The effectiveness of passive land value capture mechanisms in funding infrastructure

Published date12 November 2020
Date12 November 2020
Subject MatterProperty management & built environment,Real estate & property,Property valuation & finance
AuthorChyi Lin Lee,Martin Locke
The effectiveness of passive land
value capture mechanisms in
funding infrastructure
Chyi Lin Lee
School of Built Environment, UNSW, Sydney, Australia, and
Martin Locke
Lidunian Partners, Sydney, Australia
Purpose This study examines the effectiveness of passive value capture mechanisms as an effective form of
mechanisms in funding infrastructure from an Australian perspective. The lukewarm response of active value
capture mechanisms such as betterment levies in Australia is also discussed.
Design/methodology/approach A case study of the Sydney Metro City and Southwest (SMCSW) project
in Sydney is used to illustrate passive value capture mechanisms.
Findings Unlike many developed countries, passive value capture mechanisms have been adopted in
Australia. This approach is an effective form of value capture mechanisms to capture the value uplift to offset
the total development cost of the SMCSW project. However, this approach is highly sensitive to property
transaction activities that could be affected by the general economic conditions and unprecedented events such
as the COVID-19 pandemic. Further, there is a widespreaddiscussion of the efficiency of land tax in New South
Wales (NSW) incapturing all properties subject to the value uplift. Consequently, a shift towards a broad-based
land tax is recommended in which it would provide a more efficient way of infrastructure funding.
Practical implications Policymakers should consider a broad-based land tax for residential and
commercial properties in order to improve the efficiency of passive value capture mechanisms. This also
highlights property valuers should play a greater role in the development of broad-based land tax system.
Originality/value Previous studies have extensively demonstrated property value impacts of transit
investments; very little research assesses the growth of value capture funding mechanisms, particularly
passive value capture mechanisms. Specifically, this paper is the first paper to assess the effectiveness of
passive value capture mechanisms.
Keywords Land value capture, Value uplift, Infrastructure, Land tax, Passive value capture, Sydney Metro
Paper type Research paper
1. Introduction
Increasing political commitment for accelerating infrastructure development has gathered
widespread support as a catalyst for economic growth. There has been renewed commitment
as a consequence of COVID-19 with infrastructure spending widely viewed as a key economic
stimulus measure. Despite the fact that infrastructure investment has taken on increased
importance with Australian institutional investors such as superannuation funds (Newell
and Lee, 2011;Reddy, 2016), major infrastructure in Australia has historically been built by
the funding from governments (CoA, 2016). Funding for infrastructure is provided by either
the taxpayer, in the form of government grants, or from users, in the form of charges or tolls.
In the 2019 Australian National Infrastructure Audit, Infrastructure Australia indicated
that 49% of the respondents are opposed to increasing user charges, and 81% of respondents
are opposed to increasing general taxation to fund infrastructure (Infrastructure Australia,
2019). Consequently, there has been a desire to look for other ways to broaden funding of
Passive land
value capture
Chyi Lin Lee would like to acknowledge the support from the Value Australia Cooperative Research
Centre Projects (CRC-P) grant.
Thispaper forms part of a special sectionPractice briefing,guest edited by Professor SeowEng Ong,
Associate Professor Chyi Lin Lee.
The current issue and full text archive of this journal is available on Emerald Insight at:
Received 28 July 2020
Revised 25 September 2020
Accepted 25 September 2020
Journal of Property Investment &
Vol. 39 No. 3, 2021
pp. 283-293
© Emerald Publishing Limited
DOI 10.1108/JPIF-07-2020-0084

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