Pedestrians strolling on a repurposed disused railway - the High Line in New York

+ Public authorities need greater freedom to apply innovative financing mechanisms for much-needed infrastructure development.

Growing global demand for infrastructure, driven by an increasing population, is putting pressure on current financing mechanisms such as direct government funding and public-private partnerships. The fact that the world needs infrastructure as a tool to stimulate economic growth in a post-recession climate makes this even more of a problem. So what can we do?

As a start we need radical change in the way current funding systems function – to enable new infrastructure to be delivered in innovative ways. 

New York City is an example of what can be achieved when public authorities take a radical approach. The Hudson Yards redevelopment uses tax increment financing (TIF) to capture future tax revenues associated with the new development, using this to pay for the 7 Line Subway extension.   

While TIF mechanisms have been used in the UK, notably to fund the Battersea extension of the Northern Line, there are inefficiencies in the process due to the centralised nature of government. In contrast, New York City demonstrates that devolving financing powers to city authorities can make this process more flexible and efficient, removing the complexity of central government processes and giving the decision making powers back to the city most affected by the project. 

The Hong Kong Mass Transit Railway (MTR) also employs an innovative model. It follows the concept of ‘value capture’ and buys land adjacent to future rail lines from the government at pre-development prices. Once the line is built and the land alongside developed, they capture the growth in value of that land through leases and other mechanisms, using it to fund rail operations. The MTR is one of the only underground mass transit systems that is able to cover all of its costs unsubsidised. The success of the MTR strategy highlights the weaknesses of traditional infrastructure financing mechanisms, especially for transport proposals. 

There is a limit to the application of these models. They rely on higher land value and liberal planning. What happens when land value is low? In these instances a change to the status quo is required to stimulate private investment. Nothing is a better example than the High Line in New York City, a repurposed disused railway that catalysed the revitalisation of West Chelsea, which led the local government to pursue a re-zoning plan that attracted private investment. 

How do you create a system that allows local authorities and private capital to do what is typically done by the state? Can we leverage private sector investment in a more intelligent way and reduce the costs of financing? Governments need to be more ambitious in addressing the world’s infrastructure requirements, implementing radical change in public authorities and giving them greater freedom to apply innovative financing mechanisms for much-needed infrastructure development.