The Impact of Transit Investment on Housing Values: A Simulation Experiment

Abstract

This paper uses a joint-choice logit model of travel demand and residential location to simulate the impact of urban rapid-transit investment on housing values within a radial corridor. The model developed is a clean break with the traditional urban economic theory. Instead the heterogeneous nature of travel and location decisions is recognized and the logit model, consistent with stochastic utility maximization, is employed. Simulation experiments reveal that the aggregate increase in property values caused by transit's impact on work trips is highly sensitive to the aggregate number of vacancies within the corridor. Under reasonable assumptions, transit investment tends to lower central-city property values, to increase central-city vacancies, and to raise suburban property values. It tends to help the poor move further away from the center and penetrate the inner suburbs. Depending on several influences, aggregate property values can increase or decrease and the change can often be statistically insignificant. Calculations show that an equitable taxation (and compensation) of property-value changes may raise a small to modest proportion of a transit system's construction cost. Several considerations suggest that even these modest estimates might be optimistic. These results help develop an improved perspective on ‘value-capture policy’ which has not, up to now, benefited from quantitative analysis. Major extensions of the model are briefly considered.