New ways to fund public transport infrastructure

Francis Sootoo, Director of SYSTRA Hong Kong, discusses the city’s success on funding transport projects through the right kind of property development

The main funding model used for TOD in Hong Kong is knows as Rail + Property (R+P). The Government grants land around a new station to the transport operator who then puts developments out to tender, with planning in place

The main funding model used for TOD in Hong Kong is knows as Rail + Property (R+P). The Government grants land around a new station to the transport operator who then puts developments out to tender, with planning in place

Transport planners are often asked to ‘sort out’ transport provision for a development long after its location has been set. That is the wrong way round. Transport planning and land use planning should go hand-in-hand. 

Developing higher density housing, employment and other uses around transport hubs can create sustainable communities where active travel and higher use of public transport drive down carbon emissions and help create healthier, more liveable environments.

Whereas in the UK, a train or bus station is simply seen as transport infrastructure, in Hong Kong the station and its many approaches reach out into the surrounding neighbourhoods, enhanced with retail, cafes or other uses, drawing people in

If transport operators, local authorities and developers work together more closely at all stages of the development planning process, there are opportunities to fund new transport infrastructure without having to rely on Central Government funds. With new homes and businesses bringing customers into a transport network, and the convenience of a transport network attracting residents and businesses, this approach can be mutually beneficial for the public transport operator and developer.

It is a model called Transit-Oriented Development (TOD), which has been successfully deployed in urban centres around the world, such as Hong Kong, North America, Sweden and Denmark.

In the UK, it could mean building schemes around a new station on an existing rail line, extending light rail lines or linking developments into bus rapid transit networks.

Transit-oriented development creates sustainable communities

Hong Kong is often held up as an exemplar for TOD. Long before the concept of the 15-minute city became popular, Hong Kong was using TOD to work to that principle.

“Rather than the 15-minute city, in Hong Kong we have ‘first mile, last mile’,” says Francis Sootoo, a director of SYSTRA Hong Kong who has worked on TOD schemes there since 1994. 

“The principle is that the development is community-centric. The proposition is to reduce vehicle trips and to make the network more attractive and accessible. In HK, we have 90% of daily commuters travel by public transport. This is by far the highest in the world.”

The success of TOD in Hong Kong is down to a far-sighted approach to planning that began when the Mass Transit Rail Corporation (MTRC) was formed in 1975. “In Hong Kong we have had a very strong institutional arrangement for the past 45 years,” explains Sootoo.

“The Government plays a strong part, as 75% owner of MTRC with all parties working together to resolve potential conflict and interfacing issues at an early stage of the planning.” 

The main funding model used for TOD in Hong Kong is knows as Rail + Property (R+P). The Government grants land around a new station to the transport operator who then puts developments out to tender, with planning in place.

The developers gain a return on investment from the sale of high-end residential apartments and rental incomes and may retain ownership of commercial or hotel space. 

The revenue gained from the sale of the land and the associated development pays for the rail infrastructure provision and supports the operational costs in the early years as the development is implemented.

And, in the longer term, MTRC benefits from having passengers living in close proximity to its station, and from revenues gained from retail and other uses of space it retains around the station. 

Transport for London (TfL) is pursuing a similar approach for developing schemes above existing stations. In February 2023 its recently established property company, TTL Properties announced a joint venture deal with property developer Helical for over-station developments at Bank, Paddington and Southwark Stations.

All three sites have full planning permission for office developments with the joint venture company, of which Helical has a 51% share, purchasing the leasehold interest in the sites from TfL.

There are other mechanisms that could be used in the UK to capture rising land values to pay for new infrastructure, all of which have pros and cons.

These include re-evaluating business rates of commercial properties whose value has been raised by infrastructure developments or raising stamp duty and land tax on properties at the point of sale.

Local authorities can already charge a Community Infrastructure Levy (CIL) as a planning obligation to put towards transport, flood defences, schools, health and social care facilities.

This mechanism raised funds for Crossrail in London and in Birmingham, CILs imposed since 2013 are being used to fund its new Metrobus bus rapid transit system. 

The downside to CILs is that it is a long time before businesses see any uplift due to the new infrastructure. This means that it is unlikely to be a sustainable way of raising money in some UK regions. 

Incentivising development in public transport corridors

The three elements that must be in place for successful TOD, according to Sootoo, are the right institutional framework, efficient land assembly and a streamlined planning process. To deploy TOD in some of the UK’s poorly connected regions and communities, changes to planning policy and legislation would be needed at a national level.

For instance, at present local and regional authorities do not have much influence over land owned by National Rail – apart from in Scotland where the laws are different. Changes in England could give more power over land use around railways to the Combined Authorities that control city regions.

Updates to the national planning framework, so that higher density developments on mass transit corridors are favoured, would also be helpful, as this would encourage land owners around public transport routes to seek planning permission with the increased confidence that permission for the right development will be granted.

This will allow them to programme in future enhancements to Public Transport infrastructure and sustainable accessibility into their development masterplans. 

Another lesson that we could learn from Hong Kong is how to integrate transport infrastructure into its surrounding town or city. Whereas in the UK, a train or bus station is simply seen as transport infrastructure, in Hong Kong the station and its many approaches reach out into the surrounding neighbourhoods, enhanced with retail, cafes or other uses, drawing people in. 

With transport and land planners working closely together, the UK can use TOD to make transport hubs equally vibrant and attractive locations. In Hong Kong, the most expensive housing is closest to the rail station. That could happen in the UK too.