Delivering "land value capture" for new railways

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geoffk

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According to the Transport Times blog, an Edinburgh-based company has been developing a means of capitalising on the increase in land value near infrastructure projects and using it as a funding source. They are working with Northumberland County Council to obtain between 25 and 30% of the capital funding for the reopened Blyth & Tyne line from land value capture. While initial funding for the line will come from the public sector, the contribution from landowners - which will be a share of the uplift in land values along the route created by the line reopening – will come back to the council, reducing the long-term burden on the taxpayer.

If you live in a large city, local transport improvements are likely to boost the value of your home. London is the most extreme example but the trend is evident in other large cities. Glasgow has the largest network of suburban rail lines outside of London, and properties 500m from a station attract a 6 per cent premium compared to those further away. In Manchester, this drops to 4.6 per cent, from research by Nationwide Building Society. I wonder what impact the railway will have on land values in Ashington and Blyth.

This idea has been around for some years. Dave Wetzel at the erstwhile GLC was keen on it as part of his campaign for a Land Value Tax. I've dug out some correspondence which I had with transport consultant Reg Harman back in 2006. I think the original context was the Jubilee Line extension to Docklands in 1999. I'm surprised it's taken so long for this to emerge as a potential funding stream for transport.

Any comments from those who know more about this?
 
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Mcr Warrior

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Must also be examples where there's been a negative land value "enhancement". :s
 

Bald Rick

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Crossrail was partly paid by a land value capture mechanism. And will be for some time to come!

I saw the article about the Northumberland Line too, and would be interested to see how the actual mechanism works. It would be very unusual if it was not only on new development.
 

Mcr Warrior

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Depends doesn't it; people want to leave near a railway (station) but not too near, nor a depot.
Think we had quite a lengthy thread last year about the pros and cons of buying a property in near proximity to (i.e. within earshot of) Lancaster station on the WCML.
 

ChiefPlanner

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The Metropolitan Railway did this well over a century ago , setting up an associated company (Met Rly Estates ?) ,which both directly sold land for quality housing development and later worked closely with other developers to create a distinctive suburban milieux. Many other examples where "betterment" worked in the favour of the railways. Impressively so in the case of North America , both in NYC (Park Avenue) , and of course out in the plains.
 

BayPaul

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I could see some logic in doing this via council tax, for new owners of property - i.e. the existing owner keeps the property grandfathered at the same council tax band, but for the next owner the band is increased by one. That could be a fairly reasonable way of getting some of the value for existing property rather than new developments.
 

Dr Hoo

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There are a number of issues with this whole subject. For example:

Especially in 'semi-rural' areas the number/proportion of properties (old or new) close to a line being enhanced may be very low. The various Chiltern upgrades seem to have been done largely on a 'parkway' model rather then walk-ins.

In some places property owners may well not be intending to commute or use public transport regularly. E.g. city centre blocks of flats intended to be within walking distance of major centres of employment and education. Leeds and Manchester spring to mind.

For individual established owners an increase in 'value' is only realisable when they sell. And having to tell a prospective purchaser that their Council Tax will be higher than for a similar property a few yards down the road may not be a great sales pitch.

Developers may well already have to commit to Section 106 contributions for road access improvements, schools, public open space and so on. It's not a bottomless pit of excess profits.
 

Dr Hoo

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This would be very relevant to say the Leven reopening?
It's a long time (about 30 years) since I was on a special demonstration train to Leven for Fife councillors in BR ScotRail days so things might have changed but I don't recall large areas of development land near the (then) proposed station site.

Or is the idea to basically demolish 'old' Leven and re-build it with new houses for commuters to Edinburgh?
 

geoffk

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Some good comments. As requested, this is the link to the article in "Transport Times".


The Metropolitan Railway is good example, as discussed by ChiefPlanner. We must all have watched John Betjeman's film "Metroland". Not sure though how it applies in Blyth and Ashington but I assume there are plans for development along the route.
 
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JamesT

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So as far as I can tell from reading the E-Rail website, they basically make a forecast for how much landowners in surrounding areas will benefit from a scheme, and then use those forecasts to demand money from said landowners?

That feels a bit woolly rather than some sort of taxation based on actual values. Also what's to stop the landowners saying no and refusing to cough up?

Or have I massively misunderstood?
 

Dr Hoo

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Thanks for those links.

Perhaps I am looking at this from the wrong end of the telescope but articles from London don't seem to be particularly relevant. I was looking at Leven, as an example. There only seem to be three new houses available at the moment, all on the outskirts and well away from the proposed new station. They were built by a local firm not one of the 'nationals'. You can get a nice six-bedroom detached for well under £500,000 in that neck of the woods.

I really struggle to see how this sort of thing can contribute the necessary tens of millions of pounds to proposed re-openings.
 
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I could see some logic in doing this via council tax, for new owners of property - i.e. the existing owner keeps the property grandfathered at the same council tax band, but for the next owner the band is increased by one. That could be a fairly reasonable way of getting some of the value for existing property rather than new developments.
Not sure how much money that policy could actually raise. It will be highly dependent on how fast-moving the local housing market in question is; there’s also a fair chance of introducing weird anomalies when, for example, someone buys a house, for reasons not railway-related, who is then facing a higher council tax bill than their neighbour next door (an existing resident), who decides to change their employment to make use of the railway.
 

Bletchleyite

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The easiest way to do this is proactively on constructing new houses, by way of planning gain.

For existing properties it's rather difficult and has the potential to be very unfair, unless it was a full move to land value tax replacing Council Tax.
 

Bald Rick

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The easiest way to do this is proactively on constructing new houses, by way of planning gain.

It is, but there are very few examples of big values in this respect.

Evenin London, with the rather controversial Mayors Community Infrastrucutre Levy (designed to contribute to Crossrail and Crossrail 2), the levy on a U.K. average sized home in central London was about £5,500. That reduces to £1700 in outer London.

In less expensive parts of the country, you are going to need an awful lot of new homes at that rate to make a dent in the funding of a new railway. To use an example from another thread, to fund just a third of Uckfield to Lewes you’d need 50,000 new homes at £2k contribution each (not allowing for the time cost of money, so in reality you’d need a higher value). That’s almost doubling the number of homes in the entire district.
 
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[T]o fund just a third of Uckfield to Lewes you’d need 50,000 new homes at £2k contribution each (not allowing for the time cost of money, so in reality you’d need a higher value). That’s almost doubling the number of homes in the entire district.
Indeed, and having lived in that area in my younger days I know that the prospect of 50,000 new homes between Lewes and Uckfield would not be... universally welcomed, shall we say?
 

BayPaul

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Not sure how much money that policy could actually raise. It will be highly dependent on how fast-moving the local housing market in question is; there’s also a fair chance of introducing weird anomalies when, for example, someone buys a house, for reasons not railway-related, who is then facing a higher council tax bill than their neighbour next door (an existing resident), who decides to change their employment to make use of the railway.
For existing properties it's rather difficult and has the potential to be very unfair, unless it was a full move to land value tax replacing Council Tax.
For my suggestion, I was seeing an increase in council tax for future owners as effectively a tax on existing owners - i.e. their house price increases because of the new railway, but that increase is reduced slightly because the new owners will need to pay more council tax in the future. The existing owners don't have to pay any cash, and their house will still be worth more than without the railway, so they don't have cause to complain, whilst the new owner was fully aware of the increased council tax, so they also can't complain. Whilst not perfect, it isn't that unfair
 
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For my suggestion, I was seeing an increase in council tax for future owners as effectively a tax on existing owners - i.e. their house price increases because of the new railway, but that increase is reduced slightly because the new owners will need to pay more council tax in the future. The existing owners don't have to pay any cash, and their house will still be worth more than without the railway, so they don't have cause to complain, whilst the new owner was fully aware of the increased council tax, so they also can't complain. Whilst not perfect, it isn't that unfair
I take your point, but I still think it is too uncertain to be a guaranteed source of funding. It is dependent upon the rate of house sale transactions in the area. As an admittedly extreme example, how would you deploy your policy if all the existing owners sat tight, but still enjoyed their new rail service giving them access to potentially higher-paid jobs in the city they were now connected to?
 

NotATrainspott

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If you make a tax apply only in a certain situation, then people will move heaven and earth to make sure that situation doesn't happen very often. A tax on new builds only will result in there being fewer new builds. A tax that only happens when a property is sold will make house sales less common. If you want to make land value capture work, you really don't have any option but to apply it consistently. That means taxing every single property, every year, regardless of what might be happening. A building under construction needs to pay the same LVT rate as if it were complete, or the same plot were empty.

A scheme focussed on uplift only might well neglect the places where there is already good public transport and so land values are already high. That would have fairly perverse effects and shift people to areas where there are no plans for public transport investments.

An LVT captures land rent and diverts it away from private property owners. It would mean, in effect, that the state would be the freeholder of all land and anyone buying a plot would just be buying a leasehold where the ground rent is tied to the value of the leasehold.
 

Bald Rick

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A tax on new builds only will result in there being fewer new builds. A tax that only happens when a property is sold will make house sales less common.

The MCIL in London didn’t really result in fewer new builds - it just reduced land prices. And stamp duty doesn’t seem to stop the house market too much.


For my suggestion, I was seeing an increase in council tax for future owners as effectively a tax on existing owners - i.e. their house price increases because of the new railway, but that increase is reduced slightly because the new owners will need to pay more council tax in the future. The existing owners don't have to pay any cash, and their house will still be worth more than without the railway, so they don't have cause to complain, whilst the new owner was fully aware of the increased council tax, so they also can't complain. Whilst not perfect, it isn't that unfair

Trouble is, this does t catch a fair proportion of home owners that don’t sell their homes - landlords. In that situation, landlords could put their rents up (more attractive to rent out), but not pay anything. Unless you raise council tax on the tenants - but then they be paying twice, and the owner nothing!

It’s a minefield, it really is. It has been looked at extensively in London. As others have said, there are always perverse incentives and unintended consequences.
 

NotATrainspott

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The MCIL in London didn’t really result in fewer new builds - it just reduced land prices. And stamp duty doesn’t seem to stop the house market too much.




Trouble is, this does t catch a fair proportion of home owners that don’t sell their homes - landlords. In that situation, landlords could put their rents up (more attractive to rent out), but not pay anything. Unless you raise council tax on the tenants - but then they be paying twice, and the owner nothing!

It’s a minefield, it really is. It has been looked at extensively in London. As others have said, there are always perverse incentives and unintended consequences.

Stamp duty causes problems on the margin. What it effectively does is raise the cost for many people to move houses, especially at the top end of the market. That means people hold out for longer before selling, rather than doing it when it's most appropriate. As so many properties are sold in chains, this results in a slowdown in transactions across a much wider range of properties. That includes ones which don't cost enough for Stamp Duty to matter much on its own.

Given that housing is in such short supply, the government should be subsidising house moves rather than penalising them. Making it easier for people to move means that it'll be easier for people to downsize when that's suitable. You want a family needing 3 bedrooms to be able to trivially swap their 2 bedroom house with a family that currently has 3 bedrooms but only needs 2.

At the very top end, Stamp Duty ends up being bypassed by changing ownership of properties through shell companies and other legal structures.

Any extra costs applied to new build properties have the effect of reducing land prices. However, at the same time, they reduce the supply of new homes. It's again a problem on the margin.. Dropping the rate of return by even just 0.1pp means that some schemes will no longer be viable. This problem is shared with all taxes levied at planning or construction stage.

Indeed, any tax that is based on the amount of development means that there is not as strong an incentive to develop just that little bit more. You would get a lot more housing available if you were able to squeeze just 5% more houses across every scheme. If you tax land, then you create the strongest incentive to develop the absolute maximum viable scheme as this would make the constant land tax burden more affordable than any smaller scheme.

The reason a land value tax never ends up being implemented is that it means attacking the golden goose of high property values. Apply a realistic LVT to London and property values would crash down to the rate that they should actually be. The nice thing about an LVT is that it means that owners do not benefit from the value of their land increasing. A pile of bricks and mortar worth £100k on a £200k plot of land seeing that land double in value (new house price of £500k) would have to pay twice as much tax. That isn't sustainable for most people. Land owners in that situation would have little option but to redevelop to provide more individual rentable properties. Planning policy then becomes the way the state directs development. If the state meant that a street of Metroland semis within walking distance of a Tube station could be knocked down and replaced with flats, then their current owners would end up paying the land value tax levels that only a development of flats could ever afford. They'd be essentially forced to sell up and move out by market forces, in a way which doesn't exist for anyone but tenants today.

The flipside is that you have the most fantastic source of money to build new infrastructure. Yes, you might not get property speculation any more. However, you will benefit from new Tube and Crossrail lines covering the landscape.
 
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