Land Use Policy 86 (2019) 357–364

Contents lists available at ScienceDirect

Land Use Policy

journal homepage: www.elsevier.com/locate/landusepol

An evaluative framework for examining the use of land value capture to T

fund public transportation projects
Shishir Mathur
Associate Dean (Research), College of Social Sciences, WSQ 216, One Washington Square, San Jose State University, San Jose, CA 95192-0185, USA

ARTICLE INFO ABSTRACT

Keywords: The proposed study contributes to the land use policy literature by first reviewing the existing literature to
Land value capture identify a set of major success factors and challenges to the use of land value capture (LVC) to fund public
TOD transportation projects. Next, it reviews LVC tools used to fund the metro rail system in Delhi, India—Delhi
LVC Metro. Finally, it uses the success factors and challenges identified in the study to present a framework for
Zoning
evaluating whether, how, and how well LVC tools are being used to fund Delhi Metro. This paper finds that
Land use
Metro rail
several intertwined factors, many related to land use planning and policy, limit the magnitude of LVC revenues.
Public transportation These factors include a lack of consistency between the plans of transit agencies and local governments, that has
led to poor planning for transit-oriented development (TOD) inside and around station land; the inability of
transit agencies to control land use and zoning for and around the station; and over-reliance on capturing value
from new properties instead of from all properties that benefit from the metro system.

1. Introduction public actions and through regional or jurisdiction-level level demand

Local governments face fiscal constraints globally. At the same time,
citizen often strongly oppose new taxes and increases to existing taxes
but demand increasingly higher-quality infrastructure and services.
This difficult situation is further exacerbated in rapidly urbanizing de-
veloping countries where governments must provide urban infra-
structure at a fast pace, including extremely capital-intensive heavy-
rail-based transit (commonly called metro rail). Furthermore, devel-
oping countries suffer from weak bond markets and property tax sys-
tems, and heavy external and internal debt, thereby limiting their
ability to access internal as well as international capital markets for
funds to develop infrastructure. These circumstances have led govern-
ments in many countries to actively seek new local revenue sources,
such as land value capture (LVC) tools.
1.1. What is LVC?
Economic theory suggests that if people are willing to pay for
amenities such as transportation accessibility, good schools, and clean
neighborhood, the value of these amenities should get capitalized into
the value of the land that supports such activities. Applied to the
transportation planning field, this theory suggests that the accessibility
provided by a transit system should increase the value of station-ad-
jacent properties. Furthermore, land values can increase through other
and supply changes such as population and income increases or mor-
atoria on new development. The public actions include zoning changes
(for example, a change from residential to commercial use) and
building regulations (for example, increases to building height and floor
area ratio). LVC tools should seek to identify and capture these value
increases. Such commonly used LVC tools that fund transit include the
sale of land; joint development projects in or around station-areas (in-
cluding the sale or lease of air rights above transit facilities such as
station or rail line); levy of assessment fee (also called betterment le-
vies/contributions in other countries) by a Special Assessment District
(SAD); generation and capture of property tax increment within a Tax
Increment Financing (TIF) district; and transit impact fees.
While a large body of existing research (see Ibeas et al., 2012;
Landis et al., 1994; Benjamin and Sirmans, 1996; Cervero and Duncan,
2002; Gatzlaff and Smith, 1993; Lewis-Workman and Brod, 1997;
Cervero and Landis, 1997) has empirically demonstrated that transit
investments increase property values, very little research documents
and analyzes the successes and challenges faced by public agencies as
they use these tools. In fact, Smith and Gihring (2006) call for practical
applications of value capture. This need for applied research is espe-
cially acute for developing countries of the Global South where hun-
dreds of cities are approaching or have exceeded the two-million-po-
pulation mark that is often considered the threshold for providing
metro rail (Government of India (GoI), 2012). A large number of these

E-mail address: shishir.mathur@sjsu.edu.

https://doi.org/10.1016/j.landusepol.2019.05.021
Received 30 November 2018; Received in revised form 13 May 2019; Accepted 15 May 2019
0264-8377/ © 2019 Elsevier Ltd. All rights reserved.
S. Mathur
cities are developing or are planning to develop metro rail. In India
alone, approximately 15 metro rail projects are in planning stages;
however, funding remains a challenge considering the extremely high
cost of a metro rail project (from $100 million per kilometer to as high
as $2 billion per kilometer). Moreover, such high costs have dis-
couraged many cities from even considering such projects, thereby
worsening automobile-use-induced traffic congestion and air pollution.
1.2. Study methodology and research questions
1.2.1. Study methodology
The proposed study contributes to the transit finance and LVC lit-
erature by first reviewing the existing literature to identify a set of
major success factors and challenges to the use of LVC to fund public
transportation projects. Next, it reviews LVC tools used to fund the
metro rail system in Delhi, India. Finally, it uses the set of factors
identified in the first step to present a framework for evaluating whe-
ther, how, and how well LVC tools are being used to fund Delhi Metro.
The study's focus on developing and implementing an evaluative
framework should help other regions that are considering developing
metro rail. Need for nuanced understanding gains further urgency as
international aid and lending agencies such as the UN-HABITAT and the
World Bank promote the use of LVC to fund urban development in the
Global South.
1.2.2. Research questions
Specifically, this study answers the following research questions:
a) What are the major success factors and challenges to the use of LVC
to fund public transportation projects?
b) What are the various LVC tools used by the Delhi Metro Rail
Corporation (DMRC), the transit agency in-charge of developing the
Delhi Metro?
c) Whether, how and how well the DMRC is employing the LVC tools
and the steps it took or is taking to address the challenges to the use
of LVC tools?
Delhi Metro is a suitable case study to demonstrate implementation
of the evaluative framework for the following reasons:
a) A rapidly growing large metro transit system: Delhi Metro is now
among the largest metro rail networks globally, having grown very
rapidly from a mere 8.3-km network in the year 2003 to more than
200 km by the year 2016 (Delhi Metro Rail Corporation Limited
(DMRC, 2003, 2016); with plans to add an additional 100 km over
next few years (Delhi Metro Rail Corporation Limited (DMRC,
2017a).
b) Significant funds from LVC: LVC has already generated close to $300
million, with plans to generate an additional $400 million.
c) Use of a variety of LVC tools: A wide variety of LVC tools have been
used, including the sale of land, the sale or lease of development
rights, the joint development of stations, the branding/naming of
stations, and property development. These tools are being used to
fund other Indian metro rail projects—for example, property de-
velopment for Ahmedabad Metro in the state of Gujarat (Delhi
Metro Rail Corporation Limited (DMRC, 2015a) and for Mumbai
Metro in the state of Maharashtra (Mumbai Metro Rail Corporation
Ltd (MMRCL, 2019).
d) Complex institutional and regulatory environment: Delhi Metro
operates in a very complex institutional and regulatory environ-
ment. The DMRC is a partnership between the state and central
governments and must obtain approval from various central, state,
and local government departments to develop the rail network and
to use LVC tools.
e) Challenges faced: Delhi Metro has faced a variety of challenges in
the use of LVC tools. Many of these challenges are faced globally by
358
Land Use Policy 86 (2019) 357–364
public agencies, such as limited land use and zoning powers.
The rest of the paper is divided in four sections. The next section,
the Literature Review, provides an overview of a) empirical estimates of
public transportation’s impact on property value b) use of LVC to fund
public transportation projects and c) success factors and challenges to
the use of LVC to fund public transportation. The subsequent section,
Delhi Metro, presents the case study. The next section critically reviews
the use of LVC to fund Delhi Metro. The final section concludes the
paper.
2. Literature review: use of LVC to fund public transportation
Literature on the use of LVC to fund public transportation typically
focus on one or more of the following themes: a) empirical estimation of
the impacts of public transportation on property values; b) examples of
the use of LVC to fund public transportation projects, often through case
studies; and c) the success factors and challenges, especially land use
regulation and policy-related, to the use of LVC to fund public trans-
portation. This section provides a broad overview of the literature fo-
cusing on these three themes.
2.1. Impacts of public transportation on property values
Estimating the impacts of public transportation systems on property
values is key to advocating for the use of LVC to fund these systems.
Indeed, a large and growing body of literature estimates the impacts of
various types of public transportation systems on property values.
Empirically examining the property value impacts of heavy rail, light
rail, buses, and bus rapid transit systems (BRTS), a large majority of
studies find that these transit systems increase property values (Brandt
and Maennig, 2012). Since Delhi Metro is a heavy-rail-based system,
below we review studies that focus on this type of transit system.
To estimate the accessibility-related benefit offered by a transit
system, extant literature often uses a) changes in property values as-
sociated with changes in the distance to the train station or b) measures
changes in property values before or after the opening of a transit line
or a station. For example, among the US-focused studies, Armstrong and
Rodrıguez (2006) find that in Eastern Massachusetts, single-family
houses within 0.5 miles of a commuter railway station were valued 10%
more than houses farther away. Similarly, McMillen and McDonald
(2004) find a very similar property value impact. They estimate that
properties located within 1.5 miles of the Orange Line in Chicago, IL,
appreciated 7% more than properties farther away. This appreciation
translates into a $216 million property value increase—enough to fund
47% of the $410 million project cost.
Among the studies focused on transit systems outside the US, Ibeas
et al. (2012) find a property values increase of 1.8% upon addition of a
rail line in Santander, Spain —perhaps indicative of the accessibility
benefits accrued due to network expansion. Agostini and Palmucci
(2008) estimate the impact of line four of the Santiago, Chile, metro
system on condominium prices and find a 4.2%–7.9% price increase
after the metro line was announced and a 3.1%–5.5% increase after the
station locations were identified. Finally, Bae et al. (2003) find that
prices of houses located within 1000 m of the station increased 8.9%
after a station opened on the Seoul’s subway line 5.
Similar property value increases are found for light rail (see Duncan,
2011; and Golub et al., 2012) and for BRTS (see Rodriguez and Mojica,
2009 and Dubé et al., 2011).
2.2. Use of LVC to fund public transportation projects
Globally, a large number of LVC tools are used either individually or
in combination with other LVC tools to fund public transportation
projects. These tools include SADs, betterment levies, impact fees, TIF,
the sale of development rights, joint development, the sale or lease of
S. Mathur
land, and real estate development. However, the enabling legal fra-
mework often fails to note specifically whether the LVC tool can be used
to fund public transportation; it simply does not prohibit it. For ex-
ample, Illinois’s TIF-enabling legislation does not specifically prohibit
the use of TIF for public transportation even though the list of eligible
uses does not include public transportation. Even in such an ambiguous
scenario, several local governments in Illinois have used TIF for public
transportation projects—primarily to fund station development—such
as the use of TIF by the city of Chicago to refurbish Wilson Yard station.
SAD is another popular LVC tool used to fund several public
transportation projects in the US. These include the streetcar system in
Seattle, WA (Shedd Allen Brackett, 2006), the New York Avenue Metro
Station in Washington, D.C. (WMATA, 2011a, 2011b), and a section of
the Red Line of the Los Angeles, CA, Metro (Sikes, 2008). Inter-
nationally, it was used to fund the subway line in Buenos Aires, Ar-
gentina, where a special fund was created by increasing property taxes
by 5% for the entire city and an additional 2.4% surcharge for prop-
erties within 400 m of the stations (Smolka, 2013).
Sale of development rights is another popular LVC tool. It has been
used in Brazil, China, India to fund public transportation (Suzuki et al.,
2015; Fang and Xue, 2015; Mathur, 2015; Smolka, 2013). However, the
use of another LVC tool, impact fee, is rare to fund public transporta-
tion; among the few know cases are the San Francisco, CA, Transpor-
tation Impact Development Fee (TIDF) and the Broward County, FL,
transportation concurrency fee.
Often, more than one LVC tool is used to fund public transportation,
particularly to fund station development or real estate development in
and around stations or transit lines. For example, the Mass Transit
Railway Corporation Limited (MTRCL), the agency in charge of oper-
ating and constructing Hong Kong’s mass rail transit system, uses joint
development and the sale/lease of development rights to fund the
metro system. MTRCL adopts, what it calls, the Rail + Property (R + P)
business model. In this model, the government provides the MTRCL
with land along rail corridors at cheaper—“before rail”—land values
(International Association of Public Transportation (UITP, 2011). The
MTRCL then partners with real estate developers for developing these
land parcels. The property development profits accrue to the MTRCL in
two ways: through a share of the profits from the sale of the property
and through an equity share in the property. These profits accrue to the
MTRCL because it effectively sells/leases development rights (the dif-
ference between the “before” and “after” land values). The MTRCL also
receives revenues through property management. All these revenues
are ploughed back to develop the rail network. The MTRCL has taken
the R + P business model to mainland China. For example, Shenzhen
and Tianjin are using this model to fund their metro rail systems (Hong
Kong Trade Development Council (HKTDC, 2015).
Similarly, two LVC tools—TIF and SAD—were used to fund the
Central Streetcar project in Portland, OR. The project was developed in
five phases, Phase 1 through Phase 3c, and TIF and SAD funded
30%–71% of the project costs of these phases (Portland Streetcar, Inc.,
2011). Finally, the Delhi Metro, this paper’s case study project, also uses
several LVC tools, such as the sale/lease of land and real estate, joint
development, and leasing space within the metro infrastructure for
advertising.
2.3. Success factors and challenges to the use of LVC to fund public
transportation
The extant literature focusing on this theme can be classified into
two streams. The first stream directly focuses on the success factors and
challenges to the use of LVC to fund public transportation projects. The
second steam examines enabling factors and challenges for transit-or-
iented developments (TODs). Although this, second, stream does not
focus on LVC tools directly, it is reviewed in this paper because a)
property development is at the core of TOD projects as well as LVC tools
such as joint development and b) many land use regulation and policy
359
Land Use Policy 86 (2019) 357–364
issues overlap both the streams of literature. Furthermore, these chal-
lenges/success factors are often intertwined and synergistic. For ex-
ample, the consistency between long range plans and public transpor-
tation projects leads to larger land value gains when the real estate
market is strong, and vice versa.
The major success factors include the following:
a) Balance between long-term, macro factors and current project-spe-
cific market conditions: Overall, macro factors such as rising in-
comes and population at the regional level, restructuring of a re-
gion’s economy from agricultural to manufacturing or from
manufacturing to services (often influenced by global forces as well
as state and federal government policies), and long-term planning
goals for the region should guide use of LVC tools (Suzuki et al.,
2015; Mathur, 2014). Such a focus on long-term macro factors
should help keep the focus on long-term gains, not on short-term
profits. For example, instead of selling land for short-term benefit,
the focus could be on developing long-term contractual arrange-
ments with the private sector—for example, a public agency could
lease land to the private sector at an initial lower annual fee (if real
estate market is not very strong) but retain the option to negotiate a
higher fee in the future and/or tie the fee increase to a local or a
regional real estate market index.
b) Clear intergovernmental collaboration framework: LVC tools such as
joint development projects are complex and time consuming, often
requiring approvals, aid, and input from various government agen-
cies such as the federal and the state governments, environmental
agencies, and planning agencies. Suzuki, Murakami, Hong and
Tamayose (2015) suggest assigning the coordinator’s role to one
government entity. However, the coordinating agency should also
be granted the power to enforce the rules for collaboration.
c) “Inclusive value creation” (Suzuki et al., 2015, page 12): This
principle calls for creating and sharing land value increases among
all stakeholders—governments, public agencies, transit agencies,
real estate developers, and the surrounding businesses and re-
sidential communities—not a small sub-set of stakeholders. This
inclusive sharing could enhance intergovernmental cooperation. For
example, inclusive value creation can facilitate land transfer from
one public agency to the other because both—the granting and the
receiving agency—benefit from the land transfer; incentivize timely
project approval from multiple government entities; and help garner
community support for the project. Finally, the principle of inclusive
value creation could be further expanded to ensure that the increase
in value of both new and existing properties is shared. For example,
rather than only focusing on generating revenue from new transit-
oriented developments, property value increases that accrue to ex-
isting surrounding properties could also be captured through LVC
tools such as special assessment districts.
d) Supportive and consistent land use and zoning: LVC tools are likely
to succeed in the presence of supportive land use and zoning reg-
ulations (Mathur and Smith, 2013). For example, Miami-Dade
County, Florida, used its land use and zoning powers to create a
new, Rapid Transit Zone (RTZ), to encourage joint development
along rapid transit lines (Cervero et al., 2004). By standardizing the
zoning ordinance among all municipalities within the RTZ, private
developers' risk is lessened. Flexible land use and zoning also helps
(Mathur, 2014; Suzuki et al., 2015). For example, acceptable out-
comes could be prescribed, such as, the maximum acceptable level
of traffic congestion, or air and noise pollution; rather than pre-
scriptive land uses, maximum floor area ratio (FAR), and minimum
site setbacks. Similarly, long range plans (and the attendant land
use) and zoning should be consistent with each other (Renne et al.,
2011). For example, if the long range plan calls for high density
residential development, the zoning regulations, through tools such
as high FARs and relaxed building height restrictions, should enable
such densities.
S. Mathur
Fig. 1. Network Length and LVC Revenue Trends.
e) Entrepreneurial transit agencies: Given their engineering focus,
many times transit agencies do not see themselves engaging in
property development. However, a few transit agencies—for ex-
ample, the MTRCL in Hong Kong and the WMATA in the US—have
shown entrepreneurial spirit. WMATA has a “Real Estate & TOD”
division that proactively seeks private sector partners to develop
TODs on its properties (WMATA, 2018).
The major challenges include the following:
a) Limited or no zoning powers: Very often transit agencies have lim-
ited or no land use or zoning powers over land in and around transit
stations (Cervero et al., 2004; Renne et al., 2011). In some cases,
transit agencies are even prohibited from engaging in real estate
development (Cervero et al., 2004; Mathur, 2014).
b) Internal opposition: Even if transit agencies are granted land use or
zoning powers, they may face internal opposition. For example,
some board members might oppose their agency’s involvement in
real estate development—independently as well as jointly with
private developers (Cervero et al., 2004).
c) External public sector opposition: Public agencies such as city gov-
ernments or redevelopment agencies might oppose granting land
use or zoning powers to transit agencies (Cervero et al., 2004).
d) Corruption: LVC-based property development often involves
transfer of land from the public to the private sector. However, such
land transfer is often perceived with suspicion. Therefore, im-
plementing agencies should make the community aware of the
project details, involve the surrounding community and community
based organizations in the project planning and development ac-
tivities, and transparently record all project-related transactions
(Suzuki et al., 2015).
e) Lack of institutional capacity: Focusing on the institutional capacity
required to use property development as a LVC tool, especially in a
joint development framework, Lefavre (1997) notes that transit
agencies could lack a nuanced understanding of real estate markets
and development process. They may also mismanage their proper-
ties or overestimate their market value.
3. Study area
3.1. Delhi Metro: overview and key system characteristics
With a population of over 11 million in mid-1990s, Delhi was the
only city in the world of its size at that time to be completely dependent
on buses for public transportation. The bus system was inadequate and
overcrowded, which resulted in the proliferation of personal vehicles
and, in turn, road congestion and extreme environmental pollution
(Delhi Metro Rail Corporation Limited (DMRC, 1997). At this time,
Delhi had more personal vehicles than the other three big Indian cities
combined—Mumbai, Kolkata, and Chennai. It was also the fourth most
360
Land Use Policy 86 (2019) 357–364
polluted city in the world, with automobiles contributing to more than
two-third of the air pollution (Delhi Metro Rail Corporation Limited
(DMRC, 1997).
Furthermore, the city’s population was increasing by a half million
annually on average (Delhi Metro Rail Corporation Limited (DMRC,
1998), further straining the inadequate transportation system. In this
scenario, the Government of the National Capital Territory of Delhi
(GNCTD) commissioned a study to examine the feasibility of developing
a mass transit system for the city. This feasibility study was completed
in 1991. Using this study as the base, the Government of India (GoI)
provided in-principle approval for the construction of a mass rapid
transit system for the city and for the preparation of a detailed project
report (DPR). Completed in 1995, the DPR recommended a primarily
rail-based public transportation network (Delhi Metro Rail Corporation
Limited (DMRC, 1996, 1997) to be developed by a joint venture be-
tween the GoI and the GNCTD. Acting on the DPR’s recommendations,
the DMRC was incorporated in May 1995 as a joint venture (with equal
equity contribution) between the GoI and the GNCTD. In 1996, the GoI
approved the 55.3-km Phase 1 of the Delhi Metro system (Delhi Metro
Rail Corporation Limited (DMRC, 1997, 1998). The total network
length was later extended to 65.1 km (Delhi Metro Rail Corporation
Limited (DMRC, 2016). The subsequent phases—Phases 2 and 3—were
approved in 2005 (Delhi Metro Rail Corporation Limited (DMRC, 2006)
and 2011, respectively (DMRC, 2012). Phase 2 was originally planned
to include 50.14 km (Delhi Metro Rail Corporation Limited (DMRC,
2006) but was expanded to include 124.93 km. Similarly, Phase 3 was
originally approved to include 103.05 km but will total 160.57 km upon
completion (DMRC, 2012). The three phases combined will result in
350.6 km of rail network and 257 stations. As of March 2017, a 213-km
network is fully operational with a total annual ridership of over 1
billion passengers and an average daily ridership of 2.76 million pas-
sengers (Delhi Metro Rail Corporation Limited (DMRC, 2016, 2017b).
Figs. 1 and 2 illustrate the rapid growth of Delhi Metro’s network length
and average daily ridership.
Funding, including the use of LVC
As mentioned earlier, DMRC is a joint venture between the GoI and
the GNCTD—with equal equity contributions from both governments.
However, the single largest funding source for the Delhi metro is official
development assistance loans from the government of Japan through
the Japan International Cooperation Agency (JICA), referred to as
“JICA loans” in DMRC documents. While the GoI and GNCTD equity
shares range from 10% to 16% over the three phases of Delhi Metro,
JICA loans range from 49% to 60%. The share of LVC revenues
(grouped under “property development” or “real estate revenue” in
DMRC documents) range from 5.6% to 7.3%, which would equal more
than US$700 million of the total project cost of approximately US$11
billion—or approximately 7% of the project cost over the three phases
(DMRC, 2015). According to our calculation, of this US$700 million,
S. Mathur Land Use Policy 86 (2019) 357–364

Fig. 2. Daily Ridership and LVC Revenue Trends.

Table 1 example, the sale of two land parcels accounted for approximately 85%
Delhi Metro’s Funding Sources. of LVC revenues during FY 2004-05. Similarly, land sales accounted for
Source: Delhi Metro Rail Corporation Limited (DMRC, 2015b 90% of LVC revenues in FY 2008-09. However, these land sales were
Phases of Delhi Metro controversial. Other government entities originally sold these land
parcels to the DMRC at very nominal prices (almost free); therefore,
Phase 1 Phase 2 Phase 3a their subsequent sale by DMRC was criticized as a give-away to private
developers even though the DMRC notes that the land parcels were sold
Total Cost USD 1.65 USD 2.93 USD 6.42 billion
billionb billion through a competitive bidding process. Nevertheless, due to concerns
JICA Loan 60% 54.5% 48.6% expressed by the Prime Minister’s Office, the DMRC stopped awarding
GoI Equity 14% 16.4% 10.0% long-term land leases after FY 2008-09 (Hindu, 2016b), instead fo-
GNCTD Equity 14% 16.4% 10.0%
cusing on short- to medium-term leases. For example, in FY 2006-07,
LVC Revenue 7% 5.6% 7.3%
Others (debt, grant, etc.) 5% 7.2% 24.0%
in-lieu of obtaining a 30-year lease to build and operate a shopping mall
at a metro station, a developer paid an upfront fee of US$3.7 million
a
Estimates for Phase 3, since it is on-going. and promised to pay an annual fee of US$0.5 million for 30 years, and
b
At the rupee to dollar exchange rate of 1 USD = 64 Indian Rupee as of the developer bore the cost of developing the metro station. The DMRC
September 14, 2017. also awards short-term leases of up to 12 years to operate kiosks and
concession stands at the metro stations, and in 2017, it forayed into
approximately US$295 million was realized as of FY 20015-2016. property development by beginning to construct for-sale apartments
Table 1 describes the various funding sources for the three phases of the (Hindustan Times, 2017). The various LVC tools are summarized in
Delhi Metro. Table 2. Finally, LVC revenues lag the rate of growth in ridership and
The share of LVC revenues in total revenues also approximate 7% network length (see Figs. 1 and 2), especially when we examine the
between FY 2002-03 and FY 2015-2016. The other major revenue trends in the post FY 2008-09 period, when the sale of land was dis-
sources include operations (primarily ticket sales), consultancy, and continued.
other sources. The “other” category includes civil works undertaken by
the DMRC for metro systems across India. The DMRC also provides
4. Case study evaluation
consultant services for metro system development in India and abroad
(Hindu, 2016a).
There has been no internal opposition to the DMRC’s use of LVC
LVC revenues have not been very stable, however. As Fig. 3 shows,
tools. The DMRC has shown significant entrepreneurial spirit by em-
they represented a very large proportion of total revenue in earlier
ploying a wide range of LVC tools as noted in Table 2 and has developed
years—30% to 66% of total revenues during the FY 2002-03 to FY
significant institutional capacity to use LVC tools. Significant challenges
2008-09 period—due to two factors. First, revenue from operations was
remain, however. Drawing upon the set of success factors and the
not significant at this point because metro ridership was just beginning
challenges identified in the Literature Review section, this section
to build up. Other revenue sources—consultancy and civil works—were
evaluates how and how well the DMRC has used LVC tools to fund Delhi
also in their beginning stages. Second, the DMRC sold several land
Metro. It also reviews the policy responses already implemented or
parcels during this period, thereby accruing large sums of money. For
under implementation to address some of the challenges. Finally, it

Fig. 3. LVC Revenue as % of Total Revenue.

361
S. Mathur
Table 2
Various LVC Tools Used by DMRC.
Source: Delhi Metro Rail Corporation Limited (DMRC, 2017c.
LVC Tool
Long-term lease (60-year or more) of land for residential or commerical development
Medium-term (up to 30 years) concession agreements for commerical development
Short-term (up to 12 years) concessions for commercial/office spaces
Development of residential, commerical and office properties
Naming of stations
Advertisements
offers potential options to consider where the challenges are un-
addressed.
4.1. No land use or zoning powers; lack of inclusive vision; unclear
intergovernmental collaboration framework
From the very early stages of the metro system development, the
DMRC was expected to raise funds—for example, raising 3% of the
Phase 1 cost—through LVC; a target that it well exceeded primarily by
selling land. The DMRC received these land parcels at very nominal
prices from other government agencies. However, the DMRC struggled
to raise revenue through other LVC tools, such as real estate develop-
ment, largely due to difficulties obtaining permits from various public
agencies (these agencies include several local, state, and central gov-
ernment departments), including permission for land use changes
(Delhi Metro Rail Corporation Limited (DMRC, 2003)—difficulties that
hit the agency’s LVC revenues hard when the sale of land was dis-
continued in FY 2008-2009. Furthermore, other public agencies resent
that the land parcels they transferred to the DMRC at nominal prices
was sold by the DMRC to the private developers at very high prices. In
the absence of a) an inclusive vision for the use of LVC tools, b) a clear
consistency between long range plans and the Delhi Metro Project, and
c) an empowered coordinating agency, these intergovernmental co-
ordination issues have been difficult to address.
While several national-level policy documents, such as the National
Urban Transport Policy 2006 and 2014 (Government of India (GoI,
2006, 2014) and more recently, the GoI’s Value Capture Finance Policy
Framework (Government of India (GoI, 2017) emphasize the use of LVC
to fund public transit, transit agencies in India are not granted the land
use and zoning powers needed to maximize LVC revenues—a problem
they share with transit agencies world-wide. For example, the Bay Area
Rapid Transit (BART) in the San Francisco Bay Area of California, USA,
does not have the power to determine non-transit-related land uses for
station land. Similar to the DMRC, the BART has to seek local govern-
ment approval to provide commercial, office or residential uses on the
land it owns, including station land.
We offer two policy options for consideration: first, consider
granting land use and zoning powers to transit agencies while requiring
them to ensure that their land use plans, zoning, and building codes are
consistent with the local jurisdiction’s vision and plans; second, create
regulations and/or incentives for local planning agencies and transit
agencies to enhance inter-agency coordination; for example, require
these agencies to develop station plans jointly and in a time-bound
manner.
4.2. Inflexible zoning
While appropriate land use and zoning for station land is important
in order to harness land value, transit-oriented development (TOD)
around stations is equally important. Typically, a radius of 0.8–1.6 km
(0.5–1.0-mile radius) around a station defines the station area: an area
over which local governments, not transit agencies, typically exercise
planning control. In the case of Delhi Metro, the Delhi Development
Authority (DDA) exercises such land use and zoning control and has
362
Land Use Policy 86 (2019) 357–364
Location (inside or outside station or station land)
Outside
Outside/inside
Inside
Outside
Inside
Inside (including inside the trains)
traditionally allowed a floor area ratio (FAR) of one to 2.5 only. Because
real estate developers bid less for low-FAR land parcels, low FARs de-
press land values in areas with robust demand for real estate.
In the case of Delhi Metro, the DMRC requested a higher FAR for
station and station area land (Delhi Development Authority (DDA,
2017). However, vary of the negative impacts of high-intensity devel-
opment, the DDA refused to allow higher FAR until very recently, when
GoI, through a TOD policy, allowed an FAR of four along 500 m on
either side of the metro rail line (Hindustan Times, 2015). While this
FAR increase is a welcome step, it has two shortcomings.
First, it allows high intensity development along the entire rail
corridor, not just around the station. A station provides transportation
accessibility while a rail line does not. In fact, proximity to a rail line is
a disamenity due to nuisances related to sound- and air-pollution, vi-
brations, and poor aesthetics.
Furthermore, several studies find that metro train stations increase
property values up to 3.2 km (2 miles) from the station (Debrezion
et al., 2007). This property value increase points to an increased real
estate demand that conservatively extends up to 1.0 km from a metro
train station and where properties benefit from a higher FAR—twice of
the 500-meter distance used to grant higher FAR in Delhi.
Second, by granting a higher FAR of four for free, public agencies
can only indirectly capture some of the value increase. For example, a
higher FAR could result in higher-density development, which in turn
could result in increased metro ridership (leading to more ticket sales)
and a larger customer base for kiosks and commercial outlets located in
and around metro stations (leading to higher concession fees).
However, a much larger and direct value capture opportunity is lost.
We suggest that instead of granting a higher FAR for free, sale of FAR
should be considered and revenue from such sales should be at least
partially used to fund metro rail projects. The remainder could be used
to augment other infrastructure and services required to serve higher-
density development —such as water and sewer systems. Indeed, such a
sale of FAR is already used in India, for example, along 250 m on either
side of the Rajkot, Gujarat, BRTS (Mathur, 2015) and is used inter-
nationally to fund urban development (e.g., see Peterson, 2008).
4.3. Inability to capture the value of all properties benefitting from the metro
system
The DMRC has actively focused on property development as a LVC
tool. However, property development and the sale of FAR capture value
increases for new developments only, while the extant literature shows
that existing properties also benefit from transportation accessibility. As
mentioned in the previous section, properties within a radius of 1 km
from metro stations receive this benefit. We suggest the use of SADs.
Inside a SAD, all properties—both existing and new—can pay an annual
fee. Such a district could stretch up to 1 km around each metro station.
Furthermore, the radii and the fee rate can change from station to
station based on the magnitude and spatial extent of the transportation-
accessibility-related benefits provided by each station. See Mathur
(2014) for detailed examples of the use of SADs to fund various public
transportation projects in the US—the Los Angeles Metro; the Seattle
streetcar; and the Portland streetcar. In particular, the Seattle streetcar’s
S. Mathur
fee calculation methodology shows how fees can be proportional to the
benefits received by each property.
4.4. Sale of land—perception of corruption and focus on short-term profit
While the sale of land is a simple and direct LVC tool, it is proble-
matic for two major reasons. First, it is highly susceptible to allegations
of corruption, especially in developing countries where citizens often
view the governments as poor custodians of public resources. Second,
by selling land at the initial stages of metro rail development, public
agencies might not capture the value increases that could accrue once
the transit systems are more developed and the real estate market in
station areas has matured. For example, the DMRC began to sell land in
the initial stages of development of Delhi Metro—FY 2005–2006, the
third year of operation of the first, 8.3-km, section of metro rail
(commercial operations on this stretch began on December 25,
2002)—highlighting the importance of focusing more on long-term
benefits compared to short-term profits.
4.5. Balance between strong, long-term, macro factors and project-specific
market conditions: Less-desirable station locations
The DMRC is struggling to use LVC tools for stations in less-desirable
locations. The DMRC’s requests for proposals (RFPs) to rent kiosks and
commercial spaces in such stations often garner little interest
(Hindustan Times, 2016). Other transit agencies face a similar situation.
For example, Hong Kong’s MTRCL has successfully used property de-
velopment (the R + P model described earlier in this paper) along only
two of the five rail lines developed since 2007. The government has
borne the entire cost of the other three lines (GovHK, 2012; LegCo,
2012; Bloomberg, 2010). In summary, there is a need to adopt a
pragmatic approach to the use of LVC to fund metro rail, keeping in
mind that these tools’ feasibility might change across space and time.
5. Conclusions
The case analysis shows that the use of LVC tools require thoughtful
planning, design and implementation, and close coordination with
other public/government agencies, especially those with land use and
zoning powers. Furthermore, it is critical that such LVC tools capture
the benefit received by the existing properties. This is especially im-
portant because such properties form the bulk of the real estate stock.
New properties often only account for 2%–5% of all properties.
However, capturing value from existing properties typically require
levying fee based on metrics such as the size of the land parcel, the built
up area, and the value of the property. Such metrics require compre-
hensive and accurate property records, which are often not available in
developing countries. Therefore, future research could provide practical
solutions/work-around to overcome this challenge.
Finally, we hope that the set of success factors and challenges
identified in this paper, and their use to evaluate Delhi Metro’s efforts to
garner revenues from LVC tools would enhance governments’, transit
agencies’, and transportation policy makers' understanding of the po-
licies and tools needed to successfully use LVC tools to fund public
transportation projects.
Acknowledgment
The research for this paper was partially funded by San Jose State
University 2017-2018 RSCA Award.”
References
Agostini, C., Palmucci, G., 2008. The anticipated capitalisation effect of a new metro line
on housing prices. Fisc. Stud. 29 (2), 233–256.
Armstrong, R., Rodrıguez, D., 2006. An evaluation of the accessibility benefits of
363
Land Use Policy 86 (2019) 357–364
commuter rail in Eastern Massachusetts using spatial hedonic price functions.
Transportation 33, 21–43.
Bae, C., Jun, M.-J., Park, H., 2003. The impact of Seoul’s subway line 5 on residential
property values. Transp. Policy 10, 85–94.
Benjamin, J., Sirmans, S., 1996. Mass transportation, apartment rent and property values.
J. Real Estate Res. 12 (1), 1–8.
Bloomberg, 2010. MTR Corporation MTR Re Contract. Available at: http://www.
bloomberg.com/apps/news?pid=newsarchive&sid=aXotoGvFTI.E (Accessed 01
November 2012). .
Brandt, S., Maennig, W., 2012. The impact of rail access on condominium prices in
Hamburg. Transportation 39 (5), 997–1017.
Cervero, Robert, et al., 2004. Transit-Oriented Development in the United States:
Experiences, Challenges, and Prospects. TCRP Report 102. Transportation Research
Board, Washington, DC.
Cervero, R., Duncan, M., 2002. Benefits of proximity to rail on housing markets: ex-
periences in Santa Clara County. J. Public Trans. 5 (1), 1–18.
Cervero, R., Landis, J., 1997. Twenty-years of the bay area rapid transit system: land use
and development impacts. Transp. Res. A 31 (4), 309–333.
Delhi Development Authority (DDA), 2017. Mid-Term Review of MPD 2021. DMRC Letter
to Delhi Development Authority. Available at: http://dda.org.in/planning/
suggestions/Dy.No.1434-MPR-DDA.pdf (Accessed 12 June 2017). .
Delhi Metro Rail Corporation Limited (DMRC), 1996. 1st Annual Report: 1995-1996.
DMRC, New Delhi.
Delhi Metro Rail Corporation Limited (DMRC), 1997. 2nd Annual Report: 1996-1997.
DMRC, New Delhi.
Delhi Metro Rail Corporation Limited (DMRC), 1998. Annual Report: 1997-1998. DMRC,
New Delhi.
Delhi Metro Rail Corporation Limited (DMRC), 2003. Annual Report: 2002-2003. DMRC,
New Delhi.
Delhi Metro Rail Corporation Limited (DMRC), 2006. Annual Report: 2005-2006. DMRC,
New Delhi.
Delhi Metro Rail Corporation Limited (DMRC), 2015a. Detailed Project Report for
Ahemdabad Metro Rail Project (Phase—1). Available at: http://www.
gujaratmetrorail.com/wp-content/uploads/2016/02/Revised-Ahmedabad-Metro-
DPR-Compiled-20th-May-2015.pdf (Accessed 23 January 2019). .
Delhi Metro Rail Corporation Limited (DMRC), 2015b. Delhi MRTS: Cost & Funding Plan
for Phase-I, II and III. Available at: http://www.delhimetrorail.com/
otherdocuments/funding.pdf (Accessed 11 August 2017). .
Delhi Metro Rail Corporation Limited (DMRC), 2016. Annual Report: 2015-2016. DMRC,
New Delhi.
Delhi Metro Rail Corporation Limited (DMRC), 2017a. Expression of Interest (EOI No.:
DMRC/ENV/HGD-PH-IV/266/2017): Delhi Metro Rail Corporation, New Delhi:
Selection of Consultants for Carrying Out Hydro-Geological Studies for Delhi MRTS
Phase-IV. Available at: http://delhimetrorail.com/otherdocuments/922/EOI
(31mar2017).pdf (Accessed 21 September 2017). .
Delhi Metro Rail Corporation Limited (DMRC), 2017b. Delhi Metro’s Cumulative
Ridership for the Financial Year 2016-2017 Crosses One Billion (100 crores).
Available at: http://www.delhimetrorail.com/press_reldetails.aspx?id=
ZlXC4jMrU00lld (Accessed 09 July 2017). .
Delhi Metro Rail Corporation Limited (DMRC), 2017c. Property Development. Available
at: http://www.delhimetrorail.com/Property_Development/pd_workundertaken.
aspx (Accessed 12 September 2017). .
Debrezion, G., Pels, E., Rietveld, P., 2007. The impact of railway stations on residential
and commercial property value: a meta-analysis. J. Real Estate Financ. Econ. 35 (2),
161–180.
Dubé, J., Rosiers, F., Thériault, M., Dib, P., 2011. Economic impact of a supply change in
mass transit in urban areas: a Canadian example. Transp. Res. Part A 45, 46–62.
Duncan, M., 2011. The impact of transit-oriented development on housing prices in San
Diego, CA. Urban Stud. 48 (1), 101–127.
Fang, W., Xue, L., 2015. How a Chinese Megacity is Innovating Finance for Transit-or-
iented Development. Available athttp://thecityfix.com/blog/how-chinese-
megacity-innovating-finance-transit-oriented-development-tdm-wanli-fang-lulu-xue/
(Accessed 15 December 2018). .
Gatzlaff, D., Smith, M., 1993. The impact of the Miami Metrorail on the value of re-
sidences near station locations. Land Econ. 69 (1), 54–66.
Government of India (GoI), 2006. National Urban Transport Policy. Available at: http://
www.indiaenvironmentportal.org.in/files/TransportPolicy.pdf (Accessed 04 May
2017). .
Government of India (GoI), 2012. Innovative Financing of Metro Rail Projects. Available
at: http://moud.gov.in/upload/uploadfiles/files/Innovative-financing-on-Metro-
rails.pdf (Accessed 04 June 2017). .
Government of India (GoI), 2014. National Urban Transport Policy, 2014. Available at:
http://itdp.in/wp-content/uploads/2014/11/NUTP-2014.pdf (Accessed 04 June
2017). .
Government of India (GoI), 2017. Value Capture Finance Policy Framework. Available
at: https://smartnet.niua.org/sites/default/files/resources/VCF_Policy_Book_FINAL.
pdf (Accessed 04 June 2017). .
GovHK, 2012. Press Releases: LCQ6: MTR Property Development. Available at: http://
www.info.gov.hk/gia/general/201204/25/P201204250310.htm (Accessed 01
November 2012). .
Golub, A., Guhathakurta, S., Sollapuram, B., 2012. Spatial and temporal capitalization
effects of light rail in Phoenix: from conception, planning, and construction to op-
eration. J. Plan. Educ. Res. 32 (4), 415–429.
Hindu, 2016a. DMRC Emerges As Key Consultant. Available at: http://www.thehindu.
com/news/national/other-states/DMRC-emerges-as-key-consultant/
article14389137.ece (Accessed 20 September 2017). .
S. Mathur
Hindu, 2016b. DMRC Formulates Housing Scheme in Janakpuri West. Available at:
http://www.thehindu.com/news/cities/Delhi/DMRC-formulates-housing-scheme-in-
Janakpuri-West/article14483806.ece (Accessed 20 September 2017). .
Hindustan Times, 2017. Buy 2BHK, 3BHK Flats from Delhi Metro, Applications Open in
May. Available at: http://www.hindustantimes.com/delhi-news/buy-2bhk-3bhk-
flats-from-delhi-metro-applications-open-in-may/story-86zjtmAbqsmdk98CwnSPM.
html?isab=true&meta-geo=—— (Accessed 02 August 2017). .
Hindustan Times, 2016. DMRC Struggling to Rent out Space at Metro Stations. Available
at: http://www.hindustantimes.com/delhi-news/dmrc-struggling-to-rent-out-space-
at-metro-stations/story-Ypx6jopDHRQ2aVG7mpcluN.html (Accessed 09 August
2017). .
Hindustan Times, 2015. Delhi: Centre Clears Way for High-rises Along Metro Corridors.
Available at: http://www.hindustantimes.com/delhi-news/delhi-centre-clears-way-
for-high-rises-along-metro-corridors/story-kpphKCk3zyfW4stxNs5cGO.html?isab=
true&meta-geo=—— (Accessed 02 August 2017). .
Hong Kong Trade Development Council (HKTDC), 2015. Featured Projects: R+P Model
for Sustainable Urban Development. Available at: http://www.hktdc.com/ncs/ires/
en/s/RPModel.html (Accessed 29 January 2019). .
Ibeas, A., Cordera, R., dell’Olio, L., Coppola, P., Dominguez, A., 2012. Modelling transport
and real-estate values interactions in urban systems. J. Transp. Geogr. 24, 370–382.
Landis, J., Guhathakurta, S., Zhang, M., 1994. Capitalization of Transportation
Investments into Single-family Home Prices.” Working Paper 619. Institute of Urban
and Regional Development, University of California, Berkeley, CA.
Lefavre, S., 1997. Public Land With Private Partnerships for Transit Based Development.
Mineta Transportation Institute, San José, CA.
LegCo, 2012. LC Paper No. CB(1)1327/11-12: Updated Background Brief on Shatin to
Central Link. Available at: http://www.legco.gov.hk/yr11-12/english/panels/tp/tp_
rdp/papers/tp_rdp0323cb1-1327-e.pdf (Accessed 10 September 2017). .
Lewis-Workman, S., Brod, D., 1997. Measuring the neighborhood benefits of rail transit
accessibility. Transp. Res. Rec. 1576, 147–153.
Mathur, S., 2015. Sale of development rights to fund public transportation projects: in-
sights from rajkot, India, BRTS Project. Habitat Int. 50, 234–239.
Mathur, S., 2014. Innovation in Public Transport Finance: Property Value Capture.
Ashgate, Burlington, VT and Farnham, Surrey, U.K.
Mathur, S., Smith, A., 2013. Land value capture to fund public transportation infra-
structure: examination of joint development projects’ revenue yield and stability.
364
Land Use Policy 86 (2019) 357–364
Transp. Policy 30, 327–335.
McMillen, D., McDonald, J., 2004. Reaction of house prices to a new rapid transit line:
Chicago’s Midway Line, 1983–1999. Real Estate Econ. 32, 463–486.
Mumbai Metro Rail Corporation Ltd (MMRCL), 2019. Project Funding. Available at:
https://www.mmrcl.com/en/project/project-funding (Accessed 22 February 2019. .
Peterson, G., 2008. Unlocking Land Values to Finance Urban Infrastructure: Trends and
Policy Options. World Bank, Washington, DC.
Portland Streetcar, Inc, 2011. Portland Streetcar Capital and Operations Funding
(September 2010). Available at: http://www.portlandstreetcar.org (Accessed 16
July 2011). .
Renne, J., Bartholomew, K., Wontor, P., 2011. Transit-Oriented and Joint Development:
Case Studies and Legal Issues. Transportation Research Board, Washington, DC.
Rodriguez, D., Mojica, C., 2009. Capitalization of BRT network expansions effects into
prices of non-expansion areas. Transp. Res. Part A 43, 560–571.
Shedd Allen Brackett, 2006. Final Special Benefits Study for South Lake Union Streetcar.
City of Seattle, Seattle, WA. .
Sikes, D., 2008. Assessment districts program. It’s Time to Move LA Conference. Available
at: www.movela.org/pptdocs/LACTFC_BenefitAssessment.ppt (Accessed 10 August
2011).
Smith, J., Gihring, T., 2006. Financing transit systems through value capture. Am. J.
Econ. Sociol. 65 (3), 751–786.
Smolka, M., 2013. Implementing Value Capture in Latin America: Policies and Tools for
Urban Development. Lincoln Institute of Land Policy, Cambridge, MA.
Suzuki, H., Murakami, J., Hong, Y.-H., Tamayose, B., 2015. Financing Transit-oriented
Development with Land Values. World Bank Group, Washington, DC.
International Association of Public Transportation (UITP), 2011. Project/initiative South
Island Line (East): Implementing the “Rail + Property” Financing Model. Available
at: http://www.ptx2uitp.org/sites/default/files/showcase_pdf/37_china.pdf
(Accessed 11 February 2012). .
WMATA, 2011a. Metro’s New York Ave-Florida Ave-Gallaudet U Metrorail Station Opens
Today on the Red Line. Available at: http://www.wmata.com (Accessed 10
December 2011). .
WMATA, 2011b. Project Overview Relative to a Proposed New Station at Potomac Yards.
Available at: http://www.scribd.com (Accessed 10 December 2011). .
WMATA, 2018. Metro Real Estate & TOD. Available at https://www.wmata.com/
business/real-estate/index.cfm (Accessed 27 November 2018). .