ITC explores land value capture

How best should we capture land value uplift from transport investment?

The Occasion

It is well known that transport investment can dramatically increase surrounding land values as a result of improved connectivity. Yet such rises in land and property values have not always been captured by transport investors or the state, and the windfall gains have gone instead to those private landholders fortunate to own property near new transport schemes. Should we develop better means of capturing land value uplift from transport investment in order to reward public sector investors and generate funds for new schemes? And, if so, what are the most appropriate means to harness the value uplift?

To debate this important topic, the ITC was delighted to welcome a distinguished panel of leading transport and property experts at its Autumn Discussion Evening on 23rd October 2018. The guest panel included: Corinne Swain OBE, Arup Fellow: Planning; John Robinson, MTR’s Head of Property in Europe; and Roger Madelin CBE, Head of the Canada Water Development for British Land. The subsequent discussion was chaired by ITC Chairman Terry Hill CBE and attended by over 70 leading figures from the land use and transport worlds.


How should we capture land value uplift from transport investment? Key issues raised by the speakers:

  • Corinne Swain provided an introduction to various land value capture mechanisms. She explained that Section 106 agreements and Community Infrastructure Levies provided tools for English local authorities to capture some of the value uplift from development. However, land value capture was much more challenging outside London where land prices and value uplifts were much smaller, since they must not make the development financially unviable. Business rate retention through TIF mechanisms could be applied more widely, since it fits well with HMT’s acceptable parameters for devolution. She highlighted that a key challenge was being able to capture some of the value uplift to existing residential properties. Mechanisms such as local authorities retaining a proportion of stamp duty increase were a possibility but new forms of taxation would be challenging to implement. There was reason to be encouraged by experiments in land value uplift capture from transit investment in places such as the Greater Cambridge area, she noted. There remained a need to develop a better understanding of these mechanisms, she concluded, and to have a mix of funding streams tailored to local circumstances.

    Corinne Swain OBE introduces the topic

  • John Robinson gave an international perspective by looking at the experience of land value capture in Hong Kong. He explained that in Hong Kong the integration of property and rail development generated multiple benefits including optimal land utilisation and sustainable travel patterns. Rail infrastructure funding was challenging, he explained, due the high initial capital costs, the need for regular maintenance, and the long payback time. Capturing land value uplift helped to address these challenges. In Hong Kong MTR was fortunate to own, build, operate and maintain the integrated development allowing it to capture the uplift in land prices and reinvest it in transport infrastructure. However, he cautioned that a number of differences existed in comparison with the UK. Hong Kong’s high density was an advantage, as were public ownership of the development sites and the granting of long 50-year contracts to build and operate new infrastructure. The newness of the infrastructure, joined-up planning policies, and the absence of any need to provide affordable housing also were advantages for the developer. However, the UK could learn lessons from the design principles used in Hong Kong, and develop a better awareness of the benefits arising from long-term strategic planning.
  • Roger Madelin offered a developer’s perspective on land value capture. He observed that the development of new towns after WW2 was successful because it involved compulsory land purchases. Today, land value capture applied at the wrong time, particularly too early in a development project, could jeopardise the whole scheme and lead to the creation of inferior public realm. One major problem was that land values fluctuated across the lifetime of a development project, and the end value was difficult to predict. A system that taxed land value uplift only after profits had been made, and on an incremental basis, would be much more sensible, he argued, and would lead to better development outcomes. Manchester Piccadilly was a good example of such a scheme. Complex and long-term development projects additionally require favourable planning regulations to ensure their economic viability.

    Roger Madelin CBE gives a developer’s perspective

Key themes raised in the discussion:

  1. The public sector has an important role to play: There were some calls for better collaboration between the public and private sectors in transport-led development. The public sector was seen as being better able to cope with long-term risks as well as fluctuations in land values over the course of a development project. It also was also well placed to set good objectives from a development that matched local and regional needs. However, it was suggested that skills in the public sector would need to be stronger in terms of negotiating and deal-making in order to ensure that taxpayers ended up with a optimal outcomes. Others opined that the Government and public sector would do well to take a lead in supporting new towns rather than piecemeal development since the former were more favourable for getting new transport infrastructure built.
  2. The London context is different to elsewhere in the country: Some guests pointed out that the London situation with its high land values and potential for high land value uplift was very different to elsewhere in Britain. It was suggested that in many areas further away from the orbit of London there was little land value uplift to be captured and the majority of gains were eaten up by Section 106 (of the Town and Country Planning Act 1990) requirements. In addition, it would be important to determine how the benefits from land value uplift could be shared around the community as whole rather than just a small spatial area.
  3. We need to appreciate the long timescales involved in development projects: The majority of the guests agreed upon the need for greater awareness of the long-term nature of development projects and the corresponding need for strategic planning. Calls were made for a national spatial strategy to help frame this and give confidence to investors that the terms of a project would not change. A better understanding of who should take on risk at various stages of a project would also be beneficial. We should also bear in mind that often land value uplift came as much from road infrastructure development as from rail, and how transport infrastructure can bring challenges for developers due to the provision of special equipment, e.g. high voltage cables.
  4. Future disruptors could change the nature of development: A number of guests pointed out the future disruptors should be identified since these could change the relationship between transport and property development and thereby the potential for land value uplift. For instance, full vehicle automation could reduce demand for rail travel and thereby diminish the scale of land value uplift around stations. Moreover, the trend for retail to be increasingly focused online means that retail-led development complexes would perhaps become quickly outdated. At the same time, densification of cities could aid transport-led land value uplift in the right location.
  5. Improved land value capture mechanisms are needed: There was widespread agreement that more attention should be given to capturing the gains made by existing property owners from development-led land value uplift. These unearned gains in the existing property market could be taken through property or capital gains taxes after revaluing land prices. However, some warned that new mechanisms should not slow down the property market, and that would be best focused on the gains achieved at the end of a project rather than using upfront taxes.

    ITC Chairman Terry Hill chairs discussion