Value Capture: Is There a Role for the Commonwealth?



15 March 2017

Swissotel, Sydney

This is an important and timely conference and I am very pleased to have the opportunity to speak at it.

There is a lot of talk about value capture at the moment. For example my colleague John Alexander, Member for Bennelong, who is with us today, recently chaired an inquiry by the House of Representatives Standing Committee on Infrastructure, Transport and Cities, looking at some of the issues. Their report is entitled Harnessing Value, Delivering Infrastructure.

In my remarks today I want to start today by making the point that interest in value capture is a growing global trend.

Next I want to touch on the growing level of interest in value capture at all levels of government in Australia.

Finally I will speak about the process the Commonwealth Government has underway to look at opportunities in this area. The question we are asking can best be summarised as: is there a role for the Commonwealth in stimulating value capture?

Growing Global Trend

Around the world governments are facing the challenge of how best to fund major infrastructure projects, particularly as cities grow in population. Increasingly governments are looking to the increase in value which is typically experienced by property owners and businesses located along the route of the new infrastructure.

Some examples are very well known and regularly cited. One is the massive London Crossrail project. Another is Hong Kong's MRT, essentially an urban rail company which is also a property developer. The profit it generates from developments located around new rail station cross-subsidises the capital cost of building the new rail line.

I recently had the chance to visit Crossrail, a project with new stations and around 118 kilometres of line, of which 42 kilometres is new, including a tunnel through central London.

Value Capture mechanisms will contribute over one third of the $28 billion cost of the project. They include a Business Rate Supplement (BRS) of two per cent on commercial properties with a rateable value of more than £55,000 in the Greater London Area; development revenues, including an infrastructure Levy and development application charges; and funds from the resale of surplus land and property originally used to provide construction site access for workers and machinery.

The rationale for these charges is that the properties and businesses located near the new rail line will obtain substantial economic benefit. Indeed at least one of the new stations (Woolwich) is being funded almost entirely by the private sector landowner who sees the value of having improved access to its Royal Arsenal housing and retail development around the station.

I visited Tottenham Court Road station where I was impressed to see not only the remarkable progress being made underground, but also the care they are devoting to preparing the site above ground which will be released for property development. The profits from that—and the similar buildings at most of the new stations along the route—will contribute to the capital cost of the project.

Another example is the Transbay Transit Center in San Francisco.

The $6 billion project brings together 11 local, regional and state-wide transit systems in a central hub. But it is much more than just a new terminal building for rail, light rail and bus. It is also the centrepiece of significant urban regeneration.

Many vacant lots are now building sites—indeed across several blocks the downtown area of San Francisco is being regenerated.

A key part of the project economics is the use of value capture, with private developers contributing to the cost of the new Transit Centre, in the knowledge that their building will be much more valuable because the area where it is located is becoming much more vibrant—and will have first class transport connections to virtually every part of the Bay Area.

But there are many other examples which might be less well-known to Australian audiences:

  • Land pooling and readjustment schemes in India for new urban areas such as Gujarat[1]
  • Waterfront regeneration in Rio de Janeiro financed by a bond issuance scheme[2]
  • Contributions by property owners along the route of new light rail lines, in locations such as Seattle, Portland, and Charlotte.[3]
  • Tama Denen Toshi development, a planned community in Tokyo serviced by a rail line and financed using a ‘land readjustment’ model[4]

Our international competitors are investing in getting value capture right.

There is growing interest in Australia

In Australia, too, there is growing interest in the use of value capture.

Of course, over the years quite a number of infrastructure projects in Australia have been funded, at least in part, through value capture mechanisms.

The funding scheme for the Sydney Harbour Bridge involved it being one third funded by a two per cent levy on surrounding properties. [5] The Melbourne City Loop was similarly funded via council rates and a special levy.[6] However, in a sobering dose of political reality, both schemes were abandoned well before the intended amount of money had been raised, due to local political resistance.

More recent examples have involved the sale to property developers of the air rights above busy railway stations, such as Chatswood and St Leonards in Sydney and Melbourne Central and Southern Cross in Melbourne.[7] A recent well known example is the Gold Coast City Council City Transport Improvement Charge, an annual levy on land owners, currently standing at $117, which partially funds stage 1 of the Gold Coast Light Rail.[8]

There are I think a number of reasons why value capture is attracting increasing interest in Australia.

The first is the sheer demand for investment in new transport infrastructure projects—while at the same time there is a clear limit to what can be directly funded by governments, Commonwealth or state, given all the other claims on the budget. If value capture can provide a new funding source to support at least part of the cost of a project, that can mean the difference between the project proceeding or not proceeding.

A second reason why the Turnbull Government is interested in value capture is that it can be a means for the Commonwealth Government to be a more sophisticated investment partner. As the Prime Minister puts it, we need to ensure that we are more than just ‘an ATM’ for the states.[9]

Let me expand on this for a moment. The Commonwealth this year will provide infrastructure funding of nearly $9 billion around Australia. That is a very significant amount—and we want to make sure it has the maximum possible impact. We are interested in leveraging this spend to attract funding from other sources—such as other levels of government, the private sector, and project beneficiaries—and we see value capture as one very important tool to do this.

But perhaps the third and most fundamental reason is that a value capture approach can be a means to address a market failure. A potential project may offer benefits to many classes of potential beneficiary: property owners along the route of a rail line whose properties would increase in value, or businesses that would gain extra foot traffic, or developers who would have the opportunity to build larger buildings because they were adjacent to a transport connection.

These benefits are already recognised by the private sector. For instance, land located near stations on the new Sydney Metro North West rail line has recently experienced very marked increases in value. Once it became clear that this transformation project was actually going to be delivered, property developers were willing to pay for tens of millions of dollars more for residential properties in locations such as Castle Hill.[10]

Similarly, in the case of the M1 Motorway in Brisbane, average annual growth in industrial land values during the planning, construction and delivery of the Gateway Upgrade Project between 2003 and 2010 was 22 per cent, compared to the industrial market average of 16 per cent.[11] The market places significant value on, and extracts significant value from, major infrastructure projects occurring.

But under conventional funding arrangements, unless government has the budget capacity in a particular year to fund a project, it will not proceed.

This will be so even though the many beneficiaries, if offered the chance to do so, may be willing to contribute to the cost of building the project—because even after making the contribution, they will be better off.

The fact that this does not happen today is a form of market failure.

So the challenge for policymakers, when it comes to devising practical tools to implement a value capture approach, is to find a way to establish a market within which those who would be willing to pay towards the cost of a particular infrastructure project have the opportunity to indicate the fact, and quantum, of their willingness to pay.

The aim is to establish markets, with the stream of infrastructure services on one side of the market, and potential users and beneficiaries of those services on the other side.

A well-designed value capture process would allow beneficiaries to consider whether and how they wished to pay for a project to proceed—in the same way that a potential customer determines whether to pay a particular price for a specified good or service.

Government process to explore VC opportunities

This brings me, therefore, to the Commonwealth Government's work to look at how we could stimulate a greater use of value capture.

Last year I joined with Assistant Minister for Cities Angus Taylor to develop and issue a discussion paper on the Commonwealth's role in promoting the wider use of value capture to help deliver major land transport infrastructure.[12]

As I have mentioned, the report of the recent inquiry led by Member for Bennelong John Alexander[13] is another important contribution to the policy debate, as is a paper recently issued by Infrastructure Australia about value capture. [14]

The purpose of the discussion paper we issued was to ask if there are sensible steps the Commonwealth could take to stimulate value capture. In the paper, we sought the input of stakeholders on a number of key issues, such as:

  • how to fairly identify who will benefit from a project;
  • how to better integrate project investment decisions into wider land use planning;
  • how to best manage the mismatches in timing between the upfront financing requirements of the project, the uplift in land value and monetary benefits and when beneficiaries materially gain from these uplifts.

The paper also sought feedback on a number of potential options the Australian Government could use to stimulate the use of value capture in the development and delivery of transport infrastructure. These options include:

  • working with state, territory and local governments to promote leading practice;
  • using the Australian Government's funding and financing capacity to support value capture strategies;
  • strengthening requirements on Commonwealth funding support;
  • establishing a specific program for projects with a value capture element; and
  • stimulating market-led value capture proposals.

The Turnbull Government has been very pleased by the range and quality of the submissions we have received in response to the discussion paper on value capture. Let me highlight some of the themes in the submissions.

There is broad support for a range of value capture mechanisms with different applications and risk profiles.

Several submissions highlighted the timing mismatch issue which the paper canvassed.

We received a number of comments about the importance of integrated land use and infrastructure planning to maximise the economic and social benefits created by a project. One approach suggested in several submissions is to use the early planning stage on major projects to devise the optimal strategy for public infrastructure funding.

Several submissions, including those from state and local governments, expressed support for the Commonwealth taking a leadership role to influence the establishment of workable value capture arrangements in Australia.

In the projects we are presently involved in, the Turnbull Government is working to build in value capture as part of the overall funding mix.

One good example is that we have provided $10 million to progress planning for Brisbane's Cross River Rail.[15] Part of this planning will include examining value capture opportunities. Another example is the $78 million of funding provided for Parramatta Light Rail, where a value sharing regime is proposed by the State Government.[16]

If you take a broader historical perspective, this is very much the right time for the Commonwealth to seek a more active role in applying value capture approaches to infrastructure funding.

There is record infrastructure spending underway by the Turnbull Government. We are committed to transformational projects such as the Western Sydney Airport and WestConnex, and have begun the significant pre-planning required for the Melbourne to Brisbane Inland Rail project.[17]

Let me however acknowledge an important cautionary note regarding value capture. It should not just be code for increasing the cost of housing by placing an extra tax on landholders.

As I have said a number of times, in our approach to value capture we will be seeking to create a win-win proposition—in which, for example, landowners or business owners contribute towards the cost of new infrastructure but in exchange receive an increase in value which exceeds the amount of the contribution.


Let me conclude with the observation that infrastructure investment can have a transformational effect on productivity and liveability, creating significant new value for individuals, businesses and the community.

If we can tap into some of that value to contribute towards the capital cost of building new infrastructure, then we can get more infrastructure built, more quickly.

Value capture is not a silver bullet, but if we can get the settings right it can provide a “win-win” for both Government and industry—allowing greater investment in more integrated infrastructure than would otherwise be possible.

As today's conference demonstrates, there is a lot of interest in this topic—and an appetite to turn that interest into new projects that will deliver tangible benefits for our economy and our nation.

[1] Shishir Mathur, Innovation in public finance: property value capture, Published by Routledge 2016, Chapter 1

[2] See:

[3] Mathur S (2016), at Chapter 1.

[4] Zhao, Zhirong Jerry, Kirti Vardhan Das, and Kerstin Larson, Joint development as a value capture strategy in transportation finance, Journal of Transport and Land Use 5.1 (2012): 5–17

[5] Spearritt, P, Sydney Harbour Bridge: A Life, Published by University of New South Wales Press 2011

[6] Ernst and Young, Value capture: options, challenges and opportunities for Victoria—Technical Appendix Advice to Infrastructure Victoria, October 2016

[7] p14, at 2.2, of the Australian Government Value Discussion Paper, November 2016

[8] Ibid

[9] The Hon Malcolm Turnbull, MP, speaking at the National Cities Summit, 29 April 2016—available at

[10] See, for example:

[11] Urbis for Infrastructure Australia, Review of Historic Urban Land Value Growth—East Coast Capital Cities, 2013

[12] See:

[13] See:

[14] See:

[15] See:

[16] See and

[17] Budget data shows that IIP funding in 2016–17 is $8.328 billion and in 2017–18 will be $8.510 billion.