A special levy on land values would fund the Melbourne Metro Rail

GUEST OBSERVATION

The new Victorian Andrews government has lost no time putting its stamp on the future shape of Melbourne, funding the planning stage of the Melbourne Metro Rail tunnel – while fretting about the $9 billion cost.

Victoria can fund this vital connection, lifting train speeds and frequency throughout the network.

Land prices along this route will soar and government is entitled to use some of this to fund the project through value capture.

People forget 30% of the Melbourne underground loop was funded by a special city levy on land values from 1963. The Melbourne Underground Rail Loop Authority ensured city land owners shared a small portion of benefits they gained from the project. There is no reason we can’t do this again.

There are very good studies that prove the merit of this approach. In London, the recent Jubilee rail line delivered £13 billion in windfall gains to landowners within 1,000 yards of the eleven new rail stations. Construction costs were just £3.5 billion.

The rise in land values directly attributable to this civic improvement was enough to pay for the rail link nearly four times over.

The ALP referred directly to land value capture to fund the removal of level crossings in its Project 10,000 election manifesto. It is economically sound, fair to taxpayers and, in practice, drives powerful infrastructure improvement by recycling investment funds.

Doubts remain as to whether the roads-biased Abbott government will assist this vital Victorian rail project. There is more than enough embedded in land values to fund the cross-city rail – with or without federal help.

After mentioning the soft option of tolling drivers, which has failed spectacularly as a financing mechanism in NSW and QLD, an article in The Age recently quoted the RACV’s Bryan Negus:

"RACV public policy head Brian Negus said tolling level crossings would be impractical.

"He said some on Labor’s list could be removed in a public-private partnership, with the private sector given development rights around the rail line.

"'If you remove six or seven together in one package and put those out to the private sector in a value capture arrangement with government funding as well, that’s a good way of trying to deliver them,' he said."

With the cost of Public Private partnerships continuing to rise, one wonders when a Labor government will ever question them? From the cost of finance at 2% above government financing, the public interest is immediately at a disadvantage.

Then there is the incredible cost per train station. The Wyndham Vale and Tarneit stations are rumoured to have cost $50 million each. These are jaw dropping costs, for which the developer paid nothing to see his land values skyrocket. But the millennium falcon of train stations – the Williams Landing station – tops them all at $110 million (including overpasses). The size of these costs ensures the government mustutilise the most efficient form of revenue raising possible. Under the current arrangements, the public will recognise such immense infrastructure projects as nothing more than developer welfare.

The academic with the lead quote in the article almost got it right:

"Speaking this week on a panel organised by Engineers Australia, Professor Stanley of the Institute of Transport and Logistics Studies said the revenue could go into a transport fund that would help the government deliver a long-term plan for Melbourne.

"'The general principle is you identify who the beneficiaries are from implementing public policy initiatives and ask them to make a contribution, and the people who are going to benefit from this are the motor vehicle users who get a better run,' he later told Fairfax Media."

But Professor Stanley looks only at the users – the car drivers. The real beneficiaries are the surrounding land owners. Some property valuers estimate the value of a train station adds $70,000 to each property within walking distance. A sway of high level reports have pointed to the use of a fairer infrastructure financing system.

Former Prosper Australia President Robert McAlpine was a Melbourne City Council bureaucrat who played a significant role in ensuring surrounding land owners to the City Loop paid something back to the community to say thanks for the new service – and the windfall gains. However, today landowners scream poor when they have to pay even 2% of the benefits back.

But alas we face the usual battle: One real estate industry figure said imposing such a special levy on land along the route would be met with spirited opposition from property groups.

The tenor of the first few comments accompanying the article suggest the people have had enough.

With the new Victorian government introducing the Ministry of Equality, this policy innovation is a vital step forward.

Karl Fiztgerald is project director of Prosper Australia.