The term “value capture” describes policies intended to “secure societal benefits from increases in land value that can arise from changes to land-use rights through the planning system and/or investment in public infrastructure.” 1 The underlying idea is that if the public sector invests capital or makes regulatory changes that increase real property values, the public sector, not the landowner, should benefit. Landowners did not produce the “value increment” through their own actions; it rightly belongs to society at large.
Land-value capture mechanisms—which include tax-increment financing, payments in lieu of taxes (PILOTs), transfer of development rights, and purchasable density bonuses, among others—have become a popular tool for fiscally constrained urban policymakers. Many such policies involve “front-funding” infrastructure investment by creating special-purpose entities that borrow money in the bond markets and repay it with new revenues generated after development occurs. But planners need to look more critically at these mechanisms’ distributional impacts. When regulatory actions such as zoning changes increase land values, officials often “leave money on the table” by allowing landowners (or speculative investors) to retain the bulk of the value that such changes have created. Meanwhile, front-financing new development through value capture can backfire because policies that rely on escalating property values can result in decreased affordability for nearby low-income renters and homeowners.
One problem is that enthusiasts tout value-capture strategies without fully analyzing their implications. The equitability framework in use by policymakers today is a narrow one: it endorses the public sector’s recovery of the “unearned increment,” but it is silent on the question of how to distribute it. This position distinguishes today’s neoclassical economists from classical ones like David Ricardo and John Stuart Mill, who were explicitly concerned with the distribution (not just the recovery) of unearned land rent. One need only pay attention to a pattern of rising housing cost burdens, accelerating residential and commercial displacement, and increased homelessness (along with increasing returns to real-estate capital) in wealthy cities to recognize that land-value gains produced in part by public-sector actions are consistently allocated in ways that deepen inequality and fray the social fabric. In a moment when urban policy needs to be laser-focused on diminishing inequality, value-capture practices often contribute to it.
To place equity at the center of the value-capture discussion where it belongs, policymakers should ask the following five questions about value-capture proposals:
- From whom will the public sector be recovering economic value created as a result of public-sector actions or infrastructure/public-realm investments?
- To whom will that economic value be likely to accrue after being recovered and distributed?
- What is the relationship of the value-recovery mechanism to the overall taxation and budget process?
- Who bears financial risks (if any) associated with depending on future revenues to fund current investment?
- Who is involved in governing value recovery and allocation?
Two examples illustrate how asking these questions can lead to greater clarity about who gains what from projects involving value capture.
Example 1: Hudson Yards
The Bloomberg administration initiated the Hudson Yards project on the Far West Side of Manhattan between 30th and 42nd Streets in 2005. The many public-sector contributions to increasing the land value in the district included rezoning an 86‑block area from industrial to mixed-use development; extending the 7 subway train from Times Square to a new subway station at 34th Street and 11th Avenue; and creating 15 acres of public open space. To finance the 7 train extension and other required public infrastructure and open space, public development corporations devised especially for the Hudson Yards project issued $3.5 billion in tax-exempt debt in 2006. Two value-capture mechanisms—Payments in Lieu of Taxes (PILOTs) and purchasable density bonuses—were structured to recover money from property developers and landowners along the way so that the development corporations could repay the bondholders.
Recovered value from PILOTs and bonus purchases has flowed to the public sector and has been used to pay off initial debt. Yet the city’s General Fund paid $369 million in interest on the bonds in the project’s early years. 2 Moreover, through the terms of the PILOT arrangement, as well as other abatement and incentive programs, property owners are paying much less in taxes than they would otherwise be. 3 The tax abatements will begin phasing out in 2026, but all the property taxes associated with the project will continue to flow to the Hudson Yards Infrastructure Corporation until 2044.
The Hudson Yards development has generated broad-based benefits. Many transit riders benefit from the #7 line extension, and the new public open space is available to all. Indirectly, the increase in overall economic activity generated by Hudson Yards benefits all New York City residents. Here, though, we might question policymakers’ decision to invest scarce public capital dollars in West Midtown Manhattan when so many lower-income neighborhoods have severe mobility and recreational needs. Relatedly, we might question the skew of the project itself toward luxury commercial, retail, and residential audiences, 4 with only 10% of its first 4,000 housing units slated to be affordable to moderate- or low-income households.
By creating the Hudson Yards Infrastructure Corporation and Hudson Yards Development Corporation to raise capital and manage the project, New York City and State policymakers also insulated the expenditure of city funds from legislative oversight that might have prompted different decisions about how to extract and distribute value. Off-budget financing is not inherently inequitable, but elected representatives have never had a chance to investigate the relative merits of development alternatives in West Midtown or to compare the impact of those alternatives with the impact of publicly subsidized development elsewhere in the city.
Example 2: the Atlanta Beltline
The Atlanta Beltline is transforming a 22‑mile corridor of unused railroad segments around central Atlanta into trails, bike paths and transit. The vision for the Beltline is to knit Atlanta neighborhoods together through a green amenity while stimulating economic development. The Beltline has attracted philanthropic and corporate dollars, but its main source of financing is a value-capture mechanism which directs increased property-tax revenues above an initial baseline into a special-purpose Tax-Allocation District (TAD) fund that repays project-related debt. Atlanta Beltline, Inc. (ABI), the quasi-public corporation created to administer the Beltline, has issued $155 million in TAD bonds thus far.
As property values in neighborhoods adjacent to the Beltline rise, the increment flows to the TAD fund; the proceeds of bonds issued by ABI have funded trails, parks, and environmental remediation. Beltline infrastructure (which touches low-, middle-, and high-income neighborhoods) has encouraged more Atlantans to walk and bike, brought visitors into the city, and attracted new residents. According to ABI, it has created an estimated 11,200 permanent jobs and 29,500 temporary construction jobs. Furthermore, if and when a streetcar comes on line, Atlantans will have a new transit option. From a taxpayer-risk perspective, however, Beltline financing is questionably structured. In the event that the TAD does not collect enough revenue to make bond payments, the City of Atlanta (as with Hudson Yards in New York) will fill the gap.
Moreover, while there is little doubt that property values are rising for landowners along the Beltline route, the social equity impacts of these gains are the subject of controversy. ABI made no provisions for limiting the impact of property-tax increases on low-income homeowners along the Beltline route, and none to limit rent increases for renters. As a result, many low-income households in or just beyond the TAD are facing rising taxes and rents at a time when the supply of low-cost housing in Atlanta is diminishing. Effectively, the TAD draws much of the value required to finance infrastructure from a vulnerable, non-wealthy segment of the population. The question of where benefits accrue is fraught as well. Transportation scholars have argued that improvements to existing mass transit connecting metro Atlanta’s job centers would be vastly more welfare-increasing than transit around the Beltline.
Finally, the Beltline exemplifies the common dilemma of multiple taxing authorities sharing jurisdiction over an area designated for land-value capture, all of which need a share of the property-tax levy. There has been significant conflict around the TAD’s absorption of revenue that would otherwise have gone to the Atlanta public schools. This demonstrates that even when a public investment confers broad-based benefits, diverting revenue from functions like public education in order to finance it can have serious equity implications.
Recovering public value for distributive justice
Hudson Yards and the Atlanta Beltline both use value-capture tools to deliver infrastructure that has public benefits. But in the Beltline case, value capture involves increasing the housing cost burden of people who are already struggling, without protecting them from displacement. And at Hudson Yards, the value generated overwhelmingly benefits a “public” whose members already have plenty of wealth. In both cases, government has borne fiscal risks, other municipal services have sacrificed funding, and governing institutions have minimized the comparison of pre‑chosen projects with alternatives.
Planners and policymakers oriented toward fairness need to start questioning value capture—and employing it differently. An example of equity-enhancing value capture occurred in San Francisco in 2014 when the City Planning Commission greatly increased the value of land by permitting mixed-use development in a formerly industrially zoned part of the city. Elected officials insisted on recapturing some of the value that this change created by requiring prospective developers to devote 33% of their new space to low-rent “Production, Distribution and Repair” (PDR) uses and to follow tenanting and marketing plans that prioritize the recruitment of local residents for emerging employment opportunities. This requirement delivers value to industrial businesses and blue-collar employees by clawing back some of the financial value granted by the rezoning.
New York City’s Mandatory Inclusionary Housing (MIH) policy is similarly structured. Under this policy, when there is an upzoning that enables residential developers to reap higher returns than was possible under previous height and bulk restrictions, they must build below-market units. Through this policy, the city recovers a portion of the value conferred by its rezoning action; the beneficiaries are people who qualify for reduced-rent apartments. Advocates have criticized MIH for failing to stimulate the construction of deeply affordable units and argued that in many cases the city is still “leaving value on the table” that it could be redistributing to very low-income households. Nevertheless, MIH is designed to recover value from people who are benefiting from a public action (developers) and devote it to measures that support those in need of public benefit. There is no reason the city could not expand MIH requirements in a situation where public action is shown to produce extraordinary value gains. The upcoming Gowanus neighborhood rezoning offers an opportunity for this.
Joining the value-capture conversation on the side of equity
Introducing the questions above can help policymakers critically evaluate past and proposed land-value capture initiatives. We need to ask them relentlessly in development-policy discussions. The answers, if supported by strong political advocacy, make it more likely that future public-sector investment in the built environment will reduce inequality, not reinforce it. In the housing arena, policies that embody equity principles for public value recovery would stake claim to value created by public-sector investments and expressly redistribute that value to low-income renters, tenants of public housing, and others facing severe housing cost burdens. In the economic development arena, they would claim a share of publicly created value for businesses that support living-wage jobs but which are vulnerable to displacement due to rising rents. This policy paradigm shift would support the vulnerable populations most affected by skyrocketing land costs and demonstrate that value capture can be a force for social justice.
- Fisher, B. and Leite, F. 2018. The Cost of New York City’s Hudson Yards Redevelopment, New York: Schwartz Center for Economic Policy Analysis, The New School.
- Immergluck, D. 2009. “Large Redevelopment Initiatives, Housing and Gentrification: The Case of the Atlanta Beltline”, Urban Studies, vol. 46, no. 8, pp. 1723–1745.
- Immergluck, D., Carpenter, A. and Leuders, A. 2016. Declines in Low-Cost Rented Housing Units in Eight Large Southeastern Cities, Atlanta: Federal Reserve Bank of Atlanta, Community and Economic Development Discussion Paper no. 2016‑3.
- Immergluck, D. and Balan, T. 2018. “Sustainable for whom? Green urban development, environmental gentrification, and the Atlanta Beltline”, Urban Geography, vol. 39, no. 4, pp. 546–562.