Unlocking Land Values to Finance Urban Infrastructure
Using Land Value Capture to fund the infrastructure our cities need
It is imperative for Kenyan cities’ future sustainability, prosperity and the well-being of its citizens that governments meet the demand for transport and other public infrastructure.
Urban growth throughout the country has created a challenge for financing infrastructure. Investment in infrastructure is needed to provide basic services for newly developed parts of urban areas. It is needed to meet the demand for a safer and more reliable water supply, higher standards for the removal and treatment of wastewater and solid waste, and the transportation requirements of a population whose expectations of mobility rise with household incomes. Infrastructure investment also is essential to the economic productivity of cities.
Traditionally, urban infrastructure has been financed from three sources: the operating savings of local governments, grants from higher levels of government, and borrowing. Each of these financing sources now faces constraints. Local budgets are hard pressed to finance basic operating services, including adequate maintenance of existing infrastructure. Higher levels of government must often limit grants to cities in the interest of prudent fiscal management. As decentralization policies have transferred service responsibilities downward, local governments are being asked to finance more of the urban capital budget from their own resources. Local borrowing has helped finance growth in urban infrastructure investment, but the local government revenue base is often insufficient to service a significant expansion of local government debt.
The Case for
Land Value Capture
On current trajectories the demand for new infrastructure outweighs governments’ capacity to deliver the required pipeline of projects. There is now an opportunity to reform the way infrastructure is funded and financed. It is an opportunity that should not be wasted.
What is Land Value Capture?
Value capture occurs when revenues collected by government, or private parties working with government, can be linked to the direct benefits received by those who benefit from new, improved or replacement infrastructure investment. Conceptually, value capture analysis involves identifying and quantifying the value created that can potentially contribute towards project funding, and the mechanisms that might be used to collect those revenues. Value capture can occur because direct value is created by investments in infrastructure. This specific change in value can be directly assessed and validated.
Where government is the beneficiary (for example where it owns land next to the infrastructure) it may capture this value by selling this land, or actively using the land to generate additional value.
Benefits of a value capture framework
A value capture framework needs to be valid across multiple public infrastructure projects, not just transport.
It can contribute to assisting governments and infrastructure planners by:
Benefits and value
Value is the quantification or monetisation of the benefit that accrues to a beneficiary.
Direct value occurs when there is a demonstrable and material linkage between new infrastructure and the benefits arising for beneficiaries, as well as the time over which these benefits are delivered.
These potential benefits are identified, measured and valued through comprehensive data and modelling, including market surveys.
Opportunities and benefits
TALK TO US TODAY
Benefits are generated by opportunities. Each opportunity can deliver one or more benefits. Value Capture opportunities are initiatives that can be created and delivered as part of or alongside the proposed infrastructure to meet the service need. For example, a new railway station and a shared pedestrian/cycle path are opportunities that could be delivered as part of a new rail alignment. Residential apartments or commercial development adjacent to the infrastructure are examples of opportunities that may be leveraged from the investment in rail.
A ‘benefit’ is an enhancement to amenity, to connectivity or to community outcomes and services related to an opportunity. It is a measure of outcomes arising from infrastructure not previously available or available but at an impaired level that is expected to generate positive or negative value for a particular segment of the population.
The location, size and nature of a given project would very much determine the type of benefits and the direct and/or indirect nature of those benefits.