Capture Julian Ware Transport for London Corporate Finance 2 TFL - - PowerPoint PPT Presentation

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Land Value Uplift Capture

Julian Ware Transport for London Corporate Finance

30 NOVEMBER 2018

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Land Value Uplift

• Users often value public transport and accessibility more than what it costs them (fares)
• Excess value is capitalised into land and property values (land value uplift)

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Significant land value uplift potential...

Value uplift over 30 year period: £87 bn on sample of potential future TfL projects - total estimated capital cost of £36 bn

(PV in FY17 prices, FY19 to FY48)

£87bn 86% 72% 14% 28%

£0bn £20bn £40bn £60bn £80bn

Total uplift Residential Existing stock Column1 Commercial New Stock

0% 20% 40% 60% 80% 100%

Council tax Business Rates SDLT CGT CILs OSD

Maximum and typical rates of extraction of land value uplift using existing instruments

Maximum Rate of Extraction Rate of Extraction in Practice

% extraction of transport- induced planning gain % extraction of user benefits from transport premia in commercial and residential property prices

but current measures ineffective...

• Few taxes on existing stock respond well to increases in land or

property values; limitations to capturing value from new development

• Only ~2% of estimated £61.5 bn uplift generated by Crossrail 2 can

be captured through over station development (OSD) and Mayoral CIL

Significant uplift potential

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Measures designed to overcome challenges of the past

• Improve land value capture on new & existing stock
• 1. Zonal SDLT growth assignment
• 2. Business rates revaluation & retention
• 3. Transport Premium Charge
• Improve extraction of planning gain from new development
• 4. Maintain M-CIL
• 5. Continue use of s106
• 6. DRAM

7. CPO enhancement

• Manage property market risks & cash-flow timing mismatches
• 8. LVC managed as programme at corporate, not project, level
• 9. LVC loan product – increase financeability
• Test the measures in practice
• 10. Design, develop, consult then implement

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• Significant work on Development Rights Auction model
• Independent review into funding and finance of Crossrail 2 (£30 billion cost)
• Commons Select Committee study
• Continuing interest

London developments

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What kind of city approaches are there?

No planning No uplift Uplift but no capture Uplift captured - different beneficiary Uplift capture for transport

Cities grow in unplanned way with informal settlements and piecemeal provision of infrastructure City growth is planned and controlled but the property market does not respond to new transport City growth is planned and property prices increase due to new transport, but all the value growth accrues to the landowner Value growth is catalysed by new transport and some can be captured, but it’s captured by others or used for non-transport purposes Value growth is catalysed by new transport and some is captured and used to help fund new transport

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Transport for London – Corporate Finance Julian Ware JulianWare@tfl.gov.uk 00 44 20 3054 8909

Contact

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What is land value capture?

• A set of mechanisms used to capture some proportion of the increase in

transport-induced land values that arise in the catchment areas of such projects

• Needs a definition of the “zone of influence”
• Needs a way of isolating the effect of transport on land and property values
• Needs an extraction or capture mechanism
• Isolating the effect of transport on property values
• Hedonic pricing
• Controlled experiments
• Why does it occur?
• User benefit capitalisation occurs because users compete for property near tube stations
• Planning gain results from changes to planning policy (e.g. change of land use or density)
• LVC is not the same thing as tax increment financing (TIF)

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Significant uplift potential from potential future TfL projects

Approximately £87 billion of value uplift on sample of projects

• KPMG/Savills estimate total value uplift over 30 year period from FY19 to FY48 of £87.3

billion (PV in FY17 prices) on a sample of potential future TfL projects (compared to total estimated capital cost of £36 billion (NPC, FY17 price))

• £74.8 billion from residential properties, £12.5 billion from commercial;

£63.3 billion from existing stock, £24.0 billion from new stock

• 500

• 500

1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000

Crossrail 1 Extension DLR Extension Old Oak Poplar A13 Camden Town

• 10,000

• 10,000

20,000 30,000 40,000 50,000 60,000 70,000

Crossrail 2 Bakerloo Line Extension

Comparing total uplift (FY2019 to FY2048) with capital cost (£m, PV in FY2017 prices) Residential uplift Commercial uplift Capital cost

Results of analysis presented are preliminary and subject to further review, and should not be relied upon.

Crossrail 2 – major new north-south tunnel through central London Bakerloo Line Extension - extension of tube network in south London Crossrail 1 Extension- extension of the current Crossrail 1 project to other parts of east London DLR Extension – light rail extension and river crossing in east London Old Oak – transport hub regeneration project in west London Poplar – decking over road and railway to remove severance between two areas in east London A13– decking over road to remove severance in east London Camden Town – capacity upgrade and redevelopment of major station on London underground

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Impact of Crossrail – GVA study

• A study by GVA published their findings and forecasts on the impacts within 1km of a Crossrail station.
• They found that their original 2012 predictions had been surpassed and have suggested that there are still
• pportunities linked to Crossrail that have not yet been realised.

GVA Crossrail Property Impact & Regeneration Study, January 2018 GVA Crossrail Property Impact & Regeneration Study, January 2018

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What factors lead to greatest uplift in values?

Higher value uplift is more likely in dense cities with high public transport use, and for new rail-based projects, which tend to generate the biggest consumer surplus

Road based projects Heavy rail projects Low connectivity improvement High connectivity improvement Unresponsive property market Responsive property market Low land constraints High land constraints >1km from station Close to station Upgrade / Service improvement New infrastructure

• Residential value effect up to 1km, commercial up to

400m

• Values close to stations could be impacted by noise,

crime or safety concerns Low public transport use Higher uplift potential 400m

• Projects with greater impact and permanence (e.g.

heavy rail) result in higher uplifts with those that could potentially be taken away (e.g. buses) or place-making projects Lower uplift potential High public transport use

• Projects with greatest perceived connectivity benefits

and journey time savings will result in higher uplift

• New infrastructure has greater appeal and noticeability

than upgrades and service improvements (e.g. Overground)

• Cities with constrained land and housing supply,

responsive property market and high public transport use are likely to have higher value uplift (e.g London)

• In areas where private transport is preferred, and

public transport use is lower (e.g. US), or where the property market is unresponsive to new transport, the value link is typically less Light rail projects