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Infrastructure Policy

Infrastructure Policy Statement Summary

Executive Summary

There has been a total absence of planning of the settlement of Australia which has resulted in an extraordinary settlement imbalance that impacts on our productivity, efficiency, competitiveness, quality of life and capacity for growth.

Our major cities have suffered through an absence of master planning and rollout of infrastructure. This has resulted in an infrastructure deficit.

To remedy this problem, our spatial settlement of Australia and our cities requires master planning and funding in a clear, long-term policy that coordinates local, state and federal government to achieve a shared objective.

A clear, long-term federal infrastructure policy has the ability to encourage sustainable population growth in our regional and urban population centres and is essential for maintaining a high standard of living and strong economic growth. This report puts forward three key recommendations:

 

  • Urban Renewal

 

The federal government should address as a matter of urgency the need to master plan infrastructure and land use in our major urban areas. Our current infrastructure deficit would be remedied most effectively by an alignment of the three tiers of government. To optimise the efficiency, competitiveness and productivity of our cities infrastructure capacity must be commensurate with plans for urban renewal and densification.

 

  • Strategic decentralisation

The Federal government’s infrastructure policy should equally focus on strategic decentralisation through greater investment in regional transport connectivity. Improving infrastructure and especially fast transport connections to the under-valued land corridors peripheral to large urban centres will foster new cities in these underutilised regions facilitating access to economic opportunity in existing cities.  Central to this plan is the rebalancing of settlement and economic opportunity to maximise potential growth.

 

  • Value Capture

The government should develop a federal value capture model (FVC) that addresses our specific needs. Value-capture involves monetising and capturing an equitable portion of the economic value created by transport infrastructure. Maximum uplift of land value is achieved infrastructure is attached to land use. It is essential that an equitable portion of this uplift is captured to fund the responsible infrastructure. In Australia, value-capture will facilitate urban renewal and strategic decentralisation by providing significant funding of infrastructure.

  1. Background

Australia’s major capital cities are currently saddled by high congestion, increasing strain on public infrastructure and expensive retro-fitting of existing infrastructure. These problems act as a drag on sustainable development and adversely affect the community’s economic opportunity and quality of life. The result is that our cities are growing beyond their infrastructure capacity while our regions decline. These problems will only exacerbate as our population is projected to increase to 41.5 million people by 2061.[1] In the absence of a comprehensive visionary plan, our growth will be stunted; our cities will become less liveable; less productive; and less competitive

 

It is essential for the federal, state and local governments to coordinate a policy of strategic decentralisation and urban renewal. Improving infrastructure and especially fast transport connections to the under-valued land corridors peripheral to large urban centres will foster new cities in underutilised regional areas by giving them greater access to economic opportunity in existing cities.

 

  1. Urban Renewal

The lack of planning and timely commitment to infrastructure in our major cities has resulted in an infrastructure deficit.  The very high price of land in Sydney and Melbourne often makes the cost resuming land to retro-fit infrastructure prohibitive. This has resulted in a number of tunnelling projects but when tunnelling is too expensive the development of infrastructure ceases.

 

The plan to attach infrastructure to land use within the framework of a master plan produces significant collateral benefits.

 

  1. The resumption of land can be provided by developers who are less concerned with how much land they have but with the proximity to infrastructure and the floor space ratio (FSR).

 

  1. Land value uplift is maximised when infrastructure and zoning are combined. This produces an ideal environment for value capture to fund the infrastructure.

 

  • The retrofitting of infrastructure and proactive zoning produces the opportunity for a continuum of urban renewal and densification. At present, the cost of infrastructure projects is exorbitant because of the ad-hoc project-by-project rollout which portions the cost of gearing up and gearing down to each project. These costs will be significantly reduced when the gearing up costs can be amortised over multiple projects over a period of decades. This is the essence of productivity and efficiency.

 

 

  1. Strategic De-Centralisation

A plan of strategic de-centralisation is most important to rebalance settlement in Australia. Settlement imbalance has occurred as a result of a piecemeal infrastructure policy that has evolved project-by-project without a long-term master plan. This has led to inefficient land development and has contributed to Sydney and Melbourne’s exceptionally high land prices.[2]

High speed rail connectivity will introduce regional areas where there are large tracts of land at very low prices to these markets. This represents the perfect storm of opportunity to apply value capture in funding the facilitating infrastructure (evidence was provided to the Standing Committee on Infrastructure, Transport and Cities by the representative of Hitachi Australia that he was not aware of anywhere that represented such a fortuitous opportunity to introduce high speed rail).

Additionally, the Sydney to Melbourne air route is the third busiest in the world with regard to plane movements and fourth in terms of passenger movements; it is the second busiest air corridor over land globally.[3] There is clear and pressing demand for fast, high-quality transport infrastructure between these two cities. High speech rail connectivity could meet this demand and presents an opportunity for strong operational revenues.

The combination of value capture funding and the prospect of significant operational revenues present a most compelling case for the development of high speed rail. This will relieve our major cities of their current infrastructure deficit and sustainably expand our capacity to grow.

Strategic decentralisation involves a co-ordinated effort by federal, state and local government to foster development in our underutilised regional areas. A successful de-centralisation project will alleviate the burden of overcrowding in our existing cities and foster growth, opportunity and connectivity in our regional areas.

 

  1. Value Capture

 

  • Concept:

 

Value capture refers to the concept of monetising and capturing a portion of the economic value created by government infrastructure investment to offset the costs of that investment. Public infrastructure has many direct and easily observable benefits such as easing congestion, increasing mobility and shortening commute times. However, it also benefits a variety of other stakeholders by developing the network of economic activity around the area in which it is situated. There is strong evidence that infrastructure investment attached to optimal land use maximises uplift in land values.

 

Third party financial benefits of infrastructure investment:

 

  1. Increased value for properties surrounding an infrastructure project.

Numerous domestic and international experiences confirm a direct correlation between the construction of transport infrastructure and increases in the value of properties located in close proximity.[4] Transport infrastructure increases accessibility to and from a given area therefore encouraging business and property investment which pushes up land value.[5]

 

  1. Commercial activity growth

Increased foot-traffic and larger local populations around transport hubs expand opportunities for commercial growth as businesses seek to capture growing demand. [6]

 

  • Improved local connections

Major transport infrastructure functions as a nexus for communication, commerce and transport. The build-up of businesses and dwellings around public transport routes encourages greater commercial competition, labour market diversification and civic opportunities. [7]

 

 

  • Policy Implementation & Federal Value Capture Scheme

 

Value capture has the most potential to improve Australian infrastructure when it is imbedded in a wider federal policy vision for urban renewal and strategic decentralisation. The success of Value Capture is also determined by the coordination of federal, state and regional government. A clear and overarching policy which links these actors has the potential to streamline implementation and improve financial outcomes for all parties.

To this end, this paper recommends the creation of a federal value capture scheme (henceforth referred to as Federal Value Capture (FVC)) which is comprehensive, has wide application and is adaptable for specific projects. This will assist in creating and realising the federal government’s master plan of urban renewal and strategic decentralisation.

Federal Value Capture (FVC) funding should be conditional on;

  1. Infrastructure to be funded by FVC as a part of a master plan for the region and demonstrated to be part of a rational strategic roll out.
  2. The infrastructure master plan must be accompanied by a land use plan of development, zoning and facilitation of building approvals.
  • A bonding alignment agreement between the three levels of government should be established that maximises value capture revenues. It is important to form this unity of purpose so that the full potential of value capture is realised and is not compromised by any level of government acting in a way that is contrary to the interests of the agreed goal.
  1. A further alignment that considers stakeholder land owners and developers fairly and equitably will optimise outcomes for all levels of government while providing clear and continuous streams of opportunities with strong elements of certainty, stability and growth.
  2. Federal funding should be conditional on standardising rolling stock through a centralised procurement facility ensuring best price or opportunities of local manufacturing when critical mass is projected.

A well-conceived federal value capture scheme should have the capacity to facilitate and define appropriate roles for each level of government through and overarching agreement to achieve a common goal.

A federal value capture scheme can contribute significantly to the infrastructure that is essential to forge a strategic decentralisation of settlement and implement urban renewal.

  1. Conclusion

 

The long term sustainable growth of Australian cities is contingent on implementing a program of urban renewal and strategic decentralisation. Realising these objectives will require a coordinated infrastructure master plan that involves local, state and federal government in a formal agreement. The introduction of a Federal Value Capture policy will increase equitable infrastructure funding and substantially assist in the aforementioned objectives.

[1] “Population projections, Australia, 2012 (base) to 2101”, Australian Bureau of Statistics, November 26th 2013, http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/3222.0main+features32012%20(base)%20to%202101 (accessed November 21st 2016)

[2] Scott Murdoch, “Smaller cities must be developed, says Stockland’s Andrew Whitson”, The Australian, November 14th 2016

[3] “Top Flights”, The Economist, May 14th 2012

[4] Chris Brown, “Value Capture is infrastructure magic bullet”, Australian Financial Review, October 21st 2015.

[5] Nicole Gurran and Stewart Lawler, “Explainer: what is ‘value capture’ and what does it mean for cities?”, The Conversation, June 22nd 2016.

[6] “The Economic Benefits of Public Infrastructure Spending in Canada”, The Centre for Spatial Economics, September 2015.

[7] Barret Kupelian and Conor Lambe “How to prioritise public infrastructure investments”, Pricewaterhouse Coopers, http://www.pwc.com/gx/en/issues/economy/global-economy-watch/prioritise-public-infrastructure-investments.html