The Impact of Transit Corridors on Residential Property Values

Researchers have long been interested in the question of whether or not a relationship between transportation systems and housing prices and rents exists. In 1846, acting as what may have been the first transportation planning consultant, an unnamed ‘‘gentleman’’ conducted a door-to-door survey to determine the impact that the London’s rail lines had on rents in the poor working districts of the city. This study, undertaken at the request of London’s Royal Commission on Metropolis Railway Termini, determined that weekly and monthly rents in these districts rose from 10% to 25% as result of their proximity to public transportation stations. Though the methodology involved has changed significantly—from the original ‘‘traveling salesman’’ approach, to matched pairs comparison in the 1950s, to the use of econometric modeling today—the purpose of this research remains the same. Specifically, researchers are interested in how transportation systems impact housing prices. The types of transportation infrastructure of interest have evolved along with the urban environment, from commuter rail to multi-land limited access highways, and airports and, most recently, returning full circle to commuter and/ or light rail systems. Transportation systems affect property values in two key ways: positively, via the increased accessibility that they provide, and negatively, due to the negative externalities associated with being close to them. Generally, the increase accessibility is a public benefit, while a relatively few property owners bear the negative impacts. As a result, decisions regarding where to locate new systems and/or expansions to existing systems are controversial, particularly because of 3 0 4 K i l p a t r i c k , T h r o u p e , C a r r u t h e r s , a n d K r a u s e the difficulty involved in balancing the public benefits with the externality costs borne by those few property owners. While transportation systems clearly enhance neighborhood accessibility, they also negatively affect real estate values by producing noise, pollution, crime, and, in the case of properties located directly in their path, via stigma. These factors, both positive and negative, capitalize into the value of homes in the same matter that extra bathrooms, pools, and/or desirable locations do. Unfortunately, many prior studies examine the overall impact on affected properties, combining the positive public good with the negative externality. The purpose of this paper is to isolate and empirically investigate the negative impact of a transit corridor separately from the public benefits. The following section reviews the recent literature, focusing on hedonic empirical studies conducted since the 1970s and placing the findings in the context of real estate theory. Next, there is a discussion of an empirical model, which is tested using two different data sets. The first data set consists of sales of homes in a suburban interstate highway corridor, which have varying degrees of both proximity benefits and negative impacts. Findings from this model aid in constructing a second model that analyzes home sales over and near a tunnel easement, which have negative impacts but do not enjoy proximity benefits. This second data set allows also for development of a distance function, in much the same way Colwell (1990) did for power lines. The paper closes with concluding remarks and recommendations for further research. L i t e r a t u r e R e v i e w The real estate value impact of proximity to externalities in general has been explored from numerous perspectives in the literature, and was well summarized in Lentz and Wang (1998). Specific to transportation externalities, studies from the United States and Canada have generally shown a positive average relationship between proximity to transit stations and neighboring housing values. For example: United States House of Representatives (1981) reveals a $12,300 premium paid for town homes located within 1,000 feet of a Washington D.C. Metro station; Bajic (1983) shows an increase of $2,237 for homes in Toronto’s Spadina neighborhood, which were near subway stations; Voith (1993) reports an increase of 6.4% for homes near Philadelphia’s train stations; Armstrong (1994) finds a housing price premium of 6.7% for suburban Boston communities with commuter rail stations; Landis et. al. (1995) find that home prices decline $1–$2 per meter distance from a Bay Area Rapid Transit (BART) station in California; T h e I m p a c t o f T r a n s i t C o r r i d o r s 3 0 5 J R E R V o l . 2 9 N o . 3 – 2 0 0 7 Benjamin and Sirmans (1996) reports a decrease of 2.4% to 2.6% in housing price for every tenth of a mile from a Washington D.C. Metro station; Workman and Brod (1997) examines individual San Francisco neighborhoods and finds a decline of $2,300 in home prices for every 100 feet from a BART station in one neighborhood and $1,578 for every 100 feet in another; Sedway Group (1999) reports a decline in housing price of $74 per foot from a BART station within the first quarter of a mile and $30 per foot for those greater than a quarter of a mile away; Baum-Snow and Kahn (2001), a multi-city study analysis, finds that moving from three miles to one mile away from a transit station creates a rent increase of $19 per month and a housing premium of $4,972; and Garrett (2004), a study on the Metrolink in St. Louis, shows an increases of $140 in home price per 10 feet closer to a station. This collection of research exposes the economic benefits of accessibility, expressed, in each case, as proximity to a transit station. The basis for this relationship was first developed by von Thunen in 1826. Within that framework, increases in rents and housing prices due to accessibility—whether from a new rail station, bus stop, or freeway onramp—are caused by subsequent decreases in commuting costs, measured in time. Through what is known as the compensation principle, reduced transportation costs allow households to spend more on housing and, in turn, bid up the rents or prices of homes located in areas with low commuting costs; this is precisely what creates the land value/density gradient. The studies listed above fall in line perfectly with rent theory regarding the relationship between accessibility and home prices and rents. A practical application of this is the Fannie Mae-sponsored location efficient mortgage program, which allows households located in areas served by mass transit to borrow more money, with the understanding that less of their income will be spent on transport costs, such as automobile payments. In the context of transportation planning, it is important to bear in mind that with accessibility comes the negative externalities of pollution, crime, and noise, plus the stigma that arises as homebuyers seek to avoid the risk associated with being proximate to the line or route. Thus, while these studies reveal positive average benefits, the findings generally do not try to separate the benefits from the costs. The real estate literature also explores situations where an otherwise benign or even positive externality can have negative impacts on proximate property values. For example, Wang, Grissom, Webb, and Spellman (1991) show that the development of single-family rental housing can have a negative impact on nearby owner-occupied residences. Many studies focused on transportation reveal situations where the costs exceed the public benefits of transportation access or where costs and benefits are in balance such that there is no average impact. For example, a study by Forrest, Glen, and Ward (1996) in Manchester, England, shows significant decreases in housing values for homes located within two miles 3 0 6 K i l p a t r i c k , T h r o u p e , C a r r u t h e r s , a n d K r a u s e of Metrolink (2.1%–8.1%) and non-Metrolink (4.4%–4.5%) stations. Likewise, Landis, Guhathukurta, and Zhang (1994) find that proximity to a light rail station in San Jose, California decreases home prices on the order of $31,000. Gatzlaff and Smith (1993) report that, overall, proximity to Miami’s Metrorail station has no statistically significant impact on house prices. Last, Spengler’s 1930 study shows that proximity to transit stations does increase house values, but at the expense of those homes farther away. This zero-sum theory has been reinforced by subsequent studies from Mohring (1961), Boyce et al. (1972), and Allen and Mudge (1974). Some recent research has been much more specific in identifying the various ways in which transit systems influence the value of housing. For instance, some of these studies have accounted for the income of the neighborhood, distance from the central business district, or the existence of a parking lot on site. In their study of the Miami Metrorail system, Gatzlaff and Smith (1993) find that higher income neighborhoods experienced benefits, while lower income areas experienced no impact. Conversely, Nelson (1992) and Bowes and Ihlanfeldt (2001) find that high (low) income neighborhoods are negatively (positively) affected by MARTA stations in Atlanta. The latter study reports that increases in property values were greater farther from the central business district, an effect attributed to the linehaul costs associated with transit trips. It also finds that the existence of a parking lot, which may promote increased crime rates, significantly decreases values within the immediate (quarter mile) vicinity of stations. The 1997 Workman and Brod study shows the same localized effect, with decreases in value observed in the first two to three blocks surrounding a station giving way to premiums by the fifth or sixth block. Both the positive and negative impacts of transit systems can vary through time. McDonald and Osuji (1995) report that, in the three years before its construction, Chicago’s Midway Line increased values of homes within a half mile of proposed stations by 17%. A follow-up stud