Can value capture help fund infrastructure projects?

Infrastructure Victoria has released a research paper discussing how value capture could help fund infrastructure projects across the state.

Value capture recovers some of the value generated by public infrastructure to offset the costs of provision. For example, it could include imposing a levy on sudden gains made by property owners near a new train station.

In the policy paper, Infrastructure Victoria explores the challenges and opportunities of implementing value capture in Victoria, and advises the State Government on a way forward for applying value capture to Victorian projects.

Infrastructure Victoria Chief Executive, Michel Masson, said the findings show value capture could help generate more funds to deliver major projects in Victoria.   

“Value capture is not a silver bullet, but we think it can play a bigger role in helping to fund the infrastructure we will need in the future,” Mr Masson said.

“While it is unlikely to entirely fund a major project in Victoria, it can make a contribution to its cost.

“Rather than expecting all taxpayers to cover the full cost of new infrastructure such as a train station, we see an opportunity for property owners and businesses that stand to benefit financially from a project to make a contribution to that project being built.

“We also think individuals and businesses who receive significant financial benefits from planning decisions made by government should also contribute to providing infrastructure the community needs.”

The paper discusses how value capture is currently used in Victoria for major projects, and identifies opportunities to expand its use by assessing whether it can apply to projects on a case-by-case basis.

“We think it is important the community understands the type of value capture mechanism that could be used, their benefits and limitations,” Mr Masson said.

The paper looks at several value capture mechanisms including developer contributions, betterment levies, major beneficiary contributions and property development, asset sales or leases.

Value capture is modelled on six infrastructure project scenarios to illustrate how they could be applied to different sectors such as transport, health, housing and education. The scenarios modelled include:

  • Melbourne Metro 2
  • The Outer Metropolitan Ring Road
  • Rezoning industrial land near a train station
  • A major hospital redevelopment
  • A new school in a growth suburb
  • Public housing redevelopment

While the paper does not recommend that value capture should necessarily be implemented as modelled for in these scenarios, the modelling illustrates the issues and trade-offs which need to be considered when deciding to use value capture.

Mr Masson said Infrastructure Victoria consulted a range of stakeholders in the development of the paper.

“We recognise that expanding the use of value capture would ultimately be a decision for government and the overall tax and funding burden on individuals and businesses would need to be considered when deciding to use value capture,” Mr Masson said.

The policy paper also explores how value capture has been used successfully in the past and how it is commonly used overseas.

“Value capture is not a new concept and has been used successfully to help fund projects,” Mr Masson said.

“Selling the land above Melbourne Central station for property development facilitated large-scale retail and office development around the station.

“Levies were used to help fund Melbourne’s City Loop decades ago and are now being used to fund London’s cross-city rail tunnel and the Gold Coast’s light rail.”

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