Land Value Capture

Land value capture (LVC) is a financing approach through which public authorities recover part of the rise in urban land values caused by public investment or planning decisions. It converts a share of this publicly created increment into revenue, land or infrastructure, rather than allowing the entire gain to accrue to landowners.

How value is created and recovered

Transport links, utilities and public amenities improve accessibility, while changes in land use or permissible building intensity increase development potential. These actions can raise nearby land prices even without investment by the owner.

• The authority identifies the benefiting area, estimates the increase over an appropriate baseline and determines the recoverable share.
• Recovery may occur through a tax or levy, a charge at development approval, the contribution of land, or the sale of additional development rights.
• The proceeds can finance the infrastructure that generated the increase, creating a self-financing cycle of urban development.

Principal instruments

The appropriate instrument depends on land ownership, local law, the property-tax system and the nature of the project.

• A betterment levy charges landowners for the measurable benefit produced by a public improvement.
• Development charges, impact fees and premiums for additional floor space or change of land use collect value when development permission is granted.
• Under land pooling, owners contribute land for infrastructure and receive smaller but serviced plots whose value may be higher.
• Tax increment financing uses the future increase in property-tax revenue within a designated area to support present infrastructure financing.
• Public authorities may auction serviced public land or development rights to realize part of the value created by planning and infrastructure.

Institutional basis and safeguards

Under Article 243W and the Twelfth Schedule, state laws may entrust municipalities with urban planning, land-use regulation and related functions. Article 243X enables state legislatures to authorize municipal taxation and related municipal funds.

• Valuation methods, beneficiary boundaries and the use of proceeds should be transparent to prevent arbitrary charges and speculative manipulation.
• Revenue should be linked to infrastructure, affordable housing and basic services so that LVC supports inclusive urbanization.
• Safeguards are needed against displacement and disproportionate burdens on low-income residents, tenants and informal settlements.