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City dwellers around the world noted one surprisingly welcome side effect of the lockdown phase of the pandemic era: less noise. Urban soundscapes have largely returned to form, but that peaceful interlude served as a loud and clear reminder to planners and policy makers that the audible does shape city life—and can, in turn, be shaped by policies that include thoughtful land use and design. Inger Andersen, executive director of the United Nations Environment Programme, highlighted the issue in the Financial Times earlier this year, writing that “city planners should take both the health and environmental risks of noise pollution into account.”
Of course, the underlying insight here is not new. Citizens have probably complained about various forms of city noise, from construction to concerts to rude neighbors, for as long as cities have existed. While a relatively quiet urban neighborhood might register an ambient level of about 50 decibels, higher levels can begin to interfere with conversation; a busy roadway can measure about 70 decibels (about equal to a vacuum cleaner), and a train crossing that road can push the decibel reading to 90 or higher.
Studies documenting the health effects of noise pollution, which range from sleep disturbances to cognitive issues to heart disease, date back at least to the 1970s. The World Health Organization, along with regulators in the United States, Europe, and elsewhere, has highlighted the issue for decades, often spurred by a panoply of noise activists.
“The good news is, there is much more interest today,” says Arline Bronzaft, a City University of New York professor emeritus who conducted some of the earliest studies documenting the impact of city noise on health and well-being. Trained as an environmental psychologist, Bronzaft continues to advocate for quieter built environments as a board member of the environmental nonprofit GrowNYC. Today, she says, there’s much more research, and an openness to policy experimentation. “Now that you’ve got the data,” she says, the question is becoming: “What are you doing about it?”
The answer is a work in progress, but we may be at a pivotal moment for thinking about what might be termed “built soundscapes.” The tools available to assess the challenge have radically improved. And that may help planners and policy makers devise and enable better design and policy strategies to cope with the problem.
Maybe the most prominent example involves the evolution of tools to measure sound, which have become more sophisticated and are being deployed in new ways. Recently, for example, authorities in Paris and other French cities have begun to experiment with “sound radar” devices meant to function like speed cameras: triggered by noise that exceeds code decibel limits, the sensors photograph the offending vehicle’s license plate and fine the owner.
The French sensors were developed by Bruitparif, a state-backed agency devoted to studying city acoustics in Paris and elsewhere. Similar technology is being tested in New York, Edmonton, and other cities. Most cities already have some sort of noise ordinances in place, but such rules are rarely enforced in a systematic or consistent way. The advanced new sensors could help remedy that.
Still, there’s an argument for going deeper in thinking about sound—using technology as a planning tool, not just a punitive one. Erica Walker, professor of epidemiology at the Brown University School of Public Health and founder of Brown’s Community Noise Lab, spent years creating the “2016 Greater Boston Noise Report,” mapping noise data she collected at some 400 locations around the city. The experience gave her a different perspective on soundscapes.
“I started as pro-quiet,” Walker says. In fact, she explains with a laugh, she was partly interested in finding out whether city noise codes might help her get some loud neighbors to pipe down. Creating her noise report brought Walker into contact with a cross section of situations, teaching her that “neighborhoods and sound are complex.” Because ordinances focus almost exclusively on sound as a nuisance, they’re often incomplete or counterproductive, she explains. Since some level of sound is inevitable in a city, Walker says, considerations of how the acoustic environment affects residents and their interactions with each other should be built into planning and development: “Now I’m anti-quiet—but for peace.”
Her Community Noise Lab project is focused on reworking the soundscape dialogue between citizens and policy makers; among other initiatives, that has included creating a free app called NoiseScore to make sound measurement an accessible, collaborative activity. City officials in Asheville, North Carolina, used the tool as part of their effort to incorporate more community feedback into revisions to the city’s noise code, which was updated in the summer of 2021. While that still boils down to crafting ordinances, it’s an example of technology broadening the discussion, rather than simply serving as an enforcement tool. “They didn’t start with: ‘We’re going to put these sensors up across the city and punish people if they are doing this or that,’” Walker says. “They wanted to understand all of the partners’ perspectives.”
Tor Oiamo, a professor in the Department of Geography and Environmental Studies at Toronto Metropolitan University who conducted a recent public health noise study in that city, notes that more sophisticated sensors, mapping, and modeling software are creating opportunities to plan with sound in mind. In the years ahead, he says, the tools at hand could include a kind of global noise database similar to those tracking air pollution. But there’s an obvious challenge: “The difficulty in mitigation with a city that’s already built is that the structure is in many ways locked in,” he says.
In some cases, cities have found ways to modify or add to existing infrastructure. Bronzaft’s groundbreaking research in the 1970s—she documented the negative impact of a New York subway traveling on an elevated line near a school—resulted in the installation of sound-muffling acoustic tiles in classrooms, and the use of rubber pads on tracks throughout the subway system to lessen train noise. Other train systems now use rubber tires, and the next wave of quiet mass-transit innovation includes maglev trains and electric buses.
Oiamo also points to successful efforts in Amsterdam and Copenhagen to revise traffic patterns, with the specific goal of reducing noise in residential zones. And he credits Toronto with a thoughtful approach to its current Port Lands development project: because it’s reminiscent of a master-planned neighborhood, it’s possible to factor the soundscape into the design process. In addition, many of the most measurably useful ways to mitigate urban noise overlap with thoughtful land use: more green space and trees, careful consideration of building density (strategic density can actually create pockets of quiet), and so on.
Land works have been used to mitigate urban noise for years, from the berms around the edges of New York’s Central Park to trees and sound barriers along highways. A more recent tech-forward iteration comes from German firm Naturawall, which has designed “plant walls”—galvanized steel frames with a relatively slim profile, filled with soil and sprouting a thick layer of foliage and flowers. The walls, currently in use in some German cities, are said to block sound levels roughly equivalent to typical city traffic. Other companies, including Michigan-based LiveWall, are undertaking similar projects around the world.
None of these strategies offers a silver bullet. But Oiamo, like Bronzaft and Walker, emphasizes that at this point, there is plenty of expertise to draw upon to improve our built soundscapes. Newer technologies are helping define the issues with greater nuance and offering fresh solutions. While sensors helping issue tickets for noise violations may not represent the kind of holistic approach Walker or Bronzaft have in mind, they’re a start. As the subject gets more attention and technological options proliferate, soundscape experts are sensing the potential for real, if incremental, progress. “There’s a million things to do,” says Oiamo. That’s the challenge—and the opportunity.
Rob Walker is a journalist covering design, technology, and other subjects. He is the author of The Art of Noticing. His newsletter is at robwalker.substack.com.
Image: Sensors in Paris and other cities monitor and report noise levels from passing traffic. Credit: Courtesy of Bruitparif.
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Researchers and policy makers have long sought to understand how infrastructure development can stimulate economic growth, reduce poverty, and promote regional integration. Two chapters of the Lincoln Institute book we edited, Infrastructure Economics and Policy: International Perspectives, seek to advance such an understanding in ways that can inform national or regional infrastructure plans. Three other chapters examine the effectiveness of alternative approaches to promoting economic growth through regional integration.
Infrastructure and Economic Growth
Chapter 2, written by former Lincoln Institute President Gregory K. Ingram and Zhi Liu, senior fellow and director of the China program at the Lincoln Institute, reviews empirical studies of the relationship between infrastructure and economic growth. They report that the estimated effects of infrastructure investment on economic growth vary significantly among countries and sectors, but are generally positive. These positive effects are larger in developing countries than developed countries, and larger in electricity and telecommunications than in transportation. Studies suggest that the performance or efficiency of infrastructure is a very important determinant of its economic impacts.
Ingram and Liu also review the empirical analyses of the short-run multiplier effects of infrastructure investment. These analyses find little to no short-term economic impact, even when the long-term economic impacts are clearly positive. The small multipliers are due in part to the substantial time required to undertake and complete construction and in part to the crowding out of private investment by government investment. While the increased public spending for infrastructure investment can help reduce unemployment by creating jobs for low-skilled workers, many of today’s construction workers are in fact highly skilled. These findings suggest that the chance for such spending to boost the economy is very limited, especially in the short run.
Infrastructure and Poverty Reduction
In chapter 4, authors Sameh Wahba, Somik Lall, and Hyunji Lee of the World Bank analyze the global evidence and literature on the relationship between infrastructure and poverty. They argue that the poor suffer most from a lack of access to infrastructure networks, since they must spend a disproportionately higher share of their income to secure basic services such as water or electricity from costly tankers, bottles, and batteries. While access is typically higher in urban areas than rural areas, many of the urban areas in developing countries are struggling to keep up with the infrastructure demands of rapid urbanization.
The global evidence and literature reviewed by the authors also shows that investments and policies that promote equality in access to physical infrastructure tend to reduce income and spatial inequalities. Moreover, the effectiveness of programs targeted on the infrastructure problems of the poor depends greatly on the details of their design. It helps if an improvement to physical infrastructure is coupled with complementary social policies, such as combining slum upgrading with reforms to dysfunctional land markets, pairing isolated rural electricity systems with the expansion of local educational or business opportunities, or matching basic sanitation facilities with public health or basic water programs. Similarly, when a new infrastructure facility or service is established, it is important to include a realistic plan for funding ongoing operations and maintenance.
Infrastructure and Regional Integration
In chapter 15, Professor Jose Manuel Vassallo of the Polytechnic University of Madrid examines the effectiveness of European Union infrastructure programs in fostering regional integration. In theory, EU members should have a strong interest in promoting integration, since many have relatively small populations and thus would benefit from the opportunities that integration offers to develop their competitive advantages or exploit economies of scale. Toward that end, in 1992 the EU members agreed to designate a trans-European network of priority transportation projects (TEN-T), which was subsequently divided into a “core” TEN-T network and a larger “comprehensive” TEN-T network. Similar trans-European networks for energy (TEN-E) and communications (eTEN) were also established.
However, the outcomes of the TEN-T plans are mixed. There is some evidence of increased integration, but progress is disappointingly slow, in part because the EU is essentially a federal system in which the targeted facilities are owned by member states, and their priorities for improvements are not always the same as those of the EU. The EU has had to motivate the states to improve TEN-T facilities by offering special matching grants and other financial support. The need for such financial support has effectively increased the cost of the TEN-T to the EU and made it less likely to complete the core network by the 2030 deadline.
Japan has been more successful in using infrastructure to promote regional integration. It is the first country to use high-speed passenger rail as a tool to shape regional development. Its rail services are widely admired for their scope, reliability, and safety. In chapter 16, Professor Fumitoshi Mizutani and Professor Miwa Matsuo, both of Kobe University, analyze the factors that have contributed to the railroads’ success. Japan is almost unique in the world in relying on railroad companies that are both privately owned and vertically integrated (meaning the railroad that owns the track also operates almost all the trains that run over it). Their success is also attributed to travelers seeking alternatives to congested airports and heavy volumes of automobile traffic concentrated in a few linear corridors, in addition to their excellence in service and development of innovative business models that exploit economies of scope and internalize externalities. The railroad companies, for example, are permitted to develop ancillary activities, like shopping malls in stations, that reduce their dependence on passenger revenues but also attract more passengers. Unlike the EU, the Japanese government builds and owns its high-speed lines and leases them to operators, with the lease fees based on the expected operating profits from each line. So far, the resources gained by innovation and vertical integration seem to have helped finance the cost of extending high-speed service to less dense corridors and more remote regions.
China is similar to Japan in its reliance on high-speed rail as an important tool for shaping national development. The two countries differ, however, in that 92 percent of Japan’s population lives in urban areas, compared to 65 percent in China. As urbanization continues, the Chinese government has adopted a strategy to promote the formation and development of 19 enormous city clusters or megalopolises, each comprising several major cities linked with high-speed rail. This strategy can be seen as an effort to create a variety of opportunities to absorb rural migrants and improve urban worker productivity by encouraging various forms of agglomeration economies. If the rail service is sufficiently fast and convenient to encourage commuting among the cluster’s cities, then it will increase the effective size of the labor pool and help workers match their skills with employers. If each major city in the cluster is large enough to support a high degree of specialization, say, in trade, high-tech manufacturing, tourism, or finance, then it can support specialized suppliers as well.
In chapter 17, Zheng Chang, a researcher with ETH Zurich, uses a case study of the Guangdong–Hong Kong–Macau Greater Bay Area (GBA) to demonstrate how high-speed rail contributes to city cluster formation by strengthening agglomeration economies. His empirical analysis of the GBA suggests that high-speed rail enhances agglomeration effects at the cluster level, but the gain in employment for the larger cities seems to come at the expense of the small ones. It is unclear, however, whether the agglomeration benefits of the city cluster strategy actually outweigh the costs in additional rail services. Gaining a more complete understanding of the effectiveness of the strategy will require further studies using a cost-benefit analysis framework.
Three Lessons from the Case Studies
The three case studies from the EU, Japan, and China demonstrate different approaches to and lessons about the use of infrastructure to promote regional integration. First, the EU case suggests that it is hard to achieve central infrastructure goals under a federal system of infrastructure provision, because the priorities of the member states are often different from those of the central government. Second, although Japan is unusual in its reliance on private and vertically integrated railroads, its experience demonstrates that regional plans can be implemented successfully by private providers overseen by the central government. Japanese private passenger railroads were the source of critical innovations that helped keep down the cost of providing an extensive and expanding rail system. Third, agglomeration economies can be harnessed by using infrastructure investments to promote the formation of city clusters, as in the case of China. But this bold strategy can be risky due to the heavy investments needed. The risks can be reduced if the strategy is subject to a rigorous cost-benefit analysis.
José A. Gómez-Ibáñez is the Derek C. Bok Professor Emeritus of Urban Planning and Public Policy at Harvard University. Zhi Liu is senior fellow and director of China Program at the Lincoln Institute of Land Policy. They are the editors of Infrastructure Economics and Policy: International Perspectives.
Image: Shinkansen high-speed rail line, Japan. Credit: gérard via Flickr.
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The Lincoln Institute’s 2022 Journalists Forum brought together 30 reporters and editors on the climate beat for two days of conversation about the role of land in the climate crisis, highlighting the need for new ideas, innovations, and policies to help head off the worst impacts of global warming.
Land and land policy thread through just about every aspect of the crisis, whether deforestation, land conservation for carbon sequestration, the interplay of land, water, and agriculture, or the fact that usable land is disappearing, raising the important question of where millions of displaced people will go, now and in the future.
Meanwhile, powerful private market actors are at work, in many cases swooping in and buying land that will be prime and prized as flooding, wildfire, mudslides, and sea-level rise make other locations unlivable—a classic case of real estate speculation.
“We need to elevate . . . the understanding of the important role that land plays and will play in our ability to address this existential crisis. And if we get it wrong, we’’re going to leave a planet that’s very, very different for whomever is left to exist on it,” said George W. McCarthy, president of the Lincoln Institute, in this collection of highlights from the forum for the Land Matters podcast.
“And the big question is, are we prepared to? And can we navigate between the really, really powerful claims, private claims over dominion over land in exchange for the collective needs to use land differently to get to better global outcomes?” McCarthy asked. “Everything hangs in the balance.”
The journalists considered the intense competition for land, with the siting of solar and wind facilities, transmission pipelines, and other needs in the transition to net-zero emissions; emerging strategies in agriculture and the management of dwindling water resources; and current practices in land conservation, which make it possible for natural areas to continue to soak up carbon.
They also heard about how land can be used to pay for climate action, through land value capture—the harnessing of a portion of increases in private land values triggered by government investments in infrastructure—and the need for more coherent climate migration policies that take into account the vulnerable populations being forced to move from their homes.
The Journalists Forum also featured some practical tools to help cover the story of the century, led by Jeff Allenby of the Center for Geospatial Solutions and Peter Colohan from the Internet of Water initiative, both new Lincoln Institute programs. Advances in technology have enabled a real-time monitoring of land use changes and water flows, which serves as a critical foundation for planners and policymakers — and journalists for telling the story of this turbulent time.
The convening also included a discussion of the business of climate journalism itself, led by Nancy Gibbs, director of the Shorenstein Center on Media, Politics and Public Policy at Harvard’s Kennedy School; Andrew McCormick from the collaborative Covering Climate Now, Amrita Gupta from the Earth Journalism Network, and Trish Wilson, who established the first climate team dedicated to coverage of global warming at the Washington Post.
You can listen to the show and subscribe to Land Matters on Apple Podcasts, Google Podcasts, Spotify, Stitcher, or wherever you listen to podcasts.
Further Reading
How to Fend Off Land Speculation (Land Lines)
Demands on the Land: To Secure a Livable Future, We Must Steward Land Wisely (Land Lines)
Return on Investment: Research Links Climate Action with Land and Property Value Increases (Land Lines)
Uprooted: As the Climate Crisis Forces U.S. Residents to Relocate, a New Conversation Emerges (Land Lines)
The Colorado River is in crisis, and it’s getting worse every day (The Washington Post)
How Can We Change Land Use at a Time of Climate Crisis and Competition? (RedAcción)
Deforestation Remains High, Despite International Pledges (New York Times)
Locals Worry Wind and Solar Will Gobble Up Forests and Farms (Stateline)
Anthony Flint is a senior fellow at the Lincoln Institute of Land Policy, host of the Land Matters podcast, and a contributing editor of Land Lines.
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Given the high cost of infrastructure investments, picking the right projects is important. Three chapters in the Lincoln Institute book Infrastructure Economics and Policy: International Perspectives describe how cost-benefit analysis has come to be almost universally applied by governments and international financial institutions for evaluating infrastructure projects, despite some notable limitations—and how investment decisions are affected by biases and politics.
The Development of Cost-Benefit Analysis
Don Pickrell, chief economist at the U.S. Department of Transportation’s Volpe National Transportation Systems Center, describes the evolution and methodological challenges of cost-benefit analysis in a chapter on economic evaluation. As he explains, a mid-nineteenth-century French engineer, Jules Dupuit, is widely credited as the originator of cost-benefit analysis. Dupuit’s main concern was to determine whether the investment in a new infrastructure facility, such as a bridge, was worthwhile; he proposed that the test should be whether the benefits to the bridge’s direct users—for example, savings in time, labor, fuel, and other areas—exceeded the cost of building and maintaining the bridge.
This focus on direct user benefits has long been criticized by some for ignoring the wider economic impacts of infrastructure. Proponents of the wider impact approach argue that the time savings and other benefits to direct users may be passed on to downstream firms, allowing them to implement further productivity improvements. They argue that ignoring these impacts will understate the benefits of the project to society as a whole. Pickrell explains that over the years, researchers have attempted to measure these wider economic impacts by building models of the entire economy that include estimates of the effects of changes in the productivity of infrastructure on the productivity of other sectors
This approach—building models to estimate both the direct and wider economic impacts of a project—did not prove popular with researchers or governments until the last decade, when several researchers returned to the topic. Pickrell speculates that the use of these economy-wide models was discouraged in part by the need to estimate, or assume, so many parameters. The models are also less suitable for choosing from a number of individual infrastructure projects—the task officials were typically charged with—than for evaluating economy-wide reforms.
Skeptics of the approach also argued that the wider economic impacts identified were often not new and additional impacts, but rather transfers of impacts from the direct users to other parties. The opening of a new bridge, for example, usually stimulates an uptick in property values and the construction of new housing or other developments nearby. Land values and housing increase primarily because the bridge makes travel faster; to count the property value or new housing as benefits along with the travel time savings to the direct users would be to count the same benefit twice.
In practice, a consensus has emerged that wider economic impacts can be included without double-counting if they involve the correction of inefficiencies in the affected downstream markets. Examples include environmental costs and benefits imposed on third parties, the general improvements in productivity caused by the growth of urban agglomerations, or reductions in prices caused by an increase in competition from the breakup of a monopoly.
The development of cost-benefit analysis into a tool used almost universally by governments and international financial institutions to evaluate major public infrastructure projects is remarkable. The practice has been encouraged in large part, Pickrell explains, because it has become increasingly sophisticated over the last century.
Despite the value of cost-benefit analysis, the relatively few studies of its influence on the actual choices of government produced discouraging results: the highest-ranked projects are rarely selected, the research shows. Defenders of cost-benefit analysis argue, however, that the real advantage of this approach is unlikely to be the selection of the best project over the second-best alternative, but rather the elimination of some of the worst from consideration.
Optimism Bias
Cost-benefit analysis is not perfect. A careful analysis in chapter 7 by Professor Bent Flyvbjerg of Oxford University and statistician Dirk Bester reveals overwhelming statistical evidence that costs tend to be strongly underestimated, while benefits are strongly overestimated. Their amazing dataset includes 2,062 infrastructure projects representing six investment types in 104 developed and developing countries, which were put in service between 1927 and 2011.
Forecasting errors are often blamed on proximate changes in project design or environment, such as unforeseen increases in scope or complexity, higher than expected inflation, lower than expected competition, and various similar factors. But Flyvbjerg and Bester argue that the root causes of the errors are well-known behavioral limitations, especially optimism bias and overconfidence bias. This observation suggests that improving forecasting will be difficult because the problems are so deeply ingrained in human nature. Flyvbjerg and Bester make specific recommendations for reforming cost-benefit analysis, such as debiasing and giving consultants a financial stake in the accuracy of their forecasts.
Politics of Excess or Shortfall
In chapter 8, John Donahue of Harvard’s Kennedy School describes the political forces that lead to excesses or shortfalls of public spending for infrastructure. Donahue explores the school of public choice economics, whose theoreticians assume that individuals rationally pursue their self-interest in a democratic society governed by voting rules of various kinds.
Not surprisingly, the answer to the question of whether this pursuit will result in excess or shortfall depends on one’s assumptions about how well informed the voters are as well as the voting rules. For example, one famous public choice scholar, Anthony Downs, argues that spending will be less than optimal mostly because voters tend to underestimate benefits more than they underestimate costs. Another scholar, Mancur Olson, argues that spending on public goods is driven by coalitions, which are often most effective when they are small, or when they can devise perks—e.g., roadside assistance from the American Automobile Association—for those who join them. Finally, Gordon Tullock demonstrates how majority voting to determine whether to fund similar projects would lead to overspending, because the proponents of each project have incentives to exchange support with the proponents of the other projects (a practice known as log rolling).
All three chapters inform the reader about the strengths and weakness of cost-benefit analysis, the existence of optimism biases driven by human nature, and how public choices influence the level of public spending for infrastructure. Knowing more about these factors can help improve decision making for public infrastructure investments.
José A. Gómez-Ibáñez is the Derek C. Bok Professor Emeritus of Urban Planning and Public Policy at Harvard University. Zhi Liu is senior fellow and director of China Program at the Lincoln Institute of Land Policy. They are the editors of Infrastructure Economics and Policy: International Perspectives.
Image: Construction of a bridge in downtown Miami. Credit: CHUYN via istock/Getty Images Plus.
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Decisions about infrastructure investments often have strong and long-lasting implications for the built environment, and vice versa. Should governments subsidize highway construction or public transit? Is it better to invest in the durability of rail lines or the flexibility of bus lines? How will these and other decisions about infrastructure affect residents and workers? The relationship between infrastructure policies and the physical form and productivity of cities is the subject of two chapters in Infrastructure Economics and Policy: International Perspectives, a recently published Lincoln Institute book.
In chapter 4, economist Edward Glaeser of Harvard University focuses on how infrastructure technology shapes the economic role and physical form of cities. Glaeser observes that the density and form of a city reflect the transportation technology prevailing at the time when the city was growing most rapidly. Boston is denser than Las Vegas, for example, largely because it grew in the era of the streetcar rather than that of the automobile. The full effects of technological change develop in three steps, however, and that development can take many decades. The first step is the invention and refinement of new mobility types, such as the wheeled wagon, the horse-drawn (and then electric) streetcar, the subway, the automobile, and even the elevator. The second step is the construction of the urban network over which those vehicles operate, while the third is the building of the cities around that network.
Glaeser takes as his example the automobile, which was invented in the late 19th century but neither comfortable, reliable, nor affordable until the first decades of the 20th century, when its popularity exploded. The United States responded by building extensive high-performance, limited-access expressway systems in many cities. Those systems, in turn, stimulated the restructuring of urban areas in the United States in the second half of the 20th century, moving housing and workplaces from the central cities to the suburbs and enabling a migration from northern cities to the newer Sunbelt cities.
Our ability to shape cities around their important highway, subway, and other transportation networks is limited, however, by the value and durability of the existing stock of houses and workplaces. For example, a big increase in the travel time or other costs of commuting to the center of a metropolitan area would be needed to make it worthwhile for real estate developers to tear down the existing suburban housing stock and rebuild it to a higher density commensurate with the higher commuting time and costs. Land use regulations can also help slow the land use response to transportation technology, especially where they favor the status quo.
Glaeser also illustrates several common policy choices about infrastructure and urban form. The first is whether the government should subsidize highway construction or public transit. Subsidizing highway construction and uses often encourages urban sprawl. Subsidizing public transit may induce people to live near—and real estate developers to build homes near—public transit stops, but evidence shows that the impact is much smaller in scale than that of subsidizing highways. In addition, in the United States, strict local land use controls often constrain the ability of housing developers to respond to infrastructure investments, thus limiting the benefits of such investments.
A second policy choice is between rail and buses to provide urban public transit service. The choice is basically between durability and flexibility. The flexibility of bus services is an advantage in an uncertain world, but the durability of rail infrastructure makes real estate developers feel more confident about developing around rail stations. Public transport is now facing a major challenge: it is an important part of any carbon emissions reduction strategy, but ridership has fallen since the onset of the pandemic.
In chapter 5, Daniel Graham, Daniel Hörcher, and Roger Vickerman, all professors and researchers at Imperial College in London, explore the relationship between infrastructure and the competitiveness of cities. Urban concentration provides more employment opportunities to workers and helps raise productivity for firms. These agglomeration benefits are accompanied by congestion and pollution which are also caused by urban concentration. However, it is methodologically difficult to measure the agglomeration benefits.
To do so and for analytical simplicity, the authors assume a city where residential and workplace locations are fixed, and infrastructure affects only the productivity of city workers and the levels of congestion and pollution. Their main propositions are that urban agglomerations generate both positive and negative externalities and that the failure to consider them together may lead to poor investment and pricing decisions. The positive externalities stem primarily from increases in worker productivity as the agglomeration grows, but also from the realization of economies of scale in provision of public transit services; the negative externalities stem from increases in traffic congestion, pollution, and accidents.
The authors describe the considerable challenges of empirically estimating the agglomeration benefits. They report their own estimates of the effects of agglomeration size on productivity, which have been endorsed by the U.K. government for use in required cost-benefit analyses. It is conceivable, but unlikely, that the agglomeration benefits and public transit scale economies are large enough and the congestion externalities small enough to greatly reduce the net benefit of the conventional recommendation of charging motorists a fee to travel into congested locations during rush hour. These are the kinds of factors cities must consider as they make decisions about infrastructure investment and pricing and subsidies.
José A. Gómez-Ibáñez is the Derek C. Bok Professor Emeritus of Urban Planning and Public Policy at Harvard University. Zhi Liu is senior fellow and director of China Program at the Lincoln Institute of Land Policy. They are the editors of Infrastructure Economics and Policy: International Perspectives.
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This interview, which has been edited for length, is also available as a Land Matters podcast.
A native Vermonter who was first elected in 2012, Miro Weinberger is serving his fourth term as the mayor of Burlington, Vermont. He attended Yale and Harvard’s Kennedy School of Government, and worked for Habitat for Humanity before founding his own affordable housing development company. He’s also a part-time athlete, playing catcher in an amateur over-35 baseball league.
Vermont has long been a progressive kind of place with a population dedicated to environmental measures, whether solar and wind power, electric vehicles, or sustainable farming practices. Burlington, its change-agent capital—the place that gave rise to Bernie Sanders, who served as mayor from 1981 to 1989—became the first city in the country to source 100 percent of its energy from renewables in 2014, a goal set in 2004. Now Weinberger and other leaders are building on that foundation, committing to shifting the city’s energy, transportation, and building sectors away from fossil fuels entirely.
ANTHONY FLINT: Tell us about this ambitious goal of becoming a net-zero energy city by 2030. What is that going to look like, and what are the steps to make that happen?
MIRO WEINBERGER: As a result of decades of commitment to more efficient buildings and weatherization, Burlington uses less electricity as a community in 2022 than we did in 1989, despite the proliferation of new electrical devices and whatnot . . . that sounds exceptional, and it is. If the rest of the country had followed that trajectory, we’d have something like 200 less coal-burning plants today than we do.
When we became a 100 percent renewable electricity city in 2014, there was enormous interest in how Burlington had gotten here. After talking to film crews from South Korea and France and answering question after question about how we did this, I came to think we had achieved it for two big reasons. One, there was political will. Second, we had a city-owned electric department that had a lot of technical expertise and that was able to make this transformation to renewables affordable.
The way we are defining net zero is to essentially not use fossil fuels in—or have a net-zero fossil-fuel use in—three sectors. For the electricity sector, we’re already there. That gets [us] about 25 percent toward the total goal. The [others are the] ground transportation sector and the thermal sector—how we heat and cool our buildings.
The big strategies are electrifying everything, electrifying all the cars and trucks that are based here in Burlington. Moving the heating and cooling of our buildings to various electric technologies, the most common one probably being cold-climate heat pumps. Then, rounding out the strategies, we are looking to implement a district energy system that would capture waste heat [from the city’s biomass facility] and use it to heat some of our major institutional buildings. Then we also are making changes to our transportation network to make active transportation account for more of our vehicle trips and bring down fossil-fuel use that way as well. Those are the major roadmap strategies.
AF: Is there one component of this that you have found particularly tough in terms of trying to go citywide?
MW: In general, I’ve been really pleased with our progress. We actually found in our first update in 2021, we were on target to meet this incredibly ambitious goal of essentially phasing out fossil fuels by 2030. Part of that, admittedly, was that, as we all know, 2020 was a pretty exceptional year and we did see transportation-related emissions drop as a result of the pandemic. We just got a new measurement and we did see some rebounding, so that we are not quite on track through two years the way we were [after] one. The rebound that happened here in Burlington was about a quarter of the nationwide rebound in emissions. Basically, we had a 1.5 percent increase in emissions after the pandemic, whereas the rest of the country grew by 6 percent. We’ve seen a rapid increase in the adoption of heat pumps and electric vehicles over the last couple of years since we came forward with what we call green stimulus incentives very early in the pandemic.
That said, I often have this sensation that we are fighting this battle with one hand tied behind our back, because it is not a level playing field for new electrification and renewable technologies. The costs of burning fossil fuels are not properly reflected in the economics right now. We need a price on carbon in some form. The fact that we don’t have that holds us back. When we get that—and I do think it’s just inevitable that eventually we will get this policy right, like a growing number of jurisdictions around the world—I think we’re going to have a wind at the back of all these initiatives. It will help with everything we’re trying to do.
AF: Now, I want to make sure I understand. Do you want everyone in the city of Burlington to operate an electric vehicle by 2030? Is it that kind of scaling up and adoption?
MW: Basically, yes. That is what it would really take to fully achieve the goal, that or some offset investments to help us get there, but we are very serious about doing everything we can to bring about as quickly as possible this transformation.
A year ago, we passed a zoning ordinance that [says] new construction in Burlington cannot burn fossil fuels as the primary heating source. We didn’t prohibit fossil fuels—we thought that was too onerous, and the technology’s just not there to go that far. Regulating the primary heating source can bring down the impact of a new building by as much as 85 percent. In recent weeks, the state signed off on a change to our charter that gives us the ability to go beyond that and put new regulations in place for all buildings in Burlington. By next town meeting day, next March, we plan to have in front of the voters a new ordinance that would start to put requirements in place for the transformation of mechanical systems for major new and existing buildings when they get to the end of their useful life. When water heaters break, for example, we are both going to have this strategy through our utility, offering very generous incentives, and have actual regulatory standards in place that require transformation.
AF: I want to ask about the utilities. You mentioned Burlington Electric and then, of course, you have Green Mountain Power. How important is that piece, given that utility companies elsewhere seem to be wary of renewables and may even end up hindering that transition?
MW: I’ve got to say, a decade in office grappling with these issues has made me a big believer in publicly owned power. All of the work that I described over the last 30-plus years, the city-owned electric department has been a big part of that. Municipalities, towns, mayors that don’t have their own electric utility, I think it’s harder. I do think there are things that any local community can do to collaborate with and, when necessary, bring public pressure to bear on utilities, which tend to have to answer to some public regulatory authority. I think that there are ways to push other utilities to do what Burlington Electric is doing. I think it’s an exciting story in Vermont that the other utility that has really been quite innovative, Green Mountain Power, is an investor-owned utility.
If we get anywhere near this net-zero goal, it’s going to mean we’re selling a whole lot more electricity than we are now. We estimate at least 60 percent more electricity than today. Every time someone buys an electric vehicle and charges it up in Burlington now, and they do it at night, we’re able to sell them off-peak power in a way that just brings more dollars into the utility. It’s very good, the economics. That’s why we’re able to offer these very generous incentives—every time we bring another electric vehicle or heat pump online, that’s a new revenue stream to the city. These incentives in many ways largely pay for themselves with that new revenue. To me, it seems like good business sense as well to move in this direction.
AF: Vermont has become a very popular destination for mostly affluent climate refugees [who are] buying up land and building houses. What are the pros and cons of this?
MW: You’re right, we are seeing climate refugees here. We also had pandemic refugees. We’ve seen big new pressures on our housing markets, and that’s the downside. We’ve long had an acute housing crisis, [but] it’s worse than it’s ever been now. The silver lining of that may be it may finally force Vermont to get serious about putting in place land use rules at the local and state level that make it possible to build more housing.
We desperately need more housing. We’ve got to get better about that, and I think there’ll be environmental benefits if we do. To me, more people living in a green city like Burlington is a good trade-off for the environment.
AF: Are there other strategies that you have in mind for keeping or making green Burlington affordable? Burlington has a successful community land trust, you encourage accessory dwelling units, you have inclusionary zoning . . . what’s next?
MW: We have a lot of work to do on our zoning ordinance and our statewide land use reform. Many projects in Vermont now—good projects, good green, energy-efficient projects in settled areas—have to go through both local and statewide land use permitting processes, an almost entirely redundant process that slows things down, adds a lot of costs, and creates all sorts of opportunity for obstruction. We have a lot of work to do and we’re focused on it. There are three major upzoning efforts that we’re pursuing right now and there’s a big conversation about Act 250 [Vermont’s land use and development law] reform happening in the state as well.
AF: Finally, what advice do you have for other city leaders to take similar climate action, especially in places that aren’t primed for it quite as well as Burlington is?
MW: Whenever I talk to other mayors about this, I try to make the point that this is an area where political leadership [and community will] can have a huge impact. When I came into office, we had almost no deployed solar here in Burlington. We made it a priority. We changed some rules about permitting. We made it easier for consumers to have solar installed on their homes. The utility played a role, and over a very small number of years, we became one of the cities in the country that had the most solar per capita. We’re number five in the country. The only city in the top 20 on the East Coast at one point, and it’s not an accident. This is making a decision to lead in this area and to make change. You can have a big impact.
At a time when clearly the climate emergency is an existential threat, at a time when clearly the federal government is paralyzed in its ability to drive change, and when many state governments are similarly gridlocked, mayors and cities can really demonstrate on the ground progress. I think when we do that, we show everybody else what’s possible.
Anthony Flint is a senior fellow at the Lincoln Institute, host of the Land Matters podcast, and a contributing editor to Land Lines.
Image: Burlington, Vermont. Credit: Denis Tangney Jr. via iStock/Getty Images.
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Learn more about the climate–land value connection at our Land-Based Climate Finance page.
In the Chinese city of Zhengzhou, a manufacturing center located roughly halfway between Beijing and Shanghai, eye-stinging smog routinely put the metropolis on lists of the most polluted cities in the world. About 10 years ago, local leaders joined a comprehensive national clean air action plan, initiated by multiple central government departments and designed to reduce emissions from industry, energy production, land use, and other consumptive activities.
A few years later, the results were literally clear—nothing dramatic, but more blue skies, and enough of a difference to influence social behavior such as people’s willingness to travel and be outside. And a team of researchers discovered something else: the air-quality improvements correlated with across-the-board increases in property values.
Using a spatio-temporal model that clearly quantified the association between cleaner air and land values, the researchers determined that improving air quality by 10 percent led to citywide increases in property values of 5.6 percent, said Erwin van der Krabben, professor at Radboud University in the Netherlands. Over time, that could translate to a potential uplift of $63 billion, Van der Krabben said.
“We can predict, if you further improve air quality, how much value you will get, and so on,” said Van der Krabben, who is documenting the ramifications of climate action globally. He recently coauthored a Lincoln Institute working paper on air quality and land values in China with Alexander Lord of the University of Liverpool’s School of Environmental Science and Guanpeng Dong, professor of quantitative human geography at Henan University (Lord, Van der Krabben, and Dong 2022).
The idea that environmental action leads to higher land and property values may seem obvious to some, but for the most part, it has not been well demonstrated. The kind of analysis done in Zhengzhou is important because it directly links environmental improvements to increasing value. Demonstrating that link is crucial in making the case for a financial tool that could be essential for addressing the climate crisis: land value capture.
Once a little-known financial instrument, value capture is used around the world to help fund transit, affordable housing, open space, and other public infrastructure. The approach calls for developers and landowners to contribute a portion of the increases in property value, or land value increment, that are prompted by public investment and government actions. Municipalities use the resulting revenue for infrastructure or other projects that benefit the public (Germán and Bernstein 2020).
As the world prepares to spend trillions of dollars in a massive effort to transition from fossil fuels, reduce emissions, and build resilience, value capture could help close the global climate finance gap, particularly at the local level. Establishing that what’s good for the planet is good for the economy, Van der Krabben said, gets to the heart of the fiscal argument to use value capture. In China, where land is state owned and leased to developers, land value increases get built into the price developers pay. “So if Chinese cities act in a rational way, if they invest that additional income from land leases, if they continue investing that in cleaner air, then you have this kind of virtuous cycle,” he said.
Accordingly, increasingly sophisticated valuation and assessment methodologies are being deployed to describe the impact of government action on land and property values—and not just detailing how a new transit station or a flood-resilient park creates uplift in a local neighborhood, but how broader policies, like clean air requirements or the promotion of walking, biking, and transit, can have a positive economic impact across a wider catchment.
The “virtuous cycle” analysis may make not only a powerful economic argument for a shared responsibility in financing climate action, but a moral one, too. In many places, private developers and landowners generally walk away with the windfalls created by public investments.
“There’s a well-documented lack of funding for the action that’s needed to address the climate crisis,” said Amy Cotter, director of Climate Strategies at the Lincoln Institute. “Precious little of it operates like land value capture: created by the very action it enables, within local control.” Land value capture “won’t solve climate finance, but we see its significant potential to fill an important gap,” Cotter said.
ONE COMPELLING FEATURE of the Zhengzhou air pollution case study is that the benefits were spread across an entire city. But a wide range of projects and policies that can contribute to climate resilience are manifesting themselves economically in urban contexts, whether at the scale of one city block or an entire neighborhood:
The same appears to be true for individual homebuyers. They’ve always taken into account property characteristics and consumer preferences such as the number and composition of rooms or the quality of the local public schools. Now they want to know about—and might be willing to pay more for—features that make the home more resilient to climate change, according to Katherine Kiel, an economics professor at College of the Holy Cross in Massachusetts and author of a Lincoln Institute working paper on adaptation and property values (Kiel 2021).
WHILE THE CONNECTION between environmental interventions and an uplift in values is positive news for property owners and developers, it has a complicated relationship with gentrification and displacement. One prominent recent example of green improvements affecting local economics is the daylighting of the Saw Mill River in Yonkers, New York, which transformed a downtrodden business area so dramatically that housing prices shot up all around the adjacent area, said Cate Mingoya, national director of Climate Resilience and Land Use at Groundwork USA. It was “the perception of a cleaner, greener space” that led to the increases, Mingoya said.
“There’s nothing about the installation of trees or the daylighting of a river that forces landlords to raise rents so sharply. There’s nothing that says that landholders must be entitled to maximize profit from a system that is highly, and unfairly, regulated to their advantage,” she said. But property owners can and do cash in on these kinds of public investments, said Mingoya, who facilitates cross-sector partnerships to implement climate adaptation measures in vulnerable communities.
Some communities seeking to temper green gentrification deploy measures that are “just green enough . . . where a limited number of improvements are made to low-income neighborhoods in an attempt to ward off displacement.” These efforts sometimes border on the absurd, Mingoya said: “Should they get 30 trees or 10 trees?” But they clearly demonstrate the growing awareness that green interventions and rising values are linked. (Strategically designed land value capture policies can help mitigate cases where environmental interventions are associated with gentrification and displacement, with provisions to increase affordable housing, for example.)
Viewed from another perspective, bad environmental conditions that are unaddressed or only partially addressed have a negative economic effect. One recent report by researchers at several universities in Utah estimates that polluted air shortens life expectancy by two years and costs the state nearly $2 billion a year. Some local and state governments are keeping a running tally of the damage caused by climate change, according to the Pew Charitable Trusts, in preparation for litigation against fossil fuel companies.
The absence of climate action—in cases when municipalities can’t or won’t implement resilience infrastructure and other measures to halt flooding, sea-level rise, mudslides, and the like—drives down values precipitously. A study of land subsidence in Java, Indonesia, where homes have sunk into unstable soil, found that the local practice of rebuilding on sinkhole sites—sometimes two or three times, done in the hopes of salvaging economic viability—did nothing to halt the decline in property values. The only solution for plummeting values, says the study, which was also led by Van der Krabben, would be a massive overhaul of water and soil management—or to give up on the land entirely. Indonesia is moving ahead with the wholesale relocation of its capital city, Jakarta, largely for this reason.
In Miami, a big part of the argument for private sector contributions to resilience infrastructure is that without speedy action, more real estate is virtually guaranteed to be underwater. Seen in this way, protective measures do more than enhance land and property values; they stop values from being less than zero, by keeping land from becoming uninhabitable.
EVEN AS EVIDENCE OF THE LINK between environmental action and economic uplift grows, many barriers must be overcome to make land value capture work. National urban development laws need to be reformed to authorize more local governments to mobilize land value increments and permit own-source revenue. Around the world, a pressing need remains to improve institutional capacity, good governance, land controls, and tenure systems.
Governments will also need to keep in mind that land-based finance is just one way to fund climate and environmental initiatives, more suitable for closing gaps than for serving as the sole or primary source of revenue for a carbon-neutral world.
Policy makers may also have to guard against overreach. The benefits of a new transit station on adjacent properties are “plain as day,” said Van der Krabben, so developers are more eager to contribute to such infrastructure. The ultimate payoff of an environmentally progressive citywide or regional policy—say, bans on fossil fuel heating and cooling systems in new construction, such as the natural gas bans enacted in major U.S. cities including Seattle, San Francisco, and New York—may be a tougher sell.
“What you really want is for developers to contribute to regional investments, but that’s more difficult to negotiate. The benefits are more indirect,” Van der Krabben said.
All the more reason, scholars say, to revisit the valuation and assessment practices that establish land and property value increases in the first place. More sophisticated valuation methods have improved assessment accuracy, said Lincoln Institute Senior Fellow Joan Youngman, citing the International Association of Assessing Officers (IAAO)’s technical standard on mass appraisal of real property designed to improve the fairness, quality, equity, and accuracy of valuation. Mass appraisal is defined in that standard as “the process of valuing a group of properties as of a given date and using common data, standardized methods, and statistical testing.”
The assessment process may soon be aided by some technological wizardry. The International Property Tax Institute and IAAO both issued recent white papers on the potential use of Artificial Intelligence (AI) in property assessment. While AI poses some challenges and uncertainty, the hope is that it could produce more accurate values than those obtained by traditional approaches.
When it comes to identifying the effects of public action and investment on land value, modern tools, data analytics, and statistical techniques will help identify and measure value increments, Youngman said.
Armed with good practices, a theoretical rationale, and a growing list of cities around the world that have put value capture to use, those addressing the climate crisis hope the connection is becoming clearer between the massive public investments necessary to salvage the planet’s future and the economic bounty they provide—and, ultimately, the ways that bounty can be reinvested for the public good (Bisaro and Hinkel 2018, Dunning and Lord 2020, Van der Krabben, Samsura, and Wang 2019).
Golden, the outgoing Boston planner, said he has sensed a “cultural shift” among landowners and developers, who recognize that public investments in resilience infrastructure plainly protect private real estate assets, making them more likely to help foot the bill. Requiring developers to help finance the berms, seawalls, and natural systems restoration that will guard against an estimated 40-inch sea-level rise along the city’s 47-mile coastline is seen as a matter of self-interest, Golden said—not only for individual development sites, but also for the continued prosperity of Boston as a regional economic engine. The private sector has exerted virtually no pushback on initiatives like the resiliency fund. “We have a lot of work to do,” Golden said. “They get it.”
Anthony Flint is a senior fellow at the Lincoln Institute, host of the Land Matters podcast, and a contributing editor to Land Lines.
Lead image: Zhengzhou, Henan Province, China. Credit: Zhang mengyang via iStock/Getty Images.
REFERENCES
Bisaro, Alexander, and Jochen Hinkel. 2018. “Mobilizing Private Finance for Coastal Adaptation: A Literature Review.” WIREs 9(3).
CNT and SB Friedman Development Advisors. 2020. “Green Stormwater Infrastructure Impact on Property Values.” November. Chicago, IL: Center for Neighborhood Technology.
Dunning, Richard J., and Alex Lord. 2020. “Viewpoint: Preparing for the Climate Crisis: What Role Should Land Value Capture Play?” Land Use Policy Volume 99. December.
Germán, Lourdes, and Allison Ehrich Bernstein. “Land Value Return: Tools to Finance Our Urban Future.” Policy brief. Cambridge, MA: Lincoln Institute of Land Policy (January).
Kiel, Katherine A. 2021. “Climate Change Adaptation and Property Values: A Survey of the Literature.” Working paper. Cambridge, MA: Lincoln Institute of Land Policy (August).
Kozak, Daniel, and Hayley Henderson, Demián Rotbart, Alejandro de Castro Mazarro, and Rodolfo Aradas. 2022. “Implementación de Infraestructura Azul y Verde (IAV) a través de mecanismos de captación de plusvalía en la Región Metropolitana de Buenos Aires: El caso de la Cuenca del Arroyo Medrano.” Working paper. Cambridge, MA: Lincoln Institute of Land Policy (February). [English version available.]
Krabben, van der, Erwin, Samsura, Ary, and Wang, Jinshuo. 2019. “Financing Transit Oriented Development by Value Capture: Negotiating Better Public Infrastructure.” Working paper. Cambridge, MA: Lincoln Institute of Land Policy (June).
Lord, Alexander, Erwin van der Krabben, and Guanpeng Dong. 2022. “Building the Breathable City: What Role Should Land Value Capture Play in China’s Ambitions to Prepare for Climate Change?” Working paper. Cambridge, MA: Lincoln Institute of Land Policy (June).
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Food systems have always been defined by uncertainty, from unpredictable weather to shifting consumer proclivities. But escalating threats such as climate change, resource depletion, and economic crises are presenting a bounty of new challenges to the global landscapes and systems that grow and provide our food. Over the coming year, six research projects commissioned by the Lincoln Institute will apply scenario planning to anticipate these forces and plan for their effects on various communities around the world, from Wisconsin to the West Bank.
The research projects were identified through a recent request for proposals issued by the Consortium for Scenario Planning, a program of the Lincoln Institute. The RFP invited proposals for research focused on several types of places: regions where external forces (such as climate change, the COVID-19 pandemic, or economic uncertainties) threaten the viability of agriculture; areas that support vital commercial agriculture; areas with a healthy or limited local food supply; communities that wish to encourage the growth of family or small-scale farming; or urban and rural areas that struggle with food accessibility.
“As climate change and economic instability have greater impacts on communities, food systems planning can be a key part of a community’s resilience,” said Heather Hannon, associate director of planning practice and scenario planning at the Lincoln Institute. “Planning for food systems in particular touches on many of the Lincoln Institute’s core initiatives, such as establishing resilient communities, addressing spatial inequality, sustainably managing land and water, and promoting fiscally healthy communities.”
“We are always looking for ways to stretch our scenario planning practice into new areas,” said Ryan Handy, policy analyst at the Lincoln Institute. “We hope this latest RFP cycle on food systems planning will introduce new models that other communities can use to address similar issues.”
The following research projects were selected by the Lincoln Institute:
All projects will be completed by June 2023. The Lincoln Institute issues an annual RFP for scenario planning projects; learn more about the projects selected in 2021, which focused on using scenario planning to advance climate strategies in communities, and those selected in 2020, which focused on equity and low-growth scenarios.
To learn more about all Lincoln Institute RFPs, fellowships, and research opportunities, visit the research and data section of our website.
Image: A farmer working in an olive grove in Aboud, a Palestinian village in the West Bank. Credit: Joel Carillet via E+/Getty Images.
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Across every region of the world, countries of all sizes have demonstrated that land value capture is an effective tool for financing infrastructure, affordable housing, and other public goods using the land value generated by the public sector’s own actions, according to a new publication from the Organisation for Economic Co-operation and Development (OECD) and the Lincoln Institute of Land Policy.
The Global Compendium of Land Value Capture Policies is the most comprehensive profile of land value capture published to date. The publication identifies five major land value capture instruments and shows how they have been implemented in all 38 OECD countries and 22 additional countries. It draws on deep expertise from the two organizations and the German Corporation for International Cooperation (GIZ), as well as surveys that shed light on the legal frameworks and policy issues in all 60 countries.
“This compendium will provide policy makers with a unique resource as they develop ambitious plans to make cities more livable and sustainable,” Lamia Kamal-Chaoui, director of the OECD Centre for Entrepreneurship, SMEs, Regions and Cities, and George W. McCarthy, president and CEO of the Lincoln Institute of Land Policy, write in the publication’s preface. “It reveals the huge potential for land value capture to unlock important new infrastructure and land uses: from social housing to transport, from water to energy.”
The five main land value capture instruments identified in the compendium are infrastructure levies, developer obligations, charges for development rights, land readjustment, and strategic land management. These instruments vary greatly in their design, but they all enable the public sector to recover and reinvest land value generated by two main types of activity—the creation of infrastructure, and enactment or amendment of regulations that govern land use. Often, these two types of activity occur in tandem—e.g., a rezoning that accompanies the construction of a new rail station.
The compendium explores how governments use value capture instruments in different contexts. For example, it explains how large municipalities in Brazil have implemented charges for development rights as part of the master planning process. Developers pay the charges for the right to build at higher density, often in districts where the municipality is also investing in infrastructure and redevelopment.
The publication explains the constitutional, legal, and administrative frameworks for land value capture, and identifies different methods for land valuation—a critical component of each instrument. It explores common challenges and considerations for policy makers who implement land value capture. Finally, it includes a detailed profile of each country.
Policy makers who seek to implement land value capture in their jurisdictions can use the compendium as a guide, and scholars can use it as a platform to conduct more detailed research. It will be followed by the creation of a searchable database with additional details for each country.
The compendium is available at no cost: https://www.oecd.org/publications/global-compendium-of-land-value-capture-policies-4f9559ee-en.htm.
Image by R. M. Nunes via iStock Getty Images Plus.
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Competition among providers of infrastructure is often limited, because the investments required to build and maintain infrastructure are so extensive, durable, and immobile that the cheapest way to serve a given market is often with a single firm. This phenomenon is known as natural monopoly in economics jargon. How best to protect consumers from this lack of competition has been a topic of intense debate in infrastructure circles, and it’s one that is summarized in the recently published Lincoln Institute book Infrastructure Economics and Policy: International Perspectives.
Privatization
In the 19th century, virtually all modern infrastructure—including canals, railroads, steamships, electric power, streetcars and subways, telegraph and telephone systems, and local water supplies—was built and operated by private companies. Most of these systems were nationalized or municipalized only after the turn of the century, and often not until the 1960s and 1970s in those developing countries that declared their independence around that time.
These new state-owned enterprises (SOEs) sometimes performed well at first, but often grew less efficient, provoking consumer complaints of high prices and poor service as well as government concerns about the burden of funding large SOE deficits. These concerns helped provoke the most recent round of privatization reform, starting in the 1990s and 2000s. Privatizations were relabeled as Public-Private Partnerships (PPPs) to emphasize the hoped-for cooperative nature of the reforms. Greater emphasis was placed on developing the means to regulate prices that would be accepted as fair by both investors and their customers.
Antonio Estache, a professor at the Universite Libre de Bruxelles, summarizes research on this recent round of privatizations in chapter 11 of the book. Estache’s findings will leave both critics and supporters of privatization disappointed. For example, he estimates that private finance accounts for only 17 percent of total finance for the typical PPP project, with the bulk of the remainder still to be raised through government bonds and loans or by grants or loans from international financial institutions. By sector, privatization is much more common in ports and electricity generation and relatively rarer in electricity distribution, roads, water, or sanitation.
Particularly troubling are Estache’s interpretations of research on the effects of private ownership on performance. Ownership alone does not appear to significantly improve infrastructure access and affordability for the poor. Ownership may have an effect on costs, but that influence may weaken once the “easy” measures to increase labor force productivity have been exploited. Estache blames this disappointing performance on the failure to address major governance issues including “corruption, lack of technical skills, lack of commitment to allocate the resources needed to get the regulatory job done, and lack of accountability for failing on any or all of the previous issues.”
Regulation
Given that controversy over monopoly played an important role in the nationalization of private infrastructure companies in the first half of the 20th century, it is not surprising that a great deal of energy has been devoted to devising price-setting schemes for PPPs that would be accepted as fair by both consumers and investors. The most popular approach has been to use competitive bidding, to award a contract to build and operate an infrastructure facility for a fixed term, say 10 or 30 years. However, this approach works well only if the contract is relatively complete, in that it anticipates all important future developments and provides workable contingencies for them. Contracts that prove to be incomplete typically require politically controversial renegotiation. Furthermore, the risk that a contract will prove to be incomplete increases greatly with the duration of the contract, and infrastructure investments typically require long contracts.
In chapter 12, Sock Yong Phang, professor at Singapore Management University, uses several case studies to examine two alternative strategies to competitive contracting: cost-of-service regulation and price-cap regulation. The former allows the regulated firm to charge prices sufficient to recover specified accounting costs; the latter specifies the maximum increase in prices allowed in a set period, usually five years, but allows the firm to keep the difference as profit if the actual price increases are less than the increases allowed under the cap.
Phang argues that the evaluation of these two approaches depends on the priorities and objectives of the regulator. The use of cost-of-service regulation implies concern about the financial health of the regulated firm, and especially its ability to raise capital, while the use of price-cap regulation suggests concern about the firm’s technical efficiency and record of innovation. Other possible goals include access and affordability for the poor or protection from monopoly abuse.
In chapter 13, Sir Ian Byatt—a pioneer in the practice of price-cap regulation as the regulator of Britain’s water industry during the first two decades after its privatization—describes the challenges faced and the lessons learned during his tenure. Two themes emerge: first, the importance of the regulator being politically sensitive and proactive, and second, how many other critical decisions a regulator faces besides periodically setting the allowed caps on prices. These decisions include the firm’s capital structure, quality of service, treatment of ancillary activities, and the possibility of competitively contracting for major stand-alone facilities. The combined lessons of Phang’s cases and Byatt’s tenure illustrate the practically irresistible pressures for, and potential pitfalls of, regulatory mission creep.
State-Owned Enterprises
SOEs were considered a key to economic growth by many developing countries in the post-colonial period of the 1950s and 1960s. The private sector often consisted of small traders and enterprises without the resources or appetite for the heavy investment that was generally thought to be needed at the time for development. The attraction of SOEs faded in the face of their disappointing performance, leading to various reform efforts in the 1970s and 1980s and ultimately to the privatization of many in the 1990s and 2000s. However, SOEs remain significant players in the infrastructure sector, especially in China and India.
In chapter 14, O. P. Agarwal, who has worked on transportation and energy policy for the government of India, the World Bank, and the World Resources Institute, and Rohit Chandra, an assistant professor at Indian Institute of Technology Delhi, examine the changing roles of SOEs.
Agarwal and Chandra map the global landscape of SOEs and compare the performance of SOEs versus the private sector. Despite their less efficient performance, SOEs still have plausible reasons to exist; for example, the inability of the market to supply classic public goods such as local road networks. Most important, Agarwal and Chandra recognize the evolving role of SOEs over the last decade as they have become more versatile through innovations in organizational form, financial management, PPPs, and private contracting.
In the end, no single solution has emerged to the competition problems caused by infrastructure’s reliance on costly, durable, and immobile investments. Private ownership is common in many developed countries, particularly in certain sectors such as telecommunications and electricity generation. SOEs are very important as well, however, and dominate infrastructure in China and India, the world’s most populous countries. A great deal of effort has gone into the design of regulatory schemes to replace the standard approach of long-term contracts awarded by competitive bidding processes. While there have been notable advances, particularly with price-cap regulation, so far every scheme has its limitations.
José A. Gómez-Ibáñez is the Derek C. Bok Professor Emeritus of Urban Planning and Public Policy at Harvard University. Zhi Liu is senior fellow and director of the China Program at the Lincoln Institute of Land Policy. They are the editors of Infrastructure Economics and Policy: International Perspectives.
Image: London Skyline Credit: Nikolay Pandev via GettyImages.
