When governments expand transport infrastructure, local businesses and home owners see a spike in their land’s property value. Is it fair for them to share the benefits by helping fund them?
The practice of governments taking contributions for infrastructure projects that are set to make local land prices increase isn’t new. It already happens in parts of the United States, has been tried in Queensland and is now being considered in New South Wales.
Corinne Mulley, a leading researcher at the University of Sydney Business School, says that when the state pays for new transport infrastructure, those who live nearby the upgrades will personally benefit.
“Governments are typically constrained, budget wise, and are unable to undertake all the projects they want. Having this as a source of funding would enable more infrastructure to be funded,” Prof. Mulley says.
“Value uplift refers to the way in which when you put in new infrastructure – typically transport infrastructure – the land around that infrastructure becomes more accessible, it allows you to get to more destinations more quickly, and so the price of that land goes up.”
Prof. Mulley’s research examines the degree of value uplift-related infrastructure in the United Kingdom and Australia. This includes ferries in Brisbane, and buses and light rail in Sydney.
“This value uplift approach has been implemented in various places around the world, and the positive is to have some infrastructure than might not otherwise have been possible,” she says.
Most recently, she has looked at the impact of the bus rapid transit and heavy rail in Brisbane.
“On the Gold Coast – which has a new light rail system – residences have paid a small amount of extra tax in order to help fund it and I don’t see that that’s unreasonable,” Prof. Mulley says.
This concept is already in use by the New South Wales Government to help cover the cost of the Parramatta light rail system. The estimated cost of the upgrade is one billion dollars.
Similar upgrade works include London’s Jubilee Underground line, which properties nearby skyrocketed by over one million dollars when it opened.
“Transport infrastructure is really expensive, and governments are finding it difficult to provide the sort of infrastructure we need to produce the sustainable cities that we want for the future,” she says.
This is also not a new practice in Australia, with the earliest case being the construction of Sydney’s Harbour Bridge, which was partially funded by landowners on the north side to connect to the south side, according to Prof. Mulley.
“For developments of new property – commercial or residential – it has been going on for a long time through the development process where the gain is extracted through developer contributions,” she says. “With residential property, it is relatively recent, but the Gold Coast light rail is a good example of recent extraction of some of the uplift from residents to help pay for the infrastructure.”
She says this approach could provide an alternative and beneficial approach to how to fund major infrastructure projects. However, there are issues as it is perceived to be another tax which could cause political difficulties, to the point where it may be better to levy a charge when a house is eventually sold.
“Businesses are less of a problem because new businesses and the entrepreneurs who build them will take account of land value uplift when making investment decision,” she says.
Prof. Mulley says there may also be issues with governments prioritising projects where they will have the biggest amount of uplift to receive a larger contribution, although she adds that this isn’t an area she believes has been studied yet.
She adds that this approach would help increase equity, as those who are set to earn big sums of money will also have to chip in.
“I think the individual gains, which are the result of government spending, are also inherently unfair and not enough is made of this. It has always seemed to be quite wrong that individuals should benefit when the thing that produced that benefit is paid for by the public purse.
“People pay income tax, council rates and a variety of other government charges. Why shouldn’t we pay a contribution when property values increases as a result of infrastructure development?”