Abstract
Building on standard urban economics theory we set up a stylized model within which we demonstrate that the imposition of a toll ring leads to higher housing prices within the ring, and lower outside the ring. We examine this prediction empirically by using transaction data for 15,306 dwellings in the Norwegian town of Kristiansand, where since 1992 there has been a toll ring. We find that the toll ring implies 6.9 per cent higher housing prices within the toll ring than outside it. The relationship between toll fees and housing prices seems to be stable over time. The impact of the toll ring on the prices of detached houses, apartments, row houses and twin houses is strikingly different. For detached houses, we do not find significant evidence of a price premium within the toll ring. For apartments, the price premium is estimated to be 8.1 percent. For row houses and twin houses taken together, we find a price premium of 19.2 per cent for dwellings within the toll ring.
Highlights
The idea of imposing tolls on road users has a long history in the economics literature, dating back to the work of Pigou (1920) and Knight (1924)
We find that a modest dwelling that is sold for 2 million NOK if located just outside the toll ring could be sold for 138,000 NOK more if located just inside the toll ring
Toll rings around Norwegian towns and cities have existed for approximately 30 years, to date little has been known about how tolls influence housing prices
Summary
The idea of imposing tolls on road users has a long history in the economics literature, dating back to the work of Pigou (1920) and Knight (1924). The focus in most of this Norway-based literature, and in the contributions of researchers from other coun tries, for instance Santos (2005) and de Palma, Lindsey, and Proost (2006), has been on how tolls affect traffic, and how tolls may contribute to finance road construction, i.e., issues typically dealt with in the literature on the economics of transportation. Previous research has not addressed how a dense toll ring around the central parts of a town im pacts the housing market. It is precisely the neglect of this issue, both in the economics discipline and among policymakers, that has given us the impetus to carry out the present investigation.
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