The Anticipated Capitalisation Effect of a New Metro Line on Housing Prices*

Abstract

Housing units with closer access to public transportation enjoy a higher market value than those with similar characteristics but poorer access. This difference can be explained by the lower cost of transport to the main workplaces and shopping areas in town. For this reason, investments in public transport infrastructure, such as building a new metro line, are capitalised totally or partially into land and housing prices. This work empirically analyses the degree of capitalisation into housing prices of the benefits of the new Line 4 of the Santiago metro system, which began operating in December 2005. We focus on anticipated capitalisation into housing prices at the moment construction of Line 4 was announced and at the moment information on the basic engineering project was unveiled, identifying the location of the future stations. We use a unique database containing all home buying and selling transactions in the Greater Santiago area between December 2000 and March 2004. The results show that the average apartment price rose by between 4.2 per cent and 7.9 per cent after construction was announced and by between 3.1 per cent and 5.5 per cent after the location of the stations was identified. These increases were not distributed evenly, but depended on the distance from the apartment to the nearest station. An indirect effect of this kind of capitalization is that property tax collections will increase if property is reappraised following the price rise. This effect is not negligible in magnitude and could represent 11 to 17 per cent of investment in the new metro line. This raises and interesting discussion on how the metro network extension is financed.

Accessibility and agglomeration: A theoretical framework for understanding the connection between transportation modes, agglomeration benefits, and types of businesses

“…Similar work on the economic impact of public transit systems began in the 1970s and 1980s (Cervero, ; Cervero, ; Knight & Trygg, ) and generally supports the idea that station proximity increases property values and thus development intensity, primarily when the service itself is frequent and reliable, when the system is planned in conjunction with supportive land use policies, and is built in areas with high existing economic growth and development potential (Agostini & Palmucci, ; Cervero, ; Cervero, ; Cervero, ; Damm, Lerman, Lerner‐Lam, & Young, ; Golub, Guhathakurta, & Sollapuram, ; Hess & Almeida, ; Knaap, Ding, & Hopkins, ; Knight & Trygg, ; Landis, Guhathakurta, & Zhang, ; Seo et al, ; Weinberger, ; Weinstein & Clower, ). While other researchers have pointed out that the economic benefits observed due to transit systems may be (1) simply a refocusing of development that would have occurred somewhere else (e.g., the suburbs) or (2) predominantly due to regional economic conditions (Giuliano, ; Schuetz, ; Vessali, ), a recent meta‐analysis has confirmed that, overall, transit generally confers property value benefits to adjacent areas (Mohammad, Graham, Melo, & Anderson, ).…”

Gentrification, Transit, and Land Use: Moving Beyond Neoclassical Theory

“…However, the relationship between transit access and housing prices is not necessarily straightforward. For example, the premium on house prices may be variable over time, even appearing before the transit line is constructed, in anticipation of future benefits (Agostini and Palmucci ; Knaap et al ; McMillen and McDonald ). House values are higher near transit stations in Atlanta, but not too near, as negative externalities such as increased traffic, noise, and potential for crime are dominant immediately adjacent to stations (Bowes and Ihlanfeldt ), a situation similar to that observed in Helsinki (Laakso ).…”

Does Government Investment in Local Public Goods Spur Gentrification? Evidence from Beijing

“…That study concludes that public transit has its largest impact on local home prices and gentrification when the new transit connects an area to a vibrant downtown. Based on data from Santiago et al (2008) find that the news of announced new subway stations is capitalized into local property prices. Other research has investigated the effects of new green space.…”