Land Values and the Measurement of Highway Benefits

Abstract

-3 HHE work of several writers appears largely to have succeeded in mak..Ling disreputable the once fashionable practice of crediting public investment activities in the development of water resources, in particular, with substantial "secondary" or "indirect" benefits.2 Secondary benefits in one guise or another still appear to be much in style, however, in dealing with the benefits of investments in highways and other transportation facilities. Among the benefits of highway investment to which reference is commonly made are those presumed to accrue to property owners. More specifically, many studies have demonstrated that land values tend to increase sometimes dramatically-in the vicinity of newly improved highways.3 Since these increases are independent of the extent to which the affected property owners use the highway facilities involved, such gains are quite properly labeled "non-user benefits." They are, furthermore, commonly regarded as benefits over and above those that accrue to highway users. That is to say, they are regarded as benefits that must in some way be added to those arising directly from highway use if total highway benefits are to be estimated accurately. Although widely accepted (particularly among highway planners), this final conclusion is, as it happens, fallacious. That property values increase in the vicinity of highway improvements does reflect the existence of highway benefits. Careful analysis of highwayland value relationships can yield valuable information on the magnitude of these benefits. Increases in land value are not in themselves net highway benefits, however. Rather, they reflect an actual or potential transfer of benefits derived from highways from one population group to another. Furthermore, the fact that land values generally do increase in the vicinity of highway improvements by no means guarantees that a net effect of these improvements is to increase land values as a whole. The primary goal of this paper is to demonstrate these assertions by exploring the relationship between land values on the one hand and transportation costs and reductions in them on the other. More specifically, Section I demonstrates the effects of certain types of transporta1 I am indebted to Robert Clower, William Garrison, William Pendleton, and Stephen Sobotka for much helpful advice. Richard Morrill undertook one of the preliminary analyses underlying the material reported in Section II, while Harold Williamson, Jr., directed most of the statistical work entailed in this section. The work reported here was undertaken as part of a larger study of the nature and measurement of highway benefits carried out with the support of the Bureau of Public Roads. My views do not necessarily reflect those of the Bureau, however.