However, Julian Ware, Head of Corporate Finance at Transport for London and one of the architects of the funding mechanisms used, says: “Because the Elizabeth line passes through some of the most valuable parts of London real estate, quite a lot of the revenue is raised along the line of the route. We also argued the new line would move London’s economy as a whole and create employment, so everyone benefits.
“Even if you’re a shop owner in Kingston, actually more people will get jobs in the city and Canary Wharf, because the economy has improved and because of the Elizabeth line. Then, at the weekend, those new workers will go and spend their money in a wide variety of places across London.”
On another major project, the extension to London’s Northern Line to Nine Elms and Battersea (like the Elizabeth line) used two mechanisms to raise additional funds.
Again, one was based on developer contributions and the other a business rates increase. But crucially, the income here paid for the whole scheme, rather than just part of it.
The income also comes directly from the area that’s benefiting from the extension, rather than the whole of London. It’s thought that around 30% of the funding has come from developer contributions, related to the buildings that have gone up as agreed with the local councils. The remaining 70% comes from the area being declared an Enterprise Zone.
Within the zone, the growth in business rates is diverted away from conventional spending and instead goes straight to the Mayor of London. That in turn allows the Mayor to borrow against what could be a 25-year stream of income, which is then handed to TfL to build the new line.
Ware explains: “If you can imagine the power station building ten years ago. It was derelict and there wasn’t much in the way of business rates being collected. If you look at it now, with the shops open and the offices coming next year, the tax revenues are increasing dramatically and most of that extra is going to the Mayor.”
What works in London doesn’t necessarily work elsewhere in the UK. However, one place where a transport-related land capture deal is working is in Northumberland, which has pioneered an LVC agreement on a rail project.
Northumberland County Council has become the first authority in the country in modern times to strike an LVC agreement with landowners.
In 2014, it began working with Edinburgh based E-Rail to ascertain whether the company’s LVC method could be used to help fund the reintroduction of passenger services to the Northumberland Line between Newcastle and Ashington. The deal has been struck with landowners at more than 20 sites along the line.
E-Rail’s method of quantifying the uplift concentrates on land and property within 1km (0.6 miles) of the construction of a new transport project.
The company reckons that existing housing stock increases in value by around 20%, and maintains that by sharing this generated increase in value, the transport provider gains significant funds that do not have to be paid back and the landowner/developer secures a considerable rise in property value. The earlier that contribution agreements are reached, the earlier scheme certainty can be achieved, and the more the LVC can generate.
Unlike Community Levies or business rate increases, such agreements (using E-Rail’s method) do not require any new legislation. They can be put in place relatively quickly, by any council or transport agency in the UK promoting a project.
And experts have been quick to applaud what’s been done in Northumberland. Transport Consultant Stephen Joseph says: “Previously, land capture deals were targeted at developers or based on business rate supplements around the stations. This is rather different, in the sense that it’s a charge on the land. I think people have forgotten about this one. Letchworth Garden City was built around this stuff. So too was Metro-Land.”
E-Rail Director George Hazel maintains the concept is ideal where there is a funding gap that’s stopping the scheme from progressing: “Landowners don’t pay upfront. They only pay when the value uplift occurs, and we find they’re still interested even though a scheme may or may not happen and they may or may not get planning permission.
“They take the view that if they sign the contribution agreement, they will only have to pay (say) 50% of the uplift that will happen, as calculated by property agents. They still retain some of the profit and, ultimately, they might get a better planning permission because their development is now close to a railway station.”
But unlike the levies used in London, LVC contributions along the route of the Northumberland Line are based on voluntary participation until the contribution agreement is signed. After that, the agreement is a legal commitment built into the title of the land.
It could be, therefore, that some landowners refuse to take part, although this is rare. The risk they run is that the funding gap will not be closed, the project will not be delivered, and none of the landowners will get the extra value from the railway.
Hazel: “If somebody doesn’t sign up, and that’s rare, there’s nothing we can do about it except that there is a risk for that person and all the others that the scheme won’t then happen, and they won’t get the extra profit.”
Those landowners who don’t sign up for an LVC agreement could later have to pay out through the more traditional developer contribution methods, such as Section 106. And having established a value along the route through the LVC process, they could ultimately have to pay more of their profits through an alternative non-voluntary land capture agreement.
“At the end of the day, we’ve secured £40m, more than any other method would have raised,” says Hazel.
And crucially, unlike other land capture methods, the latest concept in Northumberland targets the landowner - not the developer or tenant. And the way it’s being done there has the added value of potentially creating more public transport and sustainable developments around the stations.
Joseph explains: “The incentive is to reduce car parking and create denser and more walkable developments, because you’re developing around public transport stops and stations.
“That makes it more likely that people will walk to the station and might not even own a car. This will create ‘transit oriented development’, as they call it in the US.
But to make an LVC work, you do need a certain level of certainty that a scheme will be built. And that’s not always easy, particularly in the early planning stages. If the lead time is too long, contributions under LVC agreements might also be difficult to achieve. And there’s a third major problem: the political appetite for what is, essentially, a wealth tax.
