Developer Contributions

This measure was provided by INSTITUTE FOR TRANSPORT STUDIES (ITS) in 2014 under the CH4LLENGE project, financed by the European Commission.


Developer contributions to infrastructure involve a developer providing a payment (or levy) to support infrastructure in the area they develop. The infrastructure is typically provided by the transport authority for the area. One rationale for the levy can be recognition that a development will impose burdens on existing infrastructure and so the developer should contribute to mitigating that burden. In this case the contribution made by the developer might be for infrastructure directly related to the development (such as a cycle route to a supermarket). The second rationale is that developers and businesses benefit from good transport infrastructure and so will be willing to contribute to mechanisms providing resources which allow this infrastructure to be built and maintained.  In this case, the contribution may go towards the public authority’s funding pool which funds those infrastructure projects intended to benefit the city or region.  The benefit of the levy will depend on the relevance to the developer and to the city or region of the infrastructure it is used to support. However there are questions about the relationship between different types of transport infrastructure and economic development. Further there are questions about the impact that both levies on development and investment in infrastructure can have on competitiveness. In all of these questions, perceptions of decision-makers and actors are relevant.

Description

Developer contributions to infrastructure can be justified for two related reasons. First, are cases where a development is expected to create a burden on existing infrastructure, or to require new infrastructure altogether. Second, are cases where developers, and the businesses which they establish in an area, will benefit from good transport infrastructure, and as such can be expected to contribute to it.  For the present purpose, both are considered. These contributions should be distinguished from other types of measure in which a developer pays privately for infrastructure, cases where they loan money or resources for the development of infrastructure which is then paid back (usually at interest) either by users or by taxpayers, or the concept of value capture, in which existing property owners contribute to the costs of new infrastructure to reflect the benefits which they gain from it. These forms of financing are not considered here.  

Terminology

The form of develop contribution based on the idea that businesses benefit from locating in an area with good transport infrastructure is sometimes known as an infrastructure levy (such as the Community Infrastructure Levy in England and Wales). Formal requirements for developer contributions to infrastructure can be a result of legalisation, which either demands a contribution, or allows local authorities to ask for a contribution as a means of gaining planning consent. Where contributions are a result of legislation, they can gain names making reference to that legislation (e.g. ‘section 106 agreements’ referring to section 106 of the Town and Country Planning Act 1990 (England and Wales)).

Why introduce developer contributions?

Developer contributions have an appeal as a means of bringing income for infrastructure development. They can be applied where individual developments expected to create a burden on existing infrastructure, or to increasing the pool of resources which can be drawn on in developing infrastructure across a city or region.

There is a broad perception among decision-makers and businesses that transport infrastructure can have a significant role in supporting economic development.  It can be helpful to consider these perceptions separately from modelling results and findings from empirical studies.  The form of infrastructure perceived to be important varies according to the types of development and business concerned. First, there can be emphasis on the economic benefits of infrastructure supporting connectivity for goods and people. In this case factors such as ability of workers to travel from residential areas to areas of employment, limited congestion, and good access to motorways, rail and airports can all be significant (Docherty et al. 2009; Graham et al. 2010; Marsden et al. 2013). Second, empirical studies have identified a strong, but contested, view that infrastructure which improves the quality of the built environment can contribute to attracting high value creative and knowledge based businesses (Florida 2005).  In the latter case, the infrastructure which enhances the urban environment can focus more on public realm measures such as pedestrianisation (Docherty et al. 2009; Marsden et al. 2013).  

While the benefits of both aspects of infrastructure development are widely accepted, the evidence underpinning the perceptions of their economic value is more uncertain. Questions have been raised about the evidence supporting claims that improving quality of the urban environment creates conditions to support high value knowledge and creative industries (Boland 2007; Christophers 2008; Clifton 2008; Banister 2012; Marsden et al. 2013). Further, with regard to the more general claim that improving connectivity and reducing congestion stimulates economic development, the empirical understanding is rather weak (see Banister 2012). However theoretical work suggests there are economic benefits which might be gained by infrastructure which opens new areas for development, or reduces travel delays SACTRA 1999; Eddington 2006; Feldman et al., 2008; Cowie, 2009; Mejia-Dorantes et al., 2012).

Beyond questions about the relationship between transport infrastructure and economic development, there are matters of competitiveness, and perceived competitiveness which can be relevant in assessing the use of developer contributions. There can be concern that imposing a levy on development will encourage developers to locate elsewhere. This concern has two significant aspects. First are questions of (a) whether imposing a levy or tax would deter investment despite the benefits of the infrastructure made feasible through the levy, and (b) whether it would dis-benefit the economy overall if some businesses were deterred in this way. Second are questions of how the relation between a levy and competitiveness is perceived by those deciding the level at which to set the levy. The question of whether imposition of a levy would deter some investment might be expected to depend on how the levy is spent, that is, on whether the infrastructure is expected to benefit the needs of the developers (cf. Tiebout 1956).   The broader question of whether some deterrent to investment would harm economic development overall, raises complex and contested questions both of whether there is economic advantage in focusing on certain types of development over others (see Krugman 1996, also Porter 2003), and of the relationship between transport infrastructure and economic development.  Significantly decision-makers’ perception of these impacts might not reflect the actual relationship between infrastructure and development.  The potential benefits of developer contributions could be reduced if decision-makers set the level of developer contributions too low in the absence of knowledge of the levels planned by competing cities (see Marsden et al. 2013).  Theoretical work on the related matter of two competing cities setting cordon tolls, each without knowledge of the toll the other will set, suggests that sub-optimum results are probable (Koh et al. 2012).

There are some concerns that a practice of using  developer contributions to fund transport infrastructure can lead planners to make decisions based on ability to secure funds from those developers and to give too little consideration to other social or environmental objectives associated with planning decisions (see Campbell et al. 2000).

Demand impacts

Demand impacts will depend on what infrastructure is developed with the contribution. This can be infrastructure expected to reduce congestion or increase connectivity. This might be expected particularly in cases where the development would be expected to increase travel or traffic volume. However it might be infrastructure designed to improve quality of the urban realm (e.g. pedestrianisation), and this might not be expected to have a significant impact on capacity for travel.

It is argued that there is a relationship between travel demand and development where development would be expected to result in increased demand. There are uncertainties about the extent to which this relationship holds (Goodwin 2011). However to the extent that it does, claims about how this relationship will influence the demand impacts of implementing developer contributions will depend on whether the contributions are used for infrastructure which actually increases economic development.

Supply impacts

Again, impacts on supply will depend on what the contributions are used to fund. Potentially, developer contributions will increase supply. One question will be whether the increase exceeds any increase in demand brought by the development.

Financing requirements

Developer contributions offer a means of providing finance. However this should not be considered independently of the uncertainties and caveats described above.

Expected impact on key policy objectives

Contribution to objectives

Objective

Scale of contribution

Comment

 

Developer contributions might enable provision of infrastructure which mitigates burdens on existing infrastructure created by development. It might also provide infrastructure to support further development. However this needs to be offset against the additional demand from the development.

 

This will depend on what infrastructure is provided. There is some concern that a system of developer contributions can limit focus on social and environmental objectives and favour developments which bring higher contributions.

 

There is some concern that a system of developer contributions can limit focus on social and environmental objectives and favour developments which bring higher contributions.

 

Contributions which solely provide for improved access to a new development are unlikely to support this objective.

 

Contributions which solely provide for improved access to a new development are unlikely to influence safety.

 

There is uncertainty about the relationship between transport infrastructure and economic development. Any economic impact is likely to depend on what infrastructure is funded by the contribution.

 

Developer contributions provide a source of funding.

= Weakest possible positive contribution = Strongest possible positive contribution
= Weakest possible negative contribution = Strongest possible negative contribution
= No contribution

Expected impact on problems

Contribution to alleviation of key problems

Problem

Scale of contribution

Comment

Congestion

Developer contributions might prevent congestion which would otherwise result from development.  This will depend both on the development and on the nature of the infrastructure.

Community impacts

This will depend on what infrastructure is provided. There is some concern that a system of developer contributions can limit focus on social and environmental objectives and favour developments which bring higher contributions.

Environmental damage

There is some concern that a system of developer contributions can limit focus on social and environmental objectives and favour developments which bring higher contributions.

Poor accessibility

Contributions which support new infrastructure should at least provide for the access required to the development, and ease movement for existing traffic.

Social and geographical disadvantage

There is some concern that a system of developer contributions can limit focus on social and environmental objectives and favour developments which bring higher contributions.

Accidents

There is some concern that a system of developer contributions can limit focus on social and environmental objectives and favour developments which bring higher contributions.

Poor economic growth

There is uncertainty about the relationship between transport infrastructure and economic development. Any economic impact is likely to depend on what infrastructure is funded by the contribution.

= Weakest possible positive contribution = Strongest possible positive contribution
= Weakest possible negative contribution = Strongest possible negative contribution
= No contribution

Expected winners and losers: where the contribution is spent directly on the development (rather than going towards general infrastructure funding)

Winners and losers

Group

Winners/Losers

Comment

Large scale freight and commercial traffic

Impacts will depend on what infrastructure is developed, and what the economic impact of a levy turns out to be. But commercial traffic to the development should be assisted.

Small businesses

Only small businesses in the new development are likely to benefit.

High income car-users

Those associated with the development may benefit.

Low income car-users with poor access to public transport

Only those using the new development will benefit.

All existing public transport users

Only those using the new development will benefit.

People living adjacent to the area targeted

/

Those in the surrounding area should benefit from the additional infrastructure, and the avoidance of congestion arising from the new development.  However, care is needed to avoid the infrastructure intruding into the surrounding environment.

Cyclists including children Only those using the new development will benefit.
People at higher risk of health problems exacerbated by poor air quality Unless traffic levels increase significantly as a result of the new development, the effect should be neutral.

People making high value, important journeys

Those associated with the development will benefit.

The average car user Those associated with the development will benefit.
= Weakest possible benefit = Strongest possible positive benefit
= Weakest possible negative benefit = Strongest possible negative benefit
= Neither wins nor loses

Barriers to implementation

Scale of barriers
Barrier Scale Comment
Legal Legislation is usually required to permit the imposition of a contribution, and may limit the scope for such contributions.
Finance Collecting a contribution will involve cost.
Governance If cities consider themselves to be in competition, this may result in sub-optimal outcomes. Cooperation between cities would require negotiation.
Political acceptability There can be perceptions that a levy will reduce competitiveness of an area.
Public and stakeholder acceptability There can be perceptions that a levy will reduce competitiveness of an area. There may also be a fear that contributions from developers will lead to prioritisation for development offering income even if it involves social or environmental dis-benefit. Conversely the public might consider a contribution from developers to be fair if it meets the cost of providing for access.
Technical feasibility None.
= Minimal barrier = Most significant barrier

In a study on value capture and a range of forms of developer contribution, Matthew Doherty outlined previous British government attempts to seek some contribution from developers towards transport infrastructure. Doherty reports that the three attempts to do this (1947, 1967 and 1976) all ran into difficulty “as developers have not developed their land to its full potential…and developers have been able to wait for an incoming government to abolish the tax; this has been the outcome on each occasion through new Conservative governments” (2004, p. 15). Doherty suggests that taxing new developments in this way might lead to charges of inequity if existing developments, which might be expected to benefit from the infrastructure, did not also have to pay. Moreover the tax may be more effective, that is, may yield more income if it is charged on existing development as well as new ones (2004, p. 15).

As part of a broader study of private finance, researchers from Institute for Transport Studies, University of Leeds, documented the case of developer contributions to the light railway development (Docklands Light Rail or DLR) in London’s Docklands (Nash et al. 2001). They describe a process in which the light rail development designed to serve planned commercial and residential Docklands development had initially been financed by national government. Developer contributions were sought, and gained, only when planned expansion of the commercial and residential development became so great that it became apparent that the light rail network which had been built would be insufficient – notably initial predictions of 25,000 passengers/ year were revised to 65,000 year (Nash et al. 2001, p.8). The authors report that a subsequent fourfold expansion of capacity and in addition a substantial extension of the light rail network took place with ‘remarkable’ speed -  ‘from the conception of the expansion project in 1985, the City Extension to the DLR was planned, funded, authorised, constructed and opened by 1991’ (Nash et al. 2001, p.8).  However the authors describe problems faced by subsequent plans to further expand the Docklands Light Rail. The first attempt, a project costing £280million in the late 1980s, was based on the hope that the project costs could be covered by selling land which was expected to have increased in value due to the previous Docklands development (a slightly different means of securing developer contributions). This failed as the attempt to secure the finance by selling land coincided with one of the recurring property market crashes (the late 1980s-early 1990s crash). Consequently the national government paid for that light rail project. Later, in the 1990s, as the authors explain, there were attempts to secure developer contributions for the extension of the Jubilee Line through the Docklands area (2001, p. 9). Two developer companies had agreed to provide £400 million of the £1.7 billion cost of the project. Further according to Nash et al. the developers had strongly influenced the planning process and the route chosen for the extension was the one preferred by the developers. However before any agreed finance was received from the two developer companies, both went into administration (2001 p. 9). The banking consortium which took over the interests of the two companies later provided £98million to the project, and promised a further £300million over 25 years. According to Nash et al, this £300 million is far less in real terms given inflation, and further the predicted costs of the project had increased by just less than two thirds. They comment that ‘developers have been able to exert influence over the planning of a major transport scheme on the basis of their making a significant contribution to the overall costs of the project. These contributions have, however, been successively diminished over the construction phase of the project whilst the overall project costs have escalated’ (2001 p. 9-10).

Contribution to objectives

Objective Contribution Comment
  Developer contributions may support infrastructure development which limits congestion – this was the case for some of the Docklands Light Rail development.
  No evidence.
  / Developer contributions may give developers influence over the planning of projects, and potentially over what projects go ahead. This might limit influence of environmental matters.
  / Developer contributions may give developers influence over the planning of projects, and potentially over what projects go ahead. This might limit influence of social inclusion and social equity.
  Developer contributions may give developers influence over the planning of projects, and potentially over what projects go ahead.
  Infrastructure developed with developer contribution is considered to support economic growth, however the case studies did not give evidence for this.
  Developer contribution can offer finance.
= Weakest possible positive contribution = Strongest possible positive contribution
= Weakest possible negative contribution = Strongest possible negative contribution
= No contribution

Contribution to objectives

Contribution to objectives

Objective Contribution Comment
  Developer contributions might prevent congestion which would otherwise result from development.  This will depend both on the development and on the nature of the infrastructure.
  This will depend on what infrastructure is provided. There is some concern that a system of developer contributions can limit focus on social and environmental objectives and favour developments which bring higher contributions.
  This will depend on what infrastructure is provided. There is some concern that a system of developer contributions can limit focus on social and environmental objectives and favour developments which bring higher contributions.
  This will depend on what infrastructure is provided. There is some concern that a system of developer contributions can limit focus on social and environmental objectives and favour developments which bring higher contributions.
  This will depend on what infrastructure is provided. There is some concern that a system of developer contributions can limit focus on social and environmental objectives and favour developments which bring higher contributions.
  There is uncertainty about the relationship between transport infrastructure and economic development. Any economic impact is likely to depend on what infrastructure is funded by the contribution.
  Developer contributions provide a source of funding.
= Weakest possible positive contribution = Strongest possible positive contribution
= Weakest possible negative contribution = Strongest possible negative contribution
= No contribution

Contribution to problems

Contribution to alleviation of key problems
Objective Scale of contribution Comment
Congestion Developer contributions might prevent congestion which would otherwise result from development.  This will depend both on the development and on the nature of the infrastructure.
Community impacts This will depend on what infrastructure is provided. There is some concern that a system of developer contributions can limit focus on social and environmental objectives and favour developments which bring higher contributions.
Environmental damage This will depend on what infrastructure is provided. There is some concern that a system of developer contributions can limit focus on social and environmental objectives and favour developments which bring higher contributions.
Poor accessibility This will depend on what infrastructure is provided. There is some concern that a system of developer contributions can limit focus on social and environmental objectives and favour developments which bring higher contributions.
Social and geographical disadvantage This will depend on what infrastructure is provided. There is some concern that a system of developer contributions can limit focus on social and environmental objectives and favour developments which bring higher contributions.
Accidents This will depend on what infrastructure is provided. There is some concern that a system of developer contributions can limit focus on social and environmental objectives and favour developments which bring higher contributions.
Economic growth There is uncertainty about the relationship between transport infrastructure and economic development. Any economic impact is likely to depend on what infrastructure is funded by the contribution.
= Weakest possible positive contribution = Strongest possible positive contribution
= Weakest possible negative contribution = Strongest possible negative contribution
= No contribution

Appropriate contexts

Appropriate area-types
Area type Suitability
City centre
Dense inner suburb
Medium density outer suburb
Less dense outer suburb
District centre
Corridor
Small town
Tourist town
= Least suitable area type = Most suitable area type

Adverse side-effects

There are some concerns that a shift to use of developer contributions to fund transport infrastructure can lead to emphasis on financial gain (for infrastructure) which can be obtained from planning decisions rather than consideration of other social or environmental objectives (see Campbell et al. 2000). There can be further problems associated with certain forms of developer contribution, if for instance, it discourages development as developers wait for government to change and a tax to be abolished, or where contributions depend on increases in land value, if the market for land goes into decline.

References

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Campbell, H., Ellis, H., Gladwell, C., Henneberry, J. 2000, Planning obligations, planning practice, and land-use outcomes Environment and Planning B: Planning and Design, 27, 759-775.

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Cowie, J., 2009. The economics of transport: a theoretical and applied perspective. Oxon: Routledge.

Docherty, I., Shaw, J., Knowles, R. and Mackinnon, D., 2009. Connecting for competitiveness: future transport in UK city regions. Public Money & Management 29, 5, 321-328.

Eddington, R., 2006. The Eddington Transport Study Main report: Transport’s role in sustaining the UK’s productivity and competitiveness Volume 1. Norfolk: Stationery Office.

Feldman O., Nicoll J., Simmonds D., Sinclair C., and Skinner A., 2008. Integrated transportation land use models in the wider economic benefits calculations of transport schemes.Transportation Research Record: Journal of the Transportation Research Board 2076, 161-170. 

Florida, R., 2005. Cities and the Creative Class, New York: Routledge.

Graham, D.J., Melo, P.C., Jiwattanakulpaisarn, P. and Noland, R.B., 2010. Testing for causality between productivity and agglomeration economies. Journal of Regional Science 50, 5, 935-951.

Goodwin, P., 2011. Memorandum - Summary in relation to three of the Committee’s Questions,  House of Commons Transport Committee - Additional Written Evidence Transport and the Economy
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Mejia-Dorantes, L., Paez, A., Vassallo, J.M., 2012. Transportation infrastructure impacts on firm location: the effect of a new metro line in the suburbs of Madrid. Journal of Transport Geography 22, 236–250.

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