Land Value Capture 101: How to Fund Infrastructure With Increased Property Values

In a week-long series, TSTC will explore different aspects of a transit funding strategy known as land value capture. This series came about in light of New York City’s Midtown East rezoning proposal, which emphasizes the relationship between development and infrastructure improvements. This week, TSTC will highlight land value capture as a tool to generate revenue from development activity to fund transit—one of many in a toolbox of transit funding strategies. 

Adding density to before any pedestrian and transit improvements are made can overwhelm east Midtown’s already overloaded transit infrastructure. | Photo: Arch Daily

Adding density before any pedestrian or transit improvements are made will overwhelm East Midtown’s already overloaded transportation infrastructure. | Photo: Arch Daily

As the controversial proposal to rezone Midtown East continues to make its way through New York City’s review process, one of the most problematic aspects of the proposal—its development-first approach that allows developers to build higher before any transit improvements are made in the area—was recently flagged by Manhattan Borough President Scott Stringer and the Bloomberg administration. Earlier this month, Stringer granted his approval for the project, on the condition that transit improvement plans are implemented first. This approval came just days after promises from the Bloomberg administration to front money for infrastructure improvements related to the rezoning.

TSTC agrees that transit investments must come first, and we look forward to more detail from the Mayor’s office.

While this is a start, is it enough? As city agencies experience declines in revenue, innovative strategies, like land value capture, are beginning to be employed to supplement traditional funding sources.

What is Land Value Capture?

Land value capture (LVC) is a method of funding infrastructure improvements that is successful upon recovering all or some of the increase in property value generated by public infrastructure investment. LVC can help mitigate the challenges cities face in obtaining public funding, while also providing benefits to private sector partners.

Benefits from public infrastructure investment like transit, for example, can increase adjacent land values. Studies have shown that buyers are willing to pay a premium for property (both commercial and residential) in high-density, mixed-use, walkable and transit-accessible areas. When businesses locate close to transit, the potential pool of employees and customers grows, and overhead costs, like the provision of expensive parking go down.

A Center for Transit Oriented Development study shows that proximity to high-capacity transit stops yield particularly high land value premiums, ranging from one percent to over 150 percent. Arlington, Virginia’s Rosslyn-Ballston Corridor, just outside of Washington, D.C. saw land values increase by 81 percent between 1992 and 2002.

Capturing a portion of those land value increases can lead to new ways of funding public transit infrastructure, operations and maintenance.

The protected bike lane on Chicago's Kinzie Street was financed using TIF. | Photo: Josh Koonce/Flickr

The protected bike lane on Chicago’s Kinzie Street was financed using TIF. | Photo: Josh Koonce/Flickr

Washington, D.C’s New York Avenue Metro station project was funded in part using SAD. | Photo: The City Fix

Washington, D.C’s New York Avenue Metro station project was funded using SAD. | Photo: The City Fix

What are some Land Value Capture Strategies?

  • Transit Development Impact Fees (TDIF)

A one-time charge on new development designed to cover costs associated with its impact on public transit systems. This reflects a shift in policy where local governments increasingly look to developers to contribute to the impacts of development.

  • Tax Increment Financing (TIF)

A funding strategy used by cities to promote economic development within a designated area that is deemed “blighted” or “underdeveloped”. Widely used in Chicago, TIF is used to divert anticipated property tax increases to a dedicated fund, which is then reinvested into public infrastructure within the TIF district.

  •  Special Assessment Districts (SAD)

In districts in which land value has increased as a result of public infrastructure improvements, like upgraded transit systems, an additional tax is assessed on parcels to recover the costs of the public improvement project. SADs are most useful to fund localized improvements, such as new transit stations on existing lines or district-specific improvements like bus or light rail.

Join us tomorrow as we discuss a number of preconditions that must be in place for successful use of value capture: land taxes that encourage development, policies that promote dense, mixed use, walkable neighborhoods, and market demand.  

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4 comments to Land Value Capture 101: How to Fund Infrastructure With Increased Property Values

  • […] Land Value Capture 101: How to Fund Infrastructure With Increased Property Values Mobilizing the Region (NY) – August 19, 2013 LVC can help mitigate the challenges cities face in obtaining public funding, while also providing benefits to private sector partners. […]

  • Land value capture is an important technique for recycling publicly-created land values for public purposes. However, some techniques listed are NOT value capture:

    Transit Development Impact Fee (TDIF): This fee captures privately-created building values. It makes buildings more expensive to develop near transit. This would seem to contradict the notion that development should be encouraged near transit. TDIF is not “value capture.” Instead, it is a “cost-recovery” technique. It is appropriate for undeveloped areas where developers seek to take advantage of low land prices and expect the public to provide new facilities and services for their new developments.

    Tax Increment Financing (TIF): This technique does not change the taxes paid by property owners. (So it is NOT value capture.) It merely assumes that increases in taxes (above an established baseline) are the result of a new development project and it allocates tax revenues above the baseline to finance infrastructure targeted to that new development. This is a “revenue segregation” technique that diminishes the general fund.

    A special assessment district may (or may not) be value capture. It depends on how the fee is assessed. If the fee is assessed against publicly-created land values, it IS “VALUE CAPTURE.” If it is assessed against privately-created building values, it is “value transfer.”

    For more information, see “Using Value Capture to Finance Infrastructure and Encourage Compact Development” at https://www.mwcog.org/uploads/committee-documents/k15fVl1f20080424150651.pdf

  • Are there any studies on property values benefitting from cities improving old infrastructure ( streets,sidewalks,water and sewer)? We are trying to get public support for an infrastructure bond. Thank you
    John

  • […] recent proposal to build a 65-story tower directly adjacent to Grand Central Terminal has reawakened the broader Midtown East Rezoning plan. During the Bloomberg Administration’s waning days, […]

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