Light at the End of the Tunnel: The Impacts of Expected Major Transport Improvements on Residential Property Prices

Abstract

Properties near public transportation systems are usually sold at a premium towing to firms’ and people’s willingness to pay for access to workplace and leisure. However, the economic impacts of major infrastructure investments remains an empirical question plagued by identification issues. We exploit an unexpected announcement to investigate the economic impacts of a major transportation development project currently under construction in Hong Kong: the Tuen Mun – Chek Lap Kok tunnel, namely the effects on property prices of the expansion of the regional road network in the Greater Bay Area. We identify a significant accessibility premium well before the tunnel is completed. There is also a change in market structure of increased preference for residential property in areas closer to the tunnel, reflected by higher price appreciation. The findings help guide urban planning and public investment decisions, as well as the design and implementation of land value capture policy.