Value capture is a particular strategy within public financing that focuses on situations in which the market value of private land is enhanced by development of public lands within the area. When this type of phenomenon occurs, the local jurisdiction may impose some type of change to property taxes, fees, or some other type of enhancements that allow the jurisdiction to benefit or capture some of that enhanced value. While the value capture may be complete, meaning that the jurisdiction adjusts taxes or fee schedules to gain control of all the increase, this approach normally involves securing a portion of the newly created value leaving the owner of the private land with at least some additional benefit.
In order for value capture to occur, it is necessary to prove that the use of public land did in fact lead to increasing the value of the private land. Public land that is within the general proximity of the private land must be developed in some manner that has a beneficial impact on the value of that private land. This may come in the form of the creation of new road systems, construction of schools, or any other number of projects that enhance the desirability of the surrounding area. Unless activity in the marketplace bears out the fact that an increase in value has occurred, it is impossible to engage in value capture, since there is no additional value to claim.
Value capture can be a useful tool when it comes to urban planning. Municipalities may attempt to construct a reasonable relationship between private and public land holdings as a means of triggering renewal in a section of the city that has become less desirable. A number of cities use this approach as a means of revitalizing a downtown area. By using development projects that help to increase the desirability of the area, private owners are able to sell their holdings for considerably higher sums as people and businesses begin to reestablish in the area. As part of the value capture, the municipality benefits from the ability to increase land taxes in some manner, while still leaving a portion of the increase in the hands of the landowners. As a result, all parties benefit from the arrangement, both in terms of market value and also the increased economic opportunities within the area.
It is possible to engage in value capture that is ultimately not in the best interests of all parties involved. Should the capture be so complete that all incentives for holding the private real estate is removed, attracting new owners and businesses to the area may prove impossible. At that point, property values may fall rather than increase. For this reason, municipalities often attempt to strike a balance between how much value can be captured without derailing the entire process.