs. CLARA’s model is <a href="http://www.theaustralian.com.au/news/nation/valuecapture-process-could-help-fund-building-of-very-fast-train/news-story/adc815db4c51947ed8e401d014c33669">seeking cheap, easily obtainable land</a> on the urban fringe and in rural areas rather than helping our cities and country towns. Not only is the value of this to Australia very debatable, it is not likely to be as successful in raising land values to achieve their goals. </p>
<p>There is a limit to how many wealthy, long-commute exurbs or retirement villages could be induced to invest in such places in the countryside. The strong economic demand is for <a href="http://islandpress.org/book/the-end-of-automobile-dependence">urban regeneration</a> inside the old parts of our cities and towns. This has been an important part of the rationale for high-speed rail in other places.</p>
<p>The CLARA model is an extension of the failed idea of building new towns in greenfield areas. It has failed in Australia and in the UK and US because urban development needs to be more organic, building on the historic processes, local communities and multiple services of the cities and towns built up over hundreds of years. The modernist new towns have all struggled as they are designed from the top down. </p>
<p>It may be appealing to take a fresh sheet and drop it from on high, and very messy to have to deal with so many land owners and local governments in the old cities and towns, but it should not be beyond us. </p>
<h2>Principles to guide a successful project</h2>
<p>To make high-speed rail and urban development happen in a way that benefits Australian cities and towns, I suggest we should try to follow the principles below. </p>
<ol>
<li><p>It is important to attract private capital for combined land development and transport, but this should be led by locational strategies where redevelopment is most needed, not by transport engineering simplicity. </p></li>
<li><p>Benefit-cost assessments should include long-term urban and sustainability goals. </p></li>
<li><p>Public-private partnerships (PPPs) should include core commitments to community engagement, integrated public transport delivery, equitable and time-of-travel-dependent fare structures, safety, consumer and environmental protection, and urban design quality. </p></li>
<li><p>The projects should not just be innovative in financing and PPP delivery but be agile enough to include disruptive innovations such as solar PV-based electric rail, new carbon fibre and other materials, very smart systems for control at high speed, and effective noise management. </p></li>
</ol>
<p>High-speed rail has been a long time coming for Australia. It’s a very big and beautiful opportunity, so let’s get it right.</p><img src="https://counter.theconversation.com/content/62541/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Newman 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.</span></em></p>High-speed rail is now a well-established technology and Australia needs it, as long as the project ticks all the boxes needed to deliver both private and public benefits.Peter Newman, Professor of Sustainability, Curtin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/587762016-06-22T06:11:52Z2016-06-22T06:11:52ZExplainer: what is ‘value capture’ and what does it mean for cities?<figure><img src="https://images.theconversation.com/files/123908/original/image-20160525-25218-9rmm05.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Transit value capture is used in Hong Kong.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/tears2012/8119277873/in/photolist-dntqrx-rkx9uB-kNQkgM-5P9EVJ-so1GZ-bxh9iG-kNQjWi-dPjv9P-dPjw9k-fETyP9-oaocpQ-dYyPpw-rcPZx9-9mpsis-dmAZRh-otD6G2-cbyU1U-6jrL1F-nEuPMV-snZAP-snX7N-jEnXBm-6TNQJE-daca7e-so2FU-gpR6zV-dPjvhZ-bnf39-s7wU5d-6NHdU5-7ctRJL-daavMn-6TNHvd-95J8gn-nCqMi4-mu2f2c-ajopxm-otDthg-6TJxG2-4NyUtB-oapEVD-9giHB3-9gJh4K-bxjFms-snWEp-bxgKYw-bW1bzN-qdkJfg-bx1wHq-cMGr29">Flickr/Kin</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>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 <a href="https://theconversation.com/30-minute-city-not-in-my-backyard-smart-cities-plan-must-let-people-have-their-say-59161">Smart Cities Plan</a> 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”. </p>
<p>But there’s a lot of confusion about what value capture actually means and how it might operate in Australia. </p>
<h2>What is ‘value capture’?</h2>
<p>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. </p>
<p>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. </p>
<p>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. </p>
<h2>How does value capture work?</h2>
<p>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.</p>
<p>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.</p>
<p>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.</p>
<p>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. </p>
<p>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. </p>
<p>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. </p>
<p>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. </p>
<p>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. </p>
<p>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. </p>
<h2>What would need to happen to extend value capture models in Australia?</h2>
<p>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. </p>
<p>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. </p>
<p>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. </p>
<p>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.</p><img src="https://counter.theconversation.com/content/58776/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nicole Gurran receives funding from the Australian Housing and Urban Research Institute (AHURI). </span></em></p><p class="fine-print"><em><span>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.</span></em></p>Value capture is touted as a way to fund infrastructure, but what actually is it?Nicole Gurran, Professor - Urban and Regional Planning, University of SydneyStewart Lawler, Lecturer in Property and Built Environment, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/587312016-05-04T05:36:27Z2016-05-04T05:36:27ZPaying for infrastructure means using ‘land value capture’, but does it also mean more tax?<figure><img src="https://images.theconversation.com/files/121138/original/image-20160504-13603-bq3i29.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A special tax paid for the Gold Coast light rail. But there is another way.</span> <span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File%3AFC_2_test%2C_surfers_paradise_boulevard%2C_March_2014.JPG">Bahnfrend/Wikimedia Commons</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>With the federal government aiming to kick-start investment in urban infrastructure, <a href="http://www.abc.net.au/news/2016-04-29/government-to-allocate-50-million-for-infrastructure-projects/7369386">pledging A$50 million of public money in the 2016 budget</a> to look at alternative financing mechanisms, attention is turning to the idea of “land value capture” as a means to attract the necessary funds.</p>
<p>Put simply, land value capture involves using the additional value created on land around urban rail, as a result of the railway’s existence, to fund the rail itself.
This allows private investors to reap the benefits of urban development, for example by developing shopping centres at new train stations, using the projected extra tax revenue as a means of funding the infrastructure in the first place. </p>
<p>Depending on whom you listen to, the idea is either <a href="http://www.afr.com/opinion/value-capture-is-infrastructure-magic-bullet-20151021-gkeqj9">infrastructure’s magic bullet</a>, or <a href="http://www.theguardian.com/commentisfree/2016/apr/28/beware-of-politicians-who-tell-you-they-can-deliver-the-world-for-free">not all it’s cracked up to be</a>. It has become a <a href="http://www.afr.com/real-estate/malcolm-turnbulls-value-capture-plan-for-infrastructure-splits-developers-20160429-goic5m">divisive issue for developers</a>. </p>
<p>It has also been described, most notably by the Property Council of Australia and <a href="http://anthonyalbanese.com.au/coalition-must-rule-out-new-property-tax">shadow infrastructure minister Anthony Albanese</a>, as another sneaky way to tax us. So what is under the hood of land value capture?</p>
<h2>Tax increments, not tax rate hikes</h2>
<p>Value capture can use the idea of <a href="http://infrastructureaustralia.gov.au/policy-publications/submissions/published/files/486_propertycouncilofaustralia_SUB2.pdf">tax increment financing (TIF)</a>, which has been <a href="http://www.smartgrowthamerica.org/documents/Tax-Increment-Financing.pdf">used extensively in the United States</a> to deliver urban rail projects.</p>
<p>It works like this. New infrastructure, such as improved transport networks, can raise land values because of the extra amenity that infrastructure provides. Governments can gain extra taxation revenue as a result of the development, without necessarily needing to raise the existing taxation rate.</p>
<p>This increased tax revenue can come in the form of local government rates, state government land taxes and stamp duty, Commonwealth capital gains tax and even GST on property – meaning that all three tiers of governments can benefit. The taxation revenues can be forecast and included in future budgets as a means of paying for the infrastructure costs up front.</p>
<p>The big winners from any infrastructure improvement are adjacent private land owners, as they receive windfall gains in the value of their land without paying for the infrastructure. </p>
<p>The basic TIF model doesn’t involve raising tax rates per se. But governments may create extra taxation levies on particular pieces of land, to fund specific infrastructure projects. </p>
<p>This approach was used to fund the <a href="http://www.goldlinq.com.au/">A$1 billion light rail project on the Gold Coast</a>. A levy was charged to all residents to help raise the initial capital and the operating costs. </p>
<p>These extra levies could also be charged on land where developers will make significant extra profits as a result of the infrastructure being built. This prospect has been used as a <a href="http://www.propertycouncil.com.au/Web/Content/News/National/2016/Infrastructure_deficit_demands_smart_financing.aspx?WebsiteKey=148a29fb-5ee5-48af-954b-a02c118dc5fd">scare tactic by the Property Council of Australia</a>, which would prefer that its members did not have to contribute. </p>
<p>But remember that special levies are not essential for land value capture to work, despite the Property Council and Albanese’s claim. They are optional, and are not the only way to harness land value for infrastructure. </p>
<h2>Lazy land value capture</h2>
<p>In February we released a <a href="http://www.curtin.edu.au/research/cusp/local/docs/Rail_Model_Report.pdf">discussion paper</a> to explain how urban land can be the basis of funding urban rail. </p>
<p>It works like this. Consortia are asked to bid for how they can build, own, operate and finance a rail project through regeneration of “lazy” urban land that has its value unlocked through the building of a rail project. Governments must help with land assembly, zoning and community engagement. But, in essence, it is a competitive private-sector process to provide more yield for developers who create the urban villages increasingly being built around rail stations. </p>
<p>This idea, which we call the “entrepreneur rail model”, will finance new shops, offices, housing and, crucially, new urban rail itself. It involves governments asking for expressions of interest from the private sector to undertake urban rail projects within certain land corridors that include government-owned land. This is then enabled for private development to fund public goods such as transport.</p>
<p>But it doesn’t just depend on handing over public land. Private landowners can also be brought into any development consortium and will gain from the uplift and urban redevelopment as a partner. Because they are adept at recognising how to make money out of urban redevelopment, the process enables the private sector to pay for the rail project as part of the development. </p>
<h2>Overseas approaches</h2>
<p>This is how urban rail is built in <a href="https://trid.trb.org/view.aspx?id=1175245">Japan</a> and <a href="http://www.smh.com.au/national/hong-kong-metro-system-operators-mtr-spread-value-capture-message-to-australia-20151215-glo0wq.html">Hong Kong</a>, and is increasingly coming into new projects in <a href="http://www.ttc.ca/Subway/index.jsp">Canada</a> and the <a href="http://www.smartgrowthamerica.org/documents/Tax-Increment-Financing.pdf">United States</a>. There are no extra taxes involved, as the developers in a sense tax themselves to build the rail line as part of the urban regeneration that sees them earn profits they would not otherwise have realised. </p>
<p>The new <a href="http://www.theguardian.com/australia-news/2016/apr/29/50bn-investment-banking-style-unit-to-fund-transport-projects">Urban Finance Unit</a>, announced by Prime Minister Malcolm Turnbull last month and included in Treasurer Scott Morrison’s budget speech, is designed to facilitate this new process in Australia by creating a way to finance urban rail without significant government support. The unit may fund states and local governments to help facilitate bids and ensure common good outcomes, as suggested in our <a href="http://www.curtin.edu.au/research/cusp/local/docs/Rail_Model_Report.pdf">discussion paper</a>. </p>
<p>The federal government can help in funding urban rail in many other ways, such as through bonds and grants, but the big advantage of using a more entrepreneurial approach is that it builds in urban regeneration as an integral part of the rail project. This is in fact how the first tram and train projects were built around the world. </p>
<p>Such urban development is now much desired in town planning strategies. It is feasible again in our cities because there is a market for urban regeneration based around quality urban rail, with a significant number of people <a href="http://islandpress.org/book/the-end-of-automobile-dependence">choosing this as a lifestyle option</a>. Public transport is no longer just a welfare exercise – there is money to be made. </p>
<p>The <a href="https://cities.dpmc.gov.au/smart-cities-plan">Smart Cities Plan</a> talks about various potential value capture approaches to deliver infrastructure, adding that “done right, value capture can accelerate infrastructure investment alongside urban renewal, and deliver benefits for households, governments, businesses and developers”. Clearly the <a href="https://theconversation.com/smart-cities-plan-offers-signs-of-hope-but-are-turnbull-and-taylor-just-dreamin-58628">details need to be fleshed out</a>, and the government’s forthcoming discussion paper on land value capture will hopefully do that. </p>
<p>Communities will need to be involved in deciding how best to make this happen. Cities will need to identify corridors with significant urban regeneration potential as a basis of all their future urban rail projects. They will take funding wherever they can get it, including various value capture mechanisms. These do not necessarily mean more taxes.</p><img src="https://counter.theconversation.com/content/58731/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Much of the infrastructure Australia needs will be funded by “value capture” – raising tax revenue by boosting land values. Some have decried it as a tax hike in all but name, but it isn’t really.Peter Newman, Professor of Sustainability, Curtin UniversityJemma Green, Research Fellow, Curtin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/586282016-05-02T05:36:16Z2016-05-02T05:36:16ZSmart Cities Plan offers signs of hope, but are Turnbull and Taylor just dreamin’?<p>For committed urbanists, any sign of serious urban policy action by the federal government is welcome. Early announcements by Prime Minister Malcolm Turnbull and his <a href="https://theconversation.com/urban-policy-could-the-federal-government-finally-get-cities-47858">appointment of a minister for cities</a> were <a href="https://theconversation.com/hopes-of-a-new-urban-age-survive-ministers-fall-52975">cause for some celebration</a>. </p>
<p>The subsequent <a href="https://theconversation.com/turnbull-makes-necessity-the-mother-of-opportunity-54702">appointment of Angus Taylor</a> as assistant minister for cities and digital transformation continued the positive outlook; a relatively new parliamentarian with a good track record of business development and an analytical disposition was <a href="https://theconversation.com/memo-to-our-latest-cities-minister-heres-what-needs-to-be-done-55768">entrusted to advance this policy agenda</a>.</p>
<p>April 29 marked the start of the next phase of policy development, when we got to see what a <a href="https://cities.dpmc.gov.au/smart-cities-plan">Smart Cities Plan</a> looks like and whether it was worth the wait.</p>
<p>On first reading it contains all of the right words – smart, innovative, liveability and prosperity. It also advocated some sensible principles – collaboration, co-operation and partnership. But do these nice words and sensible principles add up to a <a href="https://theconversation.com/will-budget-2016-deliver-a-new-deal-for-australian-cities-58581">real step change in urban policy thinking</a>, or to a business-as-usual approach <a href="http://blogs.crikey.com.au/theurbanist/2016/05/02/turnbulls-smart-cities-plan-is-that-all-there-is/">wrapped in the latest policy terminology</a>?</p>
<p>At this stage we cannot be sure, but prospective partners in state and local government seem to have a <a href="http://www.planning.org.au/news-archive/media-releases/29-april-2016---planners-welcome-smart-cities-plan-concerns-over-lack-of-population-growth-guidance">fair degree of optimism</a> about the plan. </p>
<p>Most sensible public bodies will profess their support, in principle, for any initiative that offers the prospect of new money to support development proposals in their area. They will commit, in principle, to working together for the common good in their locality. And, if necessary, they will rebadge their current plans to fit more easily with the rhetorical flavour of the new initiative.</p>
<p>The proof will, however, lie in the detail of partnership arrangements, in the implementation structures that are developed and in the way new money is allocated. Even more importantly, success will depend on whether the actual measures employed work in practice.</p>
<h2>Partnerships in practice</h2>
<p>In each of our cities – large and small – we need all three levels of government to work together if growth is to be supported and managed effectively. Intergovernmental partnerships have been proposed for as long as we have had different levels of government.</p>
<p>There is much research on <a href="http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2010/01/11/000158349_20100111135808/Rendered/PDF/WPS5172.pdf">what makes such partnerships work</a> well and what does not. Where partnerships work, much of this success is based on mutual respect and recognition of the distinctive contribution of each partner. </p>
<p>It becomes more challenging where the reality of an urban area requires horizontal partnerships between local councils as well as vertical partnerships with state and federal bodies. </p>
<p>The patchy experience of <a href="https://rda.gov.au/">Regional Development Australia</a> committees across the country gives some indication of how well this has been achieved to date. Some have worked very well. Others have struggled in the face of varied and variable enthusiasm among partners.</p>
<h2>Getting implementation structures right</h2>
<p>I have <a href="https://theconversation.com/city-deals-nine-reasons-this-imported-model-of-urban-development-demands-due-diligence-57040">argued previously</a> that effective implementation of any policy initiative is often plagued by a lack of long-term commitment and bipartisan support. </p>
<p>Along with a seemingly irresistible belief within governments of any hue that policies need to be fiddled with (the technical terms would be refreshed, refocused or rebadged) every few years, carefully designed initiatives are rarely left to get on with their work and run their course. </p>
<p>Another problem is bureaucratic capture, in which early ambitions to work differently, with greater agility perhaps, are slowly but surely overtaken by implementation regimes that do the opposite in practice. The business experience of both the prime minister and his assistant minister for cities will be needed to prevent this type of sclerosis taking hold.</p>
<h2>Finding and spending new money to best effect</h2>
<p>As Taylor <a href="https://theconversation.com/politics-podcast-angus-taylor-on-cities-and-digital-transformation-57974">told Michelle Grattan</a> recently, some partnerships between public bodies and private investors have been very effective in the past – the construction of the national rail network in the US, for example. But there is also no shortage of ones that have not gone well for any of the parties.</p>
<p>So, while there has been some <a href="https://theconversation.com/the-30-minute-city-how-do-we-put-the-political-rhetoric-into-practice-56136">enthusiasm for the potential role of value capture</a> of late – and certainly in the new plan – we need to see the detail of particular proposals. </p>
<p>The <a href="https://theconversation.com/city-deals-nine-reasons-this-imported-model-of-urban-development-demands-due-diligence-57040">UK City Deals model</a> includes the principle of transferring some of the increased tax revenue associated with growth from the Treasury back to local partnerships. However, this has sometimes <a href="http://ner.sagepub.com/content/233/1/R14.abstract">proved difficult to agree in practice</a>.</p>
<p>And it is here that bipartisan agreement in the urban policy field seems unlikely at present. The shadow minister for cities, Anthony Albanese, has come straight out with a ringing condemnation of the Turnbull-Taylor plan as a policy without substance. </p>
<p>Albanese also joined with the <a href="http://www.afr.com/real-estate/malcolm-turnbulls-value-capture-plan-for-infrastructure-splits-developers-20160429-goic5m">Property Council of Australia</a> in invoking the spectre of Australian families being <a href="http://anthonyalbanese.com.au/coalition-must-rule-out-new-property-tax">slugged with a new property tax</a> to capture some of any increased value associated with public investment in infrastructure.</p>
<h2>How will we know what works?</h2>
<p>Tucked away on page 23 of the plan is a small section about measuring success. This acknowledges the importance of having good-quality data to provide a baseline against which future performance can be measured. It cites the need for “unambiguous targets, accountabilities and timeframes for city-level reforms”.</p>
<p>The plan recognises that, without these, it will be impossible for the government to hold itself and its investment partners to account. I would like to think that in five years’ time we will be able to read a National Audit Office report (like <a href="//www.anao.gov.au/work/performance-audit/design-and-implementation-liveable-cities-program">this one on the 2011-14 Liveable Cities Program</a>) describing how this bold new Smart Cities Plan heralded a new era of productive intergovernmental collaboration. </p>
<p>That would mean it succeeded in attracting substantial new private investment, which set our cities on a clear path to being <a href="https://theconversation.com/ideas-for-australia-city-v4-0-a-new-model-of-urban-growth-and-governance-for-australia-56372">smarter, more productive and nicer places</a> in which to live.</p>
<p>Let’s hope that if I shared this view with The Castle’s <a href="https://en.wikiquote.org/wiki/The_Castle">Darryl Kerrigan</a> he wouldn’t tell me, or indeed Angus Taylor, that we’re dreamin’.</p>
<iframe id="audio_iframe" src="https://www.podbean.com/media/player/wm9y6-5e8e62?from=yiiadmin" data-link="http://www.podbean.com/media/player/wm9y6-5e8e62?from=yiiadmin" height="100" width="100%" frameborder="0" scrolling="no" data-name="pb-iframe-player"></iframe><img src="https://counter.theconversation.com/content/58628/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Paul Burton receives funding from the City of Gold Coast as part of its Growth Management Partnership with Griffith University. He is also a founding member of Regional Development Australia, Gold Coast. </span></em></p>The discussion paper makes all the right noises, but the proof of the policy will be in the detail of partnership arrangements and implementation structures, and in how new money is used.Paul Burton, Professor of Urban Management and Planning & Director, Urban Research Program, Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/561362016-03-17T19:21:39Z2016-03-17T19:21:39Z‘The 30-minute city’: how do we put the political rhetoric into practice?<p>Prime Minister Malcolm Turnbull has <a href="http://www.smh.com.au/business/aviation/malcolm-turnbull-puts-highspeed-rail-to-sydneys-second-airport-on-fast-track-20160310-gng45p.html#ixzz42eyAjx9d">promoted the benefits</a> of a “<a href="http://www.afr.com/news/politics/election/federal-election-2016-turnbulls-plan-for-30minute-cities-20160620-gpn6tw">30-minute city</a>” in explaining his approach to cities and urban transport. The opposition infrastructure spokesman, Anthony Albanese, notes he <a href="http://anthonyalbanese.com.au/address-to-the-national-press-club-canberra">talked about this idea</a> at the National Press Club in 2014.</p>
<p>The reality is that the 30-minute city is hardly a new idea in town planning, but it is good to see political leaders recognising its value and grappling with what it means. It’s likely to bring <a href="http://www.theage.com.au/comment/turnbulls-budget-will-be-big-and-bold-and-about-boom-20160315-gnjd2y.html">significant change to how we build our cities</a>.</p>
<h2>The urban time travel budget</h2>
<p>People across the world, in every city and in all historical cities, have an <a href="https://theconversation.com/defying-the-one-hour-rule-for-city-travel-traffic-modelling-drives-policy-madness-53099">average travel time budget of one hour</a> – around 30 minutes in the morning and 30 minutes in the evening. The historic walking city spread out only 2-4km across, the tram city about 10km and the steam train city about 20km, before the car city went 40-50km out. All were 30-minute cities.</p>
<p>Some people choose to live where they can have a much lower travel time and some choose much longer, especially in far outer suburbs. But the average is around 30 minutes for the journey to work.</p>
<p>Only when a city is becoming dysfunctional does the average start to blow out. Data shows this in Sydney outer areas in recent decades. When this happens people demand faster transit options. The real estate market trend is for people to move into areas where they can reduce travel times.</p>
<p>The 30-minute city concept has become very useful for town planning as it helps plan <a href="http://islandpress.org/book/the-end-of-automobile-dependence">more strategically</a> for where development should happen or not happen. </p>
<p>Although history suggests there is a strong market for living within the 30-minute city, the politics of land development usually interferes. Land owners on the urban fringe will always be looking to make squillions out of rezoning their land for suburbs rather than rural purposes. And there are always people who are ready to stop any density increases in their neighbourhood as the redevelopment market requires.</p>
<p>Why it is very important to see bipartisan support for the 30-minute city is that Sydney, Melbourne, Brisbane and Perth are already way out of kilter with this goal. Any city that has sprawled more than 50km will be unable to keep those suburbs within a 30-minute travel time budget – traffic congestion keeps average speeds in most cities below 40km/h. The average morning and evening commute in these four big cities <a href="http://islandpress.org/book/the-end-of-automobile-dependence">is now more than 30 minutes</a>.</p>
<p>All the strategic plans of these cities are therefore suggesting that redevelopment must be increased and assisted. Infrastructure can help density. As <a href="https://www.pm.gov.au/media/2016-03-11/interview-wendy-harmer-abc-sydney">Turnbull says</a>:</p>
<blockquote>
<p>If you invest in good transport infrastructure, then density gives greater amenity because there are more things to do, you’re closer to work, you’re closer to university.</p>
</blockquote>
<p>The Tony Abbott era presented cities with very large road projects that would just <a href="http://theconversation.com/the-east-west-link-is-dead-a-victory-for-21st-century-thinking-34914">increase urban sprawl</a>. These projects ultimately would not have reduced travel times as they would not help create redevelopment.</p>
<p>So how do we help our cities achieve 30-minute travel times?</p>
<h2>The urban package</h2>
<p>Turnbull often refers to three factors that are emerging as the government’s urban package: urban rail, urban density and urban land value capture. These are the approaches that can be seen in cities globally.</p>
<p>1) <strong>Urban rail</strong></p>
<p>Several speeches have indicated the Turnbull government is agnostic about the modes of transport it favours. Turnbull <a href="http://www.adelaidenow.com.au/news/national/prime-minister-malcolm-turnbull-reveals-plan-to-streamline-road-and-rail-transport-in-cities/news-story/85f81d42bbef834721e696db113b3a36">has said</a>:</p>
<blockquote>
<p>Coalition governments have been very reluctant to fund rail, support rail, (they) prefer to support road. My government will support transport infrastructure regardless of its mode. It depends on what makes most sense. And the reality is it will be a mixture of both (road and rail).</p>
</blockquote>
<p>What is left of the road package from the Abbott government is being supported. Rural communities will put up their hands for more roads. But Turnbull’s overwhelming message (his consistent personal stance for decades) is that he likes <a href="https://theconversation.com/how-to-build-light-rail-in-our-cities-without-emptying-the-public-purse-39255">new urban rail systems</a>. He wants a <a href="http://www.abc.net.au/news/2016-03-11/badgerys-creek-airport-hopes-rail-link-will-be-ready-for-opening/7239098">fast rail link to Sydney’s second airport</a> when it opens. </p>
<p>Before he was prime minister, Turnbull said the Gold Coast Light Rail was his favourite in the world. There was not much doubt he would fund its small extension for the Commonwealth Games. Most significantly, it showed urban rail was <a href="https://theconversation.com/the-light-rail-genie-is-out-of-the-bottle-but-how-many-cities-will-get-their-wish-48669">back on the federal agenda</a>.</p>
<p>Cities across the country have thus been gearing up to put urban rail back into their priority plans. This is not just an Australian phenomenon; cities worldwide are finding new rail technology <a href="http://islandpress.org/book/the-end-of-automobile-dependence">helps them create 30-minute cities</a>.</p>
<p>2) <strong>Urban density</strong></p>
<p>Turnbull has stressed that rail projects enable density in activity centres across the city. He understands how infrastructure is <a href="http://www.malcolmturnbull.com.au/media/lachlan-macquarie-lecture">needed for “an integrated investment</a> that creates amenity, value, liveability, affordability and economic growth” and that “communities need smart, well-designed, walkable density”.</p>
<p>In other words, cities need infrastructure and redevelopment that create activity centres where people can live and work within 30 minutes by foot, cycle, bus, car or train/tram. This is the agenda for all our big cities. It has been a big agenda for all state governments in the past decade: the need for strong urban centres that can compete with other global cities for private capital and jobs. </p>
<p>“Walkable density” … I think we will hear that many more times. So how do we achieve that?</p>
<p>3) <strong>Urban land value capture</strong></p>
<p>We need to find ways to fund urban rail and urban activity centres together. We need transit-oriented development, but so often we get transit without the land development, or density without the transit. </p>
<p>The secret seems to be combining government and business to do both as one package. The private sector is necessary – after all, it does the land development in cities – but the approach globally is now to seek ways to have the private sector build both the land development and the transit.</p>
<p>The new mantra is to fund the integrated agenda through urban land value capture. This makes use of the fact that when urban rail is built it increases land value around stations. </p>
<p>This agenda has yet to be fully explained. As NSW Opposition Leader <a href="http://www.smh.com.au/business/aviation/malcolm-turnbull-puts-highspeed-rail-to-sydneys-second-airport-on-fast-track-20160310-gng45p.html">Luke Foley said</a>: </p>
<blockquote>
<p>Our governments need to spell out what … [they] are doing when they talk about value capture. Walk into any pet store in the nation and the resident budgerigar is squawking on about value capture.</p>
</blockquote>
<h2>Transforming how cities develop</h2>
<p>The <a href="http://www.curtin.edu.au/research/cusp/local/docs/Rail_Model_Report.pdf">CUSP Entrepreneur Rail Model</a> explains the concept and takes it further. It redefines the core players away from transport planners and suggests land-development expertise should lead the exercise of rail building.</p>
<p>This offers a focused approach for urban areas ripe for intensification. The model shows how governments can best capture the value created from higher densities around new rail stations in direct partnership with the rail builders. </p>
<p>Private land development expertise is needed to recognise where the potential exists for significant accessibility-based land value increase. Private bids can therefore create opportunities to <a href="https://theconversation.com/want-to-build-%20better-cities-get-the-private-sector-involved-in-rail-projects-52204">directly fund the railway</a>. If governments can’t enable this process, then you don’t get the rail or the land development – they depend on each other.</p>
<p>The House of Representatives Standing Committee on Infrastructure Transport and Cities has been <a href="http://www.aph.gov.au/Parliamentary_Business/Committees/House/ITC/Transport_connectivity">taking submissions on</a>:</p>
<blockquote>
<p>The role of transport connectivity in stimulating infrastructure and economic activity. </p>
</blockquote>
<p>Our <a href="http://www.aph.gov.au/DocumentStore.ashx?id=1a39de67-0b67-40bb-b2b2-fc4348938bfb&subId=408950">submission on the Entrepreneur Rail Model</a> prompted two hours of questioning. One questioner said: </p>
<blockquote>
<p>Your paper is about the reconceptualisation of the role of government agencies.</p>
</blockquote>
<p>He is right.</p>
<p>The committee’s questions left little doubt that there is a mood for change in how we build our cities. As Torkel Patterson, from Central Japan Railways Company, said at a <a href="http://www.smh.com.au/national/stars-are-aligning-for-australia-to-build-high-speed-rail-says-international-expert-20160301-gn75i6.html">recent Sydney rail conference</a>:</p>
<blockquote>
<p>It’s not transportation, it’s transformation that we need.</p>
</blockquote>
<p>There is serious debate across Australia about this. Most state governments have little room for more capital spending and are under pressure to provide urban rail. </p>
<p>But the approach that provides money for transport projects at will – treating Treasury like an ATM, as <a href="http://www.theaustralian.com.au/national-affairs/malcolm-turnbull-warns-of-trouble-and-expense-of-raising-gst/news-story/f7e56e2574cb6dfc4d7ceb2651ae4755">Turnbull says</a> – and isn’t integrated with the 30-minute city redevelopment agenda, is not what we need in our cities. </p>
<p>If cities want help with urban rail, they will need the private sector to provide much of the funding, with outcomes that create the 30-minute centres we desperately need. They can do this only if the states develop a mechanism that enables redevelopment opportunities, their activity centres, to be the basis of integrated rail and land development. This is not what states have been doing. They must begin now.</p>
<p>If the 30-minute city goal can indeed guide urban rail investment, then we can unlock the necessary dense activity centres. This is the holy grail of town planning. Such a model is used in Japan, so can we make an Australian model work?</p>
<p>Our leaders’ speeches on the 30-minute city should be a signal for intense activity by federal, state and local government agencies as well as private sector firms. Government processes and consortia will need to gear up to deliver this emerging agenda.</p><img src="https://counter.theconversation.com/content/56136/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Newman 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.</span></em></p>The ‘30-minute city’ goal is about more than urban rail and other transit projects. It means transforming our cities into centres of activity where work, study and services are all close by.Peter Newman, Professor of Sustainability, Curtin UniversityLicensed as Creative Commons – attribution, no derivatives.