What can history tell us about land values and HSR?

The Age is doubtful about Consolidated Land and Rail Australia's (CLARA) proposed Sydney-Melbourne High Speed Rail (HSR) line (High-speed rail: company's $200 billion plan must not override public interest). The paper says the proposal relies on "land speculation" for funding and is "as much a real estate play as it is a transport initiative".

There's nothing new about the association between infrastructure and increasing land values; they were inextricably linked in the building of large parts of the USA's Transcontinental and Victoria's rail networks. It's timely to look back at what I wrote five years ago in What can history teach us about rail?

I noted then that in his book, The Land Boomers, historian Michael Cannon says transport was so vital to Melbourne's growth in the 1880s that the story of Victorian politics was largely the story of the building of railways:

Hundreds of miles of track, some of it quite useless, pushed out from the egocentric city to the rampant suburbs and the far countryside. Hardly a member of Parliament whose vote could be bought went without his bribe in the form of a new railway, a spur line, or advance information on governmental plans to enable him to buy choice land in advance – the value of which was enormously enhanced when the line went through. It was a dispiriting chapter in Victorian political morality.

Successive governments were infected with rail building mania. By 1884, the so-called 'Octopus Act' authorised the construction of 65 lines totalling 1,170 miles at an estimated cost of £44 million. It authorised two major extensions of the suburban system, one of which was a "ludicrous enterprise known as the Outer Circle Railway" (the other was the presumably more sensible connection of Flinders Street and Spencer Street stations). The Outer Circle, much of which is used today for bicycle trails, only lasted three years. It went from North Melbourne, via Brunswick and North Fitzroy to Fairfield and then on via East Kew to join the Gippsland line at Oakleigh:

The land boomers inside and outside Parliament saw it as a speculators' paradise and invested heavily in broad acres along the route. They were caught with their signals down. No sane passenger would use the line when it took him 4 hours 20 minutes to travel from Oakleigh to the city by this route. Nor was there much intermediate traffic. For decades later, the rusting nails and abandoned stations of the Outer Circle route remained as a silent reminder of the boom years.

The maker of a recent film, The Outer Circle: Melbourne's forgotten railway, notes that by the time Parliament authorised construction of the new line, the ostensible rationale for it had already been superseded by the Government's purchase of the Hawthorn, Elsternwick and St Kilda railways owned by a private companey, M&HBURC. No matter, though:

The plan hatched by a number of politicians went like this: (1) Buy large amounts of land in the middle of nowhere, (2) Legislate construction of the railway through, or adjacent to, the privately-held land, (3) Sell the land for a tidy profit.

Cannon says the final cost of the great railway building spree crippled State budgets for decades. "Even today", he says – meaning circa 1966 when the book was published – "the incubus of the railway boom of the 1880s lies heavily on the taxpayer".

At first glance it might seem like The Age understands the lessons of history. The leader writer argues CLARA's Sydney-Melbourne HSR plan is not in the public interest:

If a fast rail line is to be built, its planning should be driven by the public interest, and not dictated by the terms of a grand real estate play.

I think The Age fails to see there's a big difference between the way things were done in the nineteenth century and the claims made today by CLARA. Rather than government paying for the line and bestowing windfall gains on canny landowners, CLARA's stated intention is to create the increase in value at its own expense and risk. The company says it will buy the land along the HSR route, redevelop it, and use the proceeds to fund construction of the line, without calling on taxpayer funding. It calls that "value capture".

I think that's fine in theory and isn't a problem if it pans out as proposed; terms like "speculation" muddy the waters. But the key risk, as I noted last time (see Will business really pay for High Speed Rail?), is whether or not the taxpayer will end up footing most of the bill if the company's plan proceeds. On the basis of the information presented so far by CLARA, I'm apprehensive.