The LVC positive feedback loop
Successfully implementing LVC results in a financial positive feedback loop with four components:
The unlocking of and increase in the potential value of under-used
assets (land and/or structures) as a result of a public sector
intervention to stimulate demand from the private sector.
Subsequent investment and development from the private sector which ensures that potential asset value increase is realised.
Arrangements by the public sector for the acquisition of a
proportion of private sector returns for local reinvestment. This can
take the form of monetary or in-kind contributions from the private to
Local value recycling
The re-investment of acquired monetary or in-kind contributions from the private sector within the same development site or scheme. This
re-investment can pay for the initial public intervention but tends to
fund further interventions. These further interventions must have a
public good element to them but may also benefit the private sector by
consolidating value gains already made.
LVC can therefore be defined as the appropriation of value, generated by public sector intervention and private sector investment in relation to an underused asset (land and/or structure), for local re-investment to produce public good and potential private benefit.
In other words, LVC maintains both an:
- Inward rate of return. The revenue return for the private sector following initial investment;
- External rate of return. The proportion of this revenue which is reinvested in the same development scheme for the public good.
An independent study commissioned by Transport for London on the extension of the Jubilee Line estimated that between 1992 and 2002, the value of the land surrounding two of its 11 new stations (Southwark and Canary Wharf) had increased by €3.6 billion, while the cost of building the line amounted to €4.5 billion. The British government could have built the extension of the Jubilee line at no cost to the exchequer if it had chosen to capture barely a third of the land value increase
generated by the project.