Value Capture Raises Hackles Over Tax in Property Sector 2

Thursday, February 4th, 2016
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While many urban development experts believe value capture could be the key to more effective funding of key infrastructure works in many parts of urban Australia, members of the real estate sector are raising concerns that it will only add further to the already considerable tax burden on properties.

The Value Capture roadmap report, released by AECOM in conjunction with Consult Australia towards the middle of last year, touted the advantages of value capture funding, pointing out that modest increases to taxes on properties that benefit from proximity to public infrastructure could secure billions of dollars in additional funding for such projects.

The funding method has already been deployed with considerable success overseas, with the UK’s huge Crossrail project deriving as much as 27 per cent of its funding from a two per cent levy on any commercial properties situated with the catchment zone of stations.

The Australian government has signalled that it is highly receptive to value capture funding methods, with Minister of the Environment Greg Hunt speaking of its benefits before the Sydney Business Chamber in January.

“Value capture is increasingly used internationally to ensure that projects go ahead, residents receive the benefits, but some of the cost is offset through the uplift in value to beneficiaries,” he said.

The potential for value capture funding to be more widely deployed on our shores has raised concerns within the property sector, however, that it may simply be an additional tax on real estate.

In response to Hunt’s speech Stephen Albin, CEO of the Urban Development Institute of Australia NSW, placed a post on LinkedIn asking readers whether value capture was simply “a clever way to dress up a new tax,” pointing out that homeowners in his state already bear an onerous burden when it comes to levies on property.

“New South Wales homeowners pay some of the highest property taxes in the world. Without value capture and including the GST a new homeowner already pays 22 per cent of the cost of their home in fees and charges,” wrote Albin.

“How can politicians and policy makers seriously talk about affordability when taxation is higher than the actual profits from the development? Add another upfront tax and it could have serious ramifications for market performance.”

The retail sector shares similar trepidations about value capture, with the Shopping Centre Council of Australia sending a position paper to the federal government expressing concerns about its potential impact on the property tax burden.

“We are concerned that ‘value capture’ could simply result in yet another property tax and yet another tax where shopping centre owners carry a disproportionate tax burden,” said the Council in its position paper.

According to the position paper a slew of taxes on property in Australia already serve to capture any value accrued from nearby infrastructure, while there exists “no credible method of isolating and quantifying the impact on value of new infrastructure.”

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  1. Matthew Trowsdale

    If done well, value capture is an equitable way of the taxpayer reclaiming a portion of the uplift in value which private property owners derive from taxpayer funded investments.

    The concept is fair enough: if the taxpayer is going to fork out billions to build something which will benefit property owners via an uplift in value of their properties, why shouldn't the taxpayer reclaim some of that value creation?

    On the other hand, if applied badly, value capture can indeed be inequitable and could indeed add to the cost of new housing. The model being proposed on the Sydney Light Rail project, for example, would see a levy equating to roughly $20,000 imposed on new residential developments but no levies imposed at all on existing residential property or on commercial property. That means those who purchase new residential housing would pay the levy but owners of commercial property and established residential property would receive a gift from the taxpayer by virtue of uplift on the value of their property but would have to contribute absolutely nothing.

    Obviously, this is inequitable, and this kind of arrangement highlights what can happen when value capture is applied badly.

    • Rick Rybeck

      Matthew Trowsdale is absolutely correct. I have not read the AECOM report. However, based on the report above, it would appear that it recommends a fee applied to the size or value of new residential development. This is NOT value capture. This is value transfer. Buildings only have value to the extent that owners create and maintain that value. In other words, a tax on privately-created building values is an additional cost of production that would reduce the quantity and quality of housing while increasing its cost.

      New transit facilities will increase nearby land values. Therefore, value capture should apply a fee to these publicly-created land values. Surprisingly, applying a fee to land value helps keep the price of land down by reducing the profits from land speculation and thereby reducing speculative demand for land. Landowners pay in proportion to the benefit that they receive from taxpayers. That is fair. It also encourages development where land value is high — adjacent to public infrastructure where we want development to occur.

      Value capture can succeed, but only if it is properly applied to publicly-created land values.