IA instead recommends that governments gradually get rid of stamp duties and tax land values over the long term, arguing it is the "fairest" way of raising money for new infrastructure.

A new train line that makes it faster for people to get to work will typically attract people to buy houses nearby, increasing land values.

But property values reflect the type and quality of buildings on the land, as well as location, and may not be directly correlated with land values, the report found.

IA analysed changes in property values near 10 selected infrastructure projects, assessing WA's Mandurah Railway, Queensland's Gold Coast Light Rail, NSW's M2 motorway and Victoria's Peninsula Link freeway.

It found that the relationship between the proximity and value of properties around the projects was not "clear cut", with some properties that were close to projects – including the Gold Coast Light Rail – showing slower growth than the citywide average during a selected period.

'Reality check'

"The data brings into question the assumption that the closer a property is to infrastructure, the greater the boost to its value," the report said.

"There are serious challenges for any form of value capture based on property prices rather than underlying land values."


Ken Morrison, CEO of the Property Council, said the report was "a reality check" for governments who promote the concept of value capture without ruling out new property taxes.

"Australia has a real infrastructure shortfall addressed, but it is clear from this report that poorly constituted value capture carries real economic, social and political risks for governments, business and the community," Mr Morrison said.

But the council disagreed with the report's finding that so-called "tax increment financing" (TIF) – which allows governments to pay for infrastructure projects by borrowing against forecast increases in property taxes and other revenues – was not useful for Australia.

IA argues that TIF is a "financing solution", not a "funding mechanism", and there is plenty of capital available in Australia in the form of debt and equity to pay for projects.

"TIF would simply hypothecate tax revenues that would have otherwise occurred and flowed to the general tax base," the IA report says. "This would have the effect of securing additional funds for infrastructure at the expense of other government spending priorities."

But Mr Morrison said the IA report did not recognise that Australian cities were "full of under-utilised infrastructure" and that land use and infrastructure planning were often not aligned.

"TIF creates a mechanism to bring the two together which then creates more tax revenue to fund the infrastructure asset," he said.

The council said it welcomed IA's calls to abolish stamp duty, but said it was unlikely to be "politically feasible" to raise the same amount of money from land taxes.


The IA report also examined betterment levies – which try to capture specific increases in value from local property owners and businesses – as well as developer charges and the selling or leasing of government land near projects.

It concluded betterment levies could be effective, but unfair if prices do not rise as much as expected, and that developer charges would distort local property markets if a project's costs exceeded its benefits.

The report, Capturing Value: Advice on making value capture work in Australia, comes after IA's Australian Infrastructure Plan recommended in February that governments consider value-capture models in all future public investments.

IA is considering requiring projects proposed for inclusion on its Infrastructure Priority List to show value capture has been considered, but says value-capture models should not influence what projects are selected by governments.