Land and Property Value Increase and Capture

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Transport plays a critical role in facilitating this competitiveness. High quality transport services and infrastructure improves labour market performance, helps attract inward investment and helps to create an improved quality of life.

Non-transport benefits from rail investment can be grouped into macro, meso and micro economic benefits (Banister and Thurstain-Goodwin 2011). Urban rail investment can help regenerate Central Business Districts (CBDs), boost employment, land and property prices and Benefit Cost Ratios (BCRs). Similar rail investments in different locations may not however have the same impacts – geography matters. Other conditions than just transport investment are also required for positive externalities, including supportive land use planning policies, inward investment, capturing increases in land and property values, and urban regeneration incentives.

Light Rail’s advantages over heavy rail and bus include:

1. Much lower capital costs than either new underground metros or suburban railways

2. Ability to carry more passengers at higher speeds than bus systems

3. Proven ability, unlike bus schemes, to attract motorists to switch modes and thereby reduce traffic congestion (Knowles 1996; Knowles and Abrantes 2008)

The Standing Advisory Committee on Trunk Road Appraisal (SACTRA 1999) similarly concluded that positive outcomes from transport investment in cities can include:

1. Extension of labour market catchment areas

2. Stimulation of inward investment

3. Unlocking previously hard to reach sites for development

4. Reorganisation or rationalisation of production, distribution and land use

5. Triggering fresh growth through elimination of significant transport constraints

from investment in a light rail scheme can influence four different groups in different ways:

1. Households and individuals – shopping habits and engagement with the local labour market

2. Companies – labour market, access to customers, inputting supplies and transporting goods

3. Investors – especially inward investing non- local property companies and their agents

4. Enablers and regulators – particularly agencies inputting new investment and operating the local land use planning system

Stimulation of inward investment

Light rail systems can improve economic growth by increasing the attraction of locations for inward investment. However, it is difficult to attribute specific investments in economic activity solely to light rail.

6. Land value and property value

increase and capture Light rail systems improve accessibility, usually increase land and property values, and enable developer contributions to be made. Despite various mechanisms that can be adopted, increases in land and property value are often not captured. For example:

• The DLR triggered an increase in accessibility and land values in the Isle of Dogs, rising from £70,000 an acre in 1981 to £4.9 million an acre in 1988 (6.2.1)

• In Bremen, Germany, sites on a tram line usually have 50 percent higher land prices than sites with no public transport, or bus-only access (6.3)

• In Phoenix, Arizona, prices of vacant land sold, doubled for the first three years after light rail station sites were announced (6.4.1)

• Olympia and York made a £93 million contribution to two DLR extensions (6.6.1)

  • After development stalled at Salford Quays in the early 1990s, developers made a land contribution worth £10 million towards the cost of a Metrolink extension, recognised as essential to kickstart the sale of remaining regeneration sites (6.6.2)

High quality transport infrastructure can help to improve economic growth by increasing the attraction of a location for inward investments (SACTRA 1999). Transport improvements can enhance accessibility of certain locations, thus influencing spatial relationships and potential agglomeration benefits, while also altering perceptions of inward investors, in terms of accessibility, distance, peripherality, disadvantage and attractiveness (SACTRA 1999). However, it is widely recognised that transport investment alone will not be sufficient to stimulate inward investment (Banister and Berechman 2001; Banister and Thurstain-Goodwin 2011; Docherty et al. 2009; SACTRA 1999).

While SACTRA (1999) showed that the quality of transport links was important in attracting inward investors to UK regions, so too were additional factors such as the availability of suitable sites, and a skilled workforce. Banister and Berechman (2001, p.210), argued that “Transport infrastructure investment acts as a complement to other more important underlying conditions, which must also be met if further economic

development is to take place”. The authors set out three sets of necessary conditions that, when operating together, will enable economic growth to ensue (Figure 2.1) pg 23

UNLOCKING PREVIOUSLY HARD TO REACH SITES FOR DEVELOPMENT

Effects of light rail in Greater Manchester

Salford Quays was previously an area considered to be at a competitive disadvantage due to the absence of public transport services (Roger Tym and Partners Ltd 1996). In 1995, for example, 472,840 square feet of vacant office space was available in Salford Quay and Exchange Quay – an indication of the lack of economic investment in the area where “these high levels of vacancies have persisted despite the very competitive deals offered by owners/developers – is attributable almost wholly to the relatively poor accessibility of the Quays by public transport” (Roger Tym and Partners Ltd 1996, pp.4-5). Salford Quays had never been served by bus or heavy rail and “Without a significant, reliable and marketable improvement in public transport provided in Salford Quays, it is highly unlikely either that the office development proposals will be completed or that the public sector investment in the proposed Lowry Centre could be justified and therefore committed” (p.6). Hence, investment in Metrolink to extend the line to Salford Quays was critical to unlock the site for development. Salford Quays is now largely perceived as ‘a spectacular success’ in terms its regeneration, comprising mixed use, office, residential, retail, leisure and cultural activities. Central to this vision is the notion that Salford Quays is “quite dependent on light rail” (Hass-Klau et al. 2004 p.136). One example of the importance of Metrolink is given by Law et al. (1996) whose surveys found that Barclay’s Bank, which developed a large site at Salford Quays, selected the location partly based on the knowledge of a top priority bid to extend Metrolink to the dock site.

Effects of light rail in London Docklands

Growth in the London Docklands has clearly been enabled by transport infrastructure, and growth has in turn enabled the DLR and other heavy rail services to connect the centre of London to Docklands and Stratford (Carter 1991; Church 1990; Dickens 1992; Grant 1990; Truelove 1997). Olympia and York, for example, provided roughly £68 million of the £160 million costs to extend the DLR to Bank (Carter 1991). Grant (1990), however, drew attention to the difficulties of justifying transport infrastructure on proven development requirements, arguing that in 1981, even if the degree of development could have been foreseen, “it could not have been proved or guaranteed rigorously enough to justify the scale of investment in public transport which is now proposed” (p.2)

4.3 Light rail’s impacts in the UK, Canada and the USA Mackett and Babalik-Sutcliffe (2003) analysed the success of thirteen light rail systems across the UK, Canada and USA. A key objective shaping investment in these various LRT systems was “to improve the land-use and urban growth patterns” through:

• Stimulating development in the CBD • Stimulating development in declining slum areas

• Improving patterns of urban growth through transformation of a car-oriented to public- transport oriented pattern (p.153).

Their results showed that:

• Vancouver Sky Train, and Rouen Tramway achieved the objective in all three areas.

•  San Diego Trolley, and Portland MAX LRT were able to stimulate CBD development and improve urban patterns.

• San Jose Light Rail improved development in the CBD and declining areas

• Calgary C-train, St Louis Metrolink, Manchester Metrolink, and Tyne and Wear Metro stimulated development in the CBD

• Baltimore Light Rail improved patterns of urban growth.

LAND AND PROPERTY VALUE INCREASE AND CAPTURE

 

6.1 Transport investment and land and property value increase

Transport is an enabling technology (Knowles 2006). Investment in urban rail and road transport systems increases the accessibility of land around light and heavy railway stations and new road junctions and this usually increases the value of land and of commercial and residential property at these locations. Berry et al. (1963) acknowledged that land values are higher in city centres and along major transport corridors and have local peaks of higher value at intersections. Hansen (1959) perceived land being developed and allocated to different uses as a function of that land’s accessibility. Light and heavy rail transit has the potential to increase land and property values and create valuable development opportunities (Figure 6.1). Value capture harnesses part of that value increase to fund transit infrastructure or station area improvements. Light rail systems have frequently, but not always, increased land values.

Mohammad et al. (2013) reviewed research into impacts of light rail on property values in cities in the USA, UK and South Korea (Table 6.1). For residential property, eight studies showed an increase in selling price, one negative and three a range from negative to positive values. Commercial properties experienced a greater increase in their rental values than residential properties in their purchase price. Office rents mostly rose whilst retail and commercial property values increased sharply. In addition, “the value change of land due to rail investments appears to be generally higher than property value changes.” and “land and property values vary spatially due to certain characteristics of properties, neighbourhood, accessibility, etc.” (p.161). The impact of light rail on land and property value changes range from negative to positive, whereas commuter rail seems to enhance values at a greater rate.

Author & Year Type Measure Location % change
Al-Mosaind et al. 1993 Residential
Chen et al. 1997 Residential
Dueker & Bianco 1999 Residential
Weinstein & Clower 1999 Residential
Clower & Weinstein 2002 Residential
Bae et al. 2003 Residential
Cervero 2003 Residential
Du & Mulley 2007 Residential
Duncan 2008 Residential
Bollinger et al. 1998 Office
Weinstein & Clower 1999 oFFICE
Weinberger 2001 Office
Weinstein & Clower 1999 Retail
Cervero & Duncan 2002 Commercial
Cervero 2003 Commercial

6.9 Property value changes

Bid-rent theory has been used to help explain the impact of accessibility on land/property value. Bid- rent assumes that the price a consumer is willing to pay for a particular land/property decreases with increasing distance to a certain attraction, such as the CBD (O’Sullivan 2003, in Mohammad et al. 2013, p.161). Thus, a zone that is perceived to have added benefits to residents, commuters or users of an area can have an effect on land and property values around that attraction. Access to transport services can impact on property values surrounding them.

Duncan (2008) examined factors affecting changes in value of residential property including property type and railway type. Mohammad et al. (2013) noted that although their analysis of 23 studies reveals a majority positive effect on land and property value changes, estimates vary considerably between positive and negative values, and some reveal very little impact. On average, “rail schemes tend to have economic benefit on land and property values” but there is “a large variation in estimates across case studies.” (p.161). Some of this variation can be explained by the use of different models used to analyse data. “Overall, the changes seem to be specific to the study area and no particular pattern may be found” (p.161). The particular studies examined revealed that the impact on land/property values was found to be higher in East Asian and European cities than in North American cities.

Ibeas et al. (2012) argued that research on the impact of transport infrastructure on real estate prices can be split into two key aspects: first, in terms of theorising the trade-offs in choice of location “mainly between the transport costs of getting to the CBD and the cost of the space, which can be modelled using bid-rent functions.” (p.371); second, in terms of empirical work exploring relationships between transport and real estate values, often using hedonic regression analysis.

Ryan (1999) presented explanations for the inconsistency in results examining the relationships between rail transit and property values. She focused on the different methodologies used, for example whether travel time or travel distance was used as a measure of accessibility. Ryan argued that “Light rail transit should have less effect on property values than heavy rail because light rail systems have lower average speeds and capacities” (p.422) and therefore time saving will be less than for heavy rail.

Hess and Almeida (2007) argued that the published evidence of the impact of transit proximity on property values appears inconsistent and is based on relatively weak evidence, which may be due to the complexity of city development and unpredictable travel patterns. They also noted that studies employ different research methods, thus making results difficult to generalise. However, Hess and Almeida noted that “There is general agreement amongst most researchers that property near heavy rail accrues greater benefits than property near light rail, owing to faster speeds, frequent trains and greater geographical coverage of heavy rail. Studies of the effect of proximity to commuter rail have shown that property near commuter rail stations can have higher premiums than light rail or heavy rail, especially when a commuter rail station is at the centre of, or within easy walking distance of, a commercial core or main street” (p.1043).

Diaz (1999) argued that “[heavy] rail transit investments have proven positive effects on property values” (p.7), first, through convenience of access, and second through enhancing the attractiveness of a property. Diaz found that “Property value premiums due to increase in accessibility range between 3% and 40%” (p.8). Property values can be impacted negatively by noise and visual intrusion. Diaz argued that transit agencies and joint development initiatives can help to implement a number of strategies to improve property values when planning rail lines, through increasing the effect of improved accessibility, for example pedestrian accessibility to station areas, and enhancing the environment to make the attractiveness of properties more apparent. Bartholomew and Ewin (2011) reviewed hedonic price effects on properties in relation to rail transit and found that “amenity-based elements of transit-designed development play an important role in urban land markets, in addition to the accessibility benefits provided by transit” (p.30). They therefore argued “the benefits of transit accessibility and TOD-based design are linked synergistically and may be, to a degree, mutually dependent” (p.30). They concluded that planners, transit agencies and other organisations involved in urban design and transport development should pay closer attention to non-transit elements of land developments close to transit facilities.

Hass-Klau et al. (2004, p2) reported changes in property prices or rent at light rail stations in the UK, France and Germany, with variations ranging from increases of 20 percent down to no change (Table 6.2).

6.10 House price changes in the UK

6.10.1 House price changes in Tyne and Wear

The first Impact Study on the Tyne and Wear Metro revealed a rise in house prices close to two of the metro lines, but a fall in prices for the other two metro lines (Hass-Klau et al, 2004). Davoudi et al. (1993), however, found no statistical evidence of land value uplift that could be attributed to the Metro.

Hass-Klau et al. (2004) reported that, in the previous 3 to 4 years, estate agents had used proximity of property to public transport to sell or rent properties outside of Newcastle centre, for example in Jesmond and Gosforth. “Two separate estate agents suggested a price differential of about 20% between properties with and without good Metro access” (p.140).

Du and Mulley (2007) analysed the effect of Tyne and Wear light rail Metro on house prices and found large variations ranging from -42% to +50% depending on location. In the vicinity of the Sunderland Metro extension’s stations they did not find positive changes in property prices. The scope of the study only allowed for short-term impacts to be seen and the authors acknowledged that a longer period might be necessary before the effects of improved accessibility are reflected in residential property values. However, the authors also reported that land use impact in Sunderland might be smaller than observed elsewhere due to a lack of favourable economic, social and physical conditions.

6.10.2 House price changes in Greater Manchester

Forrest et al. (1996), as part of the Metrolink Impact Study (Law et al. 1996), used hedonic regression analysis to estimate the impact of Metrolink on house prices. Using a Nationwide Building Society database of all house sales in Greater Manchester, ‘Before’ Metrolink prices in 1990 were compared with 1992/1993 ‘After’ Metrolink prices. They found no immediate impact of Metrolink on the housing market in Greater Manchester, where prices remained “extraordinarily stable” (p.26) after a period of economic recession. Placing this result in context, Forrest et al. acknowledged that Metrolink was constructed on a brownfield site, thus offering a revised rather than new facility, which might account for lack of uprising in property values. In addition, the fares for Metrolink were notably higher than for other rail services and it is noted that user benefits might have been captured by the (private) operator, thus accounting for there being no impact on the housing market. Housing markets can take a longer time period to adjust to transport improvements. Ovenell (2007, in Senior 2009, p.191), using a Nationwide Building Society database of all house sales in Greater Manchester in 2004-2005, identified “a positive price effect of Metrolink averaging £19058 for houses located 0.5-1 km away from Metrolink stations”.

Hass-Klau et al. (2004) found that house prices along the Altrincham line in Manchester were higher. Estate agents suggested increases of 10 percent and also that good access was linked to quick sales.

6.10.3 House price changes in Sheffield

Crocker et al. (2000, p.18) found that Supertram “has had a measurable impact on house prices in Sheffield. The prices of houses close to it fell about 7% relative to prices elsewhere between 1988 and 1993. Concerns about the disruptive effect of the construction of the tram system were a likely cause of this fall. By 1996, two years after the Supertram system opened, prices of houses near SYS were the same… as those elsewhere. This relative shift in house prices – a recovery in prices for those houses near SYS – may simply represent the re- establishment of previous differentials. However, if it continues, then the system’s long term effect may prove positive”.

6.10.4 House price changes in Nottingham

“During 2003 six months before the scheme was due to open, local agents were reporting an upturn in the market specifically in those areas through which the tram now runs. This not only applied to the city centre, which witnessed a lot of activity and very buoyant prices for sites at Commerce Square, Plumptree Street and Fletchergate, but also in Hucknall, where “first time buyers who might have opted for the leafy suburbs are wondering why they should pay £140,000 to live somewhere without the tram when they could pay £100,000 and live on a tram stop”” (SGD 2005a, pp.64-65)

6.10.5 House price and land value changes in London

Du and Mulley (2007) found that “The increase in house prices in London as a result of new rail transit has been dramatic. In relation to Croydon Tramlink, Colin Buchanan and Partners (2003) found that “Economically, the tram has a positive impact on residential property. Areas served by Tramlink saw a rise in property prices and, since Tramlink opened, property prices in Croydon have risen by 4% more than in areas not served by the tram” (p.6).

Riley (2001), a south London property developer, estimated that land values around the stations of the heavy rail Jubilee Line extension had increased by £13 billion when the cost of the extension itself was only £3.5 billion. These positive results were confirmed, in more modest terms, by a study on the impact of the London Jubilee Line Extension which found positive but variable results in residential property prices” (p.224). Riley (2001) found that the Channel Tunnel rail link had caused house prices to rise significantly in Stratford and east London.

SDG (2005a, p.69) noted that “regeneration has brought house price increases that may have exacerbated social exclusion. This view is re- enforced by a report for DETR [Department for Environment Transport and the Regions], which stated that while the arrival of the DLR may have improved mobility for local inhabitants, new office employment and more expensive housing are often not available to locals. For some, the arrival of rail transport (“not for us” is the opinion of many) may be an additional symbol of an unequal society”

6.13 House price changes in the USA

6.13.1 House price changes in Portland, Oregon

In Portland, Oregon “house prices close to light rail stations were 10% higher than further away” (Hass-Klau et al. 2004, p.1). Around the Orenco Station, west of Portland, house prices had risen: a one-bedroom condominium costing $85,000 in 1995, cost $107,000 in 2003. Hass-Klau et al. (2004) remarked that this 26 percent rise represented 5 percent growth over the average inflation rate.

Dueker and Bianco (1999) examined the residential property purchase prices in Portland and found that property value declined on average $1,593 for every 200 feet out of the station.

6.13 House price changes in the USA

6.13.1 House price changes in Portland, Oregon In Portland, Oregon “house prices close to light rail stations were 10% higher than further away” (Hass-Klau et al. 2004, p.1). Around the Orenco Station, west of Portland, house prices had risen: a one-bedroom condominium costing $85,000 in 1995, cost $107,000 in 2003. Hass-Klau et al. (2004) remarked that this 26 percent rise represented 5 percent growth over the average inflation rate.

Dueker and Bianco (1999) examined the residential property purchase prices in Portland and found that property value declined on average $1,593 for every 200 feet out of the station.

6.13.2 House price and land value changes in California

Drawing on analysis of five Californian rail transit systems, Landis et al. (1994) found limited price benefits of property close to light rail stations. In San Diego, this tended to be more than US$2.72 per metre closer to the stations compared with US$1.97 per metre closer in San Jose, and no effects were discerned in Sacramento. They noted that commercial projects were constructed closer to rail stops. Hess and Almeida (2007) noted “The effects on nearby property values have been well- documented for BART, a heavy-rail system serving San Francisco and Oakland, California, where the effect on property values increased as the rail system’s maturation strongly influence commuting patterns and affect, to a lesser degree, land use” (p.1043).

Cervero and Duncan (2002a) found that the most appreciable land value premiums in light rail corridors serving San Diego County were those for multi-family housing: 17 percent near East Line stations and 10 percent near South Line stations. “Apartment complexes within a half mile of East Line Trolley stops were worth, on average, over $100,000 more than otherwise comparable ones that were beyond walking distance to a station.” (p.11). Condominiums near Trolley stations accrued price premiums of 3 to 6.5 percent.

Duncan (2008) examined the influence of light rail on condominium and single-family residential sales. He found that condominiums within 400 metres of the station sell for $22,000 more than those 1,600 metres away, and houses within 400 metres sell for $12,000 more.

Cervero and Duncan (2002a) identified strong variations in multi-family house, condominium and single-family housing, and land value premiums or discounts for Trolley stations on four light rail lines and one commuter rail line (Table 6.3). Apartments also experienced strong increases.

6.13.3 House price changes in Dallas, Texas

Hass-Klau et al. (2004) referred to the ‘Before’ (1994) and ‘After’ (1998) Impact Study in which property value and land value changes were calculated for retail, office, industrial, residential and vacant land use. They argued that “It is difficult to generalise from 5 land use types and 5 station areas. Double-figure land value gains were evident in 4 out of the 5. Property values showed that attractive gains were to be made in at least one of the retail, office or residential sectors, but not in all of them” (p.24).

Although theory suggests that light rail systems confer smaller benefits to commercial properties, premiums for office and commercial-retail parcels near light rail have been comparable or even higher than near heavy-rail systems in Santa Clara County, and suburban Dallas (TCRP 2004). Near the Mockingbird light-rail station, office and retail space rent was $40 per square foot – about 40% above market rates (TCRP 2004).

6.13.4 House price changes in Houston, Texas Pan (2013) found that light rail had significant positive effects on some residential property values, although it was noted that residential values were largely influenced by the size of the property and its age. In addition, Pan found that neighbourhood characteristics and locational amenities influenced prices. The more positive impacts affected properties further away from rail stations: properties within 400 metres of stations were negatively impacted, while property values between 400 and 1,600 metres were insignificant, and positive values were found at distances of between 1,600 and 4,800 metres from stations.

Al-Mosaind et al. (1993, in Pan 2013, p.149) found “Positive capitalization of 10.6% higher values for [residential] properties within 500 meters of the LRT stations. Average property values are US$4.32 higher within 500 meters to station than outside and decrease US$2175 for every 100 meters away from station”. Chen et al. (1998, in Pan 2013, p.149) found a positive impact on residential property values “Starting at a distance of 100 meters from the station, property values decline US$32.2 for each meter away from station”.

(p.1061). However, it was also noted that other variables were more influential than rail proximity in predicting property value, including the number of bathrooms, size of the land parcel, and location on the East Side of Buffalo. Light rail has positive impacts on residential property values in high- income station areas, and negative impacts on house prices in low-income station areas. Hess and Almeida concluded that “proximity to stations increases property values, but the effect in Buffalo is weak, especially compared with growing West Coast and Sunbelt cities” (p.1061).

6.14 House price changes in China In Beijing, Zhang and Wang (2013) examined the impact of light rail transit on property values in relation to the City Rail, and Batong light rail systems and found that “transit impacts on land development or capitalization of transit investment are unlikely to occur automatically; they rely greatly on supportive regional and site conditions” (p.132). City Rail was said to impact significantly on the price of residential property; for every 100 metres closer to the station, the housing price increased by 0.35 percent, all else being equal. This would represent approximately 20.7 Yuan (approximately US$3) per square metre. Furthermore, for every kilometre closer to the city centre, house prices increased by 4.19 percent. In contrast, Batong showed no measureable impact. The different design of the two routes, and the weaker economic position of the district served by Batong were given as reasons why these two light rail systems differed in terms of their influence on the property market. Using different modelling techniques, Wang et al. (2004, in Zhang and Wang 2013, p.125) examined house prices changes in relation to the Light Rail City Line and “found that home price decreased 236 Yuan (about US$36.2² per sq. m.) for every kilometre increase in distance to the station”. Zhang and Wang suggested that these findings were based on simple price comparisons that did not control for other influential factors. They concluded that “the difference in average prices provides limited information on the independent effect of City Rail” (p.125). Results from “a more rigorous study” (p.125) by He and Zhang (2004, in Zhang and Wang 2013), revealed an average price premium of 1000 Yuan (about US$147 per square metre) for housing within 500 metres of a station, in contrast to properties beyond 500 metres.

In another study, Zhang et al. (2007, in Zhang and Wang 2013) “concluded that the influence of City Rail on housing price took place in the areas of 1km from the station and the most significant effect was observed in the 0.3km distance buffer. The magnitude of the price premium was measured at approximately 206 Yuan (US$30.3 per sq. m.)” (p.125). Results by Liang et al. (2007, in Zhang and Wang 2013) demonstrated a price premium of 0.464 percent (28 Yuan (US$4.12) per square metre) for every 100 metres closer to the station. Their study included 16 control variables in an attempt to isolate City Rail light rail impact from regional access, structural characteristics and neighbourhood amenities.

Tian (2006, in Zhang and Wang 2013) focused on Metro Line 2 in Guangzhou and found that it had a positive impact on residential property values. In addition, results indicated “that for every minute decrease in walking time to Guangzhou’s metro station, price increased by 5449 Yuan (US$801) per housing unit” (p.126). The property premium was approximately 68 Yuan (or US$10) per square metre for every 100 metres closer to the station.

8.7 Carbon emissions and the future price of oil

Banister (2011b) argued that owing to the ubiquity and cheapness of oil, energy costs had not been perceived as problematic in transport. With the growth in travel distances and speeds, more energy and carbon have been used. Banister argued that this dependence on oil is unstable. Scientific evidence of links between carbon emissions and global warming has led many Governments in developed countries to begin the move away from the burning of fossil fuels and put a price on carbon emissions. pteg (2010) noted that despite the potential of (electric) trams to help reduce carbon outputs, reduce our reliance on fossil fuels, and improve air quality in urban areas there is no appraisal of such processes. They argued that light rail appraisal processes, where light rail is particularly disadvantaged under the current appraisal scheme compared to other modes of transport, “fail to take into account the full range of benefits trams have to offer, including carbon reduction, regeneration impacts, health benefits and potential to promote modal shift” (pteg 2010, p.21). “Linking local renewable energy generation to tram schemes can make a significant contribution to the energy demands of light rail – there are examples in Canada and Germany where 50% or more of the power needed pteg (2010) noted that despite the potential of (electric) trams to help reduce carbon outputs, reduce our reliance on fossil fuels, and improve air quality in urban areas there is no appraisal of such processes. They argued that light rail appraisal processes, where light rail is particularly disadvantaged under the current appraisal scheme compared to other modes of transport, “fail to take into account the full range of benefits trams have to offer, including carbon reduction, regeneration impacts, health benefits and potential to promote modal shift” (pteg 2010, p.21). “Linking local renewable energy generation to tram schemes can make a significant contribution to the energy demands of light rail – there are examples in Canada and Germany where 50% or more of the power needed for local light rail is generated from locally sources [sic] renewables” (pteg 2010, p.18). However appraisal schemes in 2010 did not take into account the increasing importance of carbon reductions. Future availability and price of fossil fuel should increase the benefits of investing in light rail systems (pteg 2010). Light rail should be part of a long term plan to decarbonise road transport.

In the widespread public debate about carbon emissions, less attention has been placed on the impacts of high and increasing global oil prices and the consequences of global Peak Oil output being reached within the next 25 years (Knowles 2012b).

pteg (2010) noted that despite the potential of (electric) trams to help reduce carbon outputs, reduce our reliance on fossil fuels, and improve air quality in urban areas there is no appraisal of such processes. They argued that light rail appraisal processes, where light rail is particularly disadvantaged under the current appraisal scheme compared to other modes of transport, “fail to take into account the full range of benefits trams have to offer, including carbon reduction, regeneration impacts, health benefits and potential to promote modal shift” (pteg 2010, p.21). “Linking local renewable energy generation to tram schemes can make a significant contribution to the energy demands of light rail – there are examples in Canada and Germany where 50% or more of the power needed for local light rail is generated from locally sources [sic] renewables” (pteg 2010, p.18). However appraisal schemes in 2010 did not take into account the increasing importance of carbon reductions. Future availability and price of fossil fuel should increase the benefits of investing in light rail systems (pteg 2010). Light rail should be part of a long term plan to decarbonise road transport.

In the widespread public debate about carbon emissions, less attention has been placed on the impacts of high and increasing global oil prices and the consequences of global Peak Oil output being reached within the next 25 years (Knowles 2012b).

The 20th century was an era of cheap oil and crude oil prices remained between $10 and $25 per barrel in real terms except for brief periods of political turmoil. Since 1999, rising global demand for oil and increasing extraction costs have increased the price of crude oil more than eightfold from $12 to above $100 and it has remained above $100 almost continuously since the 2008/9 global recession with forecasts showing higher future prices. Despite these price increases, UK Government projections since 2000 have underestimated the future price of oil in 2020 despite belatedly revising their projections in 2005, 2008 and 2009 (Table 8.3) (Knowles 2012b, p.9). DECC’s most recent central price projection for oil in 2020, is a more realistic $119.7 per barrel (DECC 2013). Consequently, the future demand for private car and air travel, road building and airport expansion have all been overestimated, but for light rail and other public transport investments have been underestimated.

CONCLUSIONS

1. Investment in light rail systems can have positive economic impacts on cities. Similar light rail investments in different locations will not necessarily have the same impacts – geography matters. However, light rail investment on its own is unlikely to be a sufficient catalyst for economic change without other supportive policies.

2. Light rail systems can improve economic growth by increasing the attraction of locations for inward investment. However, it is difficult to attribute specific investments in economic activity solely to light rail. To isolate light rail’s impacts from other factors and temporal trends, it is important to use similar control areas in Impact Studies.

3. Light rail systems can transform accessibility to previously hard to reach sites such as derelict docklands, brownfield former industrial areas and reclaimed land.

4. By improving accessibility, light rail can provide a trigger to reorganise or rationalise production, distribution and land use.

5. Absence of a well-developed transport system can act as a serious constraint on growth. Transport constraints can be alleviated by increased capacity, better efficiency, new connections and improved accessibility

6. Light rail systems improve accessibility, usually increase land and property values, and enable developer contributions to be made. Increases in land and property value are often not captured.

7. Light rail impacts are enhanced when planning policies are co-ordinated in a transit-oriented development (TOD) to focus investment in housing, employment, activity sites and public services around station sites.

8. Cost Benefit Analysis forecasts the costs and benefits of transport schemes, emphasises time saving and value of time, and has difficulty in valuing environmental, social and wider economic effects even after a New Approach to Appraisal (NATA) was adopted. The UK Government appears to have underestimated the future prices of oil, so demand for light rail and other public transport investments has been underestimated and future demand for private car and air travel has been overestimated.

9. Light rail can boost a city’s image and attract inward investment, employers, business and tourist visitors. It can help create a distinct ‘sense of place’ and have an iconic impact on the urban landscape.

(Knowles and Ferbrache, 2014)

Funding public transport development through land value capture programs

The transportation priorities of a city will be a major factor in shaping the land-use of the city. One of the features of 20th century urban planning has been functional isolationism.1 Land use patterns, and changes in land use morphology over time, generally follow transport infrastructure. Other factors not to be discounted include historical, economic, cultural and social issues. If land use patterns render a site more accessible to consumers in its economic, cultural and social aspects then this will be reflected in the value of land. The land-use priorities of a city will in turn influence the values attached to different property. The importance of accessibility improvements gained through transport infrastructure changes, for both residents and businesses, is a key element in the determination of land value. If property is accessible for consumers then its value will theoretically rise. The advantages of a property served by reliable transport links have many more aspects, such as user convenience, than can be comprehensively detailed here. Nevertheless, the issue of accessibility plays a key role throughout this paper.

Property is a complex asset whose value cannot be measured by one simple and comprehensive set of indicators. The need for contextual analysis regarding land value is discussed below. Areas lacking transport infrastructure generally, or where there are bottlenecks in the transport network, as is the case for many parts of Sydney, can expect to see significant effects from targeted transport investment.2 This report examines evidence of changes to accessibility profiles that follow transport projects, and related land value changes, from different societies around the world. Where accessibility is more or less uniform among city residents, major public transport projects may have a reduced impact on commercial decisions about location. However, it is argued that in the auto-dependent city this ‘ubiquitous accessibility’ is illusory for residents in specific locations, especially on the fringes of the city. Residents without reliable transport alternatives can become ‘locationally disadvantaged.’

Town planning is central in identifying the connection between transport and land value. The broad purpose of town planning is to regulate the development and use of land in the public interest. Strategic town planning along transport corridors and around transport nodes can ameliorate inequality of access and improve linkages between a greater mix of transport modes and land use. Integrated land use planning will take into account, alongside transport considerations, factors of mixed land use, air quality, greenhouse gases, jobs-housing balance, sub-centre development, and the facilitation of communities through better urban design.3

Hall and Marshall (2002) as quoted in RICS Policy Unit and Office of the Deputy Prime Minister,

U.K., Land Value and Public Transport, October 2002, p22 3 P. Newman, ‘A proposal for Restructuring the Funding of Transport in Australia’, Murdoch University, 2000, p3

VALUE CAPTURE FUNDING

Value capture refers to the process by which all or a portion of increments in land value attributed to “community interventions”, rather than landowner actions, are recouped by the public sector and used for public purposes. These “unearned increments” may be captured indirectly through their conversion into public revenues as taxes, fees, exactions or other fiscal means, or directly through on-site improvements to benefit the community at large.26 Value capture funding is not merely one mechanism for recouping the costs of public infrastructure investments but rather should be seen as a complex of methods.

Many planners and economists, including Nobel laureate William Vickrey, have suggested that cities could benefit by funding transit system development costs and a major portion of operating costs from land taxes or value capture. Value capture may raise the taxes on land impacted by infrastructure projects and as such can serve two purposes: (i) it removes the invitation on titleholders to speculate; and (ii) it raises holding costs high enough that there is immediate reason to try to develop unused lands.27 Value capture funding has been suggested as contributing towards the massive costs of the U.K’s Crossrail project in London.28 Value capture funding may be a way forward, with property owners contributing a portion of the infrastructure cost, yet contributions need to be equitable. From the developer and community’s point of view they must be easily understandable, collectable and not constituting economic disincentives that penalise employment or development.29 It is essential that land value capture mechanisms do not contradict policies seeking to encourage development at localities well served by public transport.

A substantial part of the capital costs associated with constructing public transport facilities is land acquisition. Railway development corporations in Japan buy land to be used in a new railway and hence are the beneficiaries of increases in value. This might entail the government as landowner in the New South Wales context; private sector participation in the NSW rail sector has a limited past. The cost of land acquisition could also be effectively reduced if the government were to capture incremental land value increases through the general property tax and through special levies on land holdings in transit corridors. There are many complexities involved in the design of these schemes and modifications may be necessary in particular circumstances. One danger is that property developers may choose to simply pass on these levies to homebuyers, yet this would only occur as far as the market allowed.

Value capture funding has also been known as ‘betterment tax’ in the UK and is discussed below. There may be some concerns in the collection of such taxes including that it may be difficult to disaggregate the land value increase attributable to discrete transport improvements from other improvements and other causes. It may not be clear when landowners would become liable for the tax, given that the benefits of a new transport scheme may not be readily discernible at a given point in time. Arguments of inter-generational equity may also play a role in consideration of funding mechanisms for infrastructure gains and favour the use of public debt as a funding mechanism. Other issues to be considered in designing a value capture scheme include how to define the landowners to be benefitted by the scheme; arbitrariness should be avoided in any determination as to the properties to be included in a value capture scheme. A value capture or betterment scheme may also need to make provision for compensation for those adversely affected by planning decisions (the concept of ‘worsenment’).

These issues can, however, be avoided through innovative use of the property tax rate. There are alternatives to the straightforward imposition of betterment taxes in terms of value capture funding. In Los Angeles what are known as ‘Special Assessment Districts’ are used whereby a differentiated property tax rate is applied within designated areas. These feed a share of the increase in property values usually associated with a newly established rail line on sites typically within 400-800 metres of the stations back into funding the transit system. Property values prior to construction of the transport infrastructure are determined as the baseline for value increases and value capture. ‘Special Assessment Districts’ are an innovation whose utility needs to be fully explored in the local context, and the applicability of the system needs to be finely attuned to the city’s equity and development needs. Other means of value capture are discussed below.

A brief history of value capture in Australia

There are few examples of direct value capture mechanisms employed in Australia. However, one levy, known as the ACT Change of Use Charge (the “CUC”), has existed since 1970 in various guises. The property system of the ACT involves grants of leasehold land from the Crown. When a lease is first granted, the Government is paid an amount that is based on the user rights that the lease contains at that time. If the lease is varied in such a way that its value increases, a change of use charge based on that ‘added value’ is payable to the Government. The purpose of the charge is to give back to the community some or all of the ‘added value’ of a lease (land and buildings) that results from changes to that lease. Administration of the CUC is not without problems and there have been seven revisions over the past ten years. The charge is used in relation to changes in land use zoning and is not hypothecated to transport or other infrastructure. Nevertheless, the charge is helpful in providing an example of value capture funding in Australia.

In New South Wales a ‘betterment’ tax was in place between 1970 and 1973. The Land Development Contribution Act 1970 and the Land Development Contribution Management Act 1970 imposed a levy on specified non-urban lands in the Sydney Metropolitan Region. The levy was abolished for political reasons despite it being “probably the most successful of the schemes since World War 2.”30 Fensham and Gleeson note that this system was “administratively straightforward, provided worthwhile revenues at a reasonable collection cost … and had a nexus to promised public works.”31 In a ‘sellers market’ the levy did increase purchase prices but its abolition did not lead to a fall in prices. The levy did not provide all the necessary funds for public infrastructure that were needed. Alternative funding mechanisms, including value capture funding and joint development, have been examined in relation to construction of the Fremantle-Cockburn light rail link in Western Australia.32 This was in the context of urban/coastal redevelopment and further emphasised the importance of integrated and supportive planning mechanisms. The research incorporated several mechanisms of value capture including one-off impact fees and Value Increment Financing (see below).

3.2 Development Land Tax

A Development Land Tax or levy, charged against the developers of land in Sydney recently re-zoned residential, is one idea for a value capture mechanism in New South Wales. Developers of formerly non-residential land are presently expected to contribute towards some of the necessary infrastructure such as drainage and community facilities (as s94 contributions in NSW). However, when the government constructs transport links, including road and rail, the developer benefits as his/her property values rise significantly. This paper argues that any levy paid by local landowners to fund transport improvements will be returned to them over the years in the form of increased land value. There needs to be a tax or charge capable of recouping this community-generated benefit, and yet there is an issue of social equity in expecting new landowners to meet the bill not charged against other owners who are fortunate to live in already-established suburbs. The key to the introduction of any such mechanism would be detailed negotiations with all affected landowners and clear hypothecation of funds to services benefiting that location.

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