Value capture funding – why is Australia missing out?

Value capture funding allows a government to raise additional revenue by identifying the real beneficiaries of an investment, and enforcing a mechanism which recoups some that value to the government investor.

For transport investments, some of the primary benefits occur for lands in the project catchment. Benefits include the improved accessibility conferred on a site, and possibly improved amenity experienced by its inhabitants.

Land value capture can be achieved through:

  • pro-active land redevelopment options, most specifically where government acquires an interest the land and then redevelops it in line with the improved accessibility and amenity conferred by the transport investment;
  • passive increases in the taxes paid on the lands due to increased valuation, including measures to use these as a revenue stream to pay off borrowings; and
  • specific taxes or levies aimed at recouping the increased land value conferred on a given group of lands.

Schemes based on all of these approaches have been successful in the United States for many years. Yet in Australia, the potential for project funding to be sourced from land value capture remains a theoretical proposition only. This means all increased land value created by our transport projects is flowing to the private sector, not the taxpayer.

As the ability to fund infrastructure from more traditional sources continues to reduce, we can expect more attention to be given to land value capture.
Not all the measures utilised in the United States would be feasible within the context of Australia’s constitutional and legal system. But some measures that would certainly be possible here include:

  • A broadly based transport improvement levy on a large area serviced by a large project
  • A benefited area levy on the catchment area serviced by a smaller project, such as a new road or rail line
  • Property acquisition where government acquires the land from an early stage of project development, and realises value increases through on selling or redeveloping the land when the project opens or is underway
  • Differential rates, where the government levies affected parcels of land at higher rates than a “without project” situation. Typically these increases would only be levied when a redevelopment of land proceeded, that is, a pre-existing owner-occupier would not need to pay the higher rate.

It will be seen that many of the attractive value capture options listed above are wholly or partially within the ambit of local government powers in Australia, whereas major transport investments are more usually in the hands of State and Commonwealth governments. This suggests strong partnerships to deliver transport projects need to be developed between the three spheres of government if a value capture option is to be successful.
Yet these intergovernmental partnerships are rare in Australia and when they do occur, land value capture has so far been excluded from the funding model.

If we in Australia are to successfully tap into this important potential revenue stream for future transport projects, we need to develop the right governance and project structuring arrangements very early in the project, and be rigorous about how and where land value can be returned to the project.

~ Ken Deutscher

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