TOD value capture in urban rail transit : exploring the relationship between institutional framework and cost recovery for urban rail transit operators

Abstract

In financing transportation infrastructure, land value capture is often cited as an effective mechanism that complements transit-oriented development (TOD). It relies on a transit system’s ability to enhance land values surrounding stations, hubs or networks. That incremental value can then presumably be “captured” through property development and directed toward the cost of construction and/or operations and maintenance of the transit network. However, to be effective in practice, value capture financing must navigate a complex series of institutional hurdles shaped by public versus private stakeholder interests, transit operational models, localised regulatory frameworks and market conditions. To date, many studies evince transit systems’ effect on surrounding land values, but few discuss the influence of market/regulatory conditions on the transit operators’ ability to directly capture that value through development. With a focus on urban rail transit (URT), this study ranks opportunity for cost recovery via TOD for rail operators in 10 global cities. By evaluating a range of criteria – such as socioeconomic conditions, policy, property market outlook, network size, URT governance structure and real estate activity – it found that Asian cities’ URT operators demonstrated greater opportunity for value capture than their North American and European counterparts. This is likely because Asian cities have private URT owner and/or operators with greater reliance on direct property income as a source of operating revenue, as well as markets exhibiting stronger demand for TOD. In contrast, URT in North American and European cities are predominantly publicly owned, meaning they rely heavily on government subsidies and have lesser internal capacity or capital to participate in sophisticated TOD projects. Furthermore, as those cities are older than most Asian cities included in the study, those without explicit policies or programs to promote property development in partnership with the private sector ranked among the lowest. Lastly, case studies of three different types of URT operators and TOD projects – representing a spectrum of public versus private management structures, regulatory regimes, and capacities to implement (or experience implementing) real estate development – illustrate that despite various institutional and rail operator/system conditions, operators may directly capture and maximise value through innovative arrangements and deal structures. Direct property proceeds from TOD thereby supports rail capital, operations and maintenance costs and ensures long-term sustainability of the network.