The benefits associated with transit are well-known. Yet, transit can be a double-edged sword. Well-designed and executed projects inflate land prices. In some cases, higher land prices preclude development that would be affordable to people who would use the nearby transit. The “perversity of infrastructure” is that the infrastructure we build to facilitate development often chases it away to cheaper, but more remote sites, creating sprawl. In other cases, transit provided to low-income neighborhoods prompts more affluent households to locate there, displacing the intended beneficiaries.
Meanwhile, landowners near transit sense that their land will be worth even more in the future than it is today. So they withhold their land from development. By artificially shrinking the supply of developable land, they create real increases in land prices. Thus land speculation can be a self-fulfilling prophecy – at least up to the point where the speculative price bubble bursts . Then, speculation throws the entire economy into a tailspin.
Most households and small businesses do poorly during both phases of the real estate boom-and-bust cycle. During the boom, they cannot access homes and business sites because speculators outbid them. During the bust, tenants can be displaced when speculator landlords are foreclosed.
Landowners are the “invisible” beneficiaries of infrastructure investment. Applying value capture “user fees” to landowners can accomplish important objectives. They can help make infrastructure self-financing. They can reduce prices of both land and buildings. And, they can create an economic imperative for development where land prices are highest – which is close to urban infrastructure and where smart growth should occur. Attracting more smart-growth development to transit areas can reduce pressure for sprawl in outlying rural areas.
For more information about financing transit with value capture, see https://www.mwcog.org/uploads/committee-documents/k15fVl1f20080424150651.pdf
Rick Rybeck is the director of Just Economics, LLC. See http://www.justeconomicsllc.com