Using land value increases to pay for infrastructure is a general approach known as Land ‘Value Capture‘. The idea is to capture the increased land prices caused by the transport improvement for the benefit of the public, to avoid spending funds from general taxation, and so that landowners don’t make gains at everyone else’s expense.

For example, Crossrail was paid for in part by a levy on business rates, although their contribution was poorly targetted and relatively small compared to the rise in land values and the overall cost of the scheme.

A related approach is ‘Land Value Covenants (LVCs)‘ where the government buys land (at pre-announcement cost) and leases it back.

In general, a funding model for HSUK might include:

  • Purchase of land and integrated Rail+Property+Other Transport development in the ‘inner core’ adjacent to a new HSUK station
  • Purchase and leaseback of land in the intermediate area slightly further away from the station in the ‘outer core’ area
  • Increases in Council tax and Business rates for properties in the ‘periphery’ that still nethertheless benefit from the railway and its connections

Some understanding of how this can be the case can be observed from Sheffield, which would have it’s time cut from just over two hours now to 65 minutes under the HSUK proposal. Just a 20 minute reduction in Bristol (from an hour and 40 minutes to an hour and 20 minutes) is set to boost property values in the Bristol area by up to 10%, according to a recent report. Similar effects can be seen in Cambridge where house prices have sky rocketed after electrification, longer trains and the announcement of a second station in the north of the city.

It is not currently clear what portion of the costs of HSUK can be covered by these methods of Value Capture; but it’s likely to be a substantial fraction or even a net profit for a well-thought through scheme, as is observed in Hong Kong.

In this case HSUK would be self-funded and would not require any expenditure from general government taxation/borrowing. It would come ‘for free’.

Economic Background to this Idea

The economic theory of land and its importance in economics goes back a long way to the early economists – the ‘Physiocrats’, and classical economists Adam Smith and David Ricardo – all of whom called for a tax on land values. This was popularised by Henry George in his masterpiece ‘Progress and Poverty‘ of which one of the most famous passages describes the effect of a railroad on enriching private landowners. The game of monopoly is derived from ‘Georgist’ ideas. Winston Churchill was another prominent supporter of a land value tax. Value capture is a partial way to achieve some of the features of a land value tax in the specific case of infrastructure improvements.

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