The Impact of Infrastructure on Land Value: some interesting recent evidence

Over the last couple of years there has been a lot of talk about value capture.

This is the idea that one source of funding for new infrastructure projects is to tap into the increase in value which is typically experienced by property owners and businesses located along the route of new infrastructure.

One reason this idea is increasingly being advocated is the growing amount of evidence about the economic impact of new infrastructure projects, such as how much land values increase when a new road or rail project is announced and built.

A good example is a report prepared in 2012 for the Victorian Department of Transport, which was subsequently publicly released by the Victorian Government.

Entitled Long Run Economic and Land Use Impacts of Major Infrastructure Projects, the report looks at four major infrastructure projects built in Melbourne over the last twenty years.

CityLink and Western Ring Road are two major freeway projects, completed in 2000 and 1999 respectively.  CityLoop is a major rail project in the Melbourne CBD completed in 1985, and the Box Hill Activities Area is a significant urban precinct surrounding a train station.

According to the report’s authors, SGS Economics & Planning, CityLink, the Western Ring Road and CityLoop generated land value improvements to 2011 of around $29 billion, $10 billion and $21 billion respectively.

As well as its economic impact, the report highlights the importance of major transport infrastructure in shaping our cities: “The message from this report is clear; major transport investments are a powerful and, perhaps, the pre-eminent policy lever for determining metropolitan structure.”

The authors of the report also drew a strong conclusion about value capture, saying their research “points to value capture as an efficient mechanism to help fund major infrastructure projects.”

The full report is available at: http://www.sgsep.com.au/assets/Long-run-econ-and-LU-impacts-of-major-infrastructure-projects-SGS-2012-lores.pdf.