What are value-capture mechanisms and how do they work?

Value-capture mechanisms build on the momentum of the marketplace to increase affordable housing opportunities in growing communities. Tools in this category can be structured in a variety of ways, but all take advantage of expected increases in property values or economic activity to support housing solutions paid for partially or entirely by those increases. Inclusionary housing policies, for example, encourage or require that a percentage of units in new market-rate developments be set aside for lower-income families. Tax increment financing uses the increased property tax revenue that flows from revitalization and growth to finance the early-stage infrastructure improvements that help generate the growth and, in some cases, the construction of new affordable homes. A third approach, the linkage fee system, uses modest charges assessed on owners of non-residential buildings to ensure that the additional housing needs generated through economic development and new job creation can be met.


How does value-capture contribute to the development of affordable homes in sustainable communities?

In many communities, land costs in areas adjacent to planned or redeveloping transit stations increase rapidly in anticipation of new investment, quickly pricing out the low- and moderate-income families that most rely on public transportation. Similar increases in housing costs can be experienced in other location-efficient places, such as areas near growing job centers or in town centers.  Value-capture mechanisms help to ensure public investments in transit and other amenities remain accessible to households at all income levels by capturing a portion of market activity—in the form of increased tax revenue, housing units produced, or through some other channel—to support new affordable housing opportunities. States and localities can also employ value-capture tools to cover some of the increased infrastructure costs associated with development around transit stations, including pedestrian and bike paths, station area lighting, and structured parking facilities. The expense of providing these necessary "place-making" features can quickly overwhelm the budget of non-profit and mission-driven developers. Value-capture programs can help to mitigate the burden of these costs.


Where do these tools work best?

The tools discussed in this policy guide tend to work best in growing communities, where the real estate market can generate the activity needed to make value-capture possible. That said, localities may wish to consider adopting policies well before the market heats up, to ensure that programs are in place in advance of new development. Local governments can use value-capture tools such as tax abatements to encourage development in neighborhoods needing reinvestment in or rehabilitation of an aging housing stock.

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