1. FINANCING TRANSIT WITH LAND VALUES ANNUAL WORLD BANK CONFERENCE ON LAND AND POVERTY, 2014 Hiroaki Suzuki, Lecturer, National Graduate Institute for Policy Studies, Japan Ellen Hamilton, Lead Urban Specialist, World Bank

2. Outline 1. Rationale 2. Land value capture instruments 3. Advantages of DBLVC 4. Case study: Hong Kong SAR 5. Key findings 6. Conclusion 2

3. Land Value Capture Links Planning and Financing Through TOD 3 Sustainable Urban Development LVCTOD Coming Soon

4. Concept of Land Value Capture Private land owners should profit from this portion of the increment. Public service providers should capture this portion of the increment to cover the costs of public infrastructure and local service provision. The government, on behalf of the general public, should keep this portion of the land value. Increases in land value due to landowners’ investments. Land buyers (or lessees) pay sellers (lessors) to obtain the property rights of land. Intrinsic land value Increases in land value due to public investment in infrastructure and changes in land use regulations. Increases in land value due to population growth and economic development. 4

5. Features of Land Value Capture Instruments 5 InstrumentDescription Tax- or Fee-Based Property and Land Tax Tax that is levied on estimated value of land or land and buildings combined. Revenues usually go into budgets for general purposes. Betterment Levies and Special Assessments Surtaxes imposed by governments on estimated benefits created by public investments, so as to require property owners who benefit directly from public investments to pay for their costs. Tax Increment Financing (TIF) A surtax on properties within an area that will be redeveloped by public investment to be financed by municipal bonds, against the expected increase in property tax, which is pledged. Instrument mainly used in US. Exactions/Impact Fees Fees (or in-kind contribution) collected from private developers to pay for the cost of providing additional public infrastructure and services, and to accommodate additional population generated by their new development projects. Development-Based Land Sale or Land Lease Governments sell developers land for payment or the land use right, in return for either an upfront leasehold charge or payments of annual land rent through the term of the lease. Air Right Sale Governments sell development rights extended beyond the limits specified in land use regulations (e.g., FAR) or created by regulatory changes to raise funds to finance public infrastructure and services. Land Readjustment Landowners pool their land together for reconfiguration and contribute a portion of their land for sale to raise funds to partially defray public infrastructure development costs. Urban Redevelopment Financing Landowners together with a developer establish one cooperative entity to consolidate piecemeal land parcels into a single site that they then develop with new access roads and public open spaces. The local government then modifies zoning codes and increases maximum floor area ratios in the targeted redevelopment district (typically around rail transit stations). Instrument mainly used in Japan.

6. Advantages of Development-Based Land Value Capture (DBLVC)  Encourages high-density development and land use efficiency.  Mobilizes large amount of funds for capital-intensive transit investments upfront.  Provides key stakeholders with incentives to explore development opportunities around station areas and maximize land value increments to be shared.  Land valuation is based on market prices and methodology agreed between partners  It can work in places with inadequate property taxations systems  Strategic instrument for urban finance and planning. 6

7. Book’s Case studies  Hong Kong, China  Tokyo, Japan  Nanchang, China  Delhi and Hyderabad, India  Sao Paulo and Rio de Janeiro, Brazil 7

8. Hong Kong Rail + Property(R+P) Model Normal public land leasing MTR’s R+P Value Capture Program HK SAR Gov. Development rights (no rail market price) Developers HK SAR Gov. Development rights (green field price) MTR Corp Co-development (after rail market price) Developers Profits in Agreed Proportions Assets In-Kind Upfront Payments Financial return (1980-2005): US$ 18 billion 8

9. SYNERGY Government Property Railway Society and economy Synergy of R+P Land Value Capture Mechanism Financial gains Sustainable urban living and growth generation Finance construction and improved ridership Improve accessibility and land value 9

10. Factors contributing to success  Macro conditions: economic competitiveness and population growth  Government’s capability:  Clear territorial development strategy  Planning capacity  Land management (high density)  Low use of private transportation (62 cars per 1,000 persons)  MTR’s Institutional Framework.  Technical expertise (design, real state) 10

11. Typologies of Property Development under R+P 11

12. Integrated devlopment packaga: Kowloon Station (1998-2010): 13.5 ha 12

13. Key findings  DBLVC as Inclusive Value Creation Exercise.  Public Land Ownership Not A Necessary Condition of DBLVC  DBLVC based on Sound Planning Principle.  Enabling factors  Macro fundamentals  Visionary master plan  Flexible zoning  Multiple finding sources  Intergovernmental collaboration  Entrepreneurship  Clear, fair and transparent rules  Key instruments 13

14. Challenges and risks  Overreliance on DBLVC  Corruption related to land transactions  Displacement of Low Income Households as a Result of Gentrification in TOD Area 14