New Issue Brief Makes Case for "Value Capture" in Transit Upgrades, Infrastructure Projects

New York City missed an opportunity to recapture $5.8 billion in financial gains from the 2^nd Avenue Subway construction—but could learn from its mistakes 

NEW YORK, NY – New York City’s transportation infrastructure is at a crossroads. Virtual and hybrid work have permanently reshaped commuting patterns and transit needs, and New York’s mayoral candidates are offering competing visions for urgent improvements amid fiscal duress. In a new issue brief, Manhattan Institute adjunct fellow Arpit Gupta makes the case for “value capture” strategies, which harness the value created by transit infrastructure to recoup the cost of these critical investments.

Gupta’s case draws from original findings he produced alongside Stijn Van Nieuwerburgh of Columbia and Constantine Kontokosta of NYU. In a recent academic paper, the authors quantify the value gained from New York City's ambitious construction of the 2nd Avenue Subway, which expands the Q train on the Upper East Side. They find that:

• Commuters in the affected portion of the Upper East Side reduced commute times by 7.5 percent on average (around 3-5 minutes) and residents who actually used the subway saved 14 minutes in either direction. 
• Through quality-of-life improvements, heightened economic activity, and reductions in commute times, new transit stops increased local property values by $5.8 billion in aggregate.

In his issue brief for the Manhattan Institute, Gupta points out that the $5.8 billion financial gains from the expansion could theoretically have paid for all or much of the $4.5 billion project—yet increases in property tax revenue from the neighborhood will bring the city only $1.78 billion, a fraction of the cost. He concludes that the city missed an opportunity to capture the value of the project and apply it towards its cost.

To develop successful value captures mechanisms, officials should evaluate wins and losses from recent projects within New York City’s five boroughs, such as the 2^nd Avenue Subway, and from across the world. The city has successfully sold local zoning rights and used new tax arrangements with private developers to help fund improvement and development in Hudson Yards, Grand Central Terminal, and the Midtown East neighborhood. These initiatives offer promising examples for future projects. City officials can also find inspiration in value capture systems in major international cities, which implement new local tax zones, zoning rights auctions, and direct investment in real estate surrounding transit infrastructure. Meanwhile, New York’s Mandatory Inclusive Housing program, which requires that developers build affordable units, offers a vision of what not to do: while largely subsidized by the city, it benefits only a select few residents.

New York City has a mixed record on value capture. But by replicating past successes, learning from past mistakes, and combining smart rezoning with innovative tax structures, City Hall can affordably meet the new transportation needs of post-pandemic New York.

Click here to read the full issue brief.