World Resources Institute and EMBARQ China promote Land Value Capture to finance transport projects
On April 22, 2014, EMBARQ China held a workshop entitled “Mainstreaming Transit-Oriented Development (TOD) in China by Unlocking the Potentials of Land Value Capture (LVC).” Vijay Jagannathan, Senior Fellow at the World Resources Institute (WRI), and the EMBARQ China team, met with professionals from the World Bank, Asian Development Bank, and Lincoln Institute of Land Policy to strengthen their partnership to promote land value capture as a financing tool for fostering more financially viable transit-oriented development projects. Such projects – which promote walkable, accessible urban design and connect residents to key transport hubs – can channel China’s rapid urban growth and build more sustainable, connected cities.
Finding the right financing model key to successful urban transport
It is common that transport fares do not fully cover the costs of building, maintaining, and operating a public transport system. Oftentimes, substantial government subsidies are required just to break even on system costs. However, successful public transport systems lead to increases in land values for the surrounding communities, a positive impact that governments – until now – have not factored into their economic assessments and tax policies. “Value capture,” then, is the concept that governments should be able to capture at least part of this increase in land value along public transport corridors, and use these funds to subsidize the transport systems.
Growing rail networks present big potential for land value capture based financing
With the launch of the “National New-Type Urbanization Plan (2014-2020)” and the State Council’s “Transit Priority Guideline”, China has entered a decisive period for the wide adoption of land value capture as a tool for financing sustainable transit-oriented development. One potentially groundbreaking example of the possibilities for this financing model is the example of China’s quickly growing rail network. Fueled by the country’s accelerated urbanization, the urban rail network will reach 3000 km (1,850 miles) by 2015, with over 1.5 trillion RMB (24 billion USD) in capital investments. With these extensive rail networks come increasing property values and a burgeoning real estate market. Using land value capture allows the country to simultaneously fund the construction of new rail lines while promoting transit-oriented development in these communities.
The recent workshop brought together different bilateral organizations and research institutes to develop a partnership to raise awareness, build consensus, and explore how land value capture at different government levels can be used to advance sustainable transport projects. As Zhi Liu from the Lincoln Institute of Land Policy explained, the concept of land value capture is not new to China, meaning policies may be implemented more quickly than in other countries. However, he cautioned that the challenges arise from creating proper institutional arrangements that prevent abuse or mismanagement from government and land developers.
Finding a model for value capture implementation in China
This workshop explored two different models for implementing land value capture in Chinese cities. One route would involve initiating a pilot project in a select city to create a mechanism to move from initial land sale to final transit-oriented development. Another would focus on promoting private-public partnership in land value recycling and encouraging top-level communication between stakeholders. With both of these implementation routes still in the idea phase, further investigation is necessary to determine the legal and institutional adjustments required to make these policies effective. Either way, cities should be eager to tap into the potential for land value capture to help finance sustainable transit-oriented development projects. With China’s exploding urban population, these projects are essential to creating livable, sustainable cities and improving quality of life for China’s urban residents.