Value capture

Value capture refers to a type of public financing where increases in private land values generated by public investments are all or in part “captured” or recouped by the public sector. It provides a means for internalizing the positive externalities of public investments, allowing public agencies to tax the direct beneficiaries of their investments, and/or provide benefits to the taxpayers which fund the investments but do not necessarily enjoy them directly. The unearned increments, or increases in land value which otherwise profit private landowners without cost, may be captured directly by converting them into public revenue, e.g. using real estate taxes, impact fees, or other taxes levied upon landowners; or indirectly by converting them to land-related benefits, e.g. using exactions, public easements, or other nonpossessory interests granted to the public or a public agency.

Value capture refers to a type of public-private partnership in which the private sector compensates a public agency for the cost of an investment that generates economic value. It is in almost all cases led by the public agency responsible for the investment.

Transportation projects, for example, can increase adjacent land values, and thus generate an unearned profit for private landowners. Public agencies, with proper preparation and foresight, can capture a portion of that profit using a variety of methods: 1) local improvement districts; 2) public-private development of adjacent land; 3) traffic impact fees; 4) tax increment financing districts; or 5) buying privately held land near transportation hubs that is zoned for low-density use on the open market, increasing the designated use density, then selling the land back to private developers on the open market, capturing the capital gain resulting from both the increase in designated use density and the presence of the transportation hub.

Value capture can be thought of as a fully contained sub-set of land value tax, however with a much more focused domain of application as indicated here. The Lincoln Institute of Land Policy [1] offers this perspective on value capture:

"Value capture mechanisms are being implemented, with varying degrees of success, in several Latin American countries, while in other parts of the region the notion of value capture continues to meet with suspicion and resistance.

"In addition of the use of value capture mechanisms to control urban growth and territorial expansion and to reduce the perverse effects of land speculation, we are interested in their applicability to circumstances characterized by the large-scale and persistent informality in land markets so typical in Latin America. These include situations where land tenure relationships are poorly defined, where land occupations are mostly irregular or illegal, and where significant land value increments are self-generated by the community, rather than by state action. This network explores whether land value increments (resulting directly or indirectly from public interventions) can be mobilized to mitigate urban poverty in general and improve the access to serviced land by low-income families in particular. [2]

"Another broad meaning of capturing the value is the way by which a business retains value it has created in a prior step for its customers. Generally studied under operations and technology management, typical questions for a firm trying to capture value include:

• How should we design the business model?
• Where should we compete in the value chain?
• How should we compete if standards are important?"

See also

• Land value tax
• Property tax
• Tax increment financing (generally a kind of reverse value capture)

References

• Financing Transit Systems Through Value Capture: An Annotated Bibliography, Jeffery J. Smith and Thomas A. Gihring in Victoria Transport Policy Institute Encyclopedia, Victoria Canada, Nov. 2004
• Value Capture as a Policy Tool in Transportation Economics, American Journal of Economics and Sociology, Jan, 2001 by H. William Batt
• Developing a Methodology to Capture Land Value Uplift Around Transport Facilities: Executive Summary, for Scottish Executive, October 2004.
• Land Value and Public Transport, Royal Institution of Chartered Surveyors (RICS) and the Office of the Deputy Prime Minister (ODPM), London, Oct. 2002
• Transit’s Value Added: Effects of Light Commercial Rail Services on Commercial Land Values, Robert Cervero and Michael Duncan, TRB 2002, Washington D.C.
• Challenges in Implementing Colombia's Participación en Plusvalías, Botero, Carolina Barco and Smolka, Martim, March, 2000, Lincoln Land Institute
• Using Value Capture to Finance Infrastructure and Encourage Compact Development, Rick Rybeck, Public Works Management & Policy Journal, Vol. 8 Number 4, April 2004, (Sage Publications) pp 249 - 260.

External links

• Earth Rights Institute's Land Rights and Land Value Capture Course
• Lincoln Institute of Land Policy (USA)
• Land Tenure Center
• Land Values Research Group (Australia)
• The Center for the Study of Economics
• The Land Value Tax
• Liberal Democrats Action for Land Tax and Economic Reform
• Centre for Land Policy Studies (UK)
• Labour Land Campaign
• Henry George Foundation
• Land Value Taxation Campaign Committee website
• Land tax in Philadelphia, what does it mean for you?
• Geonomy Society
• Land cafe home page and email group (international expert discussions, shared library, program)
• Land Theory (more international expert discussions)
• Just Economics LLC [3]