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Case studies Publication Date 11 May 2020 Published 11 May 2020

Value Capture for early phases of Light Metro project funds later stages

Parramatta Light Rail

Context

  • As part of a larger USD 63B1 infrastructure investment, the New South Wales (NSW) government sought to develop a light rail network
  • NSW government forecasts a significant population growth with c.130k people living within walking distance of the light rail by 2026

Problem

  • NSW government only earmarked USD 670M for the project, while the total capital required for the project was USD 1.62B
  • Land in the vicinity of the light rail corridor would increase in value, but most of the value would be captured by land owners as opposed to all tax-payers

Innovation

  • The NSW government elected to levy a new tax, called the Special Infrastructure Contribution (SIC), on new residential development in the areas along the light rail corridor2
  • The SIC is levied on anyone who is sub- dividing land or developing residential projects within the defined growth areas (Special Contribution Areas, SCA)

Stakeholders Involved

  • The Great River City Light Rail consortium — Won the deal, led by Transdev
  • NSW Government — Devised the SIC value capture framework
  • Land Owners — Subsidized costs of construction

Results/Impact

  • By effectively employing a Value Capture lever, the NSW government was able to fund USD1.9B for the remaining phase of the Sydney Light Rail Project
  • Once development of Phase II is complete in 2026, 133k jobs will be created along the Parramatta Rail Corridor
  • The SIC levy is also expected to raise additional funding ear-marked for social infrastructure (e.g. schools, hospitals) as well as other regional roads and public transport infrastructure

Key lessons learnt

  • Value capture mechanisms can be structured so that existing landowners are not burdened with additional taxes, preventing public backlash against the project (the SIC only taxes new residential developments)
  • For projects with extended timelines and unclear sources of funding, Value Capture can be employed both as a direct source of project funding and a source of collateral against which loans can be backed
  • Transparency over taxes levied on developers and landowners by value capture mechanisms is key in preventing adverse outcomes such a reduction of housing affordability for local populations
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