Using Land Values to Fund Maglev

September 2nd and 9th, 2002 - Any significant improvement in transportation infrastructure creates wealth. In broad terms, it does so because it gets you to where you want to go quicker and it enables you to travel to new locations that were previously more difficult to access.

The redistribution of this wealth (consumer surplus) is not restricted to users and providers but also includes property owners because the price of real estate is directly affected by LOCATION, LOCATION, and LOCATION. That piece of real estate is suddenly closer in travel time to more people and businesses.

Whether it was the freeways or subways, they traditionally were paid for by the public sector. Since it was determined that transportation benefits were for the "public good", it never seemed unjust that private property owners who did not contribute toward any capital cost, benefited financially. This arrangement may be changing, potentially benefiting urban maglev systems.

Today, the private sector is being called upon to assume all or a portion of new transportation investments. As result, some policy makers are examining the idea of recapturing some of this new wealth and using the returns to fund transportation infrastructure. This will have a major effect on the financing of new maglev systems in particular.

In "Getting There Faster", The Economist describes how the U.K. Government and the City of London are exploring means of recapturing some of the real estate appreciation attributed to transportation infrastructure improvements. An especially interesting example for urban maglev proponents is the extension of the Jubilee line. While the developer of the Canary Wharf properties - Olympia & York - provided £180 million towards the capital cost of the extension, it is now believed that no government subsidy would have been needed if a larger part of the increase in land values had been recaptured. It is estimated that the affected property values in the Docklands increased four fold.

The Canary Wharf project and the Jubilee line are fine examples for Maglev projects to follow. While the Docklands area is now only 20 minutes away from West London, it was much further in travel time prior to the building of the Jubilee line extension and the Docklands Light Railway. While this area was certainly accessible from any point in London, the Isle of Dogs was difficult to get to by automobile and bus. Even if the roads were expanded and the bus networks improved, neither travel mode would have been able to transport a working population of 42,000 people into and out of the development every day.

The fact that 42,000 workers now travel to a destination that was not accessible before but were induced to travel here should not be lost to Maglev researchers. Clearly, the amount of travellers induced by the development and the transportation infrastructure brought value to the Docklands properties. Herein lies a very important lesson for Maglev researchers. If future maglev projects are to be financed in whole or in part by the recapture of land evaluation increases, then it will be essential to estimate the amount of new traffic that will be generated by new maglev lines, especially if travel times are substantially reduced bringing potential new land parcels closer to a growing commuting population.

Transportation infrastructure improvements for the automobile certainly result in similar increases in property value. No doubt, the aggregate increase in the value of suburban properties in America during the construction of the national Dwight D. Eisenhower freeway system at least equalled the capital cost of construction. But unlike collective mass transit, the ability to recoup any appreciation is much more difficult for freeway projects.

Because the automobile does not require stations to load and off-load passengers, motorists are able to reach virtually any destination that is accessible to a major freeway. As a result, any land appreciation is more evenly distributed among all property owners. A case in point is the example of the Confederation Bridge linking the Province of Prince Edward Island to mainline Canada; described here in last week's web article. While island property has increased because of the Confederation Bridge, the increase has been very marginal for individual properties. Had the infrastructure improvement been a collective transportation system, the impact on property values would have be much more localized and visible.

In the case of a Maglev system, the appreciation in land value will be significant and localized. Providing the maglev system is able to merge the speed of intercity travel modes with the travel time, cost, convenience and reliability of mass transit urban systems, enabling commuters to travel between New York and Boston (46 minutes) just as easily and quickly as it is currently between Grand Central Station NY and Greenwich, CT (45 minutes), the impact on strategically located property values would be very significant.

Source:
Getting There Faster, The Economist