Capturing value

By - , Build 156

There’s no argument that New Zealand needs answers to the demand for urban development and improved infrastructure. Could a method used internationally that captures the value of land to raise capital work here?

Figure 1: Densification index, areas by densification score, Christchurch.

VALUE CAPTURE is a way of recovering some or all of the land value increase associated with development activities. These value gains can then be used to fund infrastructure, for example, a new train line.

A recent project, funded by BRANZ from the Building Research Levy, looked at this value capture concept and how it could be relevant to New Zealand.

Examples of value capture in North and South America, Europe and Australia were examined to show how value capture has been done in the past, what works well and what doesn’t.

The project considered whether or not value capture could be used in New Zealand to support development and infrastructure construction simultaneously.

Need for innovative solutions

New Zealand cities are experiencing ongoing and increasing difficulty in supplying sufficient and appropriate new residential and commercial development coupled with adequate and efficient transport systems. There is a pressing need for innovative solutions to these development and transport problems.

The issues of increasing population growth, continued urbanisation and the changing demands of housing and business driven by socio-demographic shifts in the population are key driving factors.

These are compounded by broader global considerations of climate change, environmental degradation and diminishing supplies of physical resources, which lead to questions of long-term sustainability of the current urban form and function.

New Zealand cities also suffer from car dependency, a low-density housing supply and limited transport alternatives. All of these pose significant risks to urban development and sustainability.

A local issue is the budgetary limitations of most government departments and local bodies combined with an increasing infrastructure operation and replacement burden, a problem that is not unique to New Zealand. These complicated and often overlapping issues mean that making long-term sustainable decisions is difficult.

Is a change of focus needed?

One structural change that would improve development opportunities and transport delivery is a greater understanding of land value uplift and developing a procedure for the capture and appropriate utilisation of these value gains.

This value capture and utilisation model assumes that non-landowner actions can impact the value of land and that value uplift could be created by improving transport accessibility or increased development.

Many of these actions, such as provision of new transport infrastructure or increased density zoning, create value and are carried out with a range of objectives and limitations in mind. Examples include:

  • thinking through issues such as the cost versus benefits
  • impacts on travel times
  • redevelopment rates.

Population or economic impacts are considered, but it is difficult for local bodies such as councils to consider the impact on the land value of private properties. In some cases, these actions can result in large gains in value for affected owners.

International experience has shown that the creation of good transport access can generate value gains of upwards of 30%. Internationally, these value gains have been captured and used to fund infrastructure and amenity improvements.

Success factors identified

Several factors were discovered that contribute to positive results in a value capture project:

  • Localised strategies that take into account specific spatial and local contexts.
  • The clear link in value capture and value being created.
  • A ring fencing of value captured funds for explicit and specific purposes.
  • An adaptive strategy that responds to market situations.
  • Correctly setting the amount of value to be captured.
  • Sound project risk management and leadership.

Value uplift in New Zealand cities

The New Zealand issues of low urban densities, costly infrastructure development and car dependency are problematic. Overseas experiences were explored to see what lessons could be learned about tackling these problems with a variety of value capture mechanisms.

In particular, we looked at how other countries used value uplift to fund ongoing infrastructure development. We focused on a Christchurch densification scenario, designing an index that can be used to select land parcels for development (see Figure 1). Longer term, this could be constructed for other urban areas in New Zealand.

Any strategies and approaches developed will need to be fine-tuned for the New Zealand context.

Figure 1: Densification index, areas by densification score, Christchurch.

For more

Visit www.valueuplift.org.nz or scan the QRcode for detailed information and the research results.

Download the PDF

More articles about these topics

Articles are correct at the time of publication but may have since become outdated.

Figure 1: Densification index, areas by densification score, Christchurch.

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