To realize the potential of transit-oriented development and land value capture in India, strong and effective planning is needed, alongside institutional and financial support.
India is urbanizing rapidly and many of its cities are relying on government-financed metro rail as the backbone of their mass transit networks. This raises the question of what can be done to ensure that the economic benefits of the metro system are maximized, and how these initiatives can be financed.
Our research indicates that in India, land use management is critical in shaping the amount of socio-economic benefit that metro rail can help create.
Relaxation of floor-area ratios—the ratio between floor area of a building and the size of the land parcel where a building is located—has been widely adopted. This allows more businesses to use the space in an area. In Singapore, for instance, floor space regulations around select transit stations were doubled from their original value to attract private investments, promote redevelopment, and ensure more intensive land use.
Overly restrictive floor-area ratios cause cities to grow horizontally instead of vertically, contributing to urban sprawl. Remote-sensing data shows that from 1985 to 2015, the Indian cities of Bengaluru and Hyderabad grew more outwardly while the cities of Guangzhou and Shenzhen, in the People’s Republic of China, grew both outward and upward. In the Republic of Korea, Seoul mainly grew upward.
Most buildings around stations in Bengaluru and Hyderabad are relatively short. By contrast, buildings surrounding metro rail stations in cities of similar size like Guangzhou—which have supportive transit-oriented development regulations—are especially tall.
Drawing on international best practices, India’s national transit-oriented development policy has offered land use planning recommendations that promote more dense property development options. Among others, the policy recommends provision of a minimum floor-area ratios of 300%–500%. The ratios can go even higher depending on city size, the area surrounding a station, transit carrying capacities and zoning provisions.
However, a review of land use plans in major Indian cities shows that national transit-oriented development recommendations are adopted unevenly. For example, the density of commercial activities allowed in transit zones is very high in Ahmedabad, and lower in Delhi and even lower in Bengaluru.
Economic benefits—which our research suggests are many—will be missed if Indian cities do not adopt the national transit-oriented development recommendations. Indeed, a simulation exercise using Bengaluru as an example illustrates just how much can be gained.
According to the exercise, relaxing floor-area ratios in Bengaluru—especially around metro stations—would positively impact population and employment densities, rail ridership, property values and taxes, jobs and wages, and also reduce emissions. A floor-area ratio provision in Bengaluru emulating those used in Shenzhen or Seoul would yield additional floor space that could accommodate four million additional people, adding significant density to the areas around metro stations.
The analysis projects a direct economic benefit including 63-93 million hours in time savings for commuters and reduced carbon dioxide emissions ranging from 8,500–33,000 tons annually. This estimate requires first mile and last mile connectivity – getting people to and from their homes and offices to the stations.
Wider economic benefits may be gained as well. An increase in floor-area ratios could stimulate an average increase in job density of 3,000–5,800 jobs per square kilometer in Bengaluru, which could further lead to increase in wages.
Areas standing to benefit from increased job density are home to over 9% of India’s slum population, suggesting that improvements in accessibility and productivity would include the poor. Also, simulations show a net increase of property values. If managed and distributed well, that would significantly contribute to the metro generating the income it needs to operate.
Integration between land use and transportation planning is critical in tackling urban sprawl and its detrimental impacts on urban liveability, competitiveness, sustainability, and resilience. It will encourage sustainable ways of travel by promoting development in proximity to public transit, open opportunities in the real estate market for affordable housing, and generate revenue for cities from higher land values.
Meanwhile, transit-oriented development and land value capture can make significant contributions to the sustainability of large investments in mass transit systems, as well as the economic dynamism of urban settlements. Realizing these positive effects, however, requires strong and effective planning—along with institutional and financing support.
Liming Chen, Young Professional (Economist), South Asia Department, ADB
Rana Hasan, Regional Economic Advisor, South Asia Department, ADB
This article is republished and originally appeared in ADB Blog