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Funding Sydney: Where’s the value capture?

The release of the Greater Sydney Commission’s “A metropolis of three cities” at the same time  as Transport for NSW’s Future Transport strategy amounts to a great step forward for planning and delivering Sydney’s growth.

For the first time in decades we have a plan for our city plausibly based on an integration between transport and land use. As part of this unprecedented cross government coordination we also have major government departments like health and education committing to matching population growth with new schools and health services.

Even more importantly, the new citywide plan can give Sydneysiders a sense of the shape of the city emerging around its “three city” nodes of the Sydney CBD, Greater Parramatta and the cluster of centres around the new airport at Badgerys Creek. Crucially, if the plan is implemented, Western Sydney will no longer be the poor cousin of eastern Sydney.

But there is one missing ingredient that needs to be resolved before this new plan can be successfully implemented. That is a proper “value capture” mechanism to help finance the infrastructure we will need to ensure a city of eight million people is as liveable, if not more so, than the current city. While such a mechanism is alluded to in the GSC plan and clearly supported by it, it is not defined yet or agreed by the NSW government. The need for this mechanism is in our view urgent. Why?

When we change the planning rules for a suburb or neighbourhood we can sometimes dramatically increase the value of land. Rezoning an old industrial estate or a farm to higher density residential can make the land worth millions more, all at the stroke of pen.

Similarly, as we roll out new transport infrastructure like light rail in Parramatta or the new North-West Metro we can increase land and property prices because as neighbourhoods along these transport routes are now better connected they become more desirable places to live.

This increase in land values is all driven by government decisions and policies. It is created by government, but the beneficiaries are lucky private landowners who have done nothing for the windfall gains. Public pain, private gain, as it were.

Nowhere is this best demonstrated then at site of the new airport at Badgerys Creek. Last month the Sydney Morning Herald reported that a local landowner had sold a small farm in the area for hundreds of millions of dollars. This small farm is not particularly productive and apparently only has a few cows grazing on it. Yet this farm must be one of the most expensive farms in the country. Why? Because the Commonwealth decided to build a new airport nearby, and the state government decided to designate this area as the centre of a new “Parkland City”.

The Committee for Sydney believes that when government decisions generate such staggering windfall gains to local landowners, some of it should be captured and returned to a public purpose. Cities around the world are doing this all the time and it’s time for Sydney to do the same. It’s not just fair to do this – it’s stupid not to.

In the US they are building more new rail lines and tram tracks than at any time in their history all funded through simple value capture mechanisms. In London the largest extension of their rail and underground system in two generations is underway, much of it funded through a special levy on landowners.

In Sydney, the need for new public transport is even more urgent, but we have to ask how we are going to pay for it. Part of the reason we do roads when public transport may be more appropriate is because we can pay for it through tolling users. Unless we apply some form of “beneficiary pays” value capture mechanism to uplift in land values, we simply will not be able to fund the public transport network the city so desperately needs, such as a Sydney West Metro.

And anyway, why should massive beneficiaries of public investment not give something back to the public for making them an unearned fortune? We didn’t insist on such an approach when the government made landowners along the North West Metro line into millionaires. We must have this approach in place urgently around the new airport if the public interest is to be protected – and if we are to have enough resources to build the infrastructure the city needs.

Who would argue against capturing the massive windfall gains of landowners from public investment which generated the windfall? Crucially, without increasing the return for government of its huge investment, we cannot build the infrastructure we need to make the “Parkland City” liveable. And we cannot deliver some of the key aspirations of the new Sydney Plan.

Tim Williams is chief executive of the Committee for Sydney.

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Comments

4 Responses to “Funding Sydney: Where’s the value capture?”

  • Terry says:

    It would be as simple as any significant increase in rateable value of the land without any matching improvement or investment being taxed at a deemed rate. The complexity is in the clarity and the tendency in NSW, as noted above, for corrupt practices. Therefore, ensuring that the money gained from capturing value is invested in services and infrastructure in the area the tax is raised is worthy of consideration. Such a proposal is not so different from the existing S94 contributions to local government, but on a far larger scale. Hence the need for more independent oversight. The density gains that are triggered by rail stations and prescribed precincts generate significant public costs for increased power supply, water provision, sewerage and transport costs all borne by Governments. So, there should be some way of getting that money back for the public.

  • Jon Johannsen says:

    Should the term ‘value capture’ also cover design quality. So often the compromises to satisfy purported feasibility targets transfer to budgets that ‘value manage’ out the elements that can make or break the design intent, and so often this leads to the negative feedback from communities. If there is to be a return from development to cover infrastructure, then the legacy for our future urban environment should also be covered by ensuring design panel review for all significant development.

  • Karen says:

    Unless we similarly apply some form of “beneficiary pays” COMPENSATION to home owners who are adversely affected by infrastructure, the mooted system will simply line government (and private corporation) coffers rather than see fair outcomes applied to all affected. And to be perfectly fair to the people of NSW – not all of the infrastructure being built will be owned and run by the people of NSW. If you honestly think NSW’s people should pay a value capture when the infrastructure is to be privatised or built and run by NGO’s, you may encounter a massive backlash. As for ‘key aspirations,’ perhaps meaningful consultation with communities beforehand would be a good idea. Ask before you spend our money and flog off our assets as we may not agree with your “aspirations.”

  • Fred says:

    Absolutely correct. Need a mechanism that shares gains caused by rezoning with the state. This will also help control the incentive for council corruption that is encouraged by the current systems.
    Many years ago it was suggested that any rezoning that increased FSR would require additional FSR to be paid for when a development occurred – still seems like a good idea.

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