What does value capture actually mean?

You might have heard whispers of the government potentially introducing a ‘value capture’ scheme to help fund Auckland Light Rail. Like many advocacy topics, policy developments in one part of the country tend to end up replicated nationwide. We expect that value capture will be no different. But this begs the question, what is value capture?

When the government builds new infrastructure that unlocks development opportunities, there is typically an uplift in property value, the benefit of which goes to private landowners. Value Capture is an approach to infrastructure financing where government looks to take a share of, or in essence tax, the private economic benefit that public investment generates to help fund the project.

There is a range of potential models that the government could look to introduce – a few of them are explained below.

The simplest would be a bog-standard targeted rate, levied on properties near the new infrastructure. Early indications are that this is the government’s planned approach for Auckland Light Rail.

Another model the government could investigate is tax increment financing (TIF). Popular in the United States, TIFs entail the issuing of bonds to fund infrastructure, that are later paid off by ring-fencing and utilising the growth in tax revenue from higher property values.

The government could also explore various types of betterment taxes. One form of betterment tax would entail a lump sum payable to government during the development process. Another form of betterment tax would effectively work as a localised capital gains tax (CGT) in the area surrounding infrastructure investment.

Value capture could be a double-edged sword for the property sector. Done right, it could unlock much-needed new infrastructure and create development opportunities. Done wrong, Value Capture is yet another tax in a time of high inflation and rising costs.

Value capture is not a simple undertaking. Our initial research has sparked serious questions about how it might impact the property industry. The recent introduction of a betterment tax in Victoria, Australia to capture value from land re-zoning has not had encouraging results for the Australian property sector.

Property Council has a work program underway to research what rising political interest in value capture could mean. Property Council’s member working group meets tomorrow to explore the topic in more detail and inspire future advocacy in this space. For more information, please contact Logan Rainey.

The value capture work stream complements Property Council’s existing regional advocacy efforts on Auckland Light Rail. If you are interested in joining our Auckland Light Rail working group, please contact Denise Lee.