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Standing Committee on Infrastructure, Transport and Cities
Role of transport connectivity in stimulating development and economic activity

WATERFORD, Mr Eamon, Head of Strategy and Advocacy, Committee for Sydney

WILLIAMS, Dr Tim, Chief Executive Officer, Committee for Sydney

Committee met at 08 :59

CHAIR ( Mr Alexander ): Good morning and welcome. I declare open the Standing Committee on Infrastructure, Transport and Cities' public hearing of the inquiry into the role of transport connectivity in stimulating development and economic activity. Today's public hearing will provide the committee with an opportunity to hear from a number of witnesses as part of the inquiry. First, I would like to welcome representatives of the Committee of Sydney to provide evidence today.

Although the committee does not require you to give evidence under oath, I should advise you that this hearing is a legal proceeding of the parliament, and therefore has the same standing as proceedings of the House. I invite you to make an opening statement, if you wish, before we proceed to discussion.

Dr Williams : I will just say a little bit about why we are here, and Eamon will say a little bit about the paper for just a few minutes, and then we can have a chat. The Committee for Sydney is an independent think tank. It has representatives from public, private and not-for-profit sectors—we think that helps the civic debate. It is a bit of a coalition of those who are keen to see Sydney progress. We have taken an interest in public transport, and we have taken an interest in value capture. In a paper we have produced recently, Are we there yet, which I think we read into the record, and you have seen—by the way, before we go any further, I should say: Chair, we met two years ago on the subject of value capture, so I would like to commend your passion and your interest in this subject. We will no doubt talk about it in our discussion.

We are really interested in getting a conversation going about value capture and public infrastructure. There is more than one way of skinning the cat. There is a discussion about what form of value capture, but the principle that we are not getting enough return to the public sector and to the community from public infrastructure investment strikes me as a pretty big and obvious principle. We need to look at that.

I have personal experience. Between 2005 in 2010 I was the government adviser in the UK on cities to ministers. I was part of the advocacy for Crossrail. I have seen a number of things from that. One is the cocktail of funding that went into that, which is quite idiosyncratic and has value capture elements we can talk about—largely around business rates and developer contributions. Actually, we vastly undervalued—even though we were very pro-Crossrail—the residential uplift would come from Crossrail. We did not have a proper value capture device in place to capture the value of residential uplift. We can talk about that, but, essentially, the deputy mayor for London, Isabel Dedring—who spoke recently to a Committee for Sydney event—said: 'We underestimated the value uplift in residential development from Crossrail, and it was not captured in the funding model. We could have gone further. We could have done more.'

A part of our issue for the committee, and the reason we wrote the paper, was not just to see a better return for public investment back to the public exchequer and the community but also because there is a sense we have of the benefit being privatised. The North West Rail Link is a disappointment in terms of what could have been designed to make a payback to the public sector from a big investment. We know that the benefits have essentially been privatised. There has been a bit of a feeding frenzy along the line, and some of that could have been captured for the public benefit. We raise all this partly because we think there needs to be more public transport investment, but also because it is the economically rational thing to do in our cities. We worry that the appraisal and funding mechanisms that we have at the moment privilege roads over transport, because you can fund a road through a toll, whereas for treasuries the operational costs of public transport look like a very high mountain to climb, so they tend to get rejected in appraisal when they might be the best answer for the city.

We have to find a funding mechanism which pays back not just some of the capital costs of infrastructure, which some of the value capture models do very well, but also the operating costs, which is why our model looks at a more long-term, slow, boiling-the-frog kind of approach for residents who live in an area and who benefit from new public infrastructure investment. By the way, that is critical—not just value capture mechanisms which are about new development, but also a mechanism for existing communities who may benefit from new investment in rail or public transport to contribute to the cost of the benefit that they are receiving.

The last bit is the issue about the federal and state governments. Some of the models that are out there are based on value capture and some of them are based on capital gains tax. We are not in any way against them, but they look a bit complicated in terms of the split between federal and state governments. There is a sense we have that we need to find at least one mechanism for value capture which state governments can invest in and benefit from.

The last thing I want to say, as a preamble, is around the federal government interest in these matters. If the federal government is investing in major infrastructure, and if it is minded, as we understand the Prime Minister and the new government might be, to look at the federal role in public transport, it is entirely reasonable for the federal government to require some structures or some mechanisms to be in place. They might like to see something around value capture so that state governments can come to them with projects that actually have value capture elements attached to them. Indeed, there may be an element in the appraisal by the federal government on what they wish to invest in—that is, does it have a good value capture mechanism attached to it?

I always say 'the final thing', but I have forgotten that there is a final thing: the good news is that we have just had, I think, an appraisal of a significant rail project in Sydney—the decision of the state government to go via Waterloo rather than through Sydney university—which I think was partly premised on the idea that you get a bigger return, a bigger bang for public buck in residential development terms, by going through Waterloo. This conversation for me at the moment is partly about how we get new investment into public transport—not only capital but also operational—and partly about how we look at our appraisal mechanisms for funding to make sure they actually incentivise public transport solutions—which they do not do at the moment, in our view, on a level playing field. Eamon, do you want to say something about the paper?

Mr Waterford : The paper covers a variety of topics. Primarily, we examined a number of different models of value capture. There are many; there are at least 15 different ones that could potentially be implemented. It is likely that an effective value capture model to fund public transport will use a number of these. We really drilled down on one that we think has immediate validity within the Australian context, and that is the idea of a residential area levy. At a very simplistic level you draw a circle around a new transport station or an existing transport station 400 metres out, which is roughly five minutes walk from the station, and you apply a levy to the people who live within that circle; you might draw an additional circle 800 metres out, which is 10 minutes walk from the station, and apply a smaller levy to people there. Essentially, this is to capture ongoing, over time, some of the value these people collect as a result of living near a train station. That value includes property uplift values, so the value of their property might increase significantly because a train station has all of a sudden opened up opportunities to access jobs and community and culture. It might also be the less obvious value that all of a sudden they have a shopping centre open up down the street from them or they have a whole bunch of cafes and communities that get developed because the density increases. All of those things bring value to people and while it is not appropriate for us to tax all of that value, there is a very good argument to say that we should be collecting some of that value to pay for the public contribution that has given them that value.

As Tim mentioned, in Sydney at the moment we have a significant problem with funding the operational costs of public transport. Currently Sydney Trains only collect about 25 per cent of operational costs through fares and through advertising that they sell in their network. That means that year-in year-out the state government is paying for 75 per cent of the operating costs out of general revenue, so it is not as though we are not already paying for public transport; it is simply just coming out of taxpayers' pockets rather than through a more specific measure. That is all I have to add at this stage. I look forward to your questions.

CHAIR: Thank you very much; you have given us a lot to sink our teeth into. Eamon, when you look at that radius of 400 metres and 800 metres and putting a residential levy in those areas, and you look at the possibility of capturing property uplift on resale, how do you go about that?

Mr Waterford : Initially you would not necessarily capture upon resale. What you would essentially do is similar to the way that council rates are collected. You would add an additional rate on to that person's property that would be either over a 30-year period or in perpetuity to essentially collect a small amount from each property owner over a long period of time.

CHAIR: In regard to what Dr Williams said regarding the funding of the cross-city rail in London and what I would term 'value escape'—when proper attention is not paid to the possibility of residential uplift—it is very similar to what has happened in Sydney on the North West Rail Link. It was recently highlighted in a 60 Minutes program about property values around Cherrybrook Station, where one home that had been bought for $400,000 was reportedly sold for over $8 million. That was still a speculative price because the zoning has not been effected, so it is possibly worth even more. That is classic value escape. I notice a lot of your paper was predicated on not having to make any legislative change. If those two areas around stations were accompanied by rezoning then the uplift is multiplied. If you can still only have a goat farm next to the train station, it is still worth a goat farm, but if you can build 30 storeys, it has a much bigger value.

Mr Waterford : Indeed.

CHAIR: While we all agree that the family home is sacred, and, if you sell it as a family home, any benefit that you have had over a number of years should be yours, the question is: do you think it is reasonable to look at legislation that would determine and set a criteria as to when your home becomes an investment and, therefore, when the profits from that investment should be subject to a value capture levy on sale or a capital gains tax? To give that some definition: when there is a piece of infrastructure that fellow taxpayers have paid for, and that is combined with the circle that has been drawn with rezoning to maximise the uplift and that property is sold by a lucky homeowner to a developer for 16 times its value, is that really still a home or is it an investment? Is it reasonable to say, 'Well, this is now an investment and should attract a tax?' Would you agree?

Dr Edwards : The reason we decided to go for the non-capital gains tax approach—but we are not against it, and in fact if legislation is required, we will support it, but I will come back to that—is because we just thought it was simpler. But it was also because the valuation issues are quite complicated. You raised the point: is somebody a developer or are they not? Are they making a legitimate profit out of their home? I think these are very complicated conversations. First, the simplest thing to say is that, if the public sector is going to put $10 billion worth of investment into a corridor, it should have the wit to leap first and define a planning requirement in that corridor. We did not do that, really. We are still a bit a bit slow around these matters. That is No. 1. Whatever device we use, whether it is capital gains tax or something to do with the longer term rates in the area, the public sector needs to be much smarter, more coordinated and more timely so that it swoops at the right time. Essentially, they could have announced an alignment and a geography for an impact area at the same time. They could have said that there would be a planning requirement that certain kinds of zoning would take the following form and that a levy would be paid because of it. For me, that is the simplest thing to advise any government to do. We must not tell people that we are coming in the way that we do at the moment because that is an invitation for everybody else to get the value, not the public sector. That is the first thing.

If the horse has already effectively bolted, the issue is: are there ways of clawing back some of this through tax regimes? I do not believe there are. I think they are a bit more complicated.

Mr Waterford : I would add that I think there is probably a lot of legitimacy in capturing some of that initial value uplift or value escape, as you aptly put it. The point of the residential area levy, potentially in addition to something such as you have proposed, is that a lot of the value is not just in that initial sale of the property. Certainly there is a lot of speculation when someone gets 16 times their property value, but the person who then lives in that property gets a lot of benefit from living next to a train station forever, whether they bought the property for $400,000 and sold it for $16 million or whether they bought it for $16 million and sold it for $17 million. That person continues to receive benefit day-in day-out because they can access jobs, because they live five minutes walk from the train station, because they have a coffee shop downstairs—because they have a bunch of things that they would otherwise not have received, which are in large part due to the public purse investing in their local area. So I do not think it is an 'either/or'; I think it is probably an 'and'. Your point is a very fair one and completely reasonable, and I suppose our proposal is in addition.

Dr Williams : The phrase that comes to mind from the Crossrail experience—and it is a great phrase—is that it was a 'cocktail of funding'. Crossrail has three or four devices. It has developer contributions, which are top sliced from across London through the London mayor, because every Londoner benefits from Crossrail. All London ratepayers are effectively paying something to Crossrail. At the same time, there was a form of TIF for business rates where essentially the private sector—along the alignment that it was business that was going to benefit—would have some of its rates corralled for this project.

So there are a number of devices. We think this is one and we like it particularly because of the difference between funding a capital project and operational costs over the long period. That is the problem with public transport projects: not just the capital costs but the running costs over a period of time. We are pretty clear that unless we have some kind of device like this it just looks to treasuries like an incredible gap to fill—'And you want us to pay a 75 per cent subsidy for a hundred years for this project?' So we have to find some way to fill that.

CHAIR: If we are looking at our three levels of government, infrastructure is largely paid for by state governments and then they often come to the federal government to ask for funding. And if we think about what happened with the North West Rail Link, where for years and years the federal government has been collecting capital gains taxes on the prospect of the north-west rail line—thank you very much—and then, as it has become a reality, collecting more and more, it seems that there is a fundamental injustice. I am perhaps not speaking very well there as a member of the federal government, but when we look at forming relationships between the three levels, the funding should have conditions. A moment ago you suggested they should not know we are coming in regard to infrastructure. When the federal government is looking at value capture, capturing capital gains taxes and capturing the value of uplift, and when the state government will be collecting their stamp duties in greater numbers, shouldn't these be quarantined and hypothecated towards the ongoing funding? To get to the real point, the conditions should be that it is not on a project-by-project basis that is accompanied by zoning; it has to be part of a master plan of infrastructure. We see this fragmentation: there is a rail line going from Sydney to Randwick, or to Waterloo, or from Parramatta to Strathfield; there is some form of light rail; there is something happening in Canberra. If the federal government said there must be infrastructure master planning and zoning for urban renewal densification consistent with better settlement planning then we would effect, on a project-by-project basis, the quarantining of the capital gains tax and value capture to hypothecate towards those costs. We are all on the same team.

Dr Williams : I feel like saying 'amen' to all that, and that is the official position of the Committee for Sydney. We have written a little about that. The problem at the moment is that we have a project basis for funding appraisal, rather than program and your term 'master planning'. I am worried about this in relation to the second airport, which I think is going to be a live test case for what we could do properly together between the different tiers of government. I strongly urge that the discussion we are already having here is applied to that megaproject because there would be a danger of value escape, I think, in relation to that project.

Go back a step and you have two things that ought to be said, I think. The first is around the vertical fiscal imbalance problem in the constitutional arrangements, as it were. That is to say state governments probably feel as though they create lots of value which other people are creaming off anyway through capital gains tax. There is a sense that the states have all the costs but they do not necessarily see some of the benefits of their own investments. I think there has to be a conversation around how, if the federal government is gaining from growth, some more targeted return of funding can be achieved. I think that is correct.

I think the second thing—your point, critically—is that there is a temptation to view the discussion about value capture as 'projectitis' or that it is all about a single project and just about that place. No it is not; it is a strategic conversation partly about how you fund public transport, but essentially about the strategy for your city. Essentially, we want this discussion to feed back into the strategy for your city.

CHAIR: Thank you. I will come to that back later.

Mr VAN MANEN: I find it interesting, listening to the discussion. I was having a brief discussion with somebody earlier this morning. We recognise that we have a need to build infrastructure and to fund it. I think you made a key observation in your opening remarks about a lack of planning integration. I see it in South-East Queensland. I have these satellite cities that are built out in the middle of nowhere, with no public transport infrastructure and no connectivity to anything. Pardon my broadening out the discussion from the Sydney-centric view. The problems do not occur in Sydney; they occur right around Australia. I do have a concern in that what we are effectively talking about in value capture is another form of taxation. That is all well and good, but what is the discussion we are going to have with the public to say, 'You're going to be paying more in this area in terms of roads or have an additional levy on your roads, et cetera'? There is a model for this on the Gold Coat. Gold Coast City Council, with their light rail project, has instituted a city-wide levy.

Dr Williams : There was no revolution against it, I think, is the point.

Mr VAN MANEN: I cannot for the life of me remember what the quantum was. I think it was fairly small, because they have given themselves a long period to pay it off.

Dr Williams : Indeed.

Mr VAN MANEN: What is the discussion we are going to have with the public about this? Even the notion of, say, tolling existing roads to upgrade existing roads—we saw this on the Sunshine Coast many years ago. They had a piece of road that was upgraded and they said, 'Now we're going to put a toll on it,' and there was an enormous backlash. People are already feeling very tight budgets. If you are paying a levy on your rates to fund infrastructure but your realisation is going to be of a capital nature I would say you have a cashflow consequence day-to-day. At some point in time you are potentially going to pick up a capital gain, but it is not going to help you fund that day-to-day cash flow. We are already facing issues of housing affordability, et cetera. How are these issues going to feed into that?

Dr Williams : Eamon is going to say something as well. I am a big fan of South-East Queensland, partly because it has great collaborative planning over a long period of time. I know it is complicated—

Mr VAN MANEN: It is going to be a lot better!

Dr Williams : I tell you, it is a lot better collaboration that what we are seeing in Sydney. About your first point around infrastructure and how it should be plan-led rather than funding-led, there is a temptation to provide what we can fund, and that is a big issue in Australia. Whether or not people love it, we can fund a road through tolling. The infrastructure we need has no necessary funding pot attached to it.

Your point about the public discussion is obviously fundamental. I am a historian, so I want to rewrite history a bit. Let's go back to the North West Rail Link discussion. I guess what should happen is that, at the same time as politicians offer a bauble—which is a big one and correct; we want the North West Rail Link—we say to the community, 'This is a shared objective. There will be a contributory framework for this thing.' I think it was perfectly feasible to have a better civic dialogue about the true costs of transport, because we hide the true costs of transport from people. We need a proper public discussion with the people in our cities about the options that are before them.

On that subject, 18 months ago I went to Denver. It is not easily replicable and I am not saying we should do this, but in Denver they funded a $6 billion program of public transport infrastructure, all perfectly laid out to 15 council areas in metropolitan Denver, with all the mayors supporting a referendum. It was a GST proposition where they would raise local tax, which obviously they can do in American cities, by half a cent, hypothecated to public transport for 30 years and then bonded. All this is complicated in the Australian environment, but some of it should be looked at very closely, including your point: the public civic dialogue that was had. So you have a transparent program, not just a project, for the next 30 years for a city, you have buy-in by the public and they understand what the cost is. At the moment we do not do that very well. Britain does not do it very well, so it is not just an Australian issue, but it is really the way ahead—because I think, fundamentally, your point is correct. We cannot win this discussion without having this conversation.

Mr VAN MANEN: But isn't that a huge part of the problem in that the vision is not there for that long term planning and discussion in the first place? An example is the two satellite cities just outside of my patch in South-East Queensland. When I was growing up as a kid I lived in that area, and that was not even on the radar. Then, all of a sudden in 2001 or 2002, magically out of nowhere this discussion around the satellite cities started to be had and the state government passed a piece of legislation to give them their own specific project development status. That was done in the space of five or six years, from memory. But that time frame is nowhere near long enough to do this long-term planning. Now we are trying to retrofit everything else in terms of road infrastructure, public transport infrastructure, social services, education et cetera. Sometimes I like the idea of the Chinese five-, 10-, 15-, 20- and 30- year plans—not that we want that sort of government.

Dr Williams : Any old plan would be good, I think.

Mr VAN MANEN: But the point is the vision about the long-term planning.

Mr Waterford : That is absolutely a real challenge, and I suppose it conflicts with the challenge of the government needing to capture the value before. When they say, 'We'll be going in that direction in 15 years,' property speculation means that a whole bunch of that value is escaping. So it is a conflict; it is a challenge. I think a very simple solution is to do long-term planning but also to be quite up-front about it, saying, 'We are going to capture value. When we deliver new towns in these areas, don't expect you're going to get a free ride on your property speculation. We will capture value. We haven't worked out exactly what mechanism we're using, but you can rest assured there will be a mechanism.' That might tamp down some of the speculation.

Mr VAN MANEN: And you put a caveat on the property title so that—

Mr Waterford : Indeed.

Dr Williams : Regarding the development industry, there is a mythology about this—and I know the Property Council will appear later and no doubt civilisation will come to an end because of any reforms that you suggest. However, there is a difference between the developers and landowners in some of these discussions. There is something called residual land value. Essentially, if the private sector development community knows that the regime is coming and is going to last for a long time and you do not muck around, they will pay less for the land from the private sector. So you will not necessarily get opposition from the development community if it is part of a structured, logical and knowable development contribution framework. It is the same with affordable housing. They only get a bit antsy when they have bought the land and then you ask them to do things. I think that is worth understanding.

Just one more thing, on the issue which the chair raised. I know the federal government is looking at its Infrastructure Australia appraisal process. It has people looking at cities. What has come out of the UK which is very useful is this thing called City Deals. Essentially, it is where a combination of local authorities or city government goes to the national government and says, 'If you invest in "X"—the program we have—or if you give us some flexibilities then we will deliver far more outcomes for you than the existing appraisal framework.' So, in a sense, the national government buys a city business plan.

I think that is the way to go. In that business plan there needs to be not just the key projects but the key funding mechanisms that will be used to offset some of the costs, and also some of the benefits that will accrue—perhaps on residential development.

Just to be clear: I have spent my life trying to get projects up. Our appraisal process at the moment does not really ask of those people proposing a road how many extra homes will be created as a result of that investment, or how much extra value. It does not really ask that. It just asks, 'How much time will we cut off the travel time on this particular road?' So we do not really have, in my view, an appraisal process which lends itself to the city outcomes discussion that we need to have which is mode neutral. In a mode-neutral appraisal process you have to show as a city or as a state government that there are value-capture mechanisms in place to maximise the investment by the public sector. All that strikes me as doable. I think there is an appetite in this discussion to go down that path. I think that is the right way to go.

CHAIR: There is the only difference between us and the UK—other than we play much better cricket!

Dr Williams : I am a Welshman! I find that very easy to accept!

CHAIR: UK—I did not say England! That was a bit of state of origin! There, a city can go to the federal government. Here we have the state government in-between—

Dr Williams : Yes, sure.

CHAIR: I think that what we have looked at is to involve all three levels—

Dr Williams : Absolutely.

CHAIR: in that process so, as stakeholders, they can all have their input, have their desires made clear and have those built into it.

Mr Waterford : I would add another problem in addition to that problem—I suppose it is worth knowing what the challenges are in this, and there is a fair point that would be made with new infrastructure. People will say, 'So you're going to put a value-capture mechanism on us. Why are the people who already have train lines not paying the extra costs as well?' I think that is a fair question, to be honest. It does not necessarily say, 'Never do value capture,' it says, 'Think strategically about your value capture.'

But there are three things that I have seen in other jurisdictions that can help with these. None of them are the full solution. The first is, as you mentioned, around people who are asset rich but cash poor. If you can find a particular class of those people—for example, it could be seniors—you might be able to allow them to offset the rates until the sale of their property to avoid that issue.

With the issue of the public community: what they do in California to get public sentiment behind something is that they move a simple proposition—it is very easy over there because they can run local referendums all over the place. Essentially, they say, 'Right, if 51 per cent of you want this, this is how much you're going to pay, but we'll build the rail line. If you don't, that is fine, no worries: you won't pay anything but you won't get the rail line.'

So, while I do not think we can do referendums on a small basis in the way that they do, that sort of way of looking at it—having the two propositions up there and saying that it is not either/or, that it is these two things or nothing and asking how people feel—might make it a little easier.

The final thing is that I think people genuinely do not understand just quite how much their public transport is subsidised. Obviously, we use the Opal card in Sydney, but there are similar processes in Melbourne and elsewhere. It would be a somewhat simple process to tell people when they tap on and off, 'This is how much you paid, and this is how much the government subsidised your trip today.' In the instance of Sydney, it would be, 'You paid $3 and the government gave you $9 today.' That would give people a clearer idea of just quite how much they are subsidised on their trips.

Mr VAN MANEN: And in that, there is no comparison between the cost of public transport and the cost of an equivalent trip in a motor vehicle either.

Mr Waterford : Indeed, the public subsidy of motor vehicles is done in different ways. But, yes, it is a much broader conversation than just, 'Here's an extra tax; deal with it.'

Dr Williams : Just a thought on the amount of money you can get back from some kind of value-capture regime for significant infrastructure: High Speed Two, which is coming in London—

CHAIR: Is that Crossrail 2?

Dr Williams : There are two projects: one is High Speed Two and the other is Crossrail 2. There is a piece of work by London First, which is the equivalent organisation to the Committee for Sydney, that presupposes 10 or 15 per cent contribution to the capital cost coming from some form of value capture. It is not 50 per cent, but it is significant—especially if you think that certain road projects in this city are funded on the basis of a 10 per cent contribution by the feds. That is, it can help the appraisals significantly if you can get that 15 or 20 per cent or whatever it is from value capture. It may not pay for all of it, but it is a significant contribution.

I am very intrigued by this idea that there is a public discussion to be had, and it is around transparently discussing the true costs of transport options—and not just public transport. We do not really explain to people the true costs of roads and we do not really pay for them in our road tax. There is a big discussion to be had, but the second thing is a discussion about the city.

The idea that this could all be wrapped up in the next iteration—I do not want to be too optimistic—of the Greater Sydney metro plan that is going to be done by the Greater Sydney Commission, which, as you know, is led by Lucy Turnbull. There is a real option that we will have a better discussion on integrated land use and transport, planning and a better and more transparent conversation with the public. In that two-year process, from about now, we should be up-fronting the transport options and then using that as a coherent package to go to the federal government and say, 'There are eight states, and city discussions are going on—it is in Sydney but it could be in South-East Queensland—and here are the five outcomes from the national perspective that you will get from backing this program, which has land use and transport integration.' I do not think you can do it any other way, to be honest.

Mr VAN MANEN: One of the reasons you do not see the full cost of roads is that councils also have a responsibility for roads that is funded through rates and grants from state governments. That is not really discussed.

Mr Waterford : Indeed.

Mr ZIMMERMAN: I want to clarify: would you be recommending that a residential levy structure applied to existing infrastructure or just to new infrastructure?

Mr Waterford : I can see value both ways. It would be significantly more politically challenging to apply to existing public transport systems and it would be significantly easier for areas where you are saying, 'There will be significant uplift here—currently not many people live here—and this will be coming.' I suppose down the track you might want to look at a broader capturing of value for an entire metropolitan area that benefits from a good public transport network, but I suspect it probably would not be the first step.

Dr Williams : I think these two arguments become one over time, but we started with the idea that, where there was new development, we should find a new way of capturing value. I take Eamon's point that it is a challenge of a different and political order. In the past I think there was a much more transparent discussion about what your rates got you. At the moment because local rates do not give you all that you need in an area—you get it from a myriad of sources—it has become very complicated for people. I am personally sympathetic to the idea that over time we will have the conversation with people about the benefits which accrue to them from their existing infrastructure but that we need to pay for it in different ways.

Mr ZIMMERMAN: Would you see any rate introduced for these purposes as being time limited?

Mr Waterford : It could potentially be. That is the way they do it in the US—they have 30-year time limits on these sorts of rates.

Mr ZIMMERMAN: The other option is to make it dollar limited. For example, if you look at the value-capture model used for the reconstruction of the North Sydney station, it was effectively capped at an equivalent dollar amount.

Mr Waterford : I cannot remember the exact example, but there is an example from California where they captured the value far quicker than they expected to. Essentially, they capped it not after 30 years, but I think about 17 years. So that is absolutely an appropriate way. The point with this is: you want to make sure that there is absolute clarity with the public that this is not a cash grab and it is not slugging people with tax to have money in the piggy bank. This is specifically ring-fenced and hypothecated for a particular transport project.

Mr ZIMMERMAN: I was a bit confused by some of your comments, Dr Williams. Do you see this as being hypothecated just for capital costs or potentially for recurrent costs as well?

Dr Williams : The reason we picked this device was that we thought it could be an ongoing contribution to operational costs, rather than just the construction costs. So we are mindful of that gap. Whatever form we find to fill that gap, that gap needs to be filled, whether it is fare increases as well as value capture, but at the moment it is unsustainable. It means that we do not win the competition for investment for public transport.

Mr ZIMMERMAN: Just one last question: in terms of the Commonwealth's role, do you have any thoughts on how the Commonwealth can most effectively leverage and encourage the use of value capture models? For example, is it through simply requiring the states to have a value capture model and leave it up to them to determine how that might look? Is it setting a target for what proportion of funding comes from a value capture model? Or is it through an asset recycling type incentive scheme, where there is additional funding for states—

Dr Williams : The asset recycling scheme has been original and I think quite important, but my own view is the first option that you suggested. The option for the federal government is—he who pays the piper calls the tune and there has been not been enough clarity of the requirements from federal government about what they want to see from some of the bidders for infrastructure projects. I think our view is that we would like to see the appraisal process for federal investment in significant projects, whether they are private or public, to require elements of value capture.

Mr ZIMMERMAN: So the Commonwealth need not be prescriptive in terms of the model—

Dr Williams : No. The proposition is that you must show what contribution is going to come that is co-invested, essentially, or co-produced by this device. I do not think we need to be prescriptive; it would be a revolution if we actually went down that path anyway.

CHAIR: The value of real estate in Sydney is very high. Could you give me an idea of what you think the value of a three-bedroom house, 20 to 30 minutes from the CBD is worth—could you give me a range—in Sydney?

Dr Williams : We would have all that work because we have members all over—if that would help you. Eamon, as someone trying to get into the housing market—

Mr Waterford : It would probably be north of a million dollars in most of those areas.

CHAIR: The average price is a million, so it is way north of that.

Dr Williams : In the Fairlight area that I live in it would be closer to $1.8 million or $1.9 million.

CHAIR: Is it good buying if you can do it for $1.8 million or $1.9 million?

Dr Williams : We bought it five or six years ago, so I do not know—

CHAIR: Shall we say, for the sake of the argument, if it is Pymble or Fairlight it might be $1.5 million or more and often $2 million or more?

Mr Waterford : Yes, absolutely.

CHAIR: In my street where I live I know that the value of the land alone is a large part of it—maybe $1.5 million. Therefore we can say that if we are 20 or 30 minutes from Sydney the land value is $1.5 million for a block of land. So if we were able to release land 20 or 30 minutes from Sydney, could we say that it would be reasonable to expect that that land would be worth $1.5 million per lot?

Dr Williams : Yes.

CHAIR: If that land at the moment is worth $250 for that quarter acre block, there is a large amount of uplift.

Mr Waterford : Indeed.

CHAIR: It would not be unreasonable in a value capture system or a capital gains system to expect to collect, say $100,000 from that uplift between $250 and $1.5 million?

Dr Williams : I do not think so—

CHAIR: I am trying to entrap you to fortify my argument.

Dr Williams : We need to see you coming.

CHAIR: It is painfully obvious—

Dr Williams : And indeed there is much merit in what you say, Chair.

CHAIR: And so, if we could repeat that half a million times, 100,000 times half a million is $50 billion, which is the cost of high-speed rail from Melbourne to Sydney. The opportunities of establishing 20 to 30 minutes, looks at the Southern Highlands, looks at Goulburn, looks at Shepparton, looks at other places.

Dr Williams : I see your point. Absolutely.

CHAIR: So I challenge you on your comment that value capture could not necessarily pay for high-speed rail. When you look at in those practical, real, property value terms, that a house that is established outside of the Southern Highlands or Goulburn would be connected to the CBD of Sydney would have a land value increase to make it competitive with the Sydney market. So there is a perfect storm because of such high land prices in Sydney and very, very low prices in those areas.

Dr Williams : We would never want to contradict that proposition. All we were saying was that the regime you are pointing to would make a significant contribution to the cost of high-speed rail. Whether or not it would pay for the amount that you said, I still think it would make a compelling contribution. We are very sympathetic to that analysis. The part that we have missed in the conversation, to some degree, which is our fault, I think, is that some of the transit-oriented development discussion is a critical part of this. We can release high densities if we have the right regimes in place around our stations. We can also then tap into the value that we create in that way. I think you are right about the 20- to 30-minute issue. You will create completely new value in some places if you can do the trip in 20 to 30 minutes. They would get a value out of that, so why shouldn't you tap that significantly when you have created huge value for the private landlord. I think that is absolutely compelling.

CHAIR: It is obvious that, in the best world, to effect urban renewal, densification and master planning along with a settlement of strategic decentralisation, both these projects of planning and infrastructure in our major cities would optimise not just our potential of growth but also the quality of life and cost of housing, and myriad other things.

Dr Williams : I was about to say the very same thing. We completely agree on that.

CHAIR: Does this disturb you that you agree so much with me?

Dr Williams : Not at all. It does not surprise me in the least!

CHAIR: A prophet has no honour in his own country, especially if he comes from Australia. Do you have any further comments to offer?

Dr Williams : We should have said at the beginning: it is fantastic that you are doing this. It is really timely. This is an idea whose moment has come in some form or other.

CHAIR: Thank you so much for attending this hearing today. The secretariat will send you a draft transcript of proceedings and requests can be made to correct any errors of transcription. Thank you.