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

1 30 NOVEMBER 2018 Land Value Uplift Capture Julian Ware Transport for London Corporate Finance

2 TFL CORPORATE FINANCE - LAND VALUE CAPTURE 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)

3 TFL CORPORATE FINANCE - LAND VALUE CAPTURE Significant uplift potential Significant land value uplift potential... but current measures ineffective... - Few taxes on existing stock respond well to increases in land or 14% £80bn property values; limitations to capturing value from new 28% development - Only ~2% of estimated £61.5 bn uplift generated by Crossrail 2 can £60bn be captured through over station development (OSD) and £87bn Mayoral CIL £40bn 86% 72% Maximum and typical rates of extraction of land value uplift using existing instruments £20bn Maximum Rate of Extraction Rate of Extraction in Practice 100% £0bn % extraction of user benefits from transport premia in % extraction of transport- commercial and residential property prices induced planning gain 80% Total uplift Residential Existing stock 60% Column1 Commercial New Stock 40% Value uplift over 30 year period: £87 bn on sample of potential future TfL projects - total estimated capital cost of £36 bn 20% (PV in FY17 prices, FY19 to FY48) 0% Council tax Business Rates SDLT CGT CILs OSD

4 TFL CORPORATE FINANCE - LAND VALUE CAPTURE 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

5 TFL CORPORATE FINANCE - LAND VALUE CAPTURE London developments • 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

6 TFL CORPORATE FINANCE - LAND VALUE CAPTURE What kind of city approaches are there? Cities grow in unplanned way with informal No planning settlements and piecemeal provision of infrastructure Uplift capture for transport No uplift Uplift but Uplift captured - Value growth is catalysed no capture different beneficiary by new transport and City growth is planned and some is captured and used controlled but the City growth is planned and Value growth is catalysed to help fund new transport property market does not property prices increase by new transport and respond to new transport due to new transport, but some can be captured, but all the value growth it’s captured by others or accrues to the landowner used for non-transport purposes

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

8 TFL CORPORATE FINANCE - LAND VALUE CAPTURE 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)

9 TFL CORPORATE FINANCE - LAND VALUE CAPTURE 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 Comparing total uplift (FY2019 to FY2048) with capital cost (£m, PV in FY2017 prices) Crossrail 2 – major new north-south tunnel through central London 70,000 5,000 70,000 5,000 Bakerloo Line Extension - extension of tube network in south 4,500 4,500 London 60,000 60,000 Crossrail 1 Extension - extension of the current Crossrail 1 4,000 4,000 project to other parts of east London 50,000 50,000 3,500 3,500 DLR Extension – light rail extension and river crossing in east 3,000 London 3,000 40,000 40,000 Old Oak – transport hub regeneration project in west London 2,500 2,500 Poplar – decking over road and railway to remove severance 30,000 30,000 2,000 2,000 between two areas in east London A13 – decking over road to remove severance in east London 1,500 20,000 1,500 20,000 Camden Town – capacity upgrade and redevelopment of major 1,000 1,000 station on London underground 10,000 10,000 500 500 - - - - Crossrail 2 Bakerloo Line Extension Crossrail 1 DLR Extension Old Oak Poplar A13 Camden Town Extension Results of analysis presented are preliminary and Residential uplift Commercial uplift Capital cost subject to further review, and should not be relied upon.

10 TFL CORPORATE FINANCE - LAND VALUE CAPTURE 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 opportunities 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

11 TFL CORPORATE FINANCE - LAND VALUE CAPTURE What factors lead to greatest uplift in values? • Projects with greater impact and permanence (e.g. Road based projects Light rail projects Heavy rail projects heavy rail) result in higher uplifts with those that could potentially be taken away (e.g. buses) or place-making projects Low connectivity • Projects with greatest perceived connectivity benefits High connectivity improvement improvement and journey time savings will result in higher uplift Upgrade / Service • New infrastructure has greater appeal and noticeability New infrastructure improvement than upgrades and service improvements (e.g. Overground) 400m • Residential value effect up to 1km, commercial up to >1km from station Close to station 400m • Values close to stations could be impacted by noise, Unresponsive property Responsive property crime or safety concerns • Cities with constrained land and housing supply, market market responsive property market and high public transport use are likely to have higher value uplift (e.g London) Low land constraints High land constraints • 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 High public transport Low public transport value link is typically less use use Lower uplift potential Higher uplift potential 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