Value Capture: Lessons from Latin America
Of all the themes explored in Meeting of the Minds related to urban development and infrastructure, the elephant in the room remains the question of financing. The fiscal situation is dire at the local, state, and federal level, just at the time when new investments are needed for the support of the 21st-century city.
So it is that a hitherto obscure policy – value capture – is getting more attention in the broader context of public-private partnerships. Value capture is based in the recognition that public investments and government actions – a new light rail line, for example, or a zoning change – result in increases in property value for private landowners. Governments are increasingly identifying these specific increases in value, known as the land value increment, and are working with private landowners and developers to seek a commensurate contribution.
The approach is being tested in the U.S. in cities such as San Francisco and Chicago, and in the construction of the Cotton Belt rail system in the Dallas-Fort Worth region. An article last year in The Next City provides a comprehensive overview of these efforts. One tale cited in that article is a particularly vivid illustration of how taxpayer investments are essentially privatized: the case of Frank McCourt, who owned more than 25 acres of prime waterfront property in Boston’s emerging Seaport district. The parcel, just across the Fort Point Channel from downtown Boston, was the site of two major projects: the I-90/Ted Williams Tunnel connector and interchange that was part of the $16 billion Big Dig, and the $1 billion bus rapid transit corridor, the Silver Line, snaking its way underground from South Station through the Seaport and on to Logan Airport. Both a major highway interchange and a Silver Line station were positioned right at McCourt’s property, which became so valuable for residential and commercial development, McCourt was able to sell the land to help him buy the LA Dodgers.
McCourt contributed funds for the Silver Line station, but in retrospect, local and state leaders questioned why he wasn’t asked to pay more, based on the identifiable increase in the value of his property that these major infrastructure projects prompted.
The rest of the world, it turns out, isn’t waiting to pose that question in hindsight. Many countries in Latin America, notably Brazil and Colombia, have passed legislation that supports value capture principles, says Martim O. Smolka, director of the Lincoln Institute’s Program on Latin America and the Caribbean, and author of the newly published Policy Focus Report Implementing Value Capture in Latin America: Policies and Tools for Urban Development.
The policy is manifesting in several key areas of both voluntary and compulsory methods: property taxation and betterment contributions; exactions and broader charges for building rights or for the transfer of development rights; and large-scale approaches such as development of public land through privatization or acquisition, land readjustment, and public auctions of entitlements for additional building rights.
Value capture has long been part of the worldwide urban planning agenda. Its increasing popularity in Latin America, Smolka says, is attributed to urbanization putting pressure on serviced land and concerns about equity and affordable housing. Although in most places revenues are still low, the applications of betterment contributions in Bogotá and of building right entitlements (CEPACs) in São Paulo have generated revenues in excess of a billion dollars for those cities.
Yet value capture is often resisted by powerful stakeholders, notably landowners, opinion leaders, and academics all along the ideological spectrum, Smolka says. He advocates a better dialogue about how value capture actually works in practice, careful management, and public participation. Value capture tools, he adds, are more likely to succeed when used to solve a locally recognized problem.
Cities in North America might do well to look south for some valuable lessons in changing the paradigm for urban development and financing key infrastructure.
Leave your comment below, or reply to others.
Please note that this comment section is for thoughtful, on-topic discussions. Admin approval is required for all comments. Your comment may be edited if it contains grammatical errors. Low effort, self-promotional, or impolite comments will be deleted.
Read more from MeetingoftheMinds.org
Spotlighting innovations in urban sustainability and connected technology
Noting that house prices have been growing three times faster than incomes in the last two decades, OECD found that “housing has been the main driver of rising middle-class expenditure.” Moreover, OECD noted that the largest housing cost increases are in home ownership, not rents.
Housing largely determines the cost of living. For example, in the United States, more than 85% of the higher cost of living in the most expensive US metropolitan areas is in housing. Fundamentally, housing affordability is not about house prices; it is about house prices in relation to household incomes. Housing affordability cannot be assessed without metrics that include both prices and incomes.
OurStreets origins are rooted in capturing latent sentiment on social media and converting it to standardized data. It all started in July 2018, when OurStreets co-founder, Daniel Schep, was inspired by the #bikeDC community tweeting photos of cars blocking bike lanes, and built the @HowsMyDrivingDC Twitter bot. The bot used license plate info to produce a screenshot of the vehicle’s outstanding citations from the DC DMV website.
Fast forward to March 2020, and D.C. Department of Public Works asking if we could repurpose OurStreets to crowdsource the availability of essential supplies during the COVID-19 crisis. Knowing how quickly we needed to move in order to be effective, we set out to make a new OurStreets functionality viable nationwide.
The best nature-based solutions on urban industrial lands are those that are part of a corporate citizenship or conservation strategy like DTE’s or Phillips66. By integrating efforts such as tree plantings, restorations, or pollinator gardens into a larger strategy, companies begin to mainstream biodiversity into their operations. When they crosswalk the effort to other CSR goals like employee engagement, community relations, and/or workforce development, like the CommuniTree initiative, the projects become more resilient.
Air quality in urban residential communities near industrial facilities will not be improved by nature alone. But nature can contribute to the solution, and while doing so, bring benefits including recreation, education, and an increased sense of community pride. As one tool to combat disparate societal outcomes, nature is accessible, affordable and has few, if any, downsides.