Perverse incentives from dud taxes dog public infrastructure investment

Melbourne Domain Sunday went into shock and horror over the impact a proposed elevated rail would have on the selling prices of adjoining Carnegie properties.

Area agents say the value of houses backing onto the rail line from Carnegie to Hughesdale could be slashed by up to $200,000, and “the impact on homes with a north-facing backyard would be massive, with concrete structures impeding natural light.”

A natural conclusion, with a beast like this over the fence.


All good, according to town planner David Crowder, who said elevated rail tracks were a comparatively affordable way to improve capacity of existing rail networks and potentially created linear green spines and pedestrian and cycle networks.

”The potential downside is their additional visibility and potential noise impacts owing to their elevated nature,” he said. “However, it is likely design and technical solutions exist to minimise such impacts.”

Planners offering half-baked platitudes like these deserve to be horsewhipped.

How about grade separating by cut and cover trenching? Hamburg is proposing to create parkland above the busy A7 autobahn this way.


“Imagine that there now is a big, loud gap in the city, about 70 to 100 meters wide, with cars, dirt, noise, day in day out, 24/7/365,” says Reinhard Schier from Hamburg’s Ministry of Urban Development and Environment. “After that building is finished there will be parks, gardens, quietness, bird songs, fresh air. And the parts of the city in the west and the east of the autobahn will be reunited again.”

What about the cost of cut and cover? The anonymous bean-counters drawing large salaries from the public teat will surely veto such wilful extravagance, despite the certain civic benefits it would deliver. The private losses can just be ignored.

It is all about incentives, particularly our dud tax system.

Imagine instead we removed the principal place of residence exemption from State Land Tax and those neighboring properties were paying one per cent. The certain capital losses they face would also cost government $2000 per year per property, as it all comes off land values. If government trenched and covered the rail, those land prices would rise strongly – and the difference will be enough to oblige the beancounters to recalculate the costs and benefits and deliver Crowder’s linear parks and bicycle paths without a giant concrete structure down the middle that will stand for at least a century.

Domain later refers to the landowner benefits of level crossing removal:

“The removal of the infamous Springvale Road level crossing in Nunawading was announced in October 2006. The median house price jumped 30.5 per cent from December 2006 to December 2007. In comparison, the Melbourne median house price rose 21.3 per cent, Domain Group data shows.”

That Nunawading-wide land value uplift is due to a tangible and permanent improvement in the suburb’s amenity.

Again, if we has a nil-exemption State Land Tax, Nunawading residential landowners would have to hand back part of their unearned gains – probably enough to repay the loans funding the project.

The opponents of land tax like to paint it as an out-and-out loss for landowners. I say it brings a fresh focus to public infrastructure investment we sorely lack. Projects that don’t provide forecast benefits will not raise land prices – as determined by market values – and we will all know the government stuffed up.

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