Financing Transit-Oriented Development with Land Values

January 15, 2015

Cities in developing countries are growing at a rapid pace. However, the associated positives of strong economic growth and rising real incomes have come with the negatives of low-density sprawl, traffic congestion, air pollution and greenhouse gas emissions, and lack of mobility for already marginalized populations.

Studies have shown that transit-oriented developments – typically higher density, mixed-use developments located around a transit station – are one of the most effective means of addressing these negative externalities of rapid urbanization. However, transit infrastructure is extremely costly and thus difficult to prioritize in cities where there are many other competing demands for funds.

Financing Transit-Oriented Development with Land Values proposes the use of “development-based land value capture” mechanisms to help overcome this financial hurdle. Coupled with supportive  land use regulations, development-based land value capture (LVC) helps “capture” property value increases due  to transit investments.

This revenue can in turn be used to help cover the cost of transit infrastructure and maintenance, and agreements for development rights transfers can include provisions such as services and facilities for low-income groups.

Development-based land value capture methods highlighted include:

  • Land development sale/lease: governments sell or lease development rights or land that is appreciating due to transit investments.

  • Partnerships between transit agencies and developers: developers contribute money or property to build station facilities that will attract people to their businesses.

  • Air rights sale: governments sell additional development rights to developers interested in building more.

  • Land readjustment: landowners pool their land, which facilitates the sale of a portion for transit-oriented development-related investments.

  • Land consolidation and urban redevelopment: in more complex scenarios, landowners partner with private developers to consolidate their land and develop multi-purpose projects.

Benefits of using development-based land value capture:

  • Promotes and supports transiti-oriented development

  • Based on the concept of creating and sharing value

  • Helps cover the cost of transportation infrastructure

  • Businesses, products, and services are more closely located and accessible

  • Promotes inclusive development by improving mobility and access for all

  • Shows private entities that sustainability is profitable

  • Reduces pollution and unsustainable land development

Financing Transit-Oriented Development with Land Values uses a unique case study method to identify opportunities and pitfalls from experiences in Hong Kong SAR, Tokyo, New York City, Washington, D.C., London, Nanchang, Delhi, and Hyderabad.