Capturing revenue from residential property unlocked by transport infrastructure: potential £4.5bn pot of funding from ‘resi-TIF’ model

Innovative funding model could unlock £4.5bn for new transport projects and free up investment across the country, according to a new report

'Generating Land Value to Grow London: A New Residential Funding Approach’ from BusinessLDN recommends building on the tax increment financing (TIF) model which allows borrowing against future increases in tax revenue resulting from infrastructure projects in order to finance those transport schemes.

TIF is a value capture tool that uses taxes on future gains in real estate values to pay for new infrastructure improvements. TIFs allow for infrastructure projects to be financed upfront by borrowing with repayments coming from the hypothecation of future tax receipts for a fixed period within a defined area or ‘Enterprise Zone’.

Our proposal would add to how the current TIF structure captures value, through retaining the increase in business rates on commercial property, by capturing revenue from residential property taxes generated by new homes that have been unlocked by new transport infrastructure. We refer to this as the ‘residential tax increment finance’ (resi-TIF) model.

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Join experts at Rail Stations + Property in March 11 in London: speakers from TfL, Network Rail, RDG, Chiltern Railways and WSP: supported local authority places available

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John Dickie, Chief Executive at report BusinessLDN, said: “Investment in transport is critical to boosting productivity and growth across London and the UK. Against a backdrop of stretched public finances, the Government needs to consider innovative approaches to get shovels in the ground.

"Letting local government borrow against the future tax revenues that investment will generate, to fund that investment in the first place, is a common-sense way of supporting growth. This model has the potential to be applied across the UK, including London where it could help to get key projects – such as extensions to the DLR and Bakerloo lines as well as the Overground network – off the drawing board and unlock new homes, create skilled jobs and spur growth.”

The report also recommends that the Mayor be granted powers to utilise the new residential TIF model, alongside the existing commercial TIF framework, with the freedom to bring the two mechanisms together according to the requirements of different locations.