The relevance and risks of 'value capture' and associated metro reforms

What did our authors say? The CfS – "we never needed to (look at betterment) in the past. As Sydney grew and expanded the existing 19th century transport network could simply and cheaply be expanded to accommodate new growth". Consult Aust – "Australian transport agencies have not adopted value capture". Both wrong.

Then there are the principles of taxation. Equity is one and Consult Aust rightly says that different methods "help reach the goal of sharing outcomes equitably with the public, investors and developers". However, equity needs to be defined more broadly and the swath of residential areas in built-up NSW paid no special levies, just normal rates and taxes. Equity then means why create two classes of taxpayers, the wealthy on the east and the housing-stressed elsewhere. After all, one of the Property Council's submissions to government talked of levies resulting in

infrastructure being 'drip fed' to an area, and (they) can fail to deliver infrastructure of a sufficient scale, on time and in a coordinated manner. There are also concerns that development levies add significantly to the upfront cost of development, and hence act to impede the rate of lot uptake in new residential areas and ultimately impact on housing affordability (as well as infrastructure provision itself). In fact, this negative relationship between housing affordability and development charges has recently been recognised by COAG.

Efficiency and cost-effectiveness in collection are also principles. The easiest tax to impose is through rate notices and raising debt. The Cumberland County Council helped Sydney Water in the 1960s to overcome its sewerage backlog that way. CfS says, "Land tax has had a chequered history in NSW, being imposed and repealed several times. A broad based land tax would capture the improvements in land value driven by new public transport". Unfortunately that report mistook the NSW form of land tax, which is rates and utility bills based on unimproved value, for wealth taxes, and completely confuses the situation. Rates were imposed from the 19th Century and never repealed. It goes on to misstate local government abilities to tax value increases.

Finally under principles, is the strength of the relationship between betterment and contribution. Parry and others looked at a broad "improvement fund" and there is merit in the idea of an "urban budget", on the basis that whole communities share in the costs of congestion, poor accessibility and economic stasis. US-style municipal bonds are generally small in scale and generally robust although with a significant level of unreported defaults (Moodys lists 77 long-term municipal defaults). Most importantly, the complexity of incremental recovery of value increases is exceptionally demanding the bigger the project scope. Infrastructure NSW recommended against broad catchment-based measures.

There is an interesting echo of the long-deceased Greater Sydney movement in Consult Australia's document (even though CfS mistakenly said it had inspired the "emergence of the first metropolitan coordination structure Sydney has seen in the form of the Greater Sydney Commission"), with such words as

A general transfer in responsibilities and powers from state agencies to geographically larger, financially stronger and better resourced local government councils for planning, decision-making , funding and delivery of urban infrastructure should be pursed as a mid to long-term policy objective.

This can be taken with CfS's

Capturing value is of no benefit unless you ensure it is delivering the right projects. New funding measures need to be partnered with a mode-neutral evaluation, appraisal of transport projects or investments…. Treasury will also need to challenge their own intellectual and ideological prejudices.

These statements are made in a city that features deliberately-capricious State decision-making (rejected by iAust and COAG) and avoidance of the accepted methodologies inherent to Treasury Guidelines and Audit Commission Reports; where councils and universities pursue mode-specific investments without even slight acknowledgement of logic, it seems. Consult Australia gives checklists of pre-conditions that need to be met if value capture is to succeed, and NSW appears to meet none of them.

There are fine sentiments and great hopes in the two documents, but no messiah signals nor reason to pay more than passing attention. The historical references need to be expunged. NSW has to grow in its acceptance of practical measures and not expect political parties, Treasuries and communities to abandon their positions easily. The importance of a valid, robust system of community, business and governmental funding, through taxes and debt, cannot be underestimated but more persuasive media are needed.

The "system" cannot be imposed on the whim of a passing politician or two. Two efforts in Sydney failed because of political cowardice. Various examples have been described where the expectation of property contributions was frustrated and greater municipal levies and debt occurred, most notably in the most carefully planned project, London's CrossRail 1. There is a real risk in Sydney that over-provision of high-rise residential properties will over-saturate the market, producing low returns and low "value uplifts". Poor routing of transport projects will see the cannibalisation of the city's greatest asset, its Bradfield-era rail network.

Reform sufficient to provide the basis for a robust system will have to encompass political capriciousness, public sector re-skilling, proper community engagement in line with ResPublica's Civic Limits, and proper separation of lobby groups and governments.