Journal of Transport Geography 25 (2012) 154161

Contents lists available at SciVerse ScienceDirect

Journal of Transport Geography

journal homepage: www.elsevier.com/locate/jtrangeo

Land value capture nance for transport accessibility: a review

Francesca Medda
UCL QASER Lab., University College London, Gower Street, London, United Kingdom

a r t i c l e i n f o a b s t r a c t

Keywords: Cities worldwide have been experiencing escalating problems in obtaining nancial resources for trans-
Accessibility port investment. Investments in transport thus need to seek new paradigms to solve these problems.
Land value mechanisms Accessibility is a pivotal element in this context because it may induce increases in land value whereby
Urban transport some or all of these increments in land value resultant from the increase in accessibility can be captured
to recover the capital costs of a transport investment. From this perspective the present paper reviews the
main land value capture nance (LVC) mechanisms (betterment tax, accessibility increment contribution,
and joint development) in relation to increased transport accessibility. The three nancing instruments
retain common features such as the ability to achieve wider public goals and private objectives, and they
are exible and can be implemented through different forms of nancial instruments. We conclude that,
for the successful implementation of a land value capture nance programme to take place, we must
always consider the context (the urban area and the transport mode) in addition to the economic rela-
tionship between the life cycle of the transport system, its protability and the property market.
2012 Elsevier Ltd. All rights reserved.

1. Introduction accessibility value gained through transport improvement is

Traditional funding mechanisms, particularly for urban trans-
port investments, have become increasingly inadequate to cover
the growing gap between operating expenses and revenues due
to complex and diverse urban goals. The global economic down-
turn, which in 2008 was precipitated by the US sub-prime mort-
gage crisis, has certainly exacerbated the situation. Not only did
specic sectors of the urban property market suffer from the devel-
opment of price spikes, speculative behavior and boom and bust
cycles (Florida, 2010), but also, due to the scal and banking crisis,
governments and urban enterprises have experienced signicant
restrictions with respect to their lending and revenue activities.
The resulting quandary relative to transport funding leads us to
investigate possible alternative forms of nancial resources.
A key prerequisite to stimulate investment in transport and give
condence to investors is a conceptual shift with regard to funding
mechanisms; this shift can be realized by unlocking and enhancing
urban assets based on their accessibility value. As noted by Geurs
and van Wee (2004), accessibility is the extent to which land-
use and transport systems enable individuals to reach activities
or destinations by means of transport mode, hence they observe
that a number of components identify the accessibility value. In
this work we argue in favor of accessibility as a means of creating
and increasing urban value whereby public good features and pri-
vate sector benets are combined. However, the realization of this
Tel.: +44 20 76791557; fax: +44 20 76791567.
E-mail address: f.medda@ucl.ac.uk
essentially related to the type of transport investment (Iacono
et al., 2009). Levinson and Istrate (2011) go further by observing
that if an investment in a highway increases transport demand
and, subsequently, congestion which eventually decreases accessi-
bility, an investment in public transit increases demand but ulti-
mately increases accessibility. These conclusions are particularly
interesting in light of the fact that urban growth is often associated
with dependence on the automobile as the main transport mode
(Travisi et al., 2010). For instance, in low and middle-income coun-
tries where on average road trafc between 1990 and 2006 has
more than trebled, transport systems are comprised by mostly pas-
senger cars (World Bank, 2007). Certainly the rise in car use corre-
sponds to increases in average distance travelled, the high costs of
infrastructure and energy, urban trafc congestion and pollution,
reduction of green areas, and limited access to services and
activities.
In an effort to decrease reliance on the automobile and to sub-
sequently mitigate its direct and indirect effects in the provision of
urban transport, we must consider the range of alternative trans-
port services. For example, mass transit systems provide capacity
and competitive levels of service for a large number of urban trav-
elers. However, although mass transit systems such as metro, light
rail transit (LRT) and bus rapid transit systems (BRT) represent
innovative solutions to the urban accessibility problem, they nev-
ertheless require large sunk investments, such as in the case of
LRT (Polzin and Baltes, 2002; Hecker, 2003; Kennedy et al.,
2005). And the consequence of high cost considerations may ulti-
mately discourage decision-makers from investing in these trans-

0966-6923/$ - see front matter 2012 Elsevier Ltd. All rights reserved.
http://dx.doi.org/10.1016/j.jtrangeo.2012.07.013
 F. Medda / Journal of Transport Geography 25 (2012) 154161
port systems. This argument leads us back to our initial concept of
accessibility as a means of creating urban value. The proposition in
the present paper is to focus on accessibility gain, that is, to give
more credence to the nancial recovery mechanisms resulting
from increased accessibility due to transport investments. This
concept is generally referred to as land value capture nance.
The search for alternative and exible methods of revenue gen-
eration and the development of nancial frameworks for transport
investment is an on-going process, particularly in local authorities,
and it is certainly a paramount task in the present economic down-
turn. These nancial tools as Peterson (2009) observes however
cannot be merely restricted to the generation of revenue, but they
need to be efciently designed in order to foster stable and equita-
ble urban land markets. Thus, our primary aim in this work is to re-
view the main methods based on accessibility that allow for the
capture of the windfall from an increase in land value. In so doing,
we advocate that an investment program based on land value,
especially when applied in cities, can achieve the kind of sustain-
able development in which more efcient use of energy is closely
related to economic and social processes, and high accessibility is
not merely dedicated to car usage.
2. Land value related to transport accessibility
Land value capture nance (LVC) is often seen as an alternative
method of revenue generation for urban transport systems. The ba-
sic assumption is to recover the capital cost of the transport invest-
ment by capturing some or all of the increments in land value
resultant from the increase in accessibility. In so doing, we incor-
porate accessibility within a land value nancial framework, in
which we link the benet of transport investment to its costs.
The approach has a wide literature and numerous applications
around the world (Andelson, 2000; Bowes and Ihlanfeldt, 2001;
Gihring, 2001; Fensham and Gleeson, 2003; Smith and Gihring,
2006; Iacono et al., 2009).
Before turning to the analysis of the specic LVC methods, we
can observe that the value of land (total land value) is comprised
by two components: (A) the capitalized value determined by
accessibility to natural and social resources in the city, and (B)
the capitalized value of improvement and construction in situ
(Fig. 1).
The capitalized land value of accessibility (Fensham and Glee-
son, 2003) upon which we focus in this analysis, is the aggregate
value of three capitalized land value components due to the bene-
ts gained from additional access to: urban locations and activities
such as natural amenities (A.I urban externalities), social-devel-
oped infrastructures such as schools, hospitals and public services
(A.II social infrastructure), and sewage collection, water reticular
and highway systems (A.III development infrastructure) (Fig. 2).
In practice, when we focus on the nancial capturing mecha-
nisms for the accessibility increase, in the case of development
infrastructure (A.III), the cost recovery for the provision is often en-
forced with user-charges. This straightforward revenue mecha-
nism is based on the level of fare charged and the volume of
A: Capitalized Land Value of Accessibility
Total Land Value
B:Capitalized Land Value of On-site Improvement
Fig. 1. Total land value components.
155
trafc using the transport system. Although land value capture
through taxation may be considered as a super user charge (Ry-
beck, 2004), the windfall of land value due to accessibility is none-
theless seldom captured through a user-charge mechanism. In the
case of access to social infrastructure (A.II) and urban externalities
(A.I), the cost recovery mechanism is less explicit. Transportation
as impure public good may satisfy one of two conditions: it may
be non-rival in consumption or it may be non-excludable, and pub-
lic transport as a social infrastructure is one such example of an
impure public good. Household knowledge about transport provi-
sion is commonly the result of past transport experience, current
availability of the transport service, and actual cost of the service,
its demand and supply, as well as consumer expectation and per-
ception of cost. These elements altogether may create asymmetry
of information about the optimal level of transport provision, but
above all about the efciency and equity of the cost recovery
mechanisms related to the social infrastructure and urban exter-
nality components of accessibility. For instance, land value capture
could deploy regressive effects by taxing households rich in assets
but poor in capital, thus revealing basic aws in both transport
provision and cost recovery. At this point an important caveat must
be raised. It is disingenuous to use a standardized model of land
value capture nance that may be replicated across cities. As
Squires and Lord (2012) argue, policy transferability may be seen
by city authorities as quick x method to seek out tested policy
and off-the-shelf solutions, but by not understanding the structural
intricacies of institutions and how policy is set in place (especially
scal policy), it may lead to the choice of ineffective land value
mechanisms. In general, the implementation of land value nance
requires a tailoring exercise in order to propose policies which ac-
count for economic, social and political circumstances (Anderson,
2006). Relevant stakeholders such as local authorities should as-
sess the range of nancing options before deciding which instru-
ment or method is most appropriate for a city and for a
particular transport investment.
Within this context of accessibility as value destination (Levin-
son and Istrate, 2011), it is noteworthy to emphasize that different
transport investments may induce direct and indirect impacts on
the three components of capitalized land value, and this is partic-
ularly important when we aim to minimize the potentially regres-
sive effects, for example, of a land tax. If we consider an investment
in an urban bus service for instance, we may have in this case a di-
rect impact on the capitalized land value of access to social infra-
structure, because the new bus service will increase access to
social infrastructure such as schools. However, the transport ser-
vice will also have indirect impacts on the other two capitalized
values (Fig. 3).
The estimation of direct and indirect impacts of urban infra-
structure investment is calculated through standard price model-
ing (Rosen, 1974; Freeman, 1979; Sheppard and Stover, 1995)
within a particular statutory administrative structure. Proximity
to transport systems is shown in the majority of studies to have
a positive correlation to land value but not a linear one (Cervero,
1996; Andelson, 2000; Bowes and Ihlanfeldt, 2001; Cervero and
Duncan, 2001, 2002). Transport investments sometimes exhibit
156 F. Medda / Journal of Transport Geography 25 (2012) 154161

A.I A.II A.III

A. Capitalized Capitalized Capitalized
Capitalized Land Value Land Value Land Value
Land Value of = of Access to + +
of Access to of Access to
Accessibility Urban Social Development
Externalities Infrastructure Infrastructure

Fig. 2. Structure of the capitalized land value of accessibility.

A.I Capitalized Land

Value of Access to Urban
Externalities
A.II Capitalized Land
Value of Access to Social
Infrastructure

A.III Capitalized Land

Value of Access to
Development Infrastructure
Investment in social
infrastructure
(i.e.,public bus)

B. Capitalized Land Value

: Direct impact of on-site
: Indirect impact Improvement

Fig. 3. Impacts on land value of transport investments.

mixed results with respect to impacts on property values; they can
induce property value premiums ranging between 3% and 40% for
different reasons. The positive effects produced by an increase in
accessibility include commute time savings, higher access to the
labor market, retail and cultural opportunities, and reasonable
walking distance to the station. However, transport investment
may also bring negative impacts to property value due to an in-
crease in negative externalities such as noise, pollution, unsightli-
ness of the station, and crime. In Atlanta for instance, proximity to
the mass transit system has raised property values in economi-
cally-depressed areas, but has lowered them in economically-afu-
ent areas; whereas we nd the reverse situation in Miami (Diaz,
1999).
As mentioned above, one approach to capture the land value
windfall is through a land tax, of which the most common is the
split-rate property tax as applied in Pennsylvania (for an extensive
annotated bibliography, see Smith and Gihring, 2006). However,
when land tax is imposed, although a revenue gain occurs for the
government, there is the potential for a reduction in the overall
welfare of the economy. As such, a land tax, by being implemented
on an inelastic factor, i.e. land, may lead to a reallocation of income
from private households to government bodies, hence creating
inefciency. For this reason we need to consider the spectrum of
land value capture nance mechanisms, such as Special Assess-
ment Zones, Tax Increment Finance, Air Rights, Negotiated Exac-
tions, Joint Development, Enterprise Zones, and Transit-Oriented
Areas (Iacono et al., 2009; Peterson, 2009; Levinson and Istrate,
2011; Ingram and Hong, 2012).
In the context of transport investment and accessibility we can
observe that value capture nancing is a method that can achieve
wider public goals and private objectives and can be implemented
through different forms of nancial instruments. We recognize
that land nancial methods require different types of information
and legal and analytical support in order to work effectively and
that public and private participation is at the core of their success
(Peterson, 2009). From this standpoint, land value capture nance
in our study is grouped under three main methods which encom-
pass many of the aforementioned instruments:
1. Betterment tax is a value capture levy on property that benets
from transport accessibility gains.
2. Accessibility increment contribution (AIC) is an economic
development incentive package.
3. Joint development mechanism is a cooperation system between
public sector and private developers.
Although the three methods retain the essential idea of land va-
lue capture nance, they differ in their practical applications. The
objective of the next sections is to examine their characteristics
in detail.
3. Betterment tax
Financing an urban transport system through a tax on the land
value added by public investment is the main assumption of the
betterment tax, also known as benet assessment. Betterment
tax is directed towards the beneciaries of increased accessibility,
of reduced congestion and pollution, and of lower transport costs
achieved due to a transport investment. In a mass transit system
such as light rail, a signicant part of the capital cost is constituted
by the land acquisition. For example, London Crossrail is expected
 F. Medda / Journal of Transport Geography 25 (2012) 154161
to raise 4.1 billion out of the 14.8 billion funding needs
through a business rate supplement across the greater London area
(Modern Railways Special Report, 2011). The estimated supple-
ment is 2 pence per British pound of rateable value, exempting
businesses with a rateable value of 55,000 or less (Greater London
Authority, 2010). Therefore, the objective of the betterment tax is
to internalize the windfall surpluses of land value due to increased
accessibility.
For this reason, betterment tax is seen as an equitable, easily
understood and efcient levy, because it seeks to recover the added
value on private land assets accrued with the transport investment.
It is through joint community effort that land acquires worth. This
is the logic on which value capture rests. Trafc volume makes for
increases in land value, and that variable is social in nature. Be-
cause that value derives from social effort, society has a principled
right to its claim (Batt, 2001). Moreover, betterment tax may also
create incentives for higher density urban development because
the tax compels private beneciaries to avoid land speculation.
This is particularly important in markets with high land demand
pressures; the betterment tax in fact acts to lessen these pressures
and readjust land prices.
There are many examples of applications of betterment taxes;
of particular interest are the Hong Kong and Singapore cases for
nancing their respective metro systems (Hui et al., 2004). In both
cities, land value capture mechanisms are the principal sources of
revenue for nancing transport infrastructure and services. The
betterment taxes in Hong Kong are based on full market value,
whereas in Singapore the tax is about 50% of the full market value.
This difference is due to the decision by the Singapore government
to leave some of the windfall benet to the private sector in order
to incentivize urban development. The Hong Kong application for
nancing its mass transit systems is based on the land rent earned
concept. The Hong Kong government leases, under different
restrictions, the land in station areas to the MTR Corporation. The
lease for development, which is renewable, is generally 50 years
or more (Hui et al., 2004). The revenue of MTR Corporation, gener-
ated from non-fares, accrues to 35% of their total revenue and com-
prises the proceeds of land rent (direct betterment value), station
commercial and related businesses, such as retail and advertising
sales (indirect betterment value), and other public transport
investments. However, the main lesson to be learnt from these
examples is that betterment tax is most effective in robust mar-
kets, and above all where there is a well-established tax adminis-
tration system (Enoch et al., 2005).
Preparing and implementing a program of betterment taxes in
order to capture part of the investment in a transport system is a
complex and often elusive task. The rst difculty, as we have ob-
served, is the evaluation of the impacts. Although the use of the
property tax around the world is widespread, especially in cities,
it is otherwise true that in developing countries in particular, land
registries for residential properties are often incomplete (Brown-
Luthango, 2011). The betterment tax can therefore appear to be
inequitable due to a perception of differential treatment among
citizens in relation to real benets accrued from the transport pro-
ject and increased accessibility. Moreover, the collection of the tax
may be complicated and ineffective, thus exacerbating the percep-
tion of unjust treatment which can then trigger delays of the actual
use of the tax revenue for a transport investment.
In some cases the betterment tax may also induce displacement
from an urban area affected by a transport project because certain
residents may be asset-rich but cash-poor. For instance, in Colom-
bia, where the betterment tax system was introduced at least since
1921 (Law 25: Contribucin de Valorizacin), Jaramillo (2000) ob-
serves that when the mechanism was functioning better, munici-
pal authorities tended to favor it as a source of nancing for public
works in areas where the landowners ability to pay the levy was
157
greater so that fewer protests could be expected. As a result, local
authorities tended to undertake public works projects that benet-
ted those who were able to pay the levy and neglect other socio-
economic sectors, thus reproducing and strongly increasing
socio-spatial segregation.
The Business Improvement District (BID) is an example of a tax-
based approach designed especially to develop urban areas. The
BID is an added tax or fee on all properties and businesses in a spe-
cic area. The innovative characteristic of a BID is that property
owners and businesses self-impose this local tax in order to offer
a level of service above that provided by the local authority (Lloyd
et al., 2003; Caruso and Weber, 2006). BIDs are extensively imple-
mented across the US; in 2008 7000 BIDs were developed in 400
US cities (Cook, 2008) but also, more recently in a number of coun-
tries including Germany, Albania, Canada, New Zealand, Jamaica
and South Africa (Hoyt, 2006).
An example of a betterment tax linked to transport investment
is given by the bus rapid transit (BRT) system in Ahmedabad, a
low-income city in India, where the BRT has experienced great dif-
culty in reaching protability (Ballaney and Patel, 2009). In this
case, the operators are exploring how to obtain additional nancial
resources through the application of a betterment tax targeted to
commercial and ofce landowners and earmarked for the BRT sys-
tem. Cervero and Susantono (1999) nd a similar solution for the
city of Jakarta, where transport investment can be implemented
by imposing a betterment tax on the commercial ofce sector.
The indirect intervention of the private sector through the target-
ing of betterment taxes to business and commercial activities
could therefore be a viable alternative for ensuring nancial sup-
port for transport investments.
4. Accessibility increment contribution (AIC)
We group under this heading all the scal incentive instru-
ments that earmark future revenues (scal contribution for acces-
sibility increment) to nance current expenditures. The basic idea
of this nancial tool is that public improvement expenditures in-
duce growth in urban areas characterized by low accessibility lev-
els. Private investors are therefore encouraged to invest in
designated areas because they are assured that their taxes will -
nance the development of the area and thus provide a net nancial
gain. Tax increment nance (TIF) is one of the most popular of
these scal tools; it is designed as a privatepublic nancing tool
used in urban redevelopment projects and transport investments.
Tax increment nance is mostly applied in the US where it was ini-
tially developed in 1951.
In 2007 there were 291 TIF districts in 51 US cities; however the
TIF experience is mixed due to added volatility that the TIF nan-
cial framework may impose on municipal budgets (Cook, 2008;
Boyd, 2011). For instance, approximately 30% of the Chicago city
area is comprised by 130 TIF districts. Arlington Heights, a Chicago
suburb, rebuilt its downtown around the commuter rail station
with very high densities using TIF as an infrastructure funding
source. The number of residents in one Arlington Heights TIF has
increased 10-fold to 1500 from 150 in 1985 and the assessed
value of property has jumped to seven times its original value.
The agreement between local authority and developer includes a
provision to reduce the formers investment if the latters rate of
return exceeds a certain target. However, because it has an impact
on local government district nancing, such as for schools, TIF is
highly controversial. According to Quigley et al. (2007), if TIF cap-
tures approximately 40% of the tax base, then TIF districts will have
a lower tax base and thus a higher tax rate in relation to taxing dis-
tricts without TIFs. He observes that approximately 40% of the
incremental property value of these districts would have taken
158 F. Medda / Journal of Transport Geography 25 (2012) 154161
place even without TIF, thus in reality, every taxpayer in Chicago,
whether he or she lives within a TIF, pays the TIF tax (Quigley
et al., 2007). According to Clark and OConnor (1997), TIF is based
on the cycle of investment, securitization, appreciation, and invest-
ment; this structure is often developed under opaque nancial
instruments that eventually may produce contentious effects.
Nonetheless by 2007, despite the nancial constraints and the
burst of the property bubble in the United States, many cities such
as Chicago have carried out the development of new TIF districts
(Weber, 2010).
The relation between public investment, particularly invest-
ment in improved accessibility through transport systems, and in-
crease in property value as in the betterment tax case, is a
fundamental requisite in accessibility increment contribution
(AIC) scal mechanisms. AIC programs are thus self-nancing
mechanisms based on local government decisions to operate in a
joint-venture with the private sector to develop an urban area. Am-
ple literature (Klemanski, 1989; Anderson, 1990; Brueckner, 2001;
Selby and Hunter 2004; Byrne, 2006) provides various applications
and in particular the conditions to verify the effectiveness of these
programs. For instance, in the case of TIF projects, not only must
they generate a level of tax revenue at least equal to the cost of
the project, but they must also be economically efcient in that:
projects with a positive net present value are more benecial
when the municipal tax rate is higher, in spite of the reduced rel-
ative subsidy from the overlying government (Dye and Sundberg,
1998).
Private sector development of specic hubs of the public trans-
port network (through concessions and tax relief mechanisms) is a
successful example of an applied accessibility increment contribu-
tion scheme. Large stations with high levels of footfall represent a
clear opportunity for commercial and business property develop-
ment. In Brazil, Belo Horizonte and Porto Allegre transfer stations
of their respective BRT systems, have been developed under AIC.
Another possible application of an accessibility increment contri-
bution involves the upgrade of the zone classication along the
mass transit corridors. But in Curitiba the decision to upgrade
the zoning system has produced various negative impacts, such
as speculative processes of land development and the displace-
ment of low-income residents in the urban peripheries (Smolka
and Furtado, 2002).
In order to foster sustainable urban development, AIC mecha-
nisms generally operate either through scal incentive, such as
tax relief and tax-breaks, or through tax disincentives. The public
sector often uses various nancing devices and tools to raise capi-
tal, including general bond obligations or the pay as you go ap-
proach, in which the tax increment is collected every year and
accumulates until the project is fully nanced. Similar tax mecha-
nisms have been used in developing countries, especially through
informal partnerships, and they have operated according to per-
ceived mutual interest. Many global examples can be mentioned,
such as land pooling and land readjustment in Southeast Asian
countries, the Slum Redevelopment through Incentives in India,
and the Schma damnagement in Cameroon, Guinea and Rwan-
da where the public sector intervenes in road schemes before the
land is subdivided and sold (Calvo, 1998).
The AIC mechanisms are often effective in addressing the inter-
ests of the private investor through scal incentives, whereas they
may sometimes tend to overlook and thus negatively impact on
the greater urban area, above all on the most vulnerable residents
and services of the community. But according to Payne (2003),
informal partnerships appear to have been operating at a large
scale and are more successful in serving the needs of the poor;
their success is mainly attributed to the ability of the public sector
to operate outside the often too-stringent and cumbersome regula-
tory frameworks, and thus be able to respond adequately to local
pressures without the need for new policies or regulations. Never-
theless, in both formal and informal partnerships, the common ele-
ment of the accessibility increment contribution mechanism is to
promote private investment through scal tools such as capital
allowances, and to respond mainly to the local context and needs
with a strong decentralized approach to scal measures.
5. Financialization: Joint development mechanism
The two LVC methods discussed in the previous sections are
based on the implementation of scal regimes. The principles for
selecting and implementing these types of tax regimes may how-
ever prove to be deceptively easy. The often required scal decen-
tralization may constitute a challenge for local authorities. In
countries such as the US, France and the UK, where the administra-
tive system is often in place, the task of implementing a new tax
regime may be complex and costly (Dye and England, 2010). Effec-
tive administrative land tax practice requires that value assess-
ments be carried out according to a timely, uniform, accurate,
and transparent approach, i.e. horizontal equity (Coe, 2010), in or-
der to respect the market value. However, these conditions are of-
ten not satised. For instance, by not implementing timely and
frequent assessments to reect market uctuations and exible
rate settings in order to counterbalance variation in the tax base,
the urban land market may be driven to land asset bubbles and
speculation, as in the case of Tallinn, Estonia (Cocconcelli and Med-
da, 2012). Pittsburgh, which has often been cited as the application
of best practice in land value taxation, has rescinded its system due
to poor practice and lack of transparency and due to misleading
public perception on an unfair and increased tax burden (Bourassa,
2009). Moreover, the implementation of a scal regime can require
the use of land assessment methods which may be unavailable or
unsuitable. German (2009) notes that the extraction approach,
where assessment of land value is based on the market value of
a property, minus the cost of replacing the property, is often se-
lected by authorities without considering that this method is ex-
tremely costly for the administration due to the necessity for
frequent assessment to account for depreciation and obsolescence.
All these different scal mechanisms of land nance therefore in-
volve degrees of risk often linked to land asset management (In-
gram and Hong, 2012). We can conclude that, as Inman (2010)
argues, given the fact that a new scal regime always implies win-
ners and losers, the political support and the alignment and broad
consensus of the economic interests of residents and industry is
essential for the success of a land value scal regime.
Against this background, in recent years cities have shown
greater capacity and initiative to access capital markets through
new investment instruments which are not related to scal re-
gimes. As observed by Weber (2010), nancialization of urban
transport projects and assets began in the late 1990s: institutional
investors developed a penchant for urban real estate investments
as a way to balance their portfolio of corporate equities and
bonds. In a joint development project, a local authority or govern-
ment, in order to nance and maximize the protability of its
investment in transport, particularly the increase of accessibility,
encourages property development (residential and/or commercial)
close to stations. As described in Cervero et al. (2004), joint devel-
opment at transit stations includes air-rights development,
ground-lease arrangements, station interface or connection-fee
programs, and other initiatives that promote real-estate develop-
ment at or near transit stations to the mutual benet of public
and private interests. In the United States several joint develop-
ment projects are found within a Transit-Oriented Development
(TOD), a pedestrian-friendly and public transport/transit support-
ive development or redevelopment where the intervention by
 F. Medda / Journal of Transport Geography 25 (2012) 154161
the private sector represents a feasible solution for new nancial
resources (Boarnet and Crane, 1998; Cervero et al., 2004). TOD is
a fully integrated transport planning approach (Curtis et al.,
2009) which has been the framework for the development of the
new town restad in Denmark. In this case the new transport sys-
tems and improved accessibility have been nanced on a base of
commercial rate borrowing (Knowles, 2012). Within this context,
one of the most innovative areas in local public nance is debt
nancing of infrastructure, that is, off-budget debt instruments
that are able to circumvent constraints on local governments.
However, the exploitation of private capital markets by local gov-
ernments can lead to problematic nancial situations as seen in the
cases of certicates of participation, community facility district
debts, and municipal bonds (Boyd, 2011).
Nevertheless, the advantage of using joint development is that
it is not necessary to identify the direct and indirect impacts of
the transport investment, as must be done in the betterment tax
or the accessibility increment contribution because there is coop-
eration between public agency and private investors who share
construction costs (Doherty, 2005). Both private and public inves-
tors benet in a joint development project, so it is also known as a
win-win situation (Transportation Research Board, 2002). The pri-
vate developer will benet from improved accessibility and more
potential customers (higher rents or greater occupancy of residen-
tial projects), and the public sector will benet through the sharing
of construction costs or lease revenue. However, in some projects
we observe that lease revenue often accrues only a nominal per-
centage of the total revenue of the transport system. For example,
in Washington DC (US), the revenue accrued through the joint
development of the Washington Metro (WMATA) between 1979
and 1989 amounted to less than 0.7% of the annual revenue. These
modest results may be due on the one hand, to the transport oper-
ators limited experience of land value estimation and on the other,
to their unwillingness to engage in real estate and other business
pursuits apart from the operation of the transport system. As in
the scal LVC approaches, the key to the success of a joint develop-
ment mechanism is sound land asset management where the abil-
ity to monetize accessibility as a new asset class is essential, for
example, by exchanging land assets for infrastructure assets. In
China, the LVC approach is often applied through public land sales,
i.e. the sale of land whose value has been augmented by infrastruc-
ture investment (Ingram and Hong, 2010). The public sector in this
case internalizes the benets of public investment and captures
the gain through land sales.
However, business and commercial opportunities arising from
increases in land value are often capitalized by the public sector
by leasing sites within the transport infrastructure, e.g., under-
ground commercial activities and advertising. Leasing, rather than
sale, gives public authorities the exibility sometimes necessary in
the operation and planning of transport systems, but also provides
an annual revenue stream which may be vital to the nancial fea-
sibility of the transport investment, as in the Bangkok BTS Skytrain.
For instance, one of the most well-known and innovative examples
of urban transport property development is the Mater Hill station
of the transit system in Brisbane, Australia, where a hospital has
been built on top of the bus transfer station. In this case, commer-
cial activity is seen not only as an opportunity for the private sec-
tor, and thus a source of revenue for the transit system, but also as
a public service: individuals can use the transfer time in the station
for other routine activities such as grocery shopping. The new town
Tama Den-en Toshi in Tokyo is another example where the public
sector did not intervene directly; instead the Tokyo Corporation
and landowners established a cooperation to consolidate the prop-
erties without transferring ownership. The Tokyo Corporation was
able to increase population and ridership in the area, thereby stim-
ulating the development of this specic urban zone.
159
Joint development is to date the most easily applicable land va-
lue capture mechanism within a private sector agreement, because
it is technically straightforward to implement in the contractual
agreement and, by not using scal mechanisms, it does not raise
equity issues.
6. Conclusions: policy outlook
Land value capture nance methods can be seen as robust
nancial tools for transport funding under different approaches
of implementation. The importance of land value capture nance
is based on the notion that transport accessibility, by forging close
ties with land development planning, can create and increase eco-
nomic, social and environmental urban value. We have reviewed
here the three main land value capture nance mechanisms in
relation to increased transport accessibility. The betterment tax,
accessibility increment contribution (AIC) and joint development
are methods based on capturing some of the capital costs of the
transport investment. They can be implemented in combination
according to urban context and we argue that, because accessibil-
ity can be achieved with different emphases, it is possible to tailor
the nancial mechanisms in order to obtain the accurate increase
in accessibility. In so doing, based on the communitys willingness
to pay for accessibility and for a less congested, polluted and noisy
city, political decision-makers can then correctly allocate the
incentive for the transport investment, and above all, dene an
equitable and transparent land value capture nance mechanism.
As such, LVC mechanisms do involve a degree of risk. Perceived
problems related to cyclical behavior in real estate and transport
markets may constrain the value creation of accessibility and prop-
erty in the provision of sufcient revenue. The appreciation in va-
lue is often estimated by hedonic price modeling (Rosen, 1974;
Freeman, 1979), which nonetheless suffers some drawbacks and
shortcomings, particularly when localized impacts may occur at
the expense of whole urban growth (Dye and Merriman, 2000).
As noted by Zhao and Larson (2011), the evaluations following
econometric techniques are often impractical due to (a) the dif-
culty of separating value increments attributable to the improve-
ment from general increases, and (b) the fact that special
assessments are adopted before infrastructure improvement is in-
stalled, meaning that empirical data demonstrating the benet will
not be available. However, in order to effectively demonstrate the
prot potential of accessibility and to spur incentives in transport
investments, public and private actors need to gain a practical
understanding of the theoretical results and data analyses related
to the accessibility windfall values because these indeed provide
valid support for the implementation of LVC in urban areas. For in-
stance, the data analyses and evidence may help local authority
ofcials to establish the boundary areas where a scal LVC pro-
gram may be adopted (Medda and Modelewska, 2011).
Although a silver bullet is not available for the selection and
implementation of best practice of LVC mechanisms through
accessibility value creation (Levinson and Istrate, 2011), a step-
wise approach (Fig. 4) can nonetheless effectively support decision
makers:
 Setting accessibility targets: to ensure that short and long-term
objectives of transport investments are aligned with the targets
of delivering higher accessibility and sufcient value creation
that can be captured by both public and private sector.
 Reviewing planning and scal urban framework: to be effective
and successful, the implementation of land value capture needs
to be supported by a specic local scal taxation and planning
framework. For instance, a betterment tax mechanism requires
the establishment of property tax and scal decentralization.
160 F. Medda / Journal of Transport Geography 25 (2012) 154161
Setting Reviewing
Accessibility planning and
Targets fiscal urban
framework
Fig. 4. LVC implementation process.
Local governments should understand the advantages arising
from innovative nancial solutions such as new forms of cus-
tomized and earmarked tax revenue, and should therefore con-
sider a variety of options: tools, instruments and methodologies
which would be the most appropriate for their city and to their
transport investment.
 Selecting LVC mechanisms: as discussed, prioritizing the LVC
measures should depend on the individual transport project,
its technical and nancial feasibility, and its urban planning
and scal framework. The selected LVC mechanism or combina-
tion of different mechanisms is decided through a recursive
process with stakeholder engagement. The revenue expenditure
linkage is crucial in order to persuade taxpayers and investors
to provide the urban revenue for the accessibility, and this is
particularly important during nancially challenging periods.
 Engagement: to achieve a robust implementation in an LVC pro-
gram, it is necessary to develop a cooperative multi-sector
approach to involve relevant stakeholders: the stakeholders
who will receive direct impacts from the implementation of
the LVC actions such as local authorities and developers; and
the stakeholders who will receive indirect impacts such as busi-
ness and individuals in for instance, an increase in their scal
burden (Iacono et al., 2009). Stakeholder engagement is contin-
gent on the selection of LVC mechanisms; in other words,
through structured and institutional frameworks as in the
implementation of scal LVC instruments, e.g., London Crossrail
and the application of the business rate supplement (BRS) or
through negotiated and joint venture agreements, as in the case
of the Akaretler Row House in Istanbul (Huxley, 2009).
 Monitoring: to obtain a complete picture of the success of an
LVC implementation in an urban area, a combination of mea-
surements, i.e., social returns on the transport investment,
may initially be considered in order to assess short-term effects
such as increases in public transport patronage and remediation
of browneld areas, and the longer term effects such as the
reduction of urban poverty and job creation.
Overarching this step-wise approach are two relevant concepts:
context and accessibility value. First, in relation to context, it is
necessary to know what city and what type of transport invest-
ment is being considered. Second is the need to clearly understand
accessibility value and thus the economic relationship between the
life cycle of the transport system, its protability, and the property
market. Corollary of these concepts is that the main potential ben-
et of land value capture (LVC) nance for transport investment is
its exibility in adapting a structure of incentives and risk-sharing
to the features of a project, and to the economic and institutional
environment as a whole. But it is also precisely due to the exibil-
ity of LVC tools that it may be unwise to seek a standardized model
which can be easily replicated across cities and countries. This
attention to detail at the community scale, while concurrently
planning major transportation corridors, lies at the heart of suc-
cessful integrated land-use transportation planning (Kennedy
et al., 2005). Public sector decision makers have to consider a vari-
ety of options before deciding, and in practice must make a judge-
ment on the trade-offs between various and sometimes conicting
objectives. It is therefore important to develop research for evalu-
Selecting Engagement Monitoring
LVC
mechanisms
ating the most efcient and sustainable LVC to nance transport
investments based on accessibility.
References
Andelson, R.V., 2000. Land-Value Taxation Around the World. Blackwell, Malden.
Anderson, J., 1990. Tax increment nancing: municipal adoption and growth.
National Tax Journal 43 (2), 155163.
Anderson, N.B., 2006. Property tax limitations: an interpretative review. National
Tax Journal 59, 685694.
Ballaney, S., Patel, B., 2009. Using the Development Plan-Town Planning
Scheme Mechanism to Appropriate Land and Build Urban Infrastructure. In:
India Infrastructure Report. Oxford University Press, New Delhi.
Batt, H.W., 2001. Value capture as a policy tool in transportation economics: an
exploration in public nance in the tradition of Henry George. American Journal
of Economics and Sociology 60 (1), 195228.
Boarnet, M.G., Crane, R., 1998. Public nance and transit-oriented planning: new
evidence from southern California. Journal of Planning Education and Research
17, 206219.
Bourassa, S.C., 2009. The political economy of enacting land value taxation. In: Dye,
R.F., England, R.W. (Eds.), Land Value Taxation. The Lincoln Institute of Land
Policy, Bolton.
Bowes, D.R., Ihlanfeldt, K.R., 2001. Identifying the impacts of rail transit stations on
property values. Journal of Urban Economics 50, 125.
Boyd, D., 2011. Recession, Recovery and State and Local Finances. Working Paper.
The Lincoln Institute of Land Policy.
Brown-Luthango, M., 2011. Capturing land value increment to nance
infrastructure investment: possibilities for South Africa. Urban Forum 22, 37
52.
Brueckner, J.K., 2001. Tax increment nancing: a theoretical inquiry. Journal of
Public Economics 81, 321343.
Byrne, P.F., 2006. Determinants of property value growth for Tax Increment
Financing districts. Economic Development Quarterly 20 (4), 317329.
Calvo, C.M., 1998. Options for Managing and Financing Rural Transport
Infrastructure. Technical Paper No. 411. The World Bank.
Caruso, G., Weber, R., 2006. Getting the max for tax: an examination of BID
performance and measure. International Journal of Public Administration 29
(13), 187219.
Cervero, R., 1996. Mixed land uses and commuting: evidence from the American
Housing Survey. Transportation Research A 30 (5), 361377.
Cervero, R., Duncan, M., 2001. Rail Transits Value-added: Effects of Proximity to
Light and Commuter Rail Transit on Commercial Land Values in Santa Clara
County, California. Report Prepared for National Association of Realtors, Urban
Land Institute.
Cervero, R., Duncan, M., 2002. Land Value Impacts of Rail Transit Services in Los
Angeles County. Report Prepared for National Association of Realtors, Urban
Land Institute.
Cervero, R., Susantono, B., 1999. Rent capitalization and transport infrastructure
development in Jakarta. Review of Urban and Regional Development Studies 11
(1), 1123.
Cervero, R., Arrington, G.B., Smith-Heimer, J.S., Dunphy, R., 2004. Transit-Oriented
Development in the United States: Experiences, Challenges and Prospects.
Transit Cooperative Research Program, Report 102, Washington, DC.
Clark, G., OConnor, K., 1997. The informational content of nancial products and
the spatial structure of the global nance industry. In: Cox, K. (Ed.), Spaces of
Globalization: Reasserting the Power of the Local. Guilford Press, New York, pp.
89114.
Cocconcelli, L., Medda, F.R., 2012. Boom and bust in the Estonian real estate market
and the role of land tax as a buffer. Land Use Policy 30 (1), 392400. <http://
www.sciencedirect.com/science/journal/02648377> (January 2013).
Coe, R.D., 2010. The legal framework for land value taxation in the US. In: Dye, R.F.,
England, R.W. (Eds.), Land Value Taxation Theory, Evidence and Practice. The
Lincoln Institute of Land Policy, Bolton.
Cook, I.R., 2008. Mobilising urban policies: the policy transfer of US business
improvement districts to England and Wales. Urban Studies 45 (4), 773795.
Curtis, C., Renne, J.L., Bertolini, L., 2009. Transit Oriented Development: Making It
Happen. Ashgate, Surrey.
Diaz, R. B., 1999. Impacts of Rail Transit on Property Values. APTA 1999 Rapid
Transit Conference Proceedings Paper.
Doherty, M., 2005. Funding Public Transport Development Through Land Value
Capture Programs. Ecotransit Website <www.ecotransit.org>.
Dye, R.F., England, R.W., 2010. Land Value Taxation Theory, Evidence and Practice.
The Lincoln Institute of Land Policy, Bolton.
 F. Medda / Journal of Transport Geography 25 (2012) 154161
Dye, R.F., Merriman, D.F., 2000. The effects of tax increment nancing on economic
development. Journal of Urban Economics 47, 306328.
Dye, R.F., Sundberg, J.O., 1998. A model of tax increment nancing adoption
incentives. Growth and Change 29 (1), 90110.
Enoch, M., Potter, S., Ison, S., 2005. A strategic approach to nancing public
transport through property values. Public Money and Management 25 (3), 147
154.
Fensham, P., Gleeson, P., 2003. Capturing value for urban management: a new
agenda for betterment. Urban Policy and Research 21 (1), 93112.
Florida, R.L., 2010. The Great Reset: How New Ways of Living and Working Drive
Post-Crash Prosperity. Harper-Collins, New York.
Freeman III, A.M., 1979. Hedonic prices, property values and measuring
environmental benets: a survey of the issues. The Scandinavian Journal of
Economics 81 (2), 154173.
German, J., 2009. The New Model for Tax Administration. (Online course) <http://
www.lincolninst.edu/education>.
Geurs, K.T., van Wee, B., 2004. Accessibility evaluation of land-use and transport
strategies: review and research directions. Journal of Transport Geography 12
(2), 127140.
Gihring, T.A., 2001. Applying value capture in the Seattle region. Planning Practice
and Research 16 (34), 307320.
Greater London Authority, 2010. Intention to Levy a Business Rate Supplement to
Finance the Greater London Authoritys Contribution to the Crossrail Project:
Final Prospectus. <http://www.london.gov.uk/sites/default/les/
nalprospectus.pdf>.
Hecker, J.E., 2003. Bus Rapid Transit Offers Communities a Flexible Mass Transit
Option. Report of the Committee on Banking, Housing and Urban Affairs. US
Senate, Washington, DC.
Hoyt, L., 2006. Importing ideas: the transnational transfer of urban revitalization
policy. International Journal of Public Administration 29, 221243.
Hui, E.C.M., Ho, V.S.M., Ho, D.K.H., 2004. Land value capture mechanisms in Hong
Kong and Singapore: a comparative analysis. Journal of Property Investment &
Finance 22 (1), 76100.
Huxley, J., 2009. Value Capture Finance. Making Urban Development Pay Its Way.
Urban Land Institute, London.
Iacono, M., Lari, A., Levinson, D., Zhao, Z., 2009. Value Capture for Transportation
Finance. CTS 09-185. Report to the Minnesota Legislature, University of
Minnesota.
Ingram, G.K., Hong, Y.-H. (Eds.), 2012. Value Capture and Land Policies. The Lincoln
Institute of Land Policy, Bolton.
Inman, R.P., 2010. Financing cities. In: Ingram, G.K., Hong, Y.-H. (Eds.), Municipal
Revenues and Land Policies. The Lincoln Institute of Land Policy, Bolton.
Jaramillo, S., 2000. The Betterment Levy and Participation in Land Value
Increments: The Colombian Experience. Research Report LP00SJ1. The Lincoln
Institute of Land Policy.
Kennedy, C., Miller, E., Shalaby, A., Maclean, H., Coleman, J., 2005. The four pillars of
sustainable urban transportation. Transport Reviews 25 (4), 393414.
Klemanski, J.S., 1989. Tax increment nancing: public funding for private economic
development projects. Policy Studies Journal 17 (3), 656671.
Knowles, R.D., 2012. Transit oriented development in Copenhagen, Denmark: from
the Finger Plan to restad. Journal of Transport Geography 22, 251261.
161
Levinson, D.M., Istrate, E., 2011. Access for Value: Financing Transportation Through
Land Value Capture. Brookings Institute, Transportation Research Board.
Lloyd, M.G., McCarthy, J., McGreal, S., Berry, J., 2003. Business improvement
districts: planning and urban regeneration. International Planning Studies 8 (4),
295321.
Medda, F.R., Modelewska, M., 2011. Land Value Capture as a Funding Source for
Urban Investment: The Warsaw Metro System. Better Government Program,
Ernst & Young Poland.
Modern Railways Special Report, 2011. Crossrail, A New Railway for London, July.
Payne, G., 2003. Building bridges: The Experience of PublicPrivate Partnerships in
Urban Land Development. Conference Paper, The Lincoln Institute of Land
Policy.
Peterson, G.E., 2009. Unlocking Land Values to Finance Urban Infrastructure. The
World Bank, Washington, DC.
Polzin, S.E., Baltes, M.R., 2002. Bus rapid transit: a viable alternative? Journal of
Public Transportation 5 (2), 4769.
Quigley, M., Thompson, J., Liechty, J., 2007. A tale of two cities: reinventing Tax
Incrementing Financing. Cook County Commissioners Ofce, 10th District,
Chicago. <http://www.CommissionerQuigley.com>.
Rosen, S., 1974. Hedonic prices and implicit markets: product differentiation in pure
competition. Journal of Political Economy 82 (1), 3455.
Rybeck, R., 2004. Using value capture to nance infrastructure and encourage
compact development. Public Works Management and Policy 8, 249260.
Selby, D.P., Hunter, C., 2004. Tax increment nancing: how public private
partnerships are nancing urban redevelopment. Real Estate Finance 21 (2),
37.
Sheppard, S.C., Stover, M.E., 1995. The benets of transport improvements in a city
with efcient development control. Regional Science and Urban Economics 25
(2), 211222.
Smith, J.J., Gihring, T.A., 2006. Financing transit systems through value capture: an
annotated bibliography. American Journal of Economics and Sociology 65 (3),
751786.
Smolka, M.O., Furtado, F., 2002. Mobilising land value increments for urban
development: learning from the Latin America experience. Institute for
Development Studies, IDS Bulletin 33 (3), 8489.
Squires, G., Lord, A., 2012. The transfer of Tax Increment Financing (TIF) as an urban
policy for spatially targeted economic development initiatives. Land Use Policy
29 (4), 817826.
Transportation Research Board, 2002. Transit-oriented development and joint
development in the United States: a literature review. Research Results Digest
52.
Travisi, C.M., Camagni, R., Nijkamp, P., 2010. Impacts of urban sprawl and
commuting: a modelling study for Italy. Journal of Transport Geography 18
(3), 382392.
Weber, R., 2010. Selling city futures: the nancialization of urban redevelopment
policy. Economic Geography 86 (3), 251274.
World Bank, 2007. World Development Indicators. The World Bank, Washington,
DC.
Zhao, Z.J., Larson, K., 2011. Special assessments as a value capture strategy for public
transit nance. Public Works Management Policy 16, 320340.