Explaining Value Capture Implementation in New York, London, and Copenhagen
Negotiating Distributional Effects
Simon van Zoest (Delft University of Technology) and Tom A. Daamen (Delft University of Technology)
Value capture (VC) is widely cited as a method for local authorities to continue to provide urban public goods, such as public transport or measures to make neighborhoods more climate-resilient, in the face of fiscal stress. It is based on the idea that public investments create financial value in their surroundings that accrues to various beneficiaries. In theory, this value can be captured to fund those investments. However, the application of novel value capture strategies in practice remains limited. In this article, we aim to provide a better explanation of the implementation process of value capture as a strategy for funding public transportation infrastructure.
In search of a useful way to understand this phenomenon, we propose to interpret this process as an effort of institutional change. Institutions – often referred to as the rules of the game in a society – can be formal, such as laws that oblige private actors to contribute to infrastructure, or informal, such as a norm that defines what is considered a fair contribution. To implement value capture, such institutions need to change. This can have significant distributional effects which are not the same for all actors. This makes the implementation of VC not only an instrumental process, but also a contested political one, involving negotiations between various public and often private parties.
We investigated the value capture implementation processes for three major urban infrastructure projects: (1) Crossrail 1 in London, UK, which is being paid for in large part by commercial property owners in several of the city’s business districts; (2) the first two metro lines in Copenhagen, Denmark, which are being funded through land development in the new district Ørestad; and (3) the extension of the No. 7 Line in New York City, US, which is connected to the Hudson Yards development zone and is being funded in large part by earmarking future tax revenues within that zone.
We found the role of the beneficiaries of public investment to be particularly important because the implementation of value capture involves a payment that these actors may seek to oppose. Although in theory it should be possible for authorities to implement value capture without the support of beneficiaries, all our cases show that the beneficiaries had access to veto power. We expect beneficiary support to be a key prerequisite for the implementation of new value capture strategies in all countries with a well-functioning legal system with enforced property rights.
The need for beneficiary support can be a serious barrier to the implementation of value capture, but our findings show that a strategic urban development project can act as a driver to overcome this impediment. If a beneficiary group of a project really wants the project to be delivered, and it will not be realized without the implementation of value capture, that group can decide to contribute some or even all of its value uplift. Our findings show that the beneficiary group can even act as a change agent for the implementation of value capture.
However, if the support for the implementation of value capture is based solely on a single project, this can negatively affect the institutionalization potential of the new funding instrument. The beneficiaries in our cases were not pursuing a process of institutional change that would structurally displace traditional public funding with a new strategy. What mattered to them was the delivery of the project they wanted, and they were willing to waive their veto power for just that. Consequently, in London and New York, the novel value capture instrument implemented has so far only been used once. At the same time, however, the Copenhagen case shows that the first use of a novel value capture instrument can serve as a precedent for subsequent projects, making the allocation of value uplifts for funding purposes slowly but surely commonplace.
As with other urban governance innovations, value capture can be easily politicized or misunderstood in practice, leading to an underestimation of its potential. Our institutional perspective reveals that the multilayered nature of its implementation process – involving complex legal instruments as much as local behavioral change – can make such governance innovations difficult to fathom. However, by providing benefits that actors with diverse interests can rally around, an urban development project is clearly capable of acting as a tangible driver of change.
Simon van Zoest is a PhD candidate at the Department of Management in the Built Environment (MBE), Delft University of Technology. His research focuses on the implementation of novel funding strategies for urban infrastructure, which he analyzes from an institutionalist perspective.
Tom A. Daamen is associate professor of Urban Development Management (UDM) at Delft University of Technology and Director of the Dutch Foundation for Area Development Knowledge (SKG). In Delft, he leads a program that includes academic research, education and impact projects that link the governance of urban redevelopment projects to urban policy and planning, climate adaptation, social sustainability, real estate and infrastructure financing, and economic change.