Fix Transit 3: How Development Rights Can Transform Public Transit Funding

More transit agencies are turning to the sale of development rights to help fund their capital investments and operations.

Broadway subway construction in Vancouver (photo credit: Wikimedia Commons)

Almost no transit agency operates on a break-even basis.

Hong Kong, Singapore, Tokyo and Taipei are four exceptions. But they are dense cities with high ridership levels, and where driving is a poor alternative.

In addition, those transit systems share something else that makes the numbers work: integrated development and real estate operations.

Call it “development rights”. The ability of a transit agency to sell the rights to build and to manage properties around transit stations and along transit lines.

A cousin to transit-oriented development

Development rights are closely related to the concepts of transit-oriented development and land value capture.

Transit oriented development addresses land use around transit corridors. It tends to focus on zoning that allows for mixed uses and dense housing around transit stations.

Land value capture refers to the increase in property values that result from public investments in infrastructure, whether that’s transit, roads, or other public services. A public authority is able to capture this value increase typically through higher property taxes and development charges. Tax-increment financing is a specific type of land value capture, in which infrastructure investments are made based upon the expectation of future land value capture.

What development rights look like

In Asia, transit agencies have capitalized on the value of land adjacent to transit stations to fund operations. Hong Kong is perhaps the most famous example, with its transit authority operating a “rail + property” model that both provides transit and develops real estate. The agency acquires land near its stations, including future stations, and develops residential, commercial and mixed-use properties, using the revenue to fund operations and capital.

The Crossrail project in London is financed through the higher taxes collected on the businesses and properties along the route that benefit from improved transit access.

A newish concept to Canada

The idea of using development rights to fund transit is relatively new in Canada, but it’s gaining traction.

In metro Vancouver, the recently established TransLink Real Estate Development Group is the property development arm of the regional transit authority. The division is responsible for managing land around transit stations and using joint development agreements with private developers to raise funds. One analysis has estimated that granting development rights to the transit authority could bring in as much as $13 billion around one station on the Broadway subway line extension.

In Montreal, the new light rail system, the Réseau express métropolitain (REM), is integrating development rights into its financing model, through a partnership with the Caisse de dépôt et placement du Québec (CDPQ) and its real estate division that focuses on maximizing the value of land around stations.

Toronto’s Metrolinx has also begun exploring development rights, particularly around the Eglinton Crosstown LRT and other projects like the Ontario Line. Calgary and Edmonton have started to explore development rights as a funding mechanism for their light rail systems.

Conclusion

Transit financing is a challenge for all Canadian cities. Any lasting solution will require a patchwork of new funding approaches.

Development rights can be one part of the puzzle in addressing transit financing. It is an approach that has been used in other parts of the world to help fund both transit operations and capital investments.

Vancouver and Montreal are showing the way in Canada. How long will it be before other cities follow suit?