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DEVELOPING A METHODOLOGY TO CAPTURE LAND VALUE UPLIFT AROUND TRANSPORT FACILITIES

7. CONCLUSIONS, DISCUSSION AND RECOMMENDATIONS

7.1 Conclusions

7.1.1 This section of the report draws together some of the key issues arising from the research and provides a set of recommendations on how matters can be taken forward. As an introduction to this discussion, however, it is worth summarising what the key conclusions arising from the research are. These are listed below.

• A review of the literature has indicated that the impacts of transport schemes on land and property values are variable over time and location, although tending towards the positive. There is no standard approach to assessing these impacts.
• A case study application is required in order to establish impact levels reliably. This should cover at least three time points, and preferably at least four, but ideally on the basis of a continuous database.
• The T- IMPROVE land value measurement method developed as part of this research can be used to assess land value change. It has been desk-tested against a series of transport case studies in Scotland, which demonstrated that the data and process exist to apply the method in practice. The application of T-IMPROVE would address the requirement for a case study assessment mentioned above.
• Seven specific recommendations on measuring land value change have been developed as part of this research. These are described in Section 4, pages 14 to 16. These particularly relate to the mechanics of carrying out such a measurement exercise, and are summarised below:
  • Recommendation 1: Carry out analysis along the whole corridor under study.
  • Recommendation 2: Case studies should be concentrated on larger scale investments.
  • Recommendation 3: Focus property impact analysis up to 800-1000 metres from stops, stations or interchanges.
  • Recommendation 4: Obtain data at four points in time.
  • Recommendation 5: GIS methods should be used as a basis for analysis.
  • Recommendation 6: Transaction data at unit post code level should be used wherever possible.
  • Recommendation 7: A database of changes in other related factors is required for the local area, and the broader area within which it is embedded for the time period under study
• It was also concluded that a forecasting or predictive component to land value measurement would be necessary in order to carry out land value capture effectively. Existing land use transport interaction (LUTI) models cannot directly be used to do this, but they can provide some relevant and valuable information and should be capable of further development to provide more detailed and more appropriate forecasts. In particular, LUTI models take account of the competition between different places in ways that other techniques do not.
• Eight 'alternative funding methods' were reviewed, which were identified as potential sources of capturing land value change. Table 5.2 in Section 5 and Figure 6.1 in Section 6 provide a means of assessing the relative merits of each of these funding methods.
• However, a definitive conclusion as to which method or methods should be pursued as the basis of capturing land value changes cannot be provided at this stage. This depends, to a large extent, upon the relative interests of different groups involved in the evaluation process. Even so, the assessment carried out in Sections 5 and 6 provides a clear basis upon which such evaluations can be made.
• The key features and evaluation results of each funding method are summarised below:
  • Business rate levy - substantial fund raising potential; based upon an existing set of arrangements; likely only to get support for a highly popular transport scheme; would require legislation.
  • Local authority business growth incentives - medium fund raising potential; does not charge businesses up-front; directed mainly at regeneration areas; newly enabled method.
  • Business improvement districts - small fund raising potential; can be useful for very localised transport improvements, but not for transport infrastructure of any significance; newly enabled method.
  • Land value taxation - substantial fund raising potential; can be used as replacement or additional tax, with consequential policy and funding issues; potentially requires a more radical change in practice and procedures than other methods.
  • Greenfield development tax - medium fund raising potential; funding level depends upon level of activity; may 'transfer' activity between local authorities; requires legislation.
  • Freehold charges - substantial fund raising potential; one-off charge theoretically, so issues over how effectively and equitably to collect the charge; would require legislation.
  • Planning gain - medium fund raising potential; can only be related to a specific development; an existing method.
  • Buy-in charges - medium fund raising potential; useful for local transport schemes, but not larger schemes; would require legislation for some approaches.
• A high-level case study assessment of the funding methods was carried out, based around the City of Aberdeen and Clackmannanshire. This primarily focussed upon the level of funding that could be generated by the various funding methods. A consideration of the relative merits and disadvantages of the funding methods was also provided, although a more detailed assessment was provided in Section 5, but at a more generic level. A more detailed 'shadow' testing of funding methods should be carried out for a specific transport project.
• However, a fuller and more formal account of the funds generated by existing mechanisms needs to be incorporated into the assessment of land value capture potential. Currently approximately 25 billion is generated from existing 'land value' related methods across the UK, such as rating, whilst 28 billion is generated from existing transport sources, such as petrol duty. On a pro rata basis for Scotland, these funding sources equate to approximately 4.5 billion per annum. These levels, and sources, of funding need to be properly taken into account in considering whether to pursue land value capture.

7.2 Discussion

7.2.1 This project has looked at the potential for land value capture to be used to fund public transport projects. This, as summarised above in Section 7.1, has involved looking at how to measure land value changes and assessing methods that could be used to capture changes in values. The detailed results of this have been presented earlier in this report.

7.2.2 In addressing the 'potential' for land value capture two distinct but related questions need to be tackled. Firstly, can land value changes be measured and captured? Secondly, should they be? In broad terms, land value change can be measured - through the T-IMPROVE method - and there are various methods by which such changes in value can be captured.

7.2.3 This is a key point, as it is necessary to demonstrate beyond reasonable doubt that the enhancement of property values results from a transport improvement, and the scale of that change. Without this it is unlikely that the 'value capture' method would be seen as politically acceptable, and any charge resulting from it seen as an exploitative tax rather than an equitable charge.

7.2.4 The T-IMPROVE method discussed in this report demonstrates that it is technically possible to measure the changes in land value due to the provision of transport infrastructure schemes. To do so effectively is a major undertaking and would need to run over several years.

7.2.5 A key point to note, however, is that T-IMPROVE is an empirically-based measurement tool - it records what the impacts of a transport scheme have been upon factors such as land values. It would be very beneficial to apply this to an actual scheme - and ideally several schemes - to provide hard evidence of the potential impacts of a transport scheme on land values, and this is a recommendation of this study.

7.2.6 However, T-IMPROVE is not, in the form developed here, a predictive tool. In many respects this is what is needed in order to apply a land value capture funding method. In other words, it is necessary to know the likely impacts of a transport scheme on land values so that it can be determined how much 'value gain' is to be secured to support the transport scheme.

7.2.7 A critical point to note, however, is that even a predictive method needs to be verified - i.e. is checked to see if the level of increase in value actually occurred. This reinforces the point that there would be considerable benefit in applying the T-IMPROVE method in the very near future in order to develop the necessary data profile to support a predictive approach to land value measurement.

7.2.8 As a corollary of the above, the potential for various land use transport interaction (LUTI) modelling approaches was examined as a means of providing a predictive approach to land value measurement. From this we concluded that there was considerable potential to achieve this, although existing LUTI models would need further work to enable this to happen.

7.2.9 A key issue, therefore, is whether, when and how such an application would be undertaken. Our recommendation is that it should be pursued irrespective of whether land value itself is to be pursued, since there are likely to be wider benefits from developing such a predictive approach, for example, to assist in financial appraisals of transport projects.

7.2.10 In short, land value change can be measured with reasonable accuracy as it occurs through T-IMPROVE. There is also good potential of being able to develop predictive models based upon LUTI model applications.

7.2.11 Section 5 and 6 examined a number of potentially relevant alternative funding methods that could be used to capture land value change (implicitly meaning increases in value). In the most limited sense, all of these funding methods could 'work', in as much as they can capture land value change. However, they differ markedly in terms of how effective they are at doing this, and how they deal with matters of equity, timeliness and other key concerns.

7.2.12 Section 5 discussed the relative merits of each funding method. This should be used as the platform for evaluating if a particular method is suitable for a particular scheme.

7.2.13 A further issue is whether such funding methods should be applied singly or in combination. Much would depend upon local circumstances, but as a general principle it is suggested that the alternative funding methods reviewed should not be used in combination unless a formal impact assessment is carried out. A careful examination of the groups likely to have to 'pay' under each of the funding methods would need to be undertaken in order to assess the scale of potential 'double-taxation'. As an example, if a freehold charge and greenfield development tax were introduced, then land owners could arguably be charged twice.

7.2.14 This brings us back to the second question posed at the start of this section - should land value capture be pursued using alternative funding methods? This is a more fundamental and problematic question, and one that, ultimately, will be a political decision.

7.2.15 To a certain extent, changes in land values are already captured, in part at least, through existing arrangements. This includes measures such as rates, stamp duty, capital gains tax, and inheritance tax. In Scotland, these sources could amount to significantly over 2 billion per annum, and excludes funds raised through transport-related taxes and charges, such as petrol duty. However, this funding level relates to total receipts, not simply incremental increases that may arise because of measures such as improved transport. Even so, it would seem logical to conclude that a certain amount of land value change is captured already using existing methods.

7.2.16 There are issues about how transparent existing mechanisms for collecting part of land value changes are, as well as debate about how equitably they operate. This is part of the rationale for the Balance of Funding review being carried out by the ODPM, which is investigating better ways of financing local government. The results of this review, for example, will help inform decisions as to whether a more fundamental reform of local government funding is to be pursued, or whether the approach is a modification of the existing system.

7.2.17 This, in turn, will influence how alternative funding methods could be used. At the most simplistic level, the pursuit of a radical overhaul of existing funding systems would be encourage the application of alternative funding methods such as land value taxation. If a more modest reform agenda is pursued, then this might encourage less radical alternative funding methods, such as a business rate levy or LABGIs.

7.2.18 From a policy perspective, however, it is important to have a fuller understanding of the scale of existing land value capture. It appears evident that it is captured, but the full extent of capture is unclear, as is whether it is equal in all cases. The issue is important as it could determine the extent to which additional land value capture can be reasonably sought. Initial views are that the capture process is blunt, but nevertheless it does occur. This suggests that the extent of any land value increase associated with a transport scheme that would be captured by existing methods (e.g. the rating system) should be identified. This will therefore identify the residual potential land value increase that could be subject to any land value capture mechanism.

7.2.19 There are wider policy issues to consider arising from the research. However, it needs to be recognised that this research has essentially been dealing with technical processes - methods which, of themselves, have only indirect policy implications. As an example, T-IMPROVE is concerned with measuring land value change. The extent to which this has planning or transport policy implications can differ widely depending upon how such information is used.

7.2.20 Nevertheless, some very broad potential policy issues can be raised. These need to be recognised as indicators, rather than detailed assessments.

7.2.21 Arguably, capturing land value enhancements associated with transport schemes is likely to be of more benefit in supporting transport policy - although indirectly - than in supporting planning policy. This would primarily be in terms of off-setting some of the costs of building the transport scheme that is leading to increases in land values.

7.2.22 The wider policy implications are likely to relate to decisions on how to use or apply any value enhancements associated with a transport scheme. Thus, the research has examined the means by which value change can be identified, and assessed methods by which some of this value can be clawed-back for the wider 'public good'. To a large extent, as mentioned above, these are largely 'procedural' matters.

7.2.23 What is of particular relevance from a policy perspective, is how any 'value clawback' is applied in practice. Before considering this, however, it is important to recognise that greater clarity is needed in understanding how much additional value enhancement there is from the transport scheme in question. In other words, how far has 'value capture' from existing mechanisms, such as rates, been taken into account (cf 7.2.18). It is legitimate to consider this factor in a policy context to ensure that the benefits and costs of a transport scheme are equitably dealt with.

7.2.24 There are a number of broad policy implications relating to how 'value clawback' can be used in practice. This does assume, of course, that such value enhancement has been identified or estimated and a method put in place to capture this value uplift. This in itself is a major policy issue. The broad policy implications can be summarised as follows:

(a) Planning purposes. The funds obtained using land value capture methods can be used to support projects or initiatives of a primarily planning nature. These may or may not be related to the transport scheme in question. This might include, for example, funding for affordable housing.

(b) Transport purposes. The funds obtained using land value capture methods can be used to support primarily transport objectives. This may simply to pay for the transport scheme in question, or to support funding for complementary transport measures.

(c) Treasury. All, or a substantial proportion, of the funds generated from land value capture methods may be secured under the control of the Treasury. In that situation, the potential policy uses of such funds may be more limited, along with access to the funds.

(d) Policy adjustment. This is a more radical area and covers a range of possibilities. It could involve reducing or deferring land value capture rates for 'positive' or encouraged land uses around the transport scheme in question (or wider afield if the value capture method was of a more general nature). A slightly different approach would be to use the funds obtained from less priority or 'desirable' land uses in the scheme boundary to support higher priority land uses.

(e) Operational mechanisms. Introducing land vale capture methods may, in practice, be likely to have an influence upon wider policy development. As an example, compensation mechanisms may need to be in place to deal with cases where land values reduce as a result of a transport scheme. This may therefore influence policy decisions on, say, the nature of a transport scheme proposed.

(f) Option modelling. Having a method by which the land value changes of a transport improvement can be measured can enable alternative options or scenarios to be assessed. In other words, different transport schemes for the same route may give rise to different land value capture potential, which may, in turn, help determine which transport scheme to pursue.

7.2.25 Issues (a) and (b) above are likely, in practice, to be less fundamental or complex than issues (c) to (f). Issue (c) will be significant in deciding how much 'local' control there will be in terms of both policy development, as well as levels of funding. It will be a relevant factor in judging which form of land value capture method was most appropriate to pursue, if such a course was to be adopted.

7.2.26 Issues (d) to (f) are more fundamental. For this reason firm views are difficult to develop. However, the issues raised under point (d) are likely to be constrained by planning legislation and guidance. The points raised under (e) and (f) can, to some extent, be examined through LUTI modelling, but they are likely to give rise to key planning and transport policy choices.

7.2.27 The above points raise the issue as to whether the measurement of land value change should be undertaken. Ultimately, this will depend upon whether any element of any value increase is to be captured for the public good, beyond that which is captured already. However, the measurement of land value change due to transport infrastructure provision can be of benefit, from a policy perspective, in understanding the nature and scale of impact of various transport schemes.

7.2.28 From a simplistic perspective, this could demonstrate whether a particular transport investment provided a level of land value increase that could help stimulate regeneration. It would also help provide a better evidence base to guide the public and private sector on the optimum time to invest or provide support for a particular project to ensure maximum benefits, at least financially. Again, as a simple example, if a public agency has acquired or owns land surrounding a new transport scheme, is it likely to be more advantageous - all other things being equal - to dispose of this shortly after the scheme is built, at a later date, or on a phased basis?

7.2.29 The principle adopted here is that such a measurement process should be undertaken, not least because it will provide empirical evidence in a Scottish context for future discussion in this area. A key policy issue, therefore, is how this land value change should be measured.

7.2.30 We have proposed T-IMPROVE as a basis for carrying out such a measurement, since it appears a practical method for identifying land value change due to transport infrastructure improvements. A decision would need to be taken as to whether this approach was adopted, and whether such a measurement exercise was to be supported at national level or local level. This will involve a consideration of whether it should be applied as outlined here, or in combination with some form of predictive modelling process based around existing LUTI models. We would recommend that the latter approach is pursued.

7.3 Recommendations

7.3.1 A summary list of recommendations arising from the research is provided below.

• The T-IMPROVE land value change measurement method should be applied to a Scottish transport scheme - ideally more than one. This needs to be a proposed or future scheme to build up the necessary time series data.
• A User Manual should be developed to support the application of T-IMPROVE. A draft outline of a User Manual is provided in Appendix 6.
• A predictive element to the T-IMPROVE process should be developed. This should revolve around a progressive extension of LUTI modelling to the T-IMPROVE method, as summarised below:
  • A strategic testing of selected LUTI models in the appraisal of land value capture proposals.
  • A major enhancement of existing LUTI models to enable inclusion of land value capture processes.
  • The application of selected LUTI model (e.g. TELMoS) alongside the T-IMPROVE methodology.
• A study into the scale of land value change captured already using existing funding methods should be undertaken. This has been partially identified from this study, but a more detailed investigation is required to assess the true extent.
• Consideration should be given to the detailed testing of the land value capture techniques reviewed in this study to a particular transport scheme. This would test the methods empirically and more comprehensively. It would not involve collecting actual funds, but would assess how much could be generated and the issues raised in using the various funding methods in practice.
• The evaluation principles laid out in Section 5 and 6 of this report should be used as the basis for guiding decisions on whether a particular alternative funding method is to be adopted.

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