Pay Up with value capture

Yesterday’s press release was quoted in The Age article Pay Up: Grand Plan to get big projects built.

After quoting the soft option of tolling drivers, which has failed spectacularly as a financing mechanism in NSW and QLD, the article moves on to quote the RACV’s Bryan Negus:

RACV public policy head Brian Negus said tolling level crossings would be impractical.

He said some on Labor’s list could be removed in a public-private partnership, with the private sector given development rights around the rail line.

“If you remove six or seven together in one package and put those out to the private sector in a value capture arrangement with government funding as well, that’s a good way of trying to deliver them,” he said.

With the cost of Public Private partnerships continuing to rise, one wonders when a Labor Government will ever question them? From the cost of finance at 2% above government financing, the public interest is immediately at a disadvantage.

Then there is the incredible cost per train station. The Wyndham Vale and Tarneit stations are rumoured to have cost $50 million each. These are jaw dropping costs, for which the developer paid nothing to see his land values skyrocket. But the millennium falcon of train stations – the Williams Landing station – tops them all at $110 million (including overpasses). The size of these costs ensures the government MUST utilise the most efficient form of revenue raising possible. Under the current arrangements, the public will recognise such immense infrastructure projects as nothing more than developer welfare.

The academic with the lead quote in the article almost got it right:

Speaking this week on a panel organised by Engineers Australia, Professor Stanley of the Institute of Transport and Logistics Studies said the revenue could go into a transport fund that would help the government deliver a long-term plan for Melbourne.

“The general principle is you identify who the beneficiaries are from implementing public policy initiatives and ask them to make a contribution, and the people who are going to benefit from this are the motor vehicle users who get a better run,” he later told Fairfax Media.


But Professor Stanley looks only at the users – the car drivers. The real beneficiaries are the surrounding land owners. Some property valuers estimate the value of a train station adds $70,000 to each property within walking distance. A sway of high level reports have pointed to the use of a fairer infrastructure financing system:

Not-for-profit group Prosper Australia argues the Abbott government’s resistance to fund the project should not stop it.

It wants the government’s “value capture” plans for level crossings expanded to properties along the metro line, which would run from South Kensington to South Yarra, and travel under Swanston Street.

“Land prices along this route will soar and government is entitled to use some of this to fund the project,” Prosper Australia’s Karl Fitzgerald said.

“People forget 30 per cent of the Melbourne underground loop was funded by a special city levy on land values from 1963.”

Former Prosper Australia President Robert McAlpine was a Melbourne City Council bureaucrat who played a significant role in ensuring surrounding land owners to the City Loop paid something back to the community to say thanks for the new service – and the windfall gains. However, today landowners scream poor when they have to pay even 2% of the benefits back.

But alas we face the usual battle:

One real estate industry figure said imposing such a special levy on land along the route would be met with spirited opposition from property groups.

The tenor of the first few comments accompanying the article suggest the people have had enough:

So what if property groups kick up a stink if a levy is imposed upon land along the metro route, it needs to be built and the government should not pander to any vested interest groups. We need to remove level crossing and we need more trains, we don’t need more freeways.

@Trashman: “So what if property groups kick up a stink if a levy is imposed upon land along the metro route”
Exactly. These real estate speculators have been banking on getting windfall gains from property revaluations on the back of publicly funded capital works. Let them scream blue murder. The public should be the ones to benefit from public works
Greg PlattProperty developers have had a free ride (or a cheap one) for too long.
Andrews has an opportunity to govern. Make some hard decisions and tell em he’ll see em in four years time
RhmIn London, the old docks were a wasteland of falling down and under used properties. In exchange for rezoning and thereby increasing the value of the land, the government extracted a promise for the developers to contribute towards the construction of the Jubilee line. Sound familiar former Minister Matthew Guy – only in your case you handed a property bonanza to the developers for free with no need in legislation to contribute to costs. Its beholden on the new Labor government to now correct that and say to developers – you don’t get a permit without contributing. The bigger the building, the smaller the apartments, the more people, the bigger the levy. Instead of always letting the taxpayer pick up the tab and first class airfare for every developer.


With the new Victorian government introducing the Ministry of Equality, this policy innovation is a vital step forward.

Read more on value capture and the incredible history behind it.

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