Financing Transit Oriented Development by Value Capture

A recent World Bank report warns of the increasing problems of car-dependent urbanization (Suzuki et al. 2015), particularly in rapidly growing cities in developing countries. The integration of transport and urban development at public transport nodes and networks, or ‘Transit-Oriented urban Development’ (TOD), is a popular strategy that potentially contributes to sustainable urban development. Many Chinese cities have adopted TOD policies as well, but the governance and finance of this strategy is not without problems. Many cities lack an effective integrated policy approach to transport, spatial planning and land management; development gain from real estate development in the vicinity of public transport nodes cannot be used to co-finance public transport investments. While the present land management system in China offers a unique and effective way to capture development gain via land concession fees, the limitations to this system increasingly become clear as well, opening up a debate on the use of alternative value capture instruments. In many countries around the world, financing of TOD strategies is often based on some sort of negotiated developer obligations (NDOs) as a value capture mechanism. In this research project, we analyze the potential use of NDOs and alternative value capture mechanisms that may support TOD policies, in a number of case studies in Chinese cities. The results of the case studies are then used as input for simulation games in which we have tested the effectiveness and impact on negotiation processes of alternative value capture mechanisms, including NDOs and urban land readjustment. The outcomes of our study suggest that, despite successful integrated financial approaches to TOD implementation in some cities, several institutional barriers still prevent the efficient use of value capture mechanisms all over China. Moreover, the cases discussed have in common that they must use, to a certain degree, informal (but not illegal) strategies to bypass current planning and land market regulations, to be able to implement innovative value capture mechanisms. Our study concludes that additional value capture tools can support future sustainable urban redevelopment processes, including TOD, in China, but that the future efficient use of these tools would benefit from a more transparent planning and land management context supporting such tools. As a possible way forward, the study comes with two suggestions. One suggestion would be to copy elements of TOD models from Hong Kong or Japan to mainland China (as some cities basically did already), based on an inclusive TOD concession to metro corporations. The other suggestion would be to develop a legal framework that allows experimental planning strategies in a transparent and controlled context.