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An innovative method, gaining traction globally and in India, is land value capture. Photo: Mint
An innovative method, gaining traction globally and in India, is land value capture. Photo: Mint

Financing inclusive, liveable cities

Transit-oriented development can enable easier access to jobs and opportunitiesbut it's tricky to pull off

The Karkardooma project was launched with great fanfare in 2015 as Delhi’s first attempt at transit-oriented development (TOD). The aim was to create a liveable, inclusive space near the Metro station so people can enjoy easier access to jobs and opportunities. The project has since stalled—unsurprisingly, as few stakeholders in India seem to know how to get TOD off the ground.

Operationalizing TOD typically takes many years. It requires significant capital investment, often without definitive returns until the project has been completed and is in use. It is, therefore, financially burdensome for public coffers. Hence, financing of TOD is critical. An innovative method, gaining traction globally and across several Indian cities, is land value capture (LVC). This financing technique allows authorities to capture the increases in monetary values of land generated by the provision of transit systems as well as other public infrastructure, and leverage it for the public good. There is abundant evidence that introduction of mass transit leads to an appreciation in land values by improving mobility, encouraging productivity and enabling healthier, less polluted environments.

LVC, which generates recurring revenue through tax-based, fee-based or development-based mechanisms, has recently also been promoted in the national TOD policy and Metro rail policy—two seminal government documents guiding the growth of infrastructure in Indian cities. However, there are several regulatory and institutional gaps that make LVC implementation difficult. These include the absence of clear models of revenue and responsibility-sharing between development agencies as well as poor contextualization of urban planning and design. The lack of public amenities, such as water and sanitation services, to support higher densities around station areas is also an unaddressed concern. An additional challenge to LVC is low consumer proclivity for increased monetary contributions towards TOD through financing instruments such as betterment levies and surcharges.

Cities in India have experimented with different mechanisms and models of LVC, often applying them in combinations to improve value capture. Our research shows that central to ensuring effective implementation of LVC is the appointment of a nodal agency to coordinate between multiple stakeholders, therefore incentivising a holistic TOD approach. Collaborative engagement should determine a fair revenue-sharing model that does not accrue disproportionate benefits to certain stakeholders. These agencies should also jointly evaluate and determine transit routing, developable lands, planning/zoning parameters and LVC estimates. For example, the Bangalore Metro Rail proposes a revenue-sharing model of LVC funds keeping in mind all the agencies involved in provisioning infrastructure and other public amenities. These include the municipality, the water and sewerage board, and the development authority.

Further, the need to institute local/station area plans, define and incorporate TOD zones into city-level master plans, is crucial to both development planning as well as contextual plans with area-specific regulations for better neighbourhood design and improvements. These detailed plans help identify gaps in the infrastructure-carrying capacities required to support TOD implementation.

Most importantly, our research suggests that cities should set up a dedicated TOD fund, similar to, or in conjunction with, an urban transport fund (UTF), so that LVC is used to finance inclusive TOD components such as improved pedestrian infrastructure and access to affordable housing, and not just transit systems. Delhi Metro’s third phase has proposed a UTF.

For such projects to succeed, the key actors in TOD—financiers, developers and the government—should benefit equitably. Each of their roles in enabling the use of LVC, as well as their shared understanding of the subject, is vital to the urban planning process. The current lacuna is leading to poor implementation and scaling of TOD.

The government, as one of the most significant stakeholders in this dialogue, should create and incentivise effective mechanisms for institutional coordination and cooperation, between and within various tiers of government, to balance divergent interests. In addition, project/transit agencies can improve operational and entrepreneurial capabilities by partnering with experts in the short term and developing internal capacities to bridge the knowledge gap in the long term.

Financing institutions enjoy a much more specific role, and can ensure value creation by guiding the provision of financial incentives towards schemes and projects in TOD zones, encouraging the development and alignment of financial products to the growth strategies of cities to integrate transport and land use.

The private sector and developers should play a primary role in sharing risks and contributing to financing capital-intensive public infrastructure. They also bring technical, business and asset management expertise to provide public amenities/services to develop high-quality TODs.

Capitalizing on increasing property prices, complemented by a better understanding of TOD principles among diverse actors, will be key to the successful implementation and scaling of projects like the one at Karkardooma.

Jaya Dhindaw and Aparna Ananthakrishnan are, respectively, director—urban development, and consultant, WRI India.

Comments are welcome at theirview@livemint.com

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