value capture as a tool for tying land use to transit

Yonah Freemark of the Transport Politic has an interesting post today on Toronto Mayor Rob Ford’s effort to build a subway line entirely through value capture – a process that captures, as revenue for the project, some of the profits that will arise from dense development around stations. Mayor Ford's initiative is not going well, partly because neighbors are objecting to the level of density that would be needed to support the subway.

Value capture has several connections to urbanist outcomes. A rail expansion program driven by value capture would:

  • Tie completion of the line to zoning and development choices that allow major density around stations. For anyone who values compact and sustainable development, this is a feature, not a bug. It means a line cannot proceed unless communities on the line have agreed to significant density increases.  Many urban regions are trying to make this linkage through policy, but tying it to the project's funding is obviously a far more effective way to keep land use planning tied firmly to the transit.
  • Fail to serve existing high-density areas, such as SF’s Chinatown or Van Broadway. If you believe that existing density deserves as much service as new density, value capture won’t get you there.
  • Fail to serve “social justice” outcomes, such as far SE Chicago Red Line extension to the extent that value capture requires displacement of populations.

I don't endorse or opposite value capture in the abstract, and I'm suspicious of public-private partnership in general, but there's no denying that first point, that when you want to ensure that the land use will be there to support your rail line, value capture keeps everyone much more focused on that outcome.

13 Responses to value capture as a tool for tying land use to transit

  1. Chris, Public Transport June 3, 2011 at 6:04 pm #

    I know Point 2 has come up in regards to Vancouver over whether money should first be spent on extending rapid transit in Surrey, a low density but developing suburb, versus Broadway, an already fairly high density urban environment.
    If you decide to construct rapid transit based on projected ridership, then it is hard to understand why Surrey would ever get additional rapid transit before Broadway. Even if you zone for increased density, there is no guarantee anything will be built there. Even planned projects can fall apart at the last minute, like the Grand Avenue project in downtown LA that keeps getting delayed; in extreme cases they end up being built but not occupied (like some eyesores in Las Vegas).
    That’s an interesting point about what would happen if value capture causes an increase in gentrification; since at least initially the project area might be considered a low-income, minority heavy area it may be looked upon favorably by American anti-discrimination statutes like Title VI, only to have a complete turn over in the end.
    Unless for some reason there is a lot of vacant land in the urban core, like in Detroit, I believe there is a risk that value capture could lead to an acceleration of suburban sprawl through the development of high density ex-urban edge cities. The Toronto Spadina subway extension to Vaughn would seem like a good candidate for value capture as land besides the prospective stations in York Region is mostly empty. Rapid transit expansion in Surrey, BC likewise would go by a lot of areas that are pretty vacant. Unfortunately, any new high rise development in those areas would only have excellent transit access from one direction; people coming from the other directions would likely drive.
    It seems like the best use of value capture to construct rail lines would be somewhat run-down areas in the inner city, as long as any potential gentrification problems could be taken care of.

  2. Chris Yuen June 3, 2011 at 6:41 pm #

    Value capture does seem to alleviate the principal-agent problem that exists with publicly funded transport systems. The same company that takes the financial risk and puts fourth financing receives a portion of the benefit.
    I think something that must be considered by governments and other decision makers is if value capture captures all the value. Generally, I would assume, it doesn’t and the excess value (both monetary and convenience) would go towards current land owners and potential users of the new line.

  3. Joseph E June 3, 2011 at 7:02 pm #

    With the price of construction in the United States, I doubt there are many places were value capture would work, even if the price was set high enough to capture ALL of the additional value. However, I would love to be proven wrong. If we could build a subway down 7th street in Long Beach via value capture and upzoning the station areas for high-density development, I would be all for it.

  4. Morgan Wick June 4, 2011 at 12:21 am #

    Point 2 is most worrying to me. Fortunately it’s less of a problem in cities that don’t have much density to begin with, like in the American Sun Belt.

  5. Ben Smith June 4, 2011 at 9:35 am #

    I mentioned on another blog that it is quite ironic that the suburban mayor who campaigned that there are too many people in Toronto is now leading a push for high density TOD. Not to mention that Ford as a ‘fiscal conservative’ also campaigned on stopping excess spending and waste, and it is hard to think of something more wasteful than building a full heavy-metro through an area which has the projected ridership to easily support light rail. This Sheppard subway extension plan is essentially everything Ford would have campaigned against in last year’s election – or it would be if it wasn’t his idea…
    Really though, it appears quite unlikely that any work will be done on Sheppard. But the silver lining is that this boondoggle has freed up provincial funds to make the Eglinton line (which would run through more high density neighbourhoods) a full light-metro, rather than a light metro through midtown and as a tramway in the west and east ends.

  6. Ted K. June 5, 2011 at 2:02 am #

    I like the idea of “value capture”. But it shouldn’t be the only funding tool used. There are projects (e.g. SF’s Central Subway) that have no real development potential due to being fairly dense already. Also, there is a pattern of municipal and county governments failing to reserve space for transit corridors, public facilities (schools, community centers, etc.), and revenue nodes (e.g. the land under a shopping mall*). Having a block of reserved space would provide a government with leverage in their negotiations with developers and community representatives.
    * I’m thinking along the lines of a TDC (transit dev. corp.). The revenue node would help fund transit improvements that enhance the TDC’s property. If two or more nodes needed a new or better connection then the TDC’s for those nodes would contribute to the funding. The danger of this mechanism is that some would demand that the TDC’s provide ALL of the funding. Also, determining a fair share would be a donnybrook of a discussion.
    Possible glitches :
    s/Van Broadway/Van Ness – Broadway/ **
    s/endorse or opposite/endorse or oppose/
    ** This conflation seems odd to me. The Van Ness corridor has three sections (S-to-N from Market St.) : govt. center, commercial, and residential. The Broadway corridor has three also (bay to the Presidio): commercial, East residential, and West residential. Please add an explanation of what you are referring to as a footnote or comment. Thanks.

  7. teme June 5, 2011 at 3:30 pm #

    I really fail to see the problem. It seems that you are assuming that transit works on a fixed budget, and thus serving one area over another is a zero sum game. But value capture generates a bigger budget, that is you can both a build a rail line to existing high density area and one to a new area, because the latter pays for itself. And in practice some existing areas will usually get a better connection too as a bonus.

  8. Alon Levy June 6, 2011 at 1:29 pm #

    @teme: remember, politicians’ attention is pretty much zero sum. As we see in New York, the promise of value capture causes them to focus on lines that are little more than handouts to developers they like, and ignore the less glamorous but much more cost-efficient lines serving existing density.

  9. G-Man (Type E) June 6, 2011 at 1:59 pm #

    This is slightly modified from my response on thetransportpolitic site.
    I prefer sales tax for large capital programs because the revenue stream can be bonded to protect against fluctuation in downturns. I realize other revenue streams can be bonded too but I like sales because it is a natural hedge against general inflation. Unfortunately, sales tax is vulnerable to inflation in goods that are not subject to sales tax (gasoline) and that act as a substitute for the purchase of other goods that are taxed. Because of that, sales tax has been failing of late as a tool to support operations. There, I think a public utility model would provide the best stability and the most transparency to consituents as far as what they are paying for. It’s similar to real estate value capture except the value being captured is a direct measure of service availability, not a property’s appraised market value.
    The problem with traditional value capture is that it equates a rise in property value with the provision of transit service, but is not directly correlated. Property values can change for a number of reasons. Providing transit without changing zoning could restrict upward movement of valuation and restrict ridership. Allowing too much development could lower valuation if demand doesn’t match capacity. As Jarrett states above, it won’t work well in areas that already have density, so it actually may push new sprawl development rather than reinforcing existing activity centers.
    IMO a public utility model would work better than value capture through property appraisals. Utilities are viewed as “Essential” public services. You can’t just say, “sales tax revenues are down so we’re going to stop providing sewage treatment on Sundays.” Households generally pay a near constant rate for near constant levels of service. That sort of dependability is sorely lacking in transit these days. Right now there is no correlation to how much people are willing to pay for transit and the bill they pay. They have decreased thier purchases, and thus thier contribution to transit, with most completely unaware of that effect of thier behavioral change. How sad is it that when people ask what they can do to help transit we must say “go shopping.”
    Utilities generally charge in two ways – base fees cover access to the system (fixed costs) and usage rates cover the marginal cost of the actual services consumed. If transit was a utility, a board would engage the public in planning and determining appropriate levels of service, then the cost of operating routes would be charged directly to those properties that benefit, based on the level of service offered within a certain distance. Where there are more properties to split the cost (density) the individuals cost would decrease (or a higher level of service could be provided for the same cost). What would happen if the fares paid by users of the route were rebated to the properties? The properties charged would understand exactly what they are charged for. They would have incentives to request no more service than the market supports and to maximize ridership (fares) and productivity. The benefit of operating routes with high value capture (farebox recovery) would speak for itself in simple economics and the choice to subsidize a particular service would be transparent. Of course, depending on how the fees are charged (by unit? m2? bedrooms? … there could be perverse incentives created. That needs to be studied carefully.

  10. EngineerScotty June 6, 2011 at 2:47 pm #

    I propose an alternate value capture scheme:
    Anyplace a new highway is built, neighbors are taxed to pay for it.
    Not because I think this is a good way to pay for highways–but because this might help prevent more highways from being built. 🙂
    Thus, my general skepticism about value-capture schemes, especially for infrastructure of a regional nature (or things that are mainly beneficial to the general public rather than to individual homeowners, like sewerage). It accepts a framing of the problem that I tend to find obnoxious, and fundamentally, its simply a way of shifting costs in the hopes that nobody notices.
    The fact that we’re discussing this at all is a clear sign that the political process by which infrastructure is bought and paid for, is broken–and indeed it is: Voters resist tax increases, tax burdens have been increasingly shifted from the wealthy to the lower income levels, and there is little confidence in the ability of the government to do things without padding the pockets of special interests. And so we come up with ways to “creatively finance” infrastructure projects.
    I’m not sure what the right answer is, and I suspect that whatever it is involves significant structural changes in the political edifice that extend way beyond transport.

  11. G-Man (Type E) June 6, 2011 at 10:54 pm #

    The public utility model could be applied to roads and parking as well. If people really knew what a highway costs, and those served by it had to pay that cost, and they could get some of that back by charging a usage toll (rebated like the transit fare), then roads would also be appropriately priced.
    The federal system is breaking but transportation decisions don’t all need to occur there, in fact very few do. The next century will likely see divergent regional approaches to a host of major system collapses and replacements with new technology and new climate patterns. Regions that value transit will fund it traditionally or creatively, whatever works.

  12. Ron June 7, 2011 at 12:53 pm #

    Highways ARE beneficial to the general public.
    How do you think the majority of consumer goods and materials are transported?
    Case in point:
    MEC has a big warehouse in SURREY. How do you think its merchandise gets to its Vancouver and North Vancouver (and other western Canadian) stores?
    Ditto for grocery stores and department stores.

  13. EngineerScotty June 7, 2011 at 8:33 pm #

    Highways ARE beneficial to the general public.
    How do you think the majority of consumer goods and materials are transported?

    I agree, which is one reason I think it’s beneficial to not clog ’em up with SOVs.