Unlocking the benefits of transit-oriented development

It’s time to make the most of our limited federal transit money by encouraging and incentivizing more transit-oriented development, and by using the value that transit creates to improve, expand, and support more transit service in more places.

Introduction to Invest in the Rest

Invest in the Rest is the third of T4America’s guiding principles to transform transportation policy. For decades, the United States has invested hundreds of billions of dollars into our highway system while largely neglecting all other forms of transportation. This country says it is about freedom of choice, but the only feasible way to move around in a vast majority of communities is via a personal car. Americans deserve and are in need of more options for transit services. How are we going to provide that?

T4’s proposal: Promote transit-oriented development & value capture

Under this third guiding principle of Invest in the Rest, our first set of policy proposals focuses on building world-class transit in communities of all sizes. We’ll be expanding on the rest of that idea in future posts (and in an online briefing later this summer), but the fourth and final idea under that umbrella is ensuring that we make the most of our limited federal transit money by encouraging and incentivizing more transit-oriented development:

4. Promote transit-oriented development to maximize transit efficiency and provide high-quality service. Prioritize, expedite, and provide a higher match to Capital Investment Grants projects that include value capture to support transit service and rezone or plan mixed-use, mixed-income development at and around stations.

This small, but important idea has two big picture goals:

1. Maximizing our limited federal transit dollars by steering more money into projects that can better serve more riders, and 
2. Capturing more of the value that transit creates and investing that money back into transit. 

Transit increases the value of everything close to it, yet in most cases, that new value accrues to property owners, developers, or is generally just lost. We need to change that. We can start by prioritizing funding for the transit projects that maximize the value created by transit, and use some of that value to help pay for transit operations and improvements. And with the limited federal transit funding available, we should reward agencies that incentivize new mixed-use development around their stations that provide more housing and exciting new destinations to existing riders—and bring new riders into the system.

Transit-oriented development (TOD) is an urban planning tactic that focuses on building things—such as more housing and commercial spaces—near transit stations of all kinds. Encouraging more development in locations that are already well-served by quality public transit can help maximize the benefits of those past transit investments. More things near transit can increase transit ridership, enhance access to jobs and essential destinations, promote public health, and boost real estate value. By the same token, costly transit investments can be undercut by land-use or zoning decisions that prevent more housing or walkable, mixed-use development around transit. At its core, this policy proposal is about building the best transit possible for the money we have available.

The federal government funds new or expanded transit service through the transit Capital Investment Grant (CIG) program, which funds expanded heavy/rapid rail, commuter rail, light rail, streetcars, bus rapid transit and other bus services. Just like the highway program, transit gets built with a share of federal money that doesn’t cover the full cost. But, unlike the highway program, where the federal government has always covered around 90 percent of the total cost, the maximum federal share for new transit construction maxes out at 80 percent and in most cases is closer to 50 percent. This means that transit agencies (and local taxpayers) have to shoulder more of the cost.

Breaking down the policy

It’s unlikely that the next reauthorization dramatically increases transit funding. So, how can we get more money into transit in order to invest in the rest? One way would be to find new avenues for capturing more of the value created by new transit to help pay for building or operating transit. Value capture is a form of public financing that recovers some or all of the value that public infrastructure generates for private entities. For example, building transit stations can increase adjacent land values that create new, unearned profit for private landowners. Studies have shown that transit projects increase nearby property values by 30 to 40 percent. That value can be “captured” directly by allowing public agencies to tax a share of that value that accrues from the public investment to private landowners, and redirect those funds into transit.

One particular type of value capture strategy is joint development. This strategy for TOD allows a transit agency to coordinate with developers to improve the transit system while simultaneously developing real estate in ways that share costs and establish mutual benefits. This creates revenue streams for transit that can be used to cover operating costs and capital projects.

There are many examples of the benefits on real estate values and job growth of focusing new development around transit. On the Orange Line corridor in Arlington County, Virginia, a new metro line and five stations was built under what was at the time a low-density suburban corridor just outside the nation’s capital. Before construction began, Arlington adopted a General Land Use Plan to concentrate dense, mixed-use development around the new stations and along the corridor. Now, the two-square-mile corridor has been a huge driver of economic growth and new housing in the county. There have been a multitude of amazing results for encouraging ridership, including 50 percent of residents taking transit to work and 73 percent of residents walking to the metro stations. They have also maximized the value of their land and the hefty cost of this major transit investment: 26 percent of the county’s residents and 37 percent of the county’s jobs are on just 8 percent of the county’s land area represented by this corridor.

Finally, during a housing crisis with a severe shortage of homes, the federal transit program should reward the localities that are removing outdated zoning or land-use restrictions around transit to help the private market meet the demand for more housing. These onerous regulations often get in the way of building new things around transit that can bring in new riders. Many cities in the United States almost exclusively restrict new development to allow only single-family homes—even in walkable areas served by frequent and high-quality transit. This undercuts the value of transit, which works best when it connects as many people and destinations as possible. It also short-circuits the market, which is clamoring to meet the booming demand for more homes and destinations in walkable places served by transit. In addition to single-family homes, we need to update ancient zoning maps and relax these regulations to allow more mixed-use development or units that allow for residential and commercial space for multiple households.

Transit is at its best and most efficient when it serves as many people as possible and connects them to as many destinations as possible. TOD at its essence is all about building high-quality transit where people and places already are, or by putting more people and things close to the transit you’ve already built. The federal transit program should be encouraging both.

Looking ahead

“Show me the incentives, and I’ll show you the outcomes.” If we want transit to truly connect people to opportunity, we need to reward projects that deliver more than just movement—we need to invest in access, equity, and impact. Transit-oriented development (TOD) is one of the smartest ways to stretch limited dollars, increase ridership, and build stronger, more connected communities. Americans deserve a world-class transit system that’s funded with the same seriousness as highways—and designed to serve people, not just vehicles. By aligning funding with outcomes that matter—like access to jobs, homes, schools, healthcare, and opportunity—we can build a transportation system that works for everyone.