The Northumberland Line, a £300 million project led by the county council, opened in December 2024 to little fanfare. But it was recently revealed to have had five times as many riders as expected in the first five months. It is not alone in massively exceeding its ridership predictions. These figures remind us of the untapped potential of rail investment and point to the success of a unique source of funding. 

Public transport should not always be expected to finance itself through ticket sales. New rail lines or stations can revitalise local economies, often generating substantial financial benefits for businesses and residents. In the UK, though, these benefits rarely translate into meaningful contributions from local economies toward funding such projects. 

The fact is that often the greatest beneficiaries of a new train line or railway station are not commuters or residents, but landowners. Land value capture (LVC) reclaims some of this private profit. 

For example: Tempsford, Bedfordshire, a village with a population of around 500 people, last had a railway station in 1956. By 2030 (fingers crossed), East West Rail — a new line linking Oxford to Cambridge via Bletchley and Bedford — will have built a station here, putting it at a commutable distance to both Cambridge and London by train. These new transport links will bring demand for tens of thousands of new houses near the station. 

The value of the land around this new station will, consequently, skyrocket. The 1900-hectare land surveyed around Tempsford now has a ‘hope value’ of £3.5 billion. By no work or value creation of their own, local landowners will suddenly become much wealthier, and under normal circumstances, would sell their land on to developers at a huge profit — a profit financed purely by the taxpayer. 

LVC is a method of taxation that reclaims a significant portion of this ‘uplift’, and uses it to finance the infrastructure being built. In practice, local authorities would usually secure borrowing against this future revenue stream, meaning lower rates with the uplift paid off over a period of time or possibly at point of sale.

Tempsford is a simple example, because the land around the new station is mainly undeveloped. But a new line or station will have a similar effect on land value within existing urban environments, impacting property prices and rents. 

Residents who don’t live within walking distance of public transport have to spend more money, whether for commuting or leisure, so paying a premium for a property close to a station makes financial sense for its regular users. The uplift has an equally substantial impact on rents for both homes and office space: in New York City, a planned temporary closure of the L train caused rents to fall 1.5 percent, while neighbouring areas saw a 3.3 percent increase. 

The Northumberland Line will receive around 20 percent of its funding through LVC. But it isn’t the only UK project to use this technique. Crossrail used a form of LVC to fund one of its portions. Internationally, using LVC to finance infrastructure is common, including in cities famed for their efficient land use and excellent metro systems. In Hong Kong, an average of 39 percent of land value uplift was captured between 1970 and 1991. These captured benefits and other land-related revenues accounted for 79 percent of the average annual infrastructure investment for the same period.

The major obstacle to replicating effective LVC in the UK is the lack of taxation mechanisms. Hong Kong’s government owns all land, so its LVC is implemented through adjustments to lease agreements. But government-owned land is rare in the UK, and we lack a universal property or land tax that could serve as the foundation for such a system. LVC’s successes in the UK have therefore been a patchwork of approaches: the Northumberland County Council worked with a company called E-Rail to negotiate contributions from landowners near new stations; Crossrail used a variety of additional taxes, including a business rate supplement to raise £4.1 billion; a community infrastructure levy generated another £300 million. 

In a report on how to get more UK cities to build trams, think tank Create Streets suggested allowing councils to collect stamp duty uplifts for houses sold near tram stops and to add targeted council tax precepts. Other ideas include using landowner auctions to decide where to place new stations, following a development-rights auction model.

These methods may be imperfect, but the government will need to adopt one or more of them to recapture the land value created by public transport investment — because the value generated, particularly in London and the South East, is truly enormous. The cancelled Crossrail 2 was expected to realize £60 billion in land value uplift. The project’s estimated cost was just £31 billion. 

East West Rail’s new stations, too, are expected to produce £1 billion in land value uplift each, and that’s without considering the dramatic rises in land values around existing stations. The cost of the project is expected to be around £6 billion. HS2’s new station, Old Oak Common, is estimated to provide £10 billion in uplift to the local areas. Analysis in a Transport for London (TfL) report suggests all its proposed line extensions are expected to generate more in uplift than they will cost to build. Past examples show that this isn’t trickery or optimistic modelling: the Jubilee Line Extension generated £13 billion in land value uplift, nearly four times its construction cost.

LVC can clearly unlock projects deemed unpalatable by the Treasury, and transport isn’t its only possible use; LVC could help finance new towns, keep local retail in business, or provide life to new estates. Leveraging the value that flows to landowners could open up further possibilities. Hong Kong finances a significant amount of its metro off commercial businesses in stations and property rentals above and around stations. In 2019, 35 percent of the system’s revenue came from these sources. TfL has attempted similar approaches, but with rental income it struggles to deliver the dense developments needed, largely due to restrictive planning regulations.

Opportunities for LVC will be greatest in the South, where connections to cities like Cambridge, Oxford, and London are far more economically valuable. But it doesn’t have to widen the already stark gap in infrastructure investment between the North and South. In fact, the new consensus of infrastructure investment could be that central government provides money for projects outside the South East, while London and the South East are left to finance themselves via LVC.

This approach isn’t a quick fix for the country’s challenges with infrastructure cost. Planning reform remains essential if we’re to match Spain or France for miles of rail built. But the Northumberland Line shows that cities across the country can use LVC to raise significant funds. When we talk of a new station at Solway or building the Swansea Bay Metro or extending HS2 to Crewe and beyond, LVC should become part of the conversation.