It is estimated that by 2050, three-quarters of the world population will be inhabitants of the urban environment.
The rapid urbanization has its economic benefits to be sure, but if we have in mind that the cities are responsible for the use of 80 per cent of all the energy and that they are the world’s biggest producers of the world’s greenhouse gases, then we have to wonder if today we need another vision for our future cities. This vision must include how we build, own operate and fund our transport infrastructure.
The federal government released a discussion paper in November titled Using Value Capture to Help Deliver Major Land Transport Infrastructure and called for submissions on the use of value capture to help fund the delivery of major transport infrastructure in Australia. It is disappointing the federal government chose to focus this paper solely on transport infrastructure.
The discussion paper acknowledges value capture approaches can be applied to other types of infrastructure, such as health and education, yet has not indicated if a similar discussion paper is to be prepared for public consultation. The issues raised in the discussion paper are likely to be equally valid to other infrastructure types and the discussion of value-adding techniques would be much more valuable for it (pardon the pun).
- Acknowledges the fiscal constraints currently faced by governments and how those constraints limit infrastructure funding options, particularly traditional funding methods (grants and subsidies) and user charges.
- Acknowledges the potential to generate new funding streams via value capture mechanisms through leveraging increases in value created for beneficiaries of infrastructure, potentially accelerating the delivery of planned and new (previously unfunded) infrastructure.
- Has minimal discussion on the effect of the construction phase on neighbouring land users, such as diminished quality of life, reduced economic activity due to access limitations to bricks and mortar.
- Has no discussion on compensation to these affected parties due to the construction phase or the extra taxation burden on those who do not wish to develop their properties yet are hit by increased local government rates due to uplifted zonings and/or increased land values, amongst other cost and lifestyle implications.
- Discusses a range of techniques being developed around the world for assessing the uplift in government revenues, including the “move to more productive jobs” model, which measures the benefit of changing the location of jobs to places of higher productivity which are more easily accessible through the construction of the transport infrastructure, potentially leading to higher paid employment opportunities, leading to the uplift in tax revenues.
It could be argued that bringing the jobs to the people, not the people to the jobs, is a fundamentally fairer, less polluting and more efficient model of economic productivity. With communication and mobility technologies advancing at a rapid rate, commensurate with quickly reducing costs to the consumer, there needs to be strategic thinking about the economic viability of funding very large pieces of transport infrastructure that have minimal opportunity to gain the patronage to provide a positive return over a 50-plus year funding cycle.
The paper further:
- Ignores the potential negative effects on community members (residents and commercial) that are located immediately adjacent to the areas that are benefitting directly from the zoning and/or value uplift (and potentially more relaxed land use planning provisions) - a similar effect to creating economic development zones within city planning schemes.
The discussion paper draws on international experiences in funding infrastructure projects using value capture, including the use of developer contributions in return for development and concession rights - as was used for the MTR in Hong Kong and London's Crossrail and tax increment financing, as utilised in the USA for the Denver Union Station. There are significant matters that require consideration in this discussion.
Government and private providers must communicate effectively and sincerely with the community that “value capture” is not an additional tax, but a fair allocation of benefits and costs to all of the community, not just to government and private provider.
These key stakeholders need to:
- Clearly demonstrate the nexus between payments made to support new infrastructure and the benefits that infrastructure provides
- Identify who will benefit from a project and collaborating with those beneficiaries early on to determine their willingness to pay and maximise the benefits of the project
- Manage the mismatches in timing between the upfront financing requirements of the project, the associated uplift in value (e.g. land and commercial values) and when beneficiaries materially gain from those uplifts.
The discussion paper also canvassed a range of options the federal government could take to stimulate the use of value capture as a funding mechanism, including:
- Working with state, territory and local governments to promote leading practice
- Using the federal government’s funding and financing capacity to support value capture strategies
- Strengthening requirements on federal funding support, for example reiterating statements in the Smart Cities Plan
- Stimulating market-led value capture proposals
Yet it also:
- Ignores the fact that the federal government is the owner of large tracts of land in strategic locations that could be sold or long-term leased to third parties for infrastructure and related value-capture opportunities
- Ignores the fact that mobility services such as Uber and Lyft, electric, autonomous vehicles (cars and buses) and the declining ownership of cars across a spectrum of demographic groups, will have a dramatic effect on the type and scale of transport infrastructure required into the future.
What do we want our future cities to look like?
The average vehicle is used only four per cent of the time and parked the other 96 per cent. Tesla CEO Elon Musk believes the transition to autonomous vehicles will happen through a network of autonomous car owners renting their vehicles to others.
John Zimmer of Lyft states that “a network of vehicles is critical, but the transition to an autonomous future will not occur primarily through individually owned cars. It will be both more practical and appealing to access autonomous vehicles” in conjunction with an expanded range of public transit opportunities including heavy and light rail, fixed alignment electric buses, autonomous local community electric buses and very fast trains for inter-city connectivity.
The discussion paper follows the release of the federal government's Smart Cities Plan. The release of the Smart Cities Plan and the discussion paper is a signal to the transport, infrastructure and property sectors that value capture should be considered by governments as they continue their investigations on how they can maximise their returns on any future investment in infrastructure projects.
A clear national transportation policy framework is needed – one that is bi-artisan, multi-level and multi-jurisdictional in nature. The COAG process is the appropriate starting point, with the Productivity Commission and National Competition Authority as key players. Infrastructure Australia should not be a participant in the decision-making aspects of policy, as that would represent a strong conflict of interest.
The transportation policy framework needs to bring all 21st century transport options to the fore and bring the traditional participants on the journey to meet and/or exceed patron and community demands. Perhaps the conversation around transport value capture needs to occur concurrently with telecommunications value capture and funding models (including universal access provisions) to help drive the “transport as a service” model in the transport infrastructure mix.
Through the rethinking of transport policy, the process of funding new trunk infrastructure and the “transport as a service model” needs to coincide with the reclamation of roads from vehicles and turning them into parks, bike lanes, and public plazas.
Under Mayor Michael Bloomberg, New York embarked on a plan to reclaim 180 acres of roads from vehicles and turn them into public spaces like bike lanes and public plazas. The parking lot below the Manhattan Bridge is now a plaza where New Yorkers go to eat lunch and spend time with friends. Just five years after reclaiming this space from cars, retail sales in the surrounding area increased 172 per cent.
Other cities across the world are dramatically altering the transport mix, reclaiming streets and car parks for their communities, improving community and public health, improving social equality and equity, the environment (air, water and soil quality) and overall quality of life.
The Gold Coast could implement such a model to sink the Gold Coast Highway adjacent to the Broadbeach parklands, thus driving a true community space that is fully connected to the neighbouring Southport Priority Development Area. Similar consideration could be given in Brisbane, where the South East Freeway interfaces with the Central Business District.
Obviously, funding this new infrastructure requires the participation of not only government and private providers, but also banks and lenders. Banks and lenders will require varying levels of certainty (or adjustments to their risk profiles) to support investment in/lending to:
- Projects where hypothecated tax revenue, developer contribution arrangements or other value capture mechanisms are designed to provide cost recovery funding; or
- Local government entities’ structured finance vehicles established specifically to leverage improved values and provide upfront capital contributions to a project (e.g. additional credit support from government, legislated regimes etc.)
Existing regulatory mechanisms may require reform to facilitate strategically aligned project-specific planning, transport and social policy outcomes. Planning systems need to become more integrated with the value capture model, where there is an opportunity to balance the value capture opportunity with the existing infrastructure charging regimes and development application fee regime. This is particularly true for significant infrastructure delivery, master-planned communities in or adjacent to the alignment for significant infrastructure projects (e.g. fast rail between Brisbane and Gold Coast, or the Very Fast Train alignments between Brisbane and Melbourne).
It may be attractive to a developer to buy development rights off the government for new infrastructure projects, including integrated commercial development. Market-led development of infrastructure has the potential to deliver necessary new infrastructure (such as the Logan Motorway/Gateway Motorway interchange upgrade announced recently) in conjunction with value capture uplift for commercial and industrial developments adjacent to such infrastructure.
Conceptually, and in practice in many cities around the world, the value capture model of infrastructure delivery has generated quality economic outcomes and added social value also through enhanced mobility for citizens and businesses. The model, however, is not the panacea for all situations.
Detailed social, environmental and economic impacts analysis must be incorporated into any assessment for a project that espouses the value capture model, and the many ways it may be applied by developers and government. More discussion, more analysis and definitely more engagement with all stakeholders needs to occur during the community consultation phase of the Using Value Capture to Help Deliver Major Land Transport Infrastructure.
Let us all take the opportunity to read the discussion paper and make submissions to ensure all levels of government understand the pros and cons of the model and inform the development of a successful value capture policy framework and national transport policy.