ACT land owners revolt over rail levy

ScreenHunter_06 Jun. 06 09.33

Cross-posted from David Collyer at Prosper Australia

The Property Council of Australia is ‘vehemently opposed’ to Canberra’s special land levy to part-fund the $600 million light rail project from Gungahlin to the city, calling it “just another property tax in disguise”.

The PCA’s Catherine Carter says, “To tax again an already overtaxed sector in a property market downturn is not the right approach and would be strenuously resisted”.

Strong words indeed from a sector whose premise is the passive collection of the economic rents created by those who use the land. The mind boggles at what a landowner revolt might look like.

As for it being overtaxed, economics shows land has a very large capacity to bear taxation without distorting behavior or incentives. As Milton Friedman said, “the least bad tax is the property tax on the unimproved value of land, the Henry George argument of many, many years ago”.

The Canberra Times article where Ms Carter’s fighting words appear helpfully points out the benefits of transport improvements descend directly upon land prices and cites expert economic analysis in support.

“The government has suggested a 25 per cent increase in home values in the corridor, and options are being modelled for levies and a special rating zone so it can “capture” some of that value.

“It points to work by James McIntosh at Curtin University, who investigated value capture options for Perth transport, which found that homes in rail corridors (400-800 metres either side of the track), increased in value by 5 to 25 per cent per cent, and some commercial properties skyrocketed by more than 50 per cent.

Earthsharing has a useful primer on Value Capture here for anyone needing more proofs. If Ernst & Young are more to your taste, try this.

I also object to the proposed special levy, but modestly, and for quite different reasons.

The special levy requires a city planner to draw lines on a map, deciding who benefits and who doesn’t. Canberra must hope Ms Planner gets it exactly right – by distance from the new rail, between residential and commercial uses, and over time. The next ACT government may well change the zoning near stations to higher density, throwing Ms Planner’s assumptions to the wind. There is a better way.

The Land Value Tax the ACT government is gradually introducing is based on the market price of land. The civic value of the new rail line will emerge right here, like daffodils in Springtime.

Then, rather than neighboring landowners being bled by a heartless government to pay for unnecessary and foolish approval-seeking glamour projects, the market will value the new rail line objectively.

The ACT government’s land value tax cannot come soon enough. They had also better double-check that the rail is genuinely needed: no benefit, no uplift.

Unconventional Economist
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Comments

  1. Hah….!

    As I keep saying, the rentier vested interests in central city property ownership do not care if the cost of the “infrastructure” that serves their location is $4 for every $1 of benefit, as long as they are reaping the $1 and paying less than $1 out of the $4.

    It is time to end this racket, and MB is doing a good job shining light on it.

    Besides getting pay-in from the entire region’s property tax payers, motorists (petrol tax revenue), and income tax revenue; the latest ploy that is happening in numerous cities around the world, is to use a special regional sales tax to fund these rorts.

    Of course the CBD properties to which most of the travel is occurring, are offices, not retail; and most of the payment of sales taxes occurs in the suburbs where no benefit is realised from the “infrastructure investment” at all.

  2. Why not apply a levy for all amenities built in the vicinity of a property. Plenty of people live near parks, museums, roads, all of which add to the value of their property. Canberra Times has an article about a new arts hub in Kingston. I say Kingston residents should pay a levy for that.

    • A land tax will automatically capture the value of any amenities built in the vicinity of a property. No need to individually select them.

      • Fair point. What I meant was that a consistent approach would treat all value-adding infrastructure in the same way.

  3. “…They had also better double-check that the rail is genuinely needed: no benefit, no uplift….”

    That is a very important point.

    A LVT is an excellent way to harvest a vase of Daffodils but a white elephant remains a white elephant.

    A bus lane with articulated buses (when demand requires) with preferential lights at intersections would provide the transport benefits at a fraction of the $600M cost of light rail.

    And that is assuming that the control freak mess of zonings restrictive the most productive use of land along the route are relaxed.

    • “That is a very important point.”

      And it’s the problem with basically every major infrastructure project in this country.

      Down here in Victoria we’re getting the $10-12 billion dollar East-West link which is projected to return less than $1 per dollar spent on it.

      Feel free to laugh if you don’t live in Victoria, but Abbott’s giving us $3 billion dollars despite saying he’d never fund anything without a publicly released CBA (which we don’t have).

    • It might also be worth asking why the costs of tramway projects in Australia are so high relative to, say, European best practice.

      In European best practice systems, the operational performance of trams is superior to buses, justifying a price premium. In Australia, performance is less. (The new Sydney extension is slower than the bus). Australian design and construction costs are way in excess of European best practice.

      Perhaps before rushing to judgement on which transport mode is the best, we ought to ask why one of those modes is not able to be constructed or operated to best practice in this country.

      • Yes, it is not just tramways that are opportunities for gouging down under.

        Heavy rail projects are also nose bleed expensive.

        But that tends to support the argument against light rail / trams in many situations in Australia. If they are more easily packaged as gouge fests then the bus approach may be preferrable.

        For me the big clanking warning bell is that the LNP government is suddenly hot to trot for light rail after years working hard to demonise all forms of public transportation.

        My hunch? – There are a some big fat juicy construction, operation and most juicy of all financing contracts to be negotiated with a light rail system.

        As to whether the cost of light rail / tram systems v dedicated bus lanes v the benefits of either in particular situations are comparable I am happy to go with whatever is clearly superior.

        Unfortunately, as a tram fan, I have a lot of doubts that in most cases the benefits of tram over bus exceed a dedicated bus land when the costs are taken into account.

      • pf, that is true.

        I guess the important point though is that if the basic costs of such projects, be they heavy rail or tramways, are vastly overstated, or are conflated in some way with other policy objectives, how is one ever to do a realistic cost benefit analysis?

        For example, at $600m the Canberra tramway might be uneconomic. However, if that cost is overstated, or inaccurate, or contains some other factor, then how can we know if it actually should be $300m, or worse, end up being $900m?

        The idea of doing cost benefit analyses falls over if the costs are based on totally unrealistic assumptions.

        Furthermore, if we actually delved down a bit, we might find that it is not the tramway that is the problem, but that it is perhaps, poor australian design competence, poor construction techniques, gross overcharging by contractors, ticket clipping by Macquarie Bank, building trams in Australia to support local industry.

        Just hand waving a project away because it is too expensive, without eliminating the issues above, or at least identifying them in the cost benefit analysis is very lazy. It means that cheaper solutions are sought without rectifying the poor design and construction, and without eliminating the gouging and ticket clipping. That means that even if the project finally adopted is cheaper, it is still far more costly than it should be, and the benefit may be considerably less.

        For example, Melbourne has some brand shiny new trams (Good ones, I am assured), but for twice the cost of the top of the range Skoda Forcity from Europe. Not only that, Skoda has licenced production of that vehicle to China. If they were to extend that Chinese licence to Australia, the real cost of the trams might be down as much as one third of local production. One third!

        How can anyone think that a cost benefit analysis could be done where prices are so grossly out of line with world prices? Apparently the reason for the high cost is a low production run for the Aust market, and to employ people at Dandenong. However, if that is so, then let’s have it out, and the employment component made transparent.

      • emess,

        Well I suppose a good start would be to publish any cost benefit or other analysis so the assumptions can be poked with long sticks on forums like macrobusiness.

        But that “commercial in confidence” stamp seems to get slapped on anything that would permit real scrutiny of the decision and the assumptions relied on.

        When I went poking around the website for the Gold Coast light rail there was lots of talk about how all options had been evaluated but the actual evaluation was not available – “commercial in confidence”.

        As for Canberra, the zoning maps reflect planner obsessions and the routes of the proposed light rail remain highly prescriptive.

        Thus why I say they should go for a dedicated bus lane and relax the land use restrictions so that medium/high density mixed use can sprout up along the route.

        When the bus lane reaches its capacity they can either lay track and wiring for high capacity light rail (3-4 carriages) or a heavy rail subway.

        All funded by the growing LVT revenue along the route as development increases.

    • If “they” are dead set on building a white elephant from hicksville north to the city then they should build a driverless suspension railway – passenger cars suspended from an elevated track. Works OK in Europe and Japan. Don’t have to dig up any existing road; can be built to run above existing roads. Much faster than trams that are not running on dedicated (read uber-expensive) ground-level tracks in Canberra’s “peak hour” (never mind that they will run empty the rest of the time). If I was pooh bah in chief down there I’d forget the whole bs crazy idea and give a free electric bicycle to all adult Gungahlinites instead.

    • Pfh, I am in agreement with you on a number of issues, however I think there are two points to be considered which are critical in this “City Game”.

      You write, “They had also better double-check that the rail is genuinely needed: no benefit, no uplift” – and in addition how is it going to be integrated in to the overall Canberra public transportation strategy, as only than you can assess the combined public benefit component.

      The question I am asking myself is whether this is a one off experiment, or is it first phase of a more comprehensive upgrade to public transportation in Canberra to benefit all?…or, as suggested above, is it only a well-rehearsed “decoy” for additional revenue collection? Lack of transparency and confidence supported with extensive feasibility studies would imply the latter.

      I am also very puzzled by the published AU$600 million price tag. To put this in perspective – the largest public transportation project currently underway is in the Saudi capital, Riyadh. It comprises:

      – – metro;

      – – Bus Rapid Transport – BRT, relatively fast articulated buses on exclusively dedicated, separate to street, track with prioritised signalisation;

      – – ‘Community’ bus transport – articulated on longer distances to feeders, can be on or off dedicated lanes and usually with prioritised signalisation; and,

      – – Feeder Bus networks – the connecting / urban bus, same as Community, but penetrating deeper in to the “urban fabric”, eg.collecting school children, etc., with no dedicated track or lane nor signalisation.

      All the above over hundreds of kilometres of fully refurbished and rebuilt roads, with extensive investment in to supporting infrastructure and extensive urban environment, TOD inclusive.

      Only BRT and Bus roads and infrastructure component, with dedicated lanes, shelters and stations is going to be delivered for around AU$1.4 billion, only almost twice as much as light rail in Canberra. I understand the labour cost variation, but someone must go back to drawing board, unless, as Pfh writes correctly, that “There are a some big fat juicy construction, operation and most juicy of all financing contracts to be negotiated with a light rail system”.

  4. “getting it right” (the route for the rail corridor) means it being about 500 metres from my place with construction access not down my street, so I can reap the capital appreciation and not suffer the noise or inconvenience.

  5. The title is misleading. They are not land owners, they are title holders. Big difference.

  6. notsofastMEMBER

    This project should be cancelled unless spending $600m can be justified. With a number of federal government departments looking to decentalise away from Canberra I struggle to see how it can be justified.