Fri 19 May 2017 - Impact

More Cities Are Tapping Real Estate To Pay For New Transportation

Darryle Ulama

Research Analyst

The world’s cities are adding 77 million people per year, just shy of 1.5 million people per week. Take a moment to register these numbers. Every week until 2030, urban centers need to figure out how to accommodate the influx of two San Francisco's worth of people. Growth pressures and rising incomes are forcing city planners on tight budgets to get creative in how they pay for critical transport infrastructure.

One technique that's getting renewed attention is land value capture, or LVC, which generates funds from the uplift in property values that result from new transit lines and stations. In LVC deals, governments share in the profits rather than cede them to developers or landowners. There are many types of LVC instruments, but generally, they are either fee-based, such as land taxes, or development-based, such as air rights sales and joint development. If executed properly, these tools could provide a more sustainable source of financing to prudent governments and better align public and private sector participation. Their ability to boost area density also allows cities to include LVC in transit-oriented development strategies, now in vogue across urban planning departments.

Selected LVC-Funded Transportation Projects

ProjectLength (km)Project DurationInitial Project CostLVC Revenue
(% of Project Cost)
UK – Jubilee Line Extension161992-2000$5.3 BN10%
Denmark – Copenhagen Metro M114.22002-2007$2.0 BN20%
China – Nanchang Metro Line 128.72008-2015$1.3 BN29%
India – Delhi Metro Phase I, II, III2341995-2016$12 BN5%
USA – Washington Metro Silver Line372008-2014$6BN16.8%
USA – Portland Streetcar Extension5.32009-2012$148 MN10.8%
Source: Olajide, Oladapo. “Transit Value Capture Finance: A Global Review of Potential and Performance” 2015.

LVC is not an entirely new concept, but it has come back into focus. Just last year, the Australian Parliament published an advisory paper on value capture to encourage lower governments to consider LVC. In 2015, the World Bank released a guidebook for using land value capture to finance transportation projects in developing countries. And in China, land development sales have been deployed as a means of financing a significant portion of urban projects in cities as diverse as Nanchang, Wuhan, and Shenzhen.

To explore its potential, we’ve highlighted three cases in which land value capture is supporting some of the world’s most ambitious transportation projects.

Hong Kong MTR: The World’s Most Profitable Transit System

Any discussion on land value capture must include the Hong Kong MTR Corporation, the operator of the city’s transportation network and pioneer of an LCV method called “rail plus property” (R+P). Today, the Hong Kong metro is the envy of transit agencies the world over, with consistently reliable service and amenities unheard of in even the wealthiest cities, such as public computers and first-class cars. While most mass transit systems require subsidies to cover expenses (and still operate at a loss), the MTR boasted an operating margin close to 54% for its Hong Kong segment in 2016. For comparison, only about 2% of the more than 1,800 mass transit systems in the US report fare revenue exceeding operating expenses. The secret? The MTR collects money from the fare box, as well as from property development, rentals, and real estate management. In about half of the stations throughout Hong Kong, MTR helps develop and manage shopping malls, apartment complexes, and skyscrapers through joint development agreements. It helps immeasurably that the government owns all the land in Hong Kong, but the symbiotic relationship between transit and real estate is an example for other cities to follow when pursuing infrastructure expansion and upgrades. MTR is currently working on three projects to extend Hong Kong’s network by nearly 20%, including an express line connecting the city to Shenzhen and Guangzhou.

MTR’s value capture approach seeks to build community as well as transport links, says Steve Yiu, MTR’s Head of City Planning. As an independent company with majority government ownership, MTR occupies an important role in the city’s urban development, while still maintaining the flexibility to adjust fares and negotiate property development. MTR’s intermediary role lowers the risk for their developer partners and helps public agencies identify strategic corridors for station location. MTR is now exploring the application of the R+P model in Sweden and mainland China, and it has received interest from the United Kingdom and Australia.

Hong Kong Built-Up Density, 2012. Source: Urban TEP

London Crossrail: Europe’s Biggest Infrastructure Project

The idea for an east-west connection across central London has been in the minds of Brits since the late Victorian period, but did not resurface until the end of World War II. The Crossrail project finally broke ground in 2009 and at £15 billion is currently Europe’s single largest infrastructure project. The 118-km route, slated for full operation in 2018, will expand London’s rail capacity by 10% and bring an extra 1.5 million people to within 45 minutes of central London. The City of London has estimated that the project will generate over £40 billion in wider economic benefits.

Crossrail’s funding structure involves several LVC instruments, including the Business Rate Supplement (BSR) Scheme, a 2% tax on certain commercial properties across the city’s 32 boroughs, and developer contributions on all new development in the Greater London area. Tapping into London’s real estate makes economic sense – despite Brexit nerves, the city continues to be one of the hottest property markets in the world.

London Built-Up Density, 2012. Source: Urban TEP

Hyderabad Metro Rail: The Largest Metro Public-Private Partnership

The capital of India’s newly formed Telangana state is one of the subcontinent’s most vibrant urban agglomerations. Hyderabad’s economy relies heavily on information technology and biotech, and 9 out of every 10 employees work in the services sector. Industry clustering and rapid population growth in surrounding municipalities demonstrated the need for the world’s largest public-private partnership in the metro sector. When completed, the Hyderabad Metro Rail will run more than 70km on elevated structures across 66 stations.

The national and state governments are meeting 40% of the project’s total cost, and the engineering firm Larsen and Toubro is expected to pay its share in part from revenue generated in real estate development, advertising, and parking fees. A cumulative 18.5 million square feet of designated areas and depots will be earmarked for real estate development, such as turning concourse level shopping centers in stations. If successful, the Hyderabad Metro project could become the blueprint for other Indian cities attempting to provide much-needed transport infrastructure.

Hyderabad Built-Up Density, 2012. Source: Urban TEP

Land value capture financing will not likely cover the entirety of an infrastructure project’s total cost, and project success largely depends on the right mix of population and economic growth, private investment, and mature institutions in land management and taxation. Hong Kong’s success also indicates that LVC might require a density threshold to realize its full potential. It can also take a long time for real estate projects to mature and start paying off. But as cities take on the enormous challenge of moving millions, land value capture can offer a powerful tool in addressing communities’ dire need for infrastructure, while more evenly distributing the value creation.

"LVC was essential to the streetcar systems that flourished in American cities such as Boston and Los Angeles in the early 20th century," says MTR Steve Yiu. “How wonderful would it be if Hyperloop wasn’t just a new mode of transport but, like the street cars a century ago, also helps build new communities for our next generation? I look forward to seeing that.”

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  • Q. What is Virgin Hyperloop?

    We're a privately-held company on a mission to create fast, effortless journeys that expand possibilities and eliminate the barriers of distance and time.

  • Q. Why are you building a hyperloop?

    There are too many people caught bumper-to-bumper in traffic, who have to make a hard choice with their family on where to live and work, and who are limited in their access to experiences and opportunities. We're building a system that will give back time and deliver the travel experience of the future.

  • Q. Why do we need hyperloop now?

    The number of cars is set to double worldwide by 2040, same with air and trucking. We are already dealing with the effects of pollution, lack of access, and congestion. If we only invest in the same technologies we’ve had for more than a century, tomorrow will look like today, only much worse. It’s been over a century since the Wright Brothers first showed us human flight was possible. It’s time for a new era in transportation capable of carrying us forward for the next 100 years.

  • Q. How much funding has Virgin Hyperloop received?

    To date, we have received over $400 million.

  • Q. Who are the key investors in Virgin Hyperloop?

    A major investor of ours is DP World, a leading enabler of global trade who sees the potential of sustainable hyperloop-enabled cargo systems. Additionally, we are backed by the Virgin Group, an industry leader across rail, aviation, ships, and even spacecrafts. For more on our investors, visit the company page.

  • Q. Does Virgin Hyperloop have any partners?

    Virgin Hyperloop One is the only hyperloop company that has a strategic partnership with a mass transportation company, the Virgin Group, an industry leader across rail, aviation, ships, and even spacecrafts. Another key partner of ours is DP World, a leading enabler of global trade who sees the potential of sustainable hyperloop-enabled cargo systems. Other industry-leading partners include KPMG, Foster + Partners, Systra, BIG, SNCF, GE, Deutsche Bahn, Black & Veatch, McKinsey, Deloitte, Jacobs, Turner & Townsend, ARUP, and Steer, among others.

  • Q. Is Elon Musk an investor or affiliated with Virgin Hyperloop?

    No, there’s no connection with Elon Musk.

  • Q. How do you plan to scale up operations around the world?

    We aren't just building a hyperloop; we're building a network of public and private partners to scale an integrated supply chain ecosystem. Our business model is based on partnerships that create local jobs and opportunities for those who choose to invest in this technology. We are working at the highest level of governments around the globe to put in place commercial agreements to make hyperloop a reality.

  • Q. What is hyperloop?

    Hyperloop is a new mode of transportation designed to eliminate the barriers of distance and time for both people and freight. It can travel at speeds approaching 700mph, connecting cities like metro stops - and it has zero direct emissions. The journeys can be booked on demand so there’s no wait time or delays.

  • Q. How does hyperloop work?

    With hyperloop, vehicles, called pods, accelerate gradually via electric propulsion through a low-pressure tube. The pod floats along the track using magnetic levitation and glides at airline speeds for long distances due to ultra-low aerodynamic drag.

  • Q. Has hyperloop technology been proven?

    On May 12th, 2017, we made history two minutes after midnight when we successfully launched our vehicle using electromagnetic propulsion and levitation under near-vacuum conditions at our full-scale test site in the Nevada Desert. We've since run hundreds of tests, acquiring validated knowledge that only comes from real-world testing. For more info on DevLoop, our 500 m test track, visit our progress page.

  • Q. How fast can hyperloop go?

    We estimate that the top speed for a passenger vehicle or light cargo will be 670 miles per hour or 1080 kilometers per hour. That is about 3 times faster than high-speed rail and 10-15 times faster than traditional rail. The average speed vehicles travel will vary based on the route and customer requirements.

  • Q. Why keep the tube at low-pressure and not at a perfect vacuum?

    A perfect vacuum would decrease the drag on the vehicle even more, but not significantly. We have already gotten rid of 99.9% of the air in the tube. Lower levels of vacuum than this are important if you are performing scientific experiments, but the cost would not be worthwhile.

  • Q. How is hyperloop different from high-speed trains?

    Hyperloop is an entirely new mode - think the best of trains, planes, and the metro. Hyperloop is on-demand, offering flexible travel schedules with no stops, no transfers, and no weather delays – all at speeds about 3 times faster than high-speed-rail and less cost. Hyperloop is highly efficient, with a smaller environmental impact than high-speed rail because the closed system can be tunneled below or elevated above ground, avoiding dangerous at-grade crossings. The VHO system is 100% electric and can reach higher speeds than high-speed rail for less energy due to our proprietary electric motor and low-drag environment.

  • Q. Is hyperloop safe?

    Fast, effortless journeys go hand-in-hand with journeys where everything works reliably without interference, and where all passengers feel comfortable and safe. The Virgin Hyperloop is designed to be inherently safer than other modes, with multiple redundancies in place. Our system operates autonomously in an enclosed tube and is not susceptible to weather delays, accidents from at-grade crossings, human error, or power outages. Our proprietary high-speed switching architecture eliminates unsafe track configurations and moving trackside parts, a failure point of traditional rail with mechanical switches.

  • Q. How do you plan to get hyperloop certified?

    As new mode, we have to prove our safety case to regulators and work with them to develop a regulatory framework, so passengers can ride the hyperloop in years not decades. We are encouraged by the support we are seeing at the local and federal level around the world to support hyperloop certification based on the fundamentals of safe operating that are already standard practice. In March 2019, the U.S. Secretary of Transportation, Elaine Chao, created the Non-Traditional and Emerging Transportation Technology (NETT) Council to explore the regulation and permitting of hyperloop technology to bring this new form of mass transportation to the United States. This Council is an important step forward in recognizing hyperloop is a new transportation mode and that we need to shift our mindset and acknowledge that this technology does not fit into a regulatory structure that is over 100 years old. The European Commission’s Directorate-General for Mobility and Transport (DGMOVE) has also been leading discussions with hyperloop companies to advance regulatory standards and, in India, the Principal Scientific Advisor (PSA), Prof. Vijayraghavan, has set up an independent committee called the Consultative Group on Future of Transportation (CGFT) to explore the regulatory path for hyperloop. For more, visit our regulatory progress pages.

  • Q. What will it feel like to ride hyperloop?

    While flying through a tube at more than 1000km/h might seem like a thrill ride, the truth is we are able to mitigate any uncomfortable acceleration forces within our controlled environment. The journey will be so smooth, you could sip a coffee the whole time without spilling a single drop. Normal acceleration and deceleration of 0.20 Gs will feel similar to a train. As a comparison, flooring a typical sedan gives between 0.4-0.5 Gs and commercial airplanes see 0.3-0.5Gs depending on the plane and load.

  • Q. What happens if there's a sudden breach in the tube?

    Pods will continue to travel safely to the next portal even with a large breach. Our response to a breach would be to intentionally repressurize the tube with small valves places along the route length while engaging pod brakes to safely bringing all pods to rest before it is deemed safe to continue to the next portal. A sustained leak could impact performance (speed) but would not pose a safety issue due to vehicle and system architectural design choices. This assessment is based in solid understanding and analysis of the complex vehicle load behaviors during such an event.

  • Q. Is hyperloop sustainable?

    Without a massive leap forward, pollution from the transportation industry is expected to almost double by 2050 - well above the carbon budget. By combining an ultra-efficient electric motor, magnetic levitation, and a low-drag environment, the VHO system can reach airline speeds for 5-10x less energy (depends on route length) and can go faster than high-speed rail using less energy. In regions like the Middle East, we could power the system completely by solar panels which cover the tube. As fighting against climate change becomes an existential issue for cities across the globe, hyperloop will create a new, shared, electric mobility model for helping to permanently reform an industry with some of the world’s highest carbon emissions.

  • Q. How much energy does hyperloop use?

    We are designing Virgin Hyperloop to be more efficient than other modes of transportation. Modern jetliners use up to 10 times the energy we use per passenger-mile over the entire journey. We can cruise at 500 miles per hour for less energy (per passenger) than an electric car doing 60 miles per hour. At peak speed, the VHO system consumes approximately 75 watt hours per passenger kilometer (Wh/pax-km). To put this in perspective, the fastest conventional maglev train travels at about half our speed and consumes 33% more energy.

  • Q. Where will hyperloop get its power?

    Our system is 100% electric with zero direct emissions. We're energy-agnostic. Our system can draw power from whichever energy sources are available along the route and support a transition to a renewable energy-powered future. In regions like the Middle East, we can completely power the system with solar panels which cover the tube.

  • Q. How much noise does hyperloop make?

    It’s similar those new electric vehicles that are so quiet they need to create noise to indicate movement. With hyperloop, we eliminate sources of mechanical noise, like wheels on track, and we actually have a sound barrier inherent in our tube design

  • Q. Can hyperloop be used for cargo?

    DP World Cargospeed is a global brand for hyperloop-enabled cargo systems operated by DP World and enabled by Virgin Hyperloop technology. These systems will deliver freight at the speed of flight and closer to the cost of trucking for fast, sustainable, and efficient delivery of palletized cargo.

  • Q. What type of cargo would a hyperloop system transport?

    The focus would be on high-priority, on-demand goods – fresh food, medical supplies, electronics, and more.

  • Q. How can hyperloop help transform logistics?

    With DP World Cargospeed, deliveries can be completed in hours versus days with greater reliability and fewer delays. It will expand freight transportation capacity by connecting with existing modes of road, rail, ports, and air transport, and will provide greater connectivity with manufacturing parks, economic zones, distribution centers, and regional urban centers. This can shrink inventory lead times, help reduce finished goods inventory, and cut required warehouse space and cost by 25%. DP World Cargospeed networks can also enable just-in-time, agile manufacturing practices.

  • Q. Will the first hyperloops be passenger or cargo systems?

    The Virgin Hyperloop is unique in that it doesn’t need to be passenger-only or cargo-only. We are designing a mixed-use system that fully utilizes system capacity while maximizing economic and social benefits. However, it is possible to run cargo commercial operations while certification and regulation are still ongoing for passenger use.

  • Q. When will hyperloop systems be ready for cargo and passengers?

    We are working with the most visionary governments around the world to make sure you can ride the hyperloop in years, not decades. Our goal is to have operational systems in the late 2020s. Our ability to meet that goal will depend on how fast the regulatory and statutory processes move.

  • Q. Where will the first hyperloop get built?

    We are working with visionary governments and partners around the world to make hyperloop a reality today. To learn more about our projects around the world, visit our progress page.

  • Q. How much will hyperloop cost to build and operate?

    Capital and operating costs will range widely based on the route. We recently released a study that showed our linear costs are 60-70% that of high-speed rail projects. In addition, we expect the operational costs to be significantly lower than existing forms of transportation.

  • Q. How much will hyperloop cost to ride?

    It’s simple – if it’s not affordable, people won't use it. We are looking to build something that will expand opportunities for the masses, so they can live in one city with their family and work in another. Currently, that kind of high-speed transport is not feasible for most people. The exact ticket price will vary for each route, but a recent study showed that riding a hyperloop in Missouri could cost less than the gas needed to drive.

  • Q. How are hyperloop routes selected?

    We are in the business of serving local needs, not the other way around. Public and private support is key. In some cases, we will respond to solicited bids with partners when we feel the technology matches the project’s objectives. In other cases, we will make an unsolicited bid for a project when we see that hyperloop could offer a unique solution to market needs.

  • Q. What is the process for getting a passenger route up and running?

    While the technology is different, the process for building a hyperloop is similar to that of building a highway, railway, or any other type of linear infrastructure. The first stage is project development. This phase includes feasibility studies, and then more detailed engineering reports and environmental impact studies. Once a project is approved to move forward, a consortium is formed to finance and deliver on the project.

  • Q. How much land does hyperloop require?

    Many infrastructure projects succeed or fail based on right-of-way issues. We are designing a system that requires only about half the right-of-way as high-speed rail and can more easily adapt to existing right-of-ways. At high speeds, the VHO system has a 4.5 times tighter turn radius compared to high-speed rail and can climb grades that are 6 times steeper, reducing the disturbance at crossings. Portals will be purposely integrated into and support existing communities and landscapes. Low noise levels will expand opportunities to build hyperloops closer to the city center.

  • Q. With the focus on connecting cities, how will hyperloop support rural communities?

    Hyperloop also holds enormous promise for rural communities. Virgin Hyperloop systems can be built below or above ground, which means no one’s farm needs to be cut in half. Our system enables rural areas to retain residents, who can now have more access to urban job centers, educational opportunities, and health care facilities. Additionally, hyperloop could enable freight distribution centers to be placed in rural areas, leading to job growth and industrial clusters. After a system is built, there is the opportunity to add additional on and off-ramps, supporting a greater number of people along the route.

  • Q. How will hyperloop projects be financed?

    Transportation infrastructure has traditionally relied on extensive government funding. This is because the benefits of clean, safe, and efficient transportation are enjoyed by the entire community, not just the user buying a ticket. However, most existing mass transportation modes are unprofitable and hindered by existing infrastructure built in the past century or by legacy systems. We want to change that and are focused on public-private partnerships. By developing a new mode of transportation from scratch, we're able to leverage technological developments that have occurred in the last century, especially the IT revolution. We're able to keep maintenance costs low, energy efficiency high, and transport tens of thousands of passengers per hour. This keeps margins and accessibility high, contributing to more financially attractive returns than if the corridor was served by existing modes. These benefits aren’t just hypothetical. While this is an exceptional case due to high demand, a third-party evaluation found that our Mumbai-Pune Hyperloop Project could be funded 100% by private capital. In the U.S. we see enormous potential to attract investment from the private sector, leveraging public investments. Involving government stakeholders as well as potential private investors early in the project development process is critical.

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