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In urban planning, Transit-Oriented Development (TOD) is a type of urban development that maximizes the amount of residential, commercial, and recreational space within walking distance of public transportation. In doing so, TOD promotes the use of public transportation and discourages the use of private automobiles, promoting sustainable urban growth.
How to distinguish a TOD? It can be recognized because it sometimes includes, for example, a public transport stop (such as a train, bus, or subway station) surrounded by a high-density mixed-use area, with low-density areas extending from this center.
As we have explained in this series of articles on TOD, while this type of urban planning offers many benefits, its implementation often comes at a high monetary cost, with its financing being a major challenge in many cities. We at the Division of Housing and Urban Development are hosting a webinar on August 30, 2023, to report on some successful ways to finance a TOD. Keep reading to learn more details!
Alternatives to finance Transit-Oriented Development
Achieving urban planning that considers TOD criteria and incorporates a robust and stable public transport system requires finding alternatives for public transport to be financed beyond the cost of the fare. To achieve financial independence of public transport it is relevant to explore alternative revenue sources, innovative funding sources and delivery models.
What revenue alternatives are typically available?
- Project or district revenues: value capture instruments, monetization of real estate assets, fare charges, commercial concessions, municipal taxes and licenses, energy concessions/leases.
- Transfers or subsidies revenues: these can be regional, national, philanthropic or international.
What types of funding sources are found?
- Public funds: these include municipal, project, and land value capture bonds.
- Multilateral Development banks support: through guarantees, loans or equity investments.
- Private funds: these includes commercial loans and private equity investment.
What service delivery models are most common?
- Contractual models: may involve a design-bid-build contract or a design-build-only contract, as well as public-private partnerships (PPPs) with or without private financing.
- Governance models: may involve existing public agencies, formal interagency agreements, dedicated public agencies, public-private entities, private entities only or even the creation of a local economic development agency (LEDA).
Within the above alternatives there are some innovative non-fare businesses that can be explored to enable the financial independence of the public transport system. Thus, it is possible to innovate in:
- URBAN OPERATIONS: involves private intermediation in the land or property acquisition, implementation of one-stop shop for development, charging for provision of public infrastructure, acquisition of revenues through activities in the public space, redevelopment or anticipated renovation of sectors, and in terms of delivery models the management of third parties real estate properties or the management of own real estate properties.
- REAL ESTATE BUSINESSES: involves rental of commercial areas, management of commercial areas, charges for connecting to the station, contributions in land and fiduciary rights, and disposal of own assets.
- LAND BASED FINANCING INSTRUMENTS: involves the generation of Business Improvement Districts through the operation, administration, disposition, and execution of the resource. It also covers land value capture through taxation increment, joint development and other mechanisms.
- SUSTAINABLE TRANSPORTATION AND CLIMATE FINANCING: contemplates business development in systems and electric mobility. It also covers climate financing, the charge for shared use of rights of way in public transportation infrastructure (such as fiber optics, electricity, water), land rental for public and private services, incorporation of sustainable mobility, and provision of electric vehicle charging services, among others.
- DATA AND TECHNOLOGY: includes the use of data and technology for digital payments, segmentation for advertising by origin and destination, real estate products placement in areas of influence and applications for digital payments, among others.
Nevertheless, defining appropriate revenue, funding and delivery mechanisms will depend on the stage of the project (planning, construction, and implementation) and the social, political, economic and environmental characteristics of each locality. Each stage provides opportunities to explore diverse and innovative mechanisms, with the promotion of strong local governance that fosters public-private partnerships being essential to the implementation of innovative financing strategies.
Strengthening local governments to promote TOD
Effective implementation of TOD also depends on strengthening local governments. Mayors’ offices play a central role in planning and implementing sustainable transportation strategies. As such, they must work closely with the community and other key stakeholders to ensure that decisions are made with maximum benefit to all citizens. Only with the right combined development promotion, the right property value capture, and strategic public-private partnerships will enable the successful implementation of TOD and the creation of more sustainable and connected cities. Ultimately, it will be the commitment and joint action of governments, experts, and citizens that will make TOD a transformative city hub.
So, what should local governments consider to promote TOD? It would be necessary to promote and establish guidelines to ensure that urban development projects derived from the TOD strategy are implemented in a sustainable and inclusive manner.
Optimization of land use should also be taken into account. This is because taking advantage of the capture of increased land value associated with improved connectivity will make it possible to contribute revenues to the sustainability and financial autonomy of the transport system. It will also contribute to public-private partnerships, the promotion of green public transport, diversity of economic activities and sustainable urban regeneration processes.
TOD financing in practice: the case of Bogotá and Washington, D.C.
Many cities are implementing TOD projects financed through innovative mechanisms such as land value capture and joint urban development. Here are two cases that were presented during the webinar:
Bogota: Financing the future with TOD
Colombia’s capital is a dense and compact conurbation that has been struggling for more than half a century to finance, structure and build its first metro line. In the meantime, the Transmilenio BRT system, a flexible and lower-cost system, has provided a solution to the city’s mobility problems. However, the construction of a more robust transport system is now required to serve the more than 10 million inhabitants of the city, and it is necessary to implement solid financing instruments to ensure its proper operation. Two main avenues have been explored to ensure Metro’s financial independence from the fare system: (1) joint real estate development (2) new business development on the new built transportation infrastructure.
Washington, D.C.: Catalyzing change through co-development
The capital city of the United States is a leading city in the implementation of TOD. Washington Metropolitan Area Transit Authority (WMTA) developed a ten-year strategic plan for the joint development. This plan has demonstrated that real estate development can be the catalyst for urban transformation. Through its ten-year strategic plan, the city seeks to accelerate the implementation of projects that generate new users and revenues, as well as accelerate development, prioritize investments, align interests, and attract private investment. The plan calls for 55 real estate development projects at 30 stations; the introduction of TOD increases property values and tax revenues near subway stations with TOD, which are leveraged by the authority to finance infrastructure development. However, WMTA, cannot achieve this goal alone, it requires support, co-investment, and close coordination with local governments to support higher density and mixed-use development, ensure infrastructure investment and maximize economic development.
If you enjoyed this blog post, you can also access the full recording of the webinar below:
*The author acknowledges the contribution of non-fare financing alternatives for a Transit-Oriented Development by Ignacio Montojo, Principal at HR&A Advisors, Inc and Simon Mesa Acosta, Specialized Professional, Urban Development, Real Estate and Non-Fare Revenue Management, Metro de Bogotá S.A., Colombia.