Earlier this year I spoke at another Property Council event and indicated that I intended to release, later in the year, a discussion paper on how the Commonwealth might encourage the use of value capture as a means of stimulating the provision of additional infrastructure.
So I am particularly pleased that the Property Council is hosting this event today, at which I can officially release the paper and where we can have a discussion of some of the issues which it raises.
I should note that the paper is released jointly by me and by Angus Taylor, the Assistant Minister for Cities. Angus is unable to be with us today but sends his best wishes.
Can I start by acknowledging - as the Property Council has been at pains to point out - that mechanisms like state infrastructure charges and developer levies are extensively used today by state and local governments around Australia.
That is why the focus of this paper is how the Commonwealth Government might act to stimulate and encourage the use of value capture - recognising that many of the key tools sit with other levels of government.
This morning I want to speak first about why the Turnbull Government is interested in exploring opportunities for the greater use of value capture; next I will touch on the way that value capture is increasingly being used around the world; and thirdly I will come to some thoughts about the Commonwealth’s role in value capture.
The case for Value Capture
Why then is there an increasing interest in value capture as a potential means of funding transport infrastructure?
After all, the Commonwealth spends billions of dollars each year in this area, typically in partnership with state governments. Between now and 2019-20, the Turnbull Government is investing $50 billion in infrastructure.
With over $7 billion committed to the Bruce Highway in Queensland, $5.6 billion for the Pacific Highway in NSW, funding for the M80 Ring Road and Tullamarine Freeway in Melbourne, the Northern Connector in Adelaide, Perth Freight Link, as well as funding towards a range of urban rail projects including Forrestfield Airport Link in Perth, Flinderslink in Adelaide, Sydney Metro and Brisbane's Redcliffe Penninsula Line, we are seeing record levels of infrastructure investment.
But the reality is that the demand for additional infrastructure continues to grow - particularly as our population increases and our cities become larger. There will naturally be a limit to what a Commonwealth Government, or state governments, can fund.
This in turn means that there may well be projects which would deliver substantial benefits - and where the beneficiaries would be willing to contribute to the cost - which simply will not proceed if we do not look at other funding approaches.
Since taking office, Prime Minister Turnbull has spoken on a number of occasions about the opportunities which value capture may present. State governments, too, have been working in this area.
Just recently Infrastructure Victoria issued a policy paper, "Value Capture - Options, Challenges and Opportunities for Victoria."
The NSW Government has indicated its interest in value capture as a potential funding source for projects like Parramatta Light Rail and the proposed new Sydney Metro West between Sydney and Parramatta.
Similarly the Queensland Government has stated that it sees value capture as a potential funding source towards the cost of Cross River Rail.
I have been struck, over the past few months, by the number of approaches I have received from property owners and others suggesting ways in which they could contribute towards the cost of new transport infrastructure which would, for example, deliver a value uplift to their property. I know other Ministers are receiving similar approaches. There is clear interest in the potential of this approach to bring forward infrastructure projects which might otherwise not be delivered for many years, if at all, due to the lack of public funding capacity.
Can I however acknowledge a cautionary note raised by the Property Council - that value capture should not be code for increasing the cost of housing by placing an extra tax on landholders.
Let me restate my comments from my address to the Property Council in March. In our approach to value capture we will be seeking to create a win-win proposition – in which landowners contribute towards the cost of new infrastructure but in exchange receive an increase in value which greatly exceeds the amount of the contribution.
Value Capture is increasingly being used around the world
One of the aims of the paper we are releasing today is to highlight the way that value capture is increasingly being used to bring forward major infrastructure projects around the world.
I recently had the chance to visit one of the global showpiece projects: the Crossrail in London, a transformational project that is being partially funded through value capture.
Cross Rail includes nine new stations and around 118 kilometres of new line, including a tunnel through central London.
Value Capture mechanisms will contribute over one third of the $28 billion cost of the project. They include a Business Rate Supplement (BRS) of 2% on commercial properties with a rateable value of more than £55,000 in the Greater London Area; development revenues, including an infrastructure Levy and development application charges; and funds from the resale of surplus land and property originally used to provide construction site access for workers and machinery.
The rationale for these charges is that the properties and businesses located near the new rail line will obtain substantial economic benefit. Indeed at least one of the new stations (Woolwich) is being funded almost entirely by the private sector landowner which sees the value of having improved access to its Royal Arsenal housing and retail development around the station.
Critically, there was strong advocacy by the London business community for Crossrail - but neither the national or local government had sufficient funding.
I visited Tottenham Court Road station where I was impressed to see not only the remarkable progress being made underground, but also the care they are devoting to preparing the site above ground which will be released for property development. The profits from that - and the similar buildings at most of the new stations along the route - will contribute to the capital cost of the project.
Other examples which are discussed in the paper include MTR in Hong Kong, which has a long and successful history of jointly developing its transit infrastructure with land development as part of its Rail + Property program.
By selling development rights around and over rail stations, MTR’s operating and capital costs are entirely self-funded through a combination of fares, commercial station retail rents and joint property developments.
There are many examples detailed in the discussion paper of innovative projects making use of various value capture mechanisms from cities such as San Francisco, Portland and Bogota to name a few.
Already, a number of transport projects here in Australia have drawn on value capture as a funding source:
Railway stations, such as Chatswood and St Leonards in Sydney as well as Melbourne Central and Southern Cross here in Melbourne have been partly funded through the sale of air rights to developers.
The Gold Coast City Council has established the City Transport Improvement Charge, which has helped to fund the first stage of the Gold Coast light rail.
In Western Sydney, the Parramatta Light Rail project is expected to partly draw on a ‘Special Infrastructure Contribution (SIC)’ in new residential developments along the corridor.
So it is fair to say that value capture funding models are not new to Australia and through development contributions it is an established method that local government uses to invest in infrastructure.
The role of the Commonwealth
It makes good sense for local and state governments to be active in the value capture space - they are after all legally and constitutionally responsible for most of the policy tools that are used to implement value capture, such as rates, stamp duty and planning controls.
Nevertheless, with the Commonwealth being a very substantial funder of infrastructure around the country, it makes sense to ask whether there are ways that we could support the use of value capture by state, territory and local governments.
We already require proposals to the Government for major transport infrastructure projects to consider value capture, following the issue earlier this year of our Principles for Innovative Financing.
The purpose of the paper being released today, then, is to ask if there are sensible further steps the Commonwealth could take. In the paper, we seek the input of stakeholders - including the property sector - on a number of key issues, such as:
- how to fairly identify who will benefit from a project;
- how to better integrate project investment decisions into wider land use planning;
- how to best manage the mismatches in timing between the upfront financing requirements of the project, the uplift in land value and monetary benefits and when beneficiaries materially gain from these uplifts.
The paper also seeks feedback on a number of potential options the Australian Government could use to stimulate the use of value capture in the development and delivery of transport infrastructure. These options include:
- working with state, territory and local governments to promote leading practice;
- using the Australian Government’s funding and financing capacity to support value capture strategies;
- strengthening requirements on Commonwealth funding support;
- establishing a specific program for projects with a value capture element; and
- stimulating market-led value capture proposals.
We are keen for industry and community views on these options and I certainly would encourage a strong response from the property industry as well as other stakeholders.
Let me conclude, then, with the observation that this discussion paper is intended to move the discussion forward from a generalised interest in the concept of value capture to a more specific consideration of possible policy tools the Commonwealth might use.
The paper suggests some options - but if those in the property industry, or other stakeholders, have better ideas, then we want to hear them.