Published by: Elsevier
Published by
Keywords
Accessibility
; Land value mechanisms
; Urban transport
Introduction
Traditional funding mechanisms, particularly for urban transport investments, have become increasingly inadequate to cover the growing gap between operating expenses and revenues due to complex and diverse urban goals. The global economic downturn, which in 2008 was precipitated by the US sub-prime mortgage crisis, has certainly exacerbated the situation. Not only did specific sectors of the urban property market suffer from the development of price spikes, speculative behavior and boom and bust cycles (Florida, 2010), but also, due to the fiscal and banking crisis, governments and urban enterprises have experienced significant restrictions with respect to their lending and revenue activities. The resulting quandary relative to transport funding leads us to investigate possible alternative forms of financial resources.
A key prerequisite to stimulate investment in transport and give confidence to investors is a conceptual shift with regard to funding mechanisms; this shift can be realized by unlocking and enhancing urban assets based on their accessibility value. As noted by Geurs and van Wee (2004), accessibility is “the extent to which land-use and transport systems enable individuals to reach activities or destinations by means of transport mode”, hence they observe that a number of components identify the accessibility value. In this work we argue in favor of accessibility as a means of creating and increasing urban value whereby public good features and private sector benefits are combined. However, the realization of this accessibility value gained through transport improvement is essentially related to the type of transport investment (Iacono et al., 2009). Levinson and Istrate (2011) go further by observing that if an investment in a highway increases transport demand and, subsequently, congestion which eventually decreases accessibility, an investment in public transit increases demand but ultimately increases accessibility. These conclusions are particularly interesting in light of the fact that urban growth is often associated with dependence on the automobile as the main transport mode (Travisi et al., 2010). For instance, in low and middle-income countries where on average road traffic between 1990 and 2006 has more than trebled, transport systems are comprised by mostly passenger cars (World Bank, 2007). Certainly the rise in car use corresponds to increases in average distance travelled, the high costs of infrastructure and energy, urban traffic congestion and pollution, reduction of green areas, and limited access to services and activities.
In an effort to decrease reliance on the automobile and to subsequently mitigate its direct and indirect effects in the provision of urban transport, we must consider the range of alternative transport services. For example, mass transit systems provide capacity and competitive levels of service for a large number of urban travelers. However, although mass transit systems such as metro, light rail transit (LRT) and bus rapid transit systems (BRT) represent innovative solutions to the urban accessibility problem, they nevertheless require large sunk investments, such as in the case of LRT (Polzin and Baltes, 2002, Hecker, 2003, Kennedy et al., 2005). And the consequence of high cost considerations may ultimately discourage decision-makers from investing in these transport systems. This argument leads us back to our initial concept of accessibility as a means of creating urban value. The proposition in the present paper is to focus on accessibility gain, that is, to give more credence to the financial recovery mechanisms resulting from increased accessibility due to transport investments. This concept is generally referred to as land value capture finance.
The search for alternative and flexible methods of revenue generation and the development of financial frameworks for transport investment is an on-going process, particularly in local authorities, and it is certainly a paramount task in the present economic downturn. These financial tools as Peterson (2009) observes however cannot be merely restricted to the generation of revenue, but they need to be efficiently designed in order to foster stable and equitable urban land markets. Thus, our primary aim in this work is to review the main methods based on accessibility that allow for the capture of the windfall from an increase in land value. In so doing, we advocate that an investment program based on land value, especially when applied in cities, can achieve the kind of sustainable development in which more efficient use of energy is closely related to economic and social processes, and high accessibility is not merely dedicated to car usage.
Section snippets
Land value related to transport accessibility
Land value capture finance (LVC) is often seen as an alternative method of revenue generation for urban transport systems. The basic assumption is to recover the capital cost of the transport investment by capturing some or all of the increments in land value resultant from the increase in accessibility. In so doing, we incorporate accessibility within a land value financial framework, in which we link the benefit of transport investment to its costs. The approach has a wide literature and
Betterment tax
Financing an urban transport system through a tax on the land value added by public investment is the main assumption of the betterment tax, also known as benefit assessment. Betterment tax is directed towards the beneficiaries of increased accessibility, of reduced congestion and pollution, and of lower transport costs achieved due to a transport investment. In a mass transit system such as light rail, a significant part of the capital cost is constituted by the land acquisition. For example,
Accessibility increment contribution (AIC)
We group under this heading all the fiscal incentive instruments that earmark future revenues (fiscal contribution for accessibility increment) to finance current expenditures. The basic idea of this financial tool is that public improvement expenditures induce growth in urban areas characterized by low accessibility levels. Private investors are therefore encouraged to invest in designated areas because they are assured that their taxes will finance the development of the area and thus provide
Financialization: Joint development mechanism
The two LVC methods discussed in the previous sections are based on the implementation of fiscal regimes. The principles for selecting and implementing these types of tax regimes may however prove to be deceptively easy. The often required fiscal decentralization may constitute a challenge for local authorities. In countries such as the US, France and the UK, where the administrative system is often in place, the task of implementing a new tax regime may be complex and costly (Dye and England,
Conclusions: policy outlook
Land value capture finance methods can be seen as robust financial tools for transport funding under different approaches of implementation. The importance of land value capture finance is based on the notion that transport accessibility, by forging close ties with land development planning, can create and increase economic, social and environmental urban value. We have reviewed here the three main land value capture finance mechanisms in relation to increased transport accessibility. The
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