An artist's impression of a train at Kellyville Station, which is being delivered as part of Sydney's North West Rail Link.

Well-planned and maintained public infrastructure is the foundation of modern society. It supports productive enterprises, enhances quality-of-life and underpins economic prosperity.

New stations for the planned Melbourne Metro and Sydney Metro will deliver significant financial windfalls to surrounding property owners and businesses, but under current legislation they will not have to pay a cent towards them.

That just doesn’t make sense when there’s a tried and tested way of capturing this value so as to reduce the overall cost of infrastructure to the taxpayer.

Urban transport infrastructure is a key enabler of “smart” urban development – often referred to as “integrated land use and transport planning” – and has the potential to help fund infrastructure investment and achieve other complementary public benefits.

Value capture funding methods identify and collect an equitable portion of the value released through new zoning and other public improvements so the communities that pay for them can share in the value created.

There are a number of examples both in Australia and overseas that demonstrate value capture’s potential as an alternative funding model. Funds collected are deposited into dedicated accounts for a set time period and contribute to the cost of infrastructure and other improvements to the civic realm.

What is value capture?

International experience demonstrates that well planned public transport can increase land market values by up to 50 per cent. Value capture programs hypothecate a portion of this value to help pay for the infrastructure. The extent of value uplift varies depending upon the nature of the infrastructure, the distance of property from the infrastructure, accessibility and urban design amenities, and other factors. The sources of revenue used in overseas value capture programs include:

  • Retail sales taxes (GST)
  • Property taxes
  • Voluntary planning agreements
  • Sale / lease of air rights
  • Hotel taxes
  • Transfer (stamp) duty
  • Council rates
  • Special rates
  • Sale / lease of development sites
  • Capital gains taxes
  • Payroll taxes
  • Development contributions
  • Sale of bonus gross floor area
  • Parking levies
  • Property development

Value capture programs can make significant contribution to transport and urban renewal programs. For example, approximately 27 per cent of London’s Crossrail project and over 30 per cent of Denver Union Station’s redevelopment are being funded with these methods.

Value capture is not a new tax. In its purest form, it allocates the uplift in benefits from public investments in ways that do not affect current or future tax rates. The “beneficiaries pay” principle lies at the heart of successful value capture programs. Importantly, these programs capture revenues that would not otherwise exist without the public investment, and can permanently increase the levels of revenue to the taxing authorities.

Why we must consider value capture now

There are a number of compelling reasons why value capture funding methods should be considered now. Fundamental changes are occurring in global and domestic economies that will influence Australian society well into the future. These include:

  • A steady decline in Australia’s traditional sources of export revenue and jobs, particularly manufacturing and mining.
  • A significant forecast increase in worldwide demand for natural gas, tourism, agriculture, healthcare, international education and wealth management. Australia holds competitive advantages in each of these sectors.
  • Urbanisation, with the fastest growth in cities occurring among Australia’s Asian trading partners. Asian cities will increasingly compete with Australian cities as providers of high value products and services, eroding our historic competitive advantages.
  • Australia’s infrastructure funding gap exceeds the capacity of traditional funding sources. We need to adopt new funding methods to fill this gap.
  • Demographic trends, including an aging workforce and increasing dependency ratios, will become an increasing drag on the economy. These challenges can be addressed by making our cities more competitive and our workforce more productive.
  • In order to offset these trends, Australia must make its cities more competitive on a global scale. Infrastructure funding and delivery reforms can play important supporting roles in these efforts.

Recommendations

The Commonwealth Government should establish a Minister for Cities and Urban Development in recognition of the key role that cities play in the national economy. The ministry should work with state planning and infrastructure agencies to set national standards and guidelines, support research on national urban policy issues, and develop model legislation for state, territory and local governments.

Commonwealth and state governments should undertake practical research into value capture methods as a funding supplement for transport infrastructure and urban renewal projects. This could be accomplished in part by establishing pilot programs in conjunction with state agencies, local councils, professional associations, research institutions and the private sector. The aims of the pilot program should be to:

  • Provide a consistent approach and common guidelines for considering and evaluating value capture and related funding and financing reforms;
  • Develop a national forum and database for sharing research and information on urban funding and financing reforms; and
  • Develop model-enabling legislation to assist state and local governments, urban renewal authorities and other stakeholders considering value capture methods.

Commonwealth and state treasuries should redouble efforts to implement infrastructure funding and financing reforms recommended by the Productivity Commission in its 2014 Public Infrastructure Report and by Infrastructure Australia in its 2013 National Infrastructure Plan to maintain Australia’s global competitiveness and reduce our growing infrastructure backlog.

Joe Langley is AECOM technical director. This is an excerpt from the AECOM/Consult Australia Value Capture Roadmap he authored. The full Value Capture Roadmap will be launched on 23 July in Sydney. Contact Consult Australia NSW to register for the event or request a copy of the report.

5 replies on “Time to capture the value”

  1. Hi Andrew,
    Thanks for your comment. I think you will find that well-planned value capture programs associated with public transport actually expand opportunities for residents at all levels of society in a number of positive ways. Workers can find better paying jobs because their access to employers is improved. Employers can find more highly skilled workers because the pool of talent they can access is expanded. Housing choice is expanded by new construction and greater density. Infrastructure and land costs are spread across greater numbers of businesses and residents.

    It is not, however, a “no-brainer”. It takes a lot a careful planning and broadly based community consultation.

    The alternative is continued urban sprawl, extended commuting times, and infrastructure budges that society cannot afford.

    Join our LinkedIn blog “Australian Urbanist” to share your views and see the full story behind value capture by reading Value Capture Roadmap, available on the blog or from the ConsultAustralia website.

    Joe

  2. Thanks Joe for taking the initiative to share this article. This is a rare moment in Australian history to maximise value capture around new heavy and light rail infrastructure across multiple states, particularly NSW. Fingers crossed the opportunities are seized.

  3. As a Melbourne resident who lives very close to a rail way line that is currently used exclusively by diesel locomotives, if they ever do decide to use it for metro rail, which has been considered already numerous times, won’t that mean that I will be contributing to it’s costs by using public transport more frequently? If the value of my house does increase, the local council will be sure to benefit by increasing my land rates and the state government will benefit if and when I sell my house by the increased stamp duty revenue they collect. So while I may not contribute for the upfront cost, I will in the long term. Having said that, I would love it if Australian citizens were directly approached to fund local infrastructure projects, but more often than not grass roots people only hear about it once the contract has been tendered and signed and certainly there is never any talk about a public tender. Given that there are many people sitting on bank savings which the government is trying to introduce taxes to get at and people are scared about investing all their money in the stock exchange(GFC repeat), it makes sense to me that there are plenty of infrastructure projects that need to be completed in Australia to keep us competitive and managing population growth in big cities and an aging population, so why not have an initiative where all Australians can invest in these projects nationwide?

  4. Does this not push up the price of goods and services in the area surrounding new infrastructure? In turn this disadvantages the lowest paid and unemployed residents in the area and generally makes the area less affordable to working class people. I would imagine that it greatly accelerates the gentrification process and that is a very complex issue, with both positive and negative outcomes. You paint the above mechanisms as a no-brainer but I am suggesting that the social repercussions are complex and varied. There is probably merit in some of them but they should be considered carefully.

    There is also the political view that we should in fact all be paying for the uplift of society through services that don’t necessarily benefit us all directly. I believe in universal healthcare and I’m happy to pay for it with increased taxes but ideally I’d like to never be sick. I’m happy for my taxes to pay for new rail links if it lifts the city and society that I live in, even if I never use that rail link.

    I think the viewpoint in this article is being put forward as cold economic rationalism without thought for people, society or collaborative spirit.

  5. very constructive . You only have to go to Singapore where I grew up to see how fast these formerly backward Asian cities are overtaking our cities!

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