Balancing finance with transport, land use planning and government expectations

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Steve Richards, Technical Director Environment & Advisory Services, Aurecon delivered this presentation at the 2012 Queensland Transport Infrastructure Summit. The State Transport Infrastructure Series of events represent the leading forums in Australia to assess the future plans for transport infrastructure development and financing across Australia. For more information, please visit http://www.statetransportevents.com.au

TRANSCRIPT

PowerPoint Presentation

Balancing finance with

transport, land use planning

and government expectations

Steve Richards

Infrastructure Advisory

2

Topics

1. The future of integrated land use planning and what it means for new projects

2. Capturing value alternatives to demand risk transfer

3. New PPP models for the transport sector

3

Interaction of Topics

All three topics are dependent on each otherindeed, the ability to capture value and consider

new PPP models is reliant on

getting the right settings for

integrated land use planningIntegrated land use planning

Capturing Value

New PPP models

4

Topics

1. The future of integrated land use planning and what it means for new projects

2. Capturing value alternatives to demand risk transfer

3. New PPP models for the transport sector

Integrated Land Use Planning

Capture Value

New PPP models

5

Lets take stockacross Australia, integrated land use planning and project delivery principles are currently in place to varying degrees

Examples include transport orientated developments, freight corridors, port development zones, airport trade coasts

Infrastructure Australia (IA) is also on the scene setting and promoting integrated planning and major projects, particularly economic projects

IA has noted, however, that infrastructure planning remains focussed on major projects rather than what infrastructure can do to improve Australians lives

The future of integrated land use planning and what it means for new projects

6

The future of integrated land use planning and what it means for new projectscont.

With productivity a key agenda for the future, the need for national infrastructure policies that promote

integration (and therefore efficiency) will continue to

be on the radar

Action on national policy work seems well advanced we already have a National Urban Policy for capital cities, a

National Ports Strategy, and a National Land Freight

Strategy

But is there something missingdo we need some national policy or guidance material to help capture

more value from land developments?

Perhaps there isthe recent report by the Infrastructure Financing Working Group recommended governments

should use appropriate models to drive revenue from the

broader benefits delivered by major infrastructure projects,

such as land value capture for transport infrastructure

7

The future of integrated land use planning and what it means for new projectscont.

IAs other point about infrastructure planning improving Australians lives is important when talking about land value capture

Why? As we all know conceptually land property can uplift in value if features of land are highly desirable to the user

Typically, something is highly desirable if it meets several key criteria these key criteria can be economic, social or a mix of both

So is the question If where we can reside makes our lives richer, does this make our land more valuable?

8

The future of integrated land use planning and what it means for new projectscont.

Why havent we been as keen in the past to work more on land value capture?

Perhaps in the past the combination of the need to implement new infrastructure to meet rapid growth and available revenue to fund new

projects has seen less need/reliance on accessing land value capture

Perhaps a positive from the GFC has been a refocus on building blocks such as land value uplift

So, whats involved with capturing value from land development and new projects?

9

Topics

1. The future of integrated land use planning and what it means for new projects

2. Capture value alternatives to demand risk transfer

3. New PPP models for the transport sector

Integrated Land Use Planning

Capture Value

New PPP models

10

Capturing value alternatives to demand risk transfer

Before considering alternatives to demand risk, what do we mean by land value uplift or

capture, in the context of public infrastructure

projects?

There are many definitionsperhaps the simplest is the increase in land values in and around a new piece of infrastructure

Direct capture of this value by governments tends to be in the form of land tax revenues and rates,

and indirectly through wider economic benefits

such as new industry locating to conduct

business

Is there any research that can give us some guidance or a framework?

11

Capturing value alternatives to demand risk transfer

One possible example is research by Fleissig and Carlton1 in the United States on the success factors for transport orientated

developments (TOD)

According to F&C, transit (project) implementation and real estate timing are misaligned

This misalignment comes about as transit developers work on long implementation timeframes compared to short term timeframes of land

developers

F&C believe that for land developers it can be difficult to justify spending much time, effort or money on TOD site acquisition when

the payoff is so far down the road

1. Fleissig, W.K. & Carlton, I.R. Aligning Transit and Real Estate: An Integrated Financial Strategy

12

Capturing value alternatives to demand risk transfer

F&C suggest that commercially TODs tend to be higher-cost/lower profit compared to suburban/infill development

Developer decision model25%

20%

15%

10%

5%

0%

WeakMarket

StrongMarket

Ret

urn

on

inve

stm

ent

Investor Willingness to Fund:

Willing

Unwilling Suburban developer profit

TOD developer profit

Higher cost of TOD

Subsidy required to attract investment

13

Capturing value alternatives to demand risk transfer

To overcome this, F&C propose that the individual planning steps taken by the transit and real estate elements of a TOD be combined

into a contiguous 6 step process/set of criteria

A. Route Alignment

B. Station Location

C. Station Area

A. Land Assemblage

B. Infrastructure

C. Vertical Development

1. Route Alignment

2. Station Location

3. Station Area

4. Land Assemblage

5. Infrastructure

6. Vertical Development

Tran

sit

Rea

l Est

ate

14

Capturing value alternatives to demand risk transfer

Demand risk for transport infrastructure projects seems to centre around patronage risk

In the current economic environment, full transfer of patronage risk to the private sector does not appear to be a viable option

So, is the alternative to replace some of the patronage demand risk (which is essentially tolling revenue as a project funding source)

with land value uplift revenue?

In making this suggestion, we need to keep in mind there is still demand risk involved. That is, demand for property is needed to uplift land value

15

Topics

1. The future of integrated land use planning and what it means for new projects

2. Capture value alternatives to demand risk transfer

3. New PPP models for the transport sector

Integrated Land Use Planning

Capture Value

New PPP models

16

New PPP models for the transport sector

Given the lack of market appetite for patronage demand risk in PPPs, this gap could be filled partly with a land value uplift model

To achieve this outcome requires a blueprint so that some certainty can be defined and pricing of risk

Without a blueprint of some kind, we would see expectations by government of new infrastructure projects but the private sector is genuinely unable to deliver

Under this blueprint, private debt and equity, and government contributions would all still continue to have a role in a PPP

17

New PPP models for the transport sector

Two parts to this blueprint to create success

New criteria at the strategic

assessment stage of major projects

when determining PPP suitability

Set out a commercial

structure of key issues to consider

land value uplift PPP

18

New PPP models for the transport sector

New criteria at the PPP strategic assessment stage could be based on an economic development/system-wideframework

This framework would assess the key economic drivers, social impacts, and commercial potential around new infrastructure projects

Of course, such an approach would need to be tailored to the characteristics of the project, city and region

One possible approach is to use a criteria menu based on a Liveability Benefits model

19

New PPP models for the transport sector

A Liveability Benefits model has a range of values important

to a lifestyle in a particular

region

The aim would be to identify the Liveability Benefits relevant

to a particular project, and see

if the PPP model could be used

(or, alternatively, any other

procurement model)

20

New PPP models for the transport sector

If the PPP model can work with land value uplift, then a commercial structure would be needed

What are some of principles/issues in this commercial structure?

Possible Commercial Principles/Issues in a Land Value Uplift PPP model

What is the role of government as the largest land holder in the State? What sort of

tenure/owner arrangements does the private sector need in order to have security?

Should government manage planning risk by consolidating sites and ensuring all

approvals in advance of projects?

Is there a land value uplift (or profit sharing) methodology that can be used, and is

there any sharing of land use uplift benefit over the life of the project?

Will there be any impact on the maintenance/abatement regime for any land

contributions that will be the responsibility of the PPP Proponent?

21

New PPP models for the transport sector

May be also worth considering that the ideas suggested in this presentation for the transport sector could also apply to social infrastructure

This would recognise that schools, hospitals, public facilities all have a role to play in the value of the communities that we choose to live in

For example, could we plan better clusters of public facilities (including co-location) that achieves a critical mass and, in doing so, improve efficiencies of poorly located public facilities?

22

Concluding Remarks

1. Is it time for a national policy/guidelines on land value uplift?

2. With the right structure and approach, land value uplift and PPPs could play a role in new infrastructure delivery

3. Land value uplift principles have equal application for both economic and social infrastructure

4. Lets use the time we have now to do some research and implement some reforms

Integrated land use planning

Capturing Value

New PPP models

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