Reduce land acquisition costs through innovative land value capture

Context

• Tsukuba Express Line started operation in 2005 between the central and north-eastern Tokyo metropolitan areas, to ease severe passenger congestion on the existing railway lines.
• Acquisition of the right-of-way and town development along the line was conducted under the 1989 Housing and Railway Act. Under the law, local governments were able to conduct land readjustment to link the reservation of specific land parcels with the relevant rail transit project.

Problem

• The Tsukuba Express between Tsukuba and Tokyo had been planned since 1978. Land acquisition difficulties caused certain changes to the original route and a budget blowout from JPY600 billion to JPY900 billion.
• Railway operators needed to self-finance their projects with little government subsidy to meet the growing demand.
• Faced with financing challenges, cost minimising strategies needed to be explored, especially in land acquisition.

Stakeholders involved

• Urban Renaissance Agency
• Tokyo Metropolitan Government
• Other prefectures and municipalities along the railway line
• Japan Railway Construction Agency (JRCA)
• Metropolitan Intercity Railway Company (MIR)

Innovation

• The new law allowed municipal governments and housing agencies to designate special land readjustment areas along future railway lines.
• Impacted landowners were provided smaller but higher-value land parcels equivalent to the value of their acquired land, and the government consolidated the acquired land parcels to sell to private developers at prices below the new market price.
• The government promoted the public-private partnership to sustainably finance the roughly JPY808 billion (USD7.5 billion) cost of construction in the form of non-interest-bearing loans.

Timeline

Results and impact

• The 3 km line with 20 stations came into operation in 2005 to offer fast travel between central Tokyo (Akihabara) and the nation’s largest research hub (Tsukuba Science City) by serving several satellite towns across four prefectures. About 2,903 hectares of land across 13 stations were designated for special land readjustment projects.
• The population along the line grew at a much higher rate than other cities in the same prefecture. For example, the average population growth rate in Ibaraki prefecture has decreased by 0.8% during the period between 2005 and 2010, however, the population in the cities along the line increased by 9.2% per annum.
• The total asset price increased from approximately JPY232.6 billion (USD2.2 billion) to JPY330.1 billion (USD3.1 billion), or 41.9% before and after land readjustment. The project costs of JPY96.3 billion (USD891 million) have largely been recovered from sales of reserved land parcels – about JPY60.9 billion (USD563 million, 63%).
• The rail line became profitable within five years after it became operational. The original plan estimated the positive turnaround after 20 years.

Key lessons learnt

• Financial: Land use planning and development incentives need to be attractive enough for individual landholders to make contributions to the districts designated for special land readjustment projects.
• Planning: Under market freehold systems, inclusive land adjustment schemes can effectively economise urban infrastructure costs and produce transit-oriented rail infrastructure.
• Regulatory: Regional governments can capture land value increases due to transport infrastructure improvements through property taxes linked specifically to expected increases in property values.