3.1
A large amount of evidence received during this inquiry has highlighted the impact that new infrastructure, particularly public transport infrastructure, can have on land values. For instance, the Department of Infrastructure and Regional Development (DIRD) outlined the findings of a meta-study conducted by the Bureau of Infrastructure, Transport and Regional Economics (BITRE) which summarised value uplift due to different types of public transport infrastructure, which is reproduced in Table 3.1.
Table 3.1: BITRE summary of average rates of value uplift
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|
|
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Heavy rail
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6.9
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-42 to +40
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18
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Light rail
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9.5
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-19 to +30
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32
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Bus rapid transit
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9.7
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-5 to +32
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14
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Source: DIRD, Submission 57, p. 3.
3.2
AECOM noted that the extent of uplift can vary according not only to the type of infrastructure, but also to the type of property and the distance from the new transport infrastructure. Some examples of this are reproduced in Table 3.2.
Table 3.2: Transit investment impact on property values
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Range of value uplift
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Type of transport
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Single family residential
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<30 m from station: +32%
<60 m from station: +2%
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San Diego Trolley, 1992
St Louis MetroLink Light Rail, 2004
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Condominium
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<800 m from station: +2 to +18%
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San Diego Trolley, 2001
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Apartment
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<400 m from station: +45%
<800 m from station: +0 to 4%
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San Diego Trolley, 2001
VTA Light Rail, 2004
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|
Office
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<90 m from station: +9%
<400 m from station: +120%
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Washington Metrorail, 1981
VTA Light Rail, 2004
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|
Retail
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<150 m from station: +1%
<60 m from station: +167%
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BART, 1978
San Diego Trolley, 2004
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Source: AECOM, Submission 63, p. 20.
3.3
KPMG noted that an important benefit of transport connectivity is the creation of property value through investment in transport infrastructure enhancing the utility, and therefore the value, of surrounding property. It observed that:
The evidence linking enhanced transport connectivity to property values and property-related tax revenues is well established. The links between transport and land use go back a long way and are fundamental in explaining how settlement patterns evolved in the Western World in the 18th and 19th Century Industrial Revolutions and how urban sprawl became prevalent in say American and Australian cities. Integrated transport and land use planning has also been central to urban centres looking to reinvent themselves, redevelop declining inner city areas and reverse urban sprawl.
3.4
KPMG highlighted a US study by the American Public Transportation Association and the National Association of Realtors that ‘looked at how well residential properties within one-half mile of a fixed-rail transit station held their value between 2006 and 2011’:
The finding showed that across the five study regions, transit-adjacent homes outperformed the regions as a whole by 41.6 per cent, proving to be far more resilient to the impacts of the recession. It also found that, in Phoenix, US$1.7 billion in transit investment has resulted in US$7 billion in economic development investment in the transit corridor. The transit corridor now boasts 88,000 jobs per square mile, double the concentration outside the corridor.
3.5
KPMG provided another example from the UK, a study by Steer Davies Gleave commissioned by Network Rail in the UK, looking into the impact of rail station investment on regeneration and the local economy:
The work provides strong evidence that station investment can have a major impact in terms of urban regeneration and transformation. The scale of any impact will clearly depend on the size and location of the station and its passenger profile, the legacy of investment and associated economic activity in the surrounding area and the overall economic climate. The analysis indicated that substantial station improvements can support increases in property values in the immediate vicinity of a station of 30 per cent or more. The study also looked at the investments in Manchester Piccadilly and Sheffield Midland, where observed changes in property values suggest an economic impact equivalent to inward investment of two or three times the cost of the station investment itself.
3.6
In its issues paper, Are we there yet? Value capture and the future of public transport in Sydney, the Committee for Sydney noted that ‘when it comes to land use in cities, there are two main ways government can create “value”’. One was ‘through the land zoning system, which can increase the density, productivity and “yield” of certain parcels of land, making them more “valuable”’:
This is often done at the stroke of a Planning Minister’s pen but can also then require some enabling infrastructure to accommodate the higher land use. For example, expanding the sewerage network can allow farmland on the urban periphery to become suitable for a higher and better land use, like housing. Similarly new public transport can make low density residential areas suitable for a higher density zoning. In each of these, the value of the raw land, and individual properties, can be increased dramatically.
3.7
The other way to create value was ‘to improve the connectivity and amenity of certain parcels of land, making them more liveable or desirable places, and improving their value’. It was noted that:
A new rail service can significantly increase the value of land along its route, reducing commute times to a job, or increasing the catchment area for your business. Prices of residential land along the new Sydney Metro North-East line have increased significantly faster than the Sydney average on anticipation of the line opening. When it does open, hundreds of thousands of people will suddenly have access to transport choice, and land prices will rise again. Yet while the public is outlaying billions of dollars building the line (and millions of dollars in annual subsidies), local residents are seeing their private wealth skyrocket.
3.8
In its Value Capture Roadmap, Consult Australia identified the ‘indirect benefits’, or ‘positive externalities’, of infrastructure projects, including ‘increased tax revenues received by public agencies and financial windfalls received by property owners and businesses located near a transport project’. It noted that:
International experience demonstrates that well planned public transport can increase land market values by up to 50%. 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 numerous other factors.
3.9
The Value Capture Roadmap found that ‘recent improvements in Sydney’s suburban rail network around Epping station nearly tripled the value of nearby single dwelling properties from an average of $1.2 million to over $3 million each’. A study of Perth’s Mandurah Line ‘found that increased property values and tax revenues from similar commuter rail projects there were also substantial’. Increased tax revenues ‘over 30 years resulting from the Mandurah Line amounted to 42% of the project’s capital costs’. It was also found, however, that ‘if land use planning had been fully integrated with the expansion, tax revenues would have exceeded 60% of the capital costs of the project’. The Value Capture Roadmap observed that:
While the financial windfalls from these examples were the direct result of the public’s investment in transport infrastructure, no equitable mechanism exists in NSW, Western Australia or any Australian state or territory to capture indirect benefits to help pay for the infrastructure or related costs associated with the improvements. Rather than obtaining a financial benefit from its infrastructure investments, the Australian public is in effect paying an inflated price for land around transport infrastructure as a result of its investment, and the uplift in value solely benefits nearby property owners. This inflated cost is then passed on in the form of higher taxes, higher housing costs and higher public transport fares. This is occurring throughout Australia despite an increasing gap in infrastructure funding.
3.10
The University of Wollongong’s Smart Infrastructure Facility observed two outcomes from transport infrastructure investments—‘they change the cost of various kinds of trips, and they change the rents of various parcels of land’:
An improvement in transport infrastructure lowers the cost of trips for nearby residents. This gain means people who don’t own land are willing to pay more in rent to live in the area. Thus, the transport improvement resulting from the additional infrastructure will attract people to the area and population and rents will increase. Competition will cause rents to be bid up by the amount of benefits from the infrastructure improvement, so that tenants are no better or worse off. Thus, what the better transportation gives, higher rents take away.
3.11
The Smart Infrastructure Facility noted that ‘in the open-city model all of the benefits of a transportation enhancement accrue to landowners’. Thus, ‘landowners receive higher rents, and these rents are capitalized in the form of higher land values’. The Smart Infrastructure Facility stated:
If you can figure out how much a transportation enhancement raises land values, you know what its benefits are. A transportation enhancement that raises land values by more than it costs is an efficient project, one that does not, is not.
3.12
The Smart Infrastructure Facility observed that ‘infrastructure projects almost always bring about a large increase in the value of adjoining land’, but that ‘when these infrastructure projects are funded by government they almost always involve a substantial transfer of wealth from a large number of taxpayers to a small number of property owners’:
For example, London’s Jubilee Underground extension in 1999 cost £3.5 billion, raising land values by £2 billion in Canary Wharf and £800 million in Southwark. Indeed, the entire net benefit from many public works is to be found in the rent they create.
3.13
This distribution of costs and benefits—public cost and private benefit— was seen as problematic:
Taxpayer funded infrastructure projects raise an old problem: concentrated benefits, dispersed costs and rent-seeking behaviour (using the political process to seek a private gain). As a result, the political process can favour infrastructure projects whereby the costs exceed the benefits.
3.14
The distribution of costs and benefits was seen as one justification for the implementation of value capture:
Value capture is justified from an economic theory perspective because it ‘fixes’ an unfair and inefficient distortion whereby private owners of land benefit (via an unearned increase in land values) from public expenditure on infrastructure. If left unaddressed, not only would taxpayers lose in the short-term, the provision of public infrastructure would be vulnerable to rent-seeking behaviour by private landowners.
3.15
The Smart Infrastructure Facility believed that ‘capturing increases in land value has the potential to be a fairer and more efficient means to fund infrastructure projects’. It argued that it was ‘fairer that landowners who receive the benefits from infrastructure improvements also pay the costs of those improvements, rather than receiving a windfall gain’. Furthermore, ‘ensuring that those who receive the benefits of infrastructure projects meet the associated costs reduces rent seeking pressures’:
If landowners bear both the costs and benefits, they are less likely to lobby for projects for which the costs exceed the benefits. In other words, the financing mechanisms forces them to weigh up estimated costs and benefits.
3.16
The distribution of costs and benefits was also a focus for KPMG. It noted that:
Both the historic evidence of the emergence of settlement patterns and the more recent evidence linking transport investment and property markets all point to one thing which is that transport investment creates real value.
3.17
The issue was ‘that in many cases the cost of the investment is borne by the national taxpayer equally regardless of whether they equally benefit’. KPMG stated that ‘while this is effective, it is not efficient’. It also impacted ‘on how schemes are prioritised in that investment decisions are driven by a narrow focus on conventional user benefits’. That missed ‘the more important value that is created by the investment, and hence the opportunity to capture some of that value to help pay for it’.
3.18
Mr Andre Kaspura, representing Engineers Australia, noted that in Hong Kong, this matter had largely been resolved. There, ‘the local transit system is totally paid for through property development, and the property development there is not by private investors; it is actually by the train company itself’. He noted that while such practices were ‘not consistent with the way Australian governments do things’, governments could ‘learn from that experience and put in place their own legislation and planning arrangements in order to get an equivalent outcome’.
3.19
In its submission, the Strategic Intelligence Group (SIG) observed that value capture was ‘being used effectively around the world to bring forward new transport and infrastructure projects, using a variety of models and mechanisms’, and that such models could be applied in Australia. SIG noted that:
Critical to this is being able to accurately estimate upfront the ‘direct value’ of proposed new infrastructure investment to optimise investment planning, decision-making and funding, which in turn relies on the accuracy of the modelling and its data. Previously in Australia, a key challenge has been access to reliable and accurate modelling for value capture purposes.
3.20
SIG stated that ‘the impact on property values as a result of new or improved transport connectivity can be accurately modelled’, and that its own modelling was ‘able to isolate and differentiate the change in value arising from infrastructure investment from other factors affecting value’. It observed that:
Once the ‘value created’ of a proposed new infrastructure project has been accurately quantified upfront, there are a range of funding and financing options available to Government, ensuring it has the confidence and flexibility to adopt multiple mechanisms for each project, rather than relying on one potentially blunt solution. These models can be refined for the purposes of securitisation.
3.21
Professor Burke drew the Committee’s attention to work the Urban Research Program at Griffith University was doing with regard to defining and modelling uplift. He stated:
Our starting point is analysis of existing public transport systems to help clarify when uplift occurs, what shape it takes and how that differs across the various modes of public transportation. Most research in this field has used rather clumsy and, I should say, less helpful techniques such as basic spatial regression to see effects on land sales. We are using an improved technique known as geographic weighted regression. We will be seeking to actually make further improvements to that technique. This has major advantages both theoretically and in practice. In particular, one can actually map the residuals and see visually where uplift is occurring in cities and, therefore, see the shape of uplift.
3.22
Professor Burke highlighted the differences in definition and modelling required imposed by different modes of transport, stating:
I think even our early research here on, say, the busways versus the ferries, which is a good example, show that, really, a quite different technique is probably applicable. You might have the same broad mechanism, but you would definitely be using a defined benefit area for something like the ferries because they really do have such a short, concentrated, walk-up catchment effect. Our busways operate on a single-seat journey model where they run down the south-east busways 10 kilometres on a superhighway for buses. They do not have to stop at a traffic light for anything other than another bus, and there is only two of them all the way down to Garden City. They then peel off and get into the suburbs. We are seeing it in those near suburbs near the busway where these uplift effects are happening, particularly around the 130, the 150 bus routes where buses run every two minutes in peak hour. They are super quick into the city. You would need a model that can work with that dispersed catchment, and a defined benefit area is quite difficult to define in that circumstance. It is not just us; from BITRE to other agencies will tell you it is quite difficult to define value uplift from that kind of infrastructure.
3.23
Addressing the effects of HSR, he stated:
High-speed rail is a good example where you are going to have very concentrated local area effects around a station, particularly for commercial landholders but also residential, but you will have city building effects that would happen over a much broader area, and you might actually have two mechanisms that work in that circumstance. You might need to bifurcate; one that applies to a broader area and one that applies to very localised effects. Treating commercial properties will need to happen quite differently to treating residential properties. I do not think dealing with them in the same way is necessarily appropriate.
Mode and uplift
3.24
Different modes of transport had different impacts on value creation and uplift. In its submission, the Smart Infrastructure Facility stated:
The difference between transportation enhancements that are reasonably permanent, like roads and light rail, and those that might only be temporary, like bus routes, is very relevant. A permanent enhancement increases (in the open-city model) the annual rent of land when the land market adjusts, but it raises the value of land—what you can get for selling your land— almost immediately (even before construction is complete). This is because the value of land is the expected present value of future rents. So land values go up before rents rise.
3.25
Professor John Stanley, representing the Bus Industry Confederation of Australia, highlighted the relative benefits of rail and bus:
If you look at rail projects as a source of value uplift, the research suggests that the median value is about eight per cent. … I certainly agree that about a kilometre away is where that drops off. Interestingly, very close to the line you often get value drops because of the noise effects. For bus rapid transit it is slightly lower, but about three to seven per cent along the corridor seems to be the value uplift opportunity there.
3.26
Mr Michael Apps, Executive Director of the Bus Industry Confederation of Australia, stated that in Brisbane, the bus system had seen ‘significant uplift along its operations’:
That is a gold-plated bus rapid transit system, I would have to say. It has involved tunnelling and a whole range of factors which are not necessarily required to deliver a bus rapid transit system. In simple terms, a bus rapid transit system effectively has the same characteristics as light rail except that it is rubber wheeled and it can go on and off the dedicated corridor.
3.27
He noted that Brisbane busways had daily patronage figures ‘better than a lot of heavy rail and light rail around the world, based on the way that they can manage their time frames and leeways between vehicles’. He also noted that the ‘other benefit of bus rapid transit is that once that corridor is retained, bus rapid transit can easily be morphed into light rail if there is a view that it can increase capacity’.
3.28
Associate Professor Matthew Burke identified examples of value uplift around the Mandurah rail line in Perth and the CityCat ferry system in Brisbane. He noted ‘quite significant effects at those locations where we would expect—in other words, terminals where the land development opportunities have been significant and where land use planning and transport planning have worked in concert’. He observed, however, that success in creating uplift was not inevitable—much was determined by planning. He stated:
We have also looked at the Brisbane busways. Unlike the ferries which have a very concentrated walk-up catchment that seems to be affected, the busways have a quite disbursed catchment that seems to be affected. Where we have seen land use planning not work in concert with the transport investments—in particular where rezoning was not changed at Greenslopes and Holland Park West—we have not seen any real value uplift or benefit. We are not recouping the gains that we should be seeing through a billion-dollar transport investment.
3.29
Perhaps highlighting the difficulty in defining uplift, the Brisbane City Council took a different view of the success of the busways in creating value:
An indicator of the economic development benefits from improved transport connectivity is change in land values of properties that directly benefit.
The South Eastern Busway, a significant piece of public infrastructure built by the Queensland Government, is a Brisbane case study that demonstrates the positive relationship between transport connectivity and improved land values.
Evidence suggests that since it was completed in 2001, the busway has had a positive impact on property values in the suburbs of Mt Gravatt, Eight Mile Plains and Holland Park West.
3.30
In its submission, the Government of South Australia observed that ‘it has long been recognised that it is the fixed transit infrastructure that creates urban value in the property and land markets’, with the ‘permanence of the transit infrastructure of these systems’ producing the impact on the land and property markets. This constrained ‘the range of transport connectivity options most appropriate for application of value-capture mechanisms to fixed rail (train, tram) and/or other fixed transit investments (e.g. terminals, possibly dedicated transit lanes)’.
3.31
The Curtin University Sustainability Policy Institute (CUSP) cited studies in Perth which show that ‘a new rail line raised land values in station precincts by 42% in 5 years, above the general value uplift, and for commercial land even higher values’. This demonstrated that ‘there is significant valuable redevelopment potential that is unlocked by new rail lines’.
3.32
Discussing the development of the Fishermans Bend Urban Renewal Area (FBURA), the City of Port Phillip stated that the ‘early delivery of the Collins Street Tram Extension project is vital in realising the envisioned boost to accessibility, land values and in the longer-term an improved urban renewal outcome’. Council believed the extension ‘could be financed through accessing the potential value capture opportunities that will be generated’. Identified benefits included:
“land value capture” of $1,106M would be realised with delivery of the Collins Street tram extension
potential additional revenue streams to State and Local Governments in the order of $200M could be realised (Council rates, Stamp duty, Development contributions, Land tax) with early delivery of this project.
3.33
In addition, ‘over the 40 year development horizon’, the Collins Street tram extension was ‘estimated to potentially support’:
82 percent higher land values
34 percent increase in yield of stamp duty revenue
229 per cent increase in yield of land tax receipts
35 percent increase in yield of development contributions
42 percent more yield of council rates revenue (albeit a very low total revenue).
3.34
The City of Port Phillip emphasised the importance of planning for uplift:
The selection and reservation of land for transport (and other) infrastructure is a key step in planning for urban renewal and growth in our cities. It is important that the selection of land for new infrastructure is undertaken as part of an integrated planning process, in order to maximise economic, social and environmental outcomes, including uplift in the value of land.
3.35
Strategex cited research from New Zealand of value creation for both rail and road in Auckland. Regarding Auckland’s western rail line, the study found a ‘statistically significant rise in values of houses located near stations upon announcement’, and that ‘houses near stations that are more distant from the Auckland CBD may benefit more than houses closer to the city’. The rise in prices ‘was 3.5% prior to actual construction’. With regard to the estimated benefits from extensions to Auckland’s Northern Motorway, another study found that:
Population and employment rose substantially in locations near the new exits and to the north of the motorway extension, relative to developments elsewhere on the North Shore and in the broader Auckland Region. Land values also rose strongly near the new exits.
3.36
KPMG cited studies into value creation around rail developments in the United Kingdom. A study on the property impact of the London Crossrail ‘found that the scheme that is due to start operation in 2018 has already started having an impact on the property market and that it will lead to a £5.5 billion uplift in values along the route’:
Within 1 kilometre of stations along the route, Crossrail will support the delivery of more than 57,000 new homes and 3.25 million square metres of commercial office space that have been identified for development. The study estimated that commercial office values around Crossrail stations in central London will increase due to Crossrail over the next decade, with an uplift of 10 per cent in capital value above a rising baseline projection. Meanwhile, residential capital values immediately around stations are expected to increase in central London by some 25 per cent and in the suburbs by 20 per cent (again above the rising baseline projection in the period).
3.37
Another study examined ‘the impact of rail station investment on regeneration and the local economy’:
The work provides strong evidence that station investment can have a major impact in terms of urban regeneration and transformation. The scale of any impact will clearly depend on the size and location of the station and its passenger profile, the legacy of investment and associated economic activity in the surrounding area and the overall economic climate. The analysis indicated that substantial station improvements can support increases in property values in the immediate vicinity of a station of 30% or more. The study also looked at the investments in Manchester Piccadilly and Sheffield Midland, where observed changes in property values suggest an economic impact equivalent to inward investment of two or three times the cost of the station investment itself.
3.38
Mr Torkel Patterson, a Director of the Central Japan Railway Company, highlighted the experience of Japan. He advised that ‘JR East, which operate the high-speed rail north-east of Tokyo but also operate the surface trains in the vicinity of Tokyo’, got the majority of its revenue ‘from non-high-speed rail operations. It is from the shopping centres.’ He noted that JR East ‘own the station buildings and they manage the property—the hotels and other aspects of that’. Its revenue came from ‘the businesses associated with those station locations’.
3.39
Mr Joe Langley, Technical Director with AECOM, focussed on the value creation associated with HSR, stating that ‘the quantum of value that comes out of something like a high-speed rail station is enormous’. He noted that AECOM had ‘looked at studies on the increase in value around transport interchanges’, including ‘various types of heavy rail, commuter rail, metro, light rail and bus-rapid transit, BRT’. They found that:
The average increase in land values around transit is 12 per cent, from these studies, but the range is plus-150 per cent to minus-21 per cent. Why does that happen? It goes back to what you said earlier, Chair: it is land-use planning. If you do effective integrated land-use planning around these points of connection you can get closer to the 150 end—and even greater—if the conditions are right and the planning is done properly.
3.40
Mr Langley noted that ‘we have seen from our friends from Japan and China that the value uplift around stations, if it is done well, can make a major contribution to the capital cost’. He cautioned, however, that ‘if you do not do it properly you can end up losing money’.
3.41
Along similar lines, Arup stated:
High speed rail could allow Governments to acquire land through compulsory acquisition of low value land on the basis of an existing low commercial price along a potential rail corridor. At a point in time the strategic locations of stations could be designated into these locations, land would be rezoned to higher use/higher value and then released to the market for sale and development at a much higher price than the original acquisition price. The value uplift of these new development sites or value uplift of the property prices in nearby towns or cities within the vicinity to these stations could provide a potential value capture revenue stream for Government and infrastructure funding partners.
Zoning
3.42
The evidence presented to the Committee identified a critical link between value creation and land use zoning. The Department of Infrastructure and Regional Development (DIRD) emphasised that ‘the greatest opportunities for value capture are likely to occur where the provision of new transport infrastructure is coordinated with changes to land use and zoning’. DIRD noted that ‘in most cases investment in an individual project alone is insufficient to create the additional value’:
Co-investment—such as in other infrastructure projects or in private sector businesses—and re-zoning decisions—such as opening up newly serviced areas to commercial or residential activities—will be required to unlock this potential additional value.
3.43
DIRD observed that a new railway station, for example, ‘has the potential to create additional residential and business activity around the upgraded site’; but that ‘to fully unlock this potential activity, the state or local government may need to re-zone the area around the station to allow for new commercial activities or increased density of housing’. DIRD concluded that ‘while infrastructure projects can create additional value, the extent to which they are able to do so will often depend on how well they have been integrated into wider network and land use planning activities’.
3.44
The Strategic Intelligence Group identified rezoning as ‘a powerful tool controlled by the state or territory that creates an immediate value uplift to land’, and stated that ‘integrating a proposed transport infrastructure project with land rezoning optimises the value capture opportunities’.
3.45
AECOM also stressed the link between uplift and zoning, noting that ‘proactive management of integrated land use—transport planning alongside transport investment is proven to have a positive impact on property values in funding and property-related tax revenues’. AECOM stated:
Evidence from international and Australian examples point to the need for proactive economic development programs and supportive land use plans to leverage the transport investment and corresponding property values and public revenues.
3.46
AECOM believed that ‘a change in zoning from single dwelling to multiple dwellings, or from industrial to commercial use, will significantly increase property values’, but that ‘appropriate measures need to be in place well in advance of project delivery’.
3.47
The importance and timing of rezoning was emphasised by Associate Professor Matthew Burke, Deputy Director of Griffith University’s Urban Research Program. Citing the building of the busway to Holland Park West, he related:
We then went to the community after we built the facility and said, ‘We’d now like to rezone your community.’ I went to a town hall meeting with 500 people with pitchforks. To paraphrase one of the participants, an older lady, who basically said, ‘How dare you bring apartment scum into my neighbourhood!’—a classic save our suburbs, nimby, antidevelopment response—and 500 people with pitchforks went, ‘Yay!’ That was the end of the rezoning.
3.48
He noted that ‘the land use planning never occurred with the transport planning, and we ended up with a suboptimal outcome’. He stated:
Had we gone to that community and said listen, ‘We can get rezoning and we can get some of this value capture back and you can get a station, or you can have no station,’ that is really what is called good planning. But a rushed planning process for that facility, and a rushed implementation phase, meant we could not do good planning.
3.49
On the other hand, Mr Will Dwyer, Head of Strategic Planning with Goodman Ltd, highlighted how zoning could be used to promote optimal outcomes by linking rezoning to value capture. To those seeking windfall profits from the rezoning of land, he suggested stating:
… your rezoning of your land does not go through unless you sign up to the infrastructure levy process. If you remain an island, unzoned, and that is your choice as a landowner, well, that is your choice. But if you want the benefit of the upzone, a benefit that comes to you only because you are 400 metres away from the station, then you should contribute to the cost of that infrastructure.
3.50
Mr Dwyer argued that:
… if you did it at the rezoning level, if you had a provision that said, ‘Here’s the plan; everyone agrees with the plan; it’s going to go through, but you have to sign up to providing some infrastructure levy on a square metreage basis,’ then that is the way everyone gets caught.
3.51
Mr Dwyer also highlighted differences between jurisdictions over rezoning. He observed that:
In Victoria and South Australia, for instance, the planning, the rezoning process, is done well ahead of the likely demand for any type of development. So all of the agencies put their input into that rezoning process and the whole world knows, from pretty much the date of exhibition, or at least the gazettal, that is the shape of the land. We know where the infrastructure is going to go; we know all about it; we know how much it will cost et cetera. And there is also commitment from the agencies in those states to start funding the delivery of that infrastructure so that it is not coming after the development, it is actually leading the development.
3.52
He noted that ‘Queensland has a different system again. It is more of a self-assessment system, but it kind of works for them’. In New South Wales, doing business was much harder:
In New South Wales, if you put an application in for a development on land that has been zoned and has been through that three-year rigmarole, you start again, and every single issue is up for grabs in terms of whether or not they are even going to let you have consent to build. That creates a competitive advantage for those people who have development applications in the bottom drawer that have gone through that process. It adds value to those development applications, but it also increases the price of land.
The limits of uplift
3.53
There were a range of limits to value creation identified in the evidence presented to the Committee.
3.54
The Government of South Australia noted that there were challenges in determining outcomes, including the fact that the ‘quantum of increases varies from city to city’, and that ‘it can also be difficult to differentiate the property value increase resulting from transport investment from other factors’.
3.55
In its submission, DIRD also highlighted the difficulties in establishing the link between improved transport connectivity and value creation. It noted that:
In areas where land use and zoning changes offer little opportunity to increase density or foster development (such as areas of existing high density) it is often difficult to separate the value increases resulting from greater transport connectivity from other causes of uplift.
3.56
DIRD also noted that while international experience demonstrated ‘a clear link between access to land transport links and the value of surrounding properties’, this relationship was ‘not always positive’.It observed that:
Many projects appear to have little or no effect on the value for surrounding properties and in a number of cases have actually fallen. This indicates the challenges of determining the level of uplift. Amongst them are sampling errors in land prices, separating out the effects of transport infrastructure from other factors and determining the shape of the catchment of beneficiaries of the transport investment. However, the biggest challenge is that the transport system is a network and localising the benefit from new links in the network is often very difficult.
3.57
In its submission, the Local Government Association of Queensland (LGAQ) questioned the link between transport connectivity and value creation. Citing studies of the Gold Coast Light Rail, LGAQ noted that ‘there has been no observable differences in price movements in the areas surrounding the project compared to other parts of the Gold Coast’. It observed that:
While there may be some localised examples of value increases potentially driven in part by accessibility to the light rail, other factors may be more significant in driving land value increases on the Gold Coast.
3.58
LGAQ noted two key points:
First, externalities associated with infrastructure can be positive or negative, or a combination of both, and pricing externalities presents many challenges (e.g. emissions). Second, it is difficult to value the contribution made by a component part of a transport network in isolation of the system-wide benefits (and any disbenefits).
3.59
Variables affecting land value changes included ‘amenity, local economic activity, demand resulting from population growth, and other social factors as well as transport connectivity’. Prices were determined ‘in the market through matching a multitude of demand and supply side elements and market conditions unique to each transaction’. Moreover, LGAQ noted, ‘while a benefit may be enjoyed at sites where there is actual connectivity, it is not clear that the same benefit will be enjoyed along the entire length of the corridor’. In fact, there were ‘likely to be negative externalities associated with properties adjoining a corridor in terms of noise, pollution and reduced amenity from the visibility of structures’. According to LGAQ, ‘attempting to establish whether or not there was a contribution to an increase in value from a definable transport infrastructure improvement is extremely difficult’. LGAQ concluded:
Any proposal to levy a new property tax attributable to a (net) value benefit, based on the proposition that a quantified benefit applying to a defined area arises from a particular item of infrastructure, would require a precise, reliable and transparent modelling method.
3.60
The Australian Local Government Association concurred, stating that further consideration needed to be given to ‘the reliable measurement of the increase (or decrease) in land value due to enhanced transport connectivity relative to other factors impacting land value’. ALGA believed that ‘any new systems that sought to value capture uplift would require substantial legislative change and education amongst governments, the private sector and broader community’.
3.61
Urban Taskforce Australia believed that ‘while new transport connectivity is likely to lift property values it is very difficult to discern the change in property values associated with the infrastructure improvements’. It noted that there would be ‘a range of “winners” and “losers” for varying locations and varying uses’. Urban Taskforce Australia argued that ‘many studies and approaches to value capture tax fail to recognise the wide range of variables that impact upon development sites’. It stated that as a result, ‘conclusions are drawn about the ability for development to absorb taxes or profit share, based on development with only one type of cost and risk profile’.
3.62
The ARA observed that identifying the extent of uplift was difficult, and any assessment of uplift needed to be project specific, taking into consideration a range of factors. It stated:
The significant range in value uplift demonstrates the complexity around determining the value public transport connections provide and reiterates that a ‘blanket’ average value increase cannot be attributed to all projects. Rather, individual projects must be individually considered, taking into account the many variations—the type of property, the mode of public transport offered (and the availability of other public transport links in the vicinity), the proximity to public transport and other amenities in the region.
3.63
The ARA also identified fragmented land ownership as a serious barrier to value creation, citing a study which found that ‘the “highly fragmented land ownership”’ around Sydney’s Central Station was ‘a barrier that would probably result in modest value uplift if the station precinct was redeveloped’. It also noted, however, that ‘improved value of $30billion could be realised if the “airspace above the rail yards was redeveloped for passive recreation” and developments occurred on the adjacent land and surrounding areas’.
3.64
Mr Chris Johnson, Chief Executive Officer of Urban Taskforce Australia, also questioned the degree to which any uplift brought about by improved transport connectivity could be exploited through value capture. He observed in relation to windfall increases in property values that ‘while we might think that is a big uplift that people are getting, if they are not getting some sort of big windfall uplift, they are just not going to combine together to get a bigger site’. He was concerned that ‘if a tax was put on these sites to the extent that no development occurred, the whole planning system would not go anywhere’. His feeling was that ‘unless these house owners get some pretty major uplift they are just not going to move’:
We might think that is ludicrous—that it is only worth $1 million and they have got $5 million. But if they only got $3½ million, or you took $1 million off, would they or wouldn’t they move? Would there be incentive? That is the delicate issue.
3.65
Mr Johnson noted that there was no rational threshold, ‘because there are a lot of emotive issues about your home, where you live, your kids, your family, the school—all those sorts of things’. He observed that ‘to have to trade all of that for some other value is a lot more than just rational numbers. I think we need to be careful about that.’
3.66
The link between value creation and value capture was also problematic for regional areas. The Committee for Geelong acknowledged that ‘improving access to Melbourne and around the region, is expected to have a positive impact on property prices in the region’, but was concerned that ‘increasing property related taxes to fund transport improvements could have a detrimental impact on housing affordability across the region’, with ‘financial and social impacts on the community’.
3.67
Ms Paula Lawrence, Executive Officer of the Peri Urban Group of Rural Councils, highlighted the differences between urban and regional areas when it came to creating value around transport connectivity. She argued that:
… the premise of value capture is that those who live or work next to the infrastructure have the most to gain. This is not the case in rural and regional areas, as those projects benefit the wider community; second, if value capture is used to fund infrastructure in rural and regional areas, there would be insufficient capital in those areas to contribute to the required infrastructure; and third, the distinction between metro and rural areas. The metropolitan councils have, for many years, prospered under other forms of funding and already have significant infrastructure projects, whereas these guys are coming off a very low base and, in a value-capture style model, will never catch up.
3.68
Ms Lawrence highlighted problems with developing new centres based on HSR stations in areas where ‘there are low land values’ outside regional centres and small towns, because ‘most of that land is agricultural land, and we do need that for Victoria and Australia’s future food production’. Her suggestion was that ‘a fast-rail stop should be incorporated into one of the existing centres between Melbourne and Sydney, slightly outside Melbourne and Badgerys Creek’:
Using an existing centre would give you existing support infrastructure that would not need to be provided. It would also give you an existing cohort of developers and community that were ready to invest, play a role in that value capture and contribute to that project; whereas, if we pop it in the middle of nowhere, while you will have developers who speculate, we will not have a ready cohort.
3.69
While Ms Lawrence thought that value capture was ‘an eminently sensible model for metropolitan areas, she thought that ‘across the smaller shires there is not necessarily expertise in planning. There is not the expertise nor the resources to do the masterplans that perhaps we are talking about that would enable value capture.’ She emphasised the fact that the popularity of the peri-urban region was ‘being driven by affordability, accessibility and lifestyle’.
3.70
Mr Andre Kaspura, representing Engineers Australia, suggested that value capture was not ‘a silver bullet in and of itself’, but ‘one of a range of options that needs to be seriously considered in the funding of infrastructure’. He saw a ‘myriad of pitfalls’ in implementing value capture, ‘given our taxation arrangements, local government arrangements and differences in regulations and legislation between states and territories, are all matters that impinge on this problem’.
Committee conclusions
3.71
Value creation is one of the key purposes and outcomes—perhaps the key purpose and outcome—of improved transport connectivity. The creation of value, and its capture, provides the means to pay for enhanced connectivity. (Details of value capture—what it is, the benefits that may flow from it, and different forms of value capture—will be discussed in Chapter 5).
3.72
The evidence presented to the Committee indicated that there was a strong, though not consistent, correlation between improved transport connectivity and uplift in property values. Transport mode and location could have significant outcomes on value creation. One key to consistency was effective planning. For example, the nature and timing of zoning could have a significant impact on the effectiveness of transport infrastructure, its value creation, and the ultimate distribution of benefits. Another key to consistency was the successful modelling of transport benefits. The Committee was advised by several organisations that the capacity to develop sophisticated models of value creation around transport infrastructure was already available and was continuing to develop.
3.73
Planning for value creation is the basis for improved transport connectivity. By focussing on value maximisation when developing projects, we ensure that a funding pool will be created and that construction will be realised. This presents opportunities for value capture, which, in turn, has the potential for providing a lever for the Australian Government to establish long-term planning and funding of infrastructure, urban renewal and regional development. It also presents significant opportunities for financing high speed rail.
3.74
The Committee notes that the various proposals for the development of HSR presented in Chapter 2 have at their core the explicit intention to fund HSR through the harvesting of the uplift in land value along the proposed route. The creation and capture of value has a potentially significant role to play in the development of this transformational technology.
3.75
The Committee recommends that the Australian Government recognise the potential contribution towards the costs of new transport infrastructure of the capture of increased property values and associated taxes that directly result from the new connectivity.