Urban economic theory suggests that transit can have a direct impact on land values, land use, and urban form in certain circumstances, particularly when it provides significant accessibility benefits. However, we would expect that the direct land value impacts of many modern U.S. transit investments would be rather small because they confer marginal accessibility benefits in our auto-dominated cities. Further, Giuliano (2004) suggests that the incremental accessibility and corresponding direct land value impacts are likely to be insufficient to influence real estate development. Yet, we see real estate development and tremendous urban transformations around transit improvements all the time. How is this possible in Dallas and Denver and all the other auto-oriented cities where there are great examples of transit-oriented development? Well, the indirect impacts of transit on land values can be substantial and can profoundly influence urban form around transit. “Today, rail facilities are admittedly less effective in shaping land use patterns and guiding locational decisions than in the pre-automobile era. This is because in a modern metropolitan area, served by a dense network of high-speed freeways, rail transit can only marginally increase regional accessibility or improve mobility. But the experience of Canadian cities and evidence now emerging from certain U.S. cities suggests that even today rail transit can have a strong influence on the location, intensity and timing of new development, especially when it is supported by positive development incentives and coordinated land use/transportation planning” (Orski 1980, p. 200). Transit improvements have had major impacts on land use policies and, therefore, urban form. Though there are many other "flavors" of land use controls, regulations of land use type and bulk are most often articulated in municipal and county zoning codes. Relaxing zoning regulations, including height limits, parking requirements, or use restrictions, can unleash supply to meet demand in strong markets. Such has been the case many times around transit. For example, Webber (1976) cited the growth of downtown San Francisco office real estate as one of few urban form impacts of the original BART system. He lamented that the BART investment in downtown had merely justified the relaxation of development constraints, allowing the development community to satisfy the extreme demand for San Francisco office space that existed with or without transit services. Weber's disappointment in BART's direct impacts on the Bay Area's overall real estate market overshadowed his finding that BART had critically influenced local politics and allowed development to occur that would have otherwise been stifled. “Experience indicates that major transit improvements often act as catalysts in the process of land use change, coalescing support for previously contentious policy changes. […] This indirect influence may in fact be one of rapid transit’s most powerful means of generating land use impacts” (Knight 1980, p. 10). In addition to land use policy changes, transit improvements can spur public and private investments in placemaking, environmental cleanup, social services, and other community benefits. Also, transit investments might spur governments to provide targeted real estate development subsidies that can make transit-served locations that qualify for the funding more attractive investments. In turn, these transit-induced public actions inform the value of transit-served properties.
Additionally, transit improvements can indirectly impact land values and real estate development through an array of other pathways. Researchers have identified a panoply of critical factors that influence land densification around transit and any one of them could theoretically be modified in response to a transit investment. For example, Cervero (1987) suggested that hospitable station area environments, unwavering political support, and the existence of pro-development zoning, taxation, and land use policies were all influential in the delivery of transit-oriented development. Each could be influenced by a transit investment and any transit-induced modification to these precursors of greater land utilization would have a direct influence on the market value of transit-adjacent land. Put another way, transit can act as a Trojan horse for supportive policies that allow market forces to deliver high-density development relatively independent of transit services (Chatman 2013). In fact, when local zoning policies are adjusted to promote development around new transit investments, the policy changes can inform land values and urban development even when transit projects subsequently stall or are abandoned (Giuliano and Agarwal 2010). While some might argue that transit investment is an inefficient way of modifying local policies, in many cases it is only such a bold transportation investment that can reduce a community's fear of density-induced gridlock, imbue confidence in local politicians, and address other concerns that act as political third rails for enabling dense urban development. In addition, in case we might have forgotten, there's always the mobility and accessibility benefits of transit improvements! Resources: Cervero, Robert. 1987. “Transportation and Urban Development: Perspectives for the Nineties.” Working Paper No. 470. Berkeley, CA: Institute of Urban and Regional Development. Chatman, Daniel G. 2013. “Does TOD Need the T?: On the Importance of Factors Other Than Rail Access.” Journal of the American Planning Association 79 (1): 17–31. Giuliano, Genevieve. 2004. “Land Use Impacts of Transportation Investments: Highway and Transit.” In The Geography of Urban Transportation, Third Edition, Third Edition. The Guilford Press. Giuliano, Genevieve, and Ajay Agarwal. 2010. “Public Transit as a Metropolitan Growth and Development Strategy.” In Urban and Regional Policy and Its Effects. Washington, D.C.: Brookings Institution Press,. Knight, Robert L. 1980. “Transit’s Land Use Impacts: Evidence and a Change of Perspective.” In New Urban Rail Transit: How Can Its Development and Growth-Shaping Potential Be Realized. Vol. 96th Congress, First Session. 96-7. Washington, D.C.: U.S. Government Printing Office. Orski, C. Kenneth. 1980. “The Federal Rail Transit Policy: Principles and Practice.” In New Urban Rail Transit: How Can Its Development and Growth-Shaping Potential Be Realized. Vol. 96th Congress, First Session. 96-7. Washington, D.C.: U.S. Government Printing Office. Webber, Melvin. 1976. “The BART Experience: What Have We Learned?” The Public Interest, no. Fall: p. 79–108.
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It's not often that you can gather a conference room full of people interested in transit value capture. Yet, I was able to see several value capture-focused presentations at the RailVolution Conference in Dallas along with about 75 other interested souls. The packed sessions attested to the allure of the topic and the quality of the presentations kept people coming back for more each day of the four-day event. One presentation on value capture in Florida struck me because of the scale of development that is occurring around transit stations in the white hot Miami real estate market. On Tuesday, October 27th, I joined a session called "Finding the Value, Capturing it and Putting it to Work." Albert Hernandez, the Assistant Director Engineering, Planning and Development for Miami-Dade Transit, gave an overview of the value capture his agency is undertaking. A $1.3 billion dollar, 5.4 million square foot development occurring in downtown Miami was an over the top example of transit value capture. Gratuitously sexy nighttime renderings of the multi-tower complex accompanied Hernandez's technical description of the value capture process his team conducted. For sexy nighttime renderings, see slide 15 of the PDF that Albert was kind enough to share with me. The photos in subsequent slides prove that this isn't fiction. When Squire Properties initially proposed their downtown mega project, Albert's team realized that they owned a 10,000 square foot site adjacent to Squire's land holdings. They put out an RFP for development on the site anticipating that Squire would respond. That they did!
According to Albert, Miami-Dade Transit negotiated an agreement with Squire that the development project would include upgrades to the existing Metromover station, the property owners would take on the long-term maintenance of the upgraded facility, and Squire would make a one-time $2M payment to the agency. The station upgrades were valued at $6M and the avoided maintenance costs were in addition to the one-time sum. The value capture was made possible by a relatively small parcel that could not accommodate significant development on its own. It was also enabled by the ridiculously strong real estate market that exists in central Miami and a mega project that would have happened with or without the agency's land. Most importantly, savvy staff were monitoring the local market with the interests of the transit agency front of mind. Check out the rest of Albert's presentation for more information on Miami-Dade Transit's value capture efforts. In this post, I discuss research on direct land value impacts of transit improvements. It's a wonky post. Yet, I thought it was worth boring people with some foundational information that I can reference each time I make statements about "transit's modest direct impacts." Prepare to geek out!
In case you don't want to read the whole thing, here's a bulleted summary:
Transit impact studies are a relatively modern U.S. phenomena coincident with the rebirth of fixed-guideway transit investments. While the United States was the epicenter of early urban transit investment (streetcars galore!), private urban rail investments subsided in the 1920s and were precluded by the depression, WWII, and the rise of the automobile in the postwar years (Jones 2008). A modern slate of federally funded rail projects followed the lead of the BART system in the San Francisco Bay Area. A slate of early rail impact studies were sponsored to both evaluate and justify the new Federal funding role, particularly since transit legislation had been sold to congress based on transit’s ability to help “shape as well as serve urban growth" (Federal Transit Administration 2010; Altshuler and Luberoff 2003). More recent transit impacts studies continue to help perpetuate the federal role in transit and the expansion of fixed-guideway investments across the country. Research found that the first generation of modern transit investments yielded mixed land value impacts. Here are examples from the literature: Damm et al’s (1980) hedonic study found a modest impact of distance from proposed Washington Metro stations on property sales prices. Landis et al (1994) found a positive price premium for each foot closer to a BART station in two of the three counties served by the system at the time. Bowes and Ihlandfeldt (2001) used a hedonic to find that MARTA rail transit station proximity had a greater effect on Atlanta home prices than either crime or retail proximity once one looked beyond the immediate station area where prices were negatively impacted by transit. Gatzlaff and Smith (1993) found no spatial correlation using repeat sales or a hedonic model for single-family properties around proposed Miami Metrorail stations. As you can see, the results were not smoking gun proof that the first generation of modern transit investments had huge land value impacts. In spite of high expectations that second generation rail systems, like that in San Diego, would learn from prior experience and outperform the land use impacts of their predecessors (Orski 1980; Knight 1980), impact studies of these systems have also found mixed results. For example, it was found that San Deigo’s trolley was a minor consideration for developers and that other market forces were directing growth to areas unserved by the trolley investment (SANDAG 1985). Subsequently, Landis et al (1994) found a positive premium for San Diego transit station proximity using a hedonic model but it was not clear that residential development was attracted to the line. Most recently, Duncan (2010) found that station proximity’s positive impact on condo prices was dependent on the quality of the pedestrian environment around San Diego stations. Elsewhere in California, Landis et al (1994) found that Sacramento’s LRT had no significant effect on prices. In nearby Oregon, Knaap et al’s (2001) hedonic model for Portland properties found positive land value impacts of Hillsboro line station location announcements. A study by Hess and Almeida (2007) used multiple methods to identify a positive premium effect for LRT proximity on Buffalo, New York property assessments. Differences in control variables (e.g., the lack of highway access variables in the Buffalo study), the sophistication of the analyses, and a diverse set of study area conditions are all logical explanations for the variation in findings for these second generation systems. Regardless of variation, there is still no smoking gun evidence that modern transit investments have had consistently large and positive direct impacts on land values. In fact, Yan et al (2012) found that the land value impact of transit station proximity for residential properties in Charlotte, NC was negative and varied by time period. In all four time periods they tested, they found that values increased as you went further from the region's initial light rail investment, a counterintuitive finding they speculate is explained by the corridor's former freight rail-orientation. They did find that the relationship between value and distance from stations was less pronounced after the rail transit went into service, suggesting that the transit services did impact on land values but that the new transit access didn't fully overcome the disamenity of proximity to the locations where transit stations were built. While most studies have used hedonic models, some of the more recent rail impact studies used a diverse set of methods to improve their assessments and, again, found mixed results. Chatman et al (2011) used repeat sales to determine that New Jersey’s River Line had a positive impact on some properties but the cumulative land value effect was negative to neutral. In Chicago, where a robust transit network exists, McMillen and McDonald (2004) used hedonic and repeat sales methods to determine that residential sales prices were positively influenced by the extension of the L-system to Chicago’s Midway Airport. In Los Angeles, where rail has only recently been reintroduced, Redfearn (2009) used a hedonic and multiple locally weighted regressions to determine that the Metro Red and Gold lines had inconclusive or no impact on residential sales prices. Bartholomew and Ewing (2010) conducted a review of land value impacts of pedestrian- and transit-oriented urban design and found that such urban design elements were also capitalized into the value of land. This suggests that those transit impact studies that did not control for design might have over estimated the direct value of transit proximity, further complicating the mixed findings of prior transit impact studies. That said, the authors point to two studies when they suggest that transit-oriented design and transit proximity are both necessary for land value impacts to occur. That suggests that but for the transit investment the value impacts would not have occurred. I should also clarify some limitations of most of these studies. Transit impact studies generally focus on residential property and do not capture the impacts on commercial property. There are a number of reasons for this, including the simple reality that there are more residential properties and they trade more often, yielding more robust data. Also, any proximity benefit can be attributed to transit, whereas agglomeration benefits will also be capitalized into commercial property values and that benefit can be difficult to parse out. Further, due to the need for larger sample sizes and the interests of research funders, most of these studies consider entire transit project alignments. Therefore, they tend to focus on residential properties because they are present in more transit station areas and can better illuminate a transit project’s broad impact. Due to the wide geographies that are studied and the fact that some studies do not control for the individuality of stations, the results of some of these studies describe averages across entire transit corridors and may not capture the variability in incremental accessibility that a transit investment can confer in specific locations. As I produced this summary, I relied on a thorough review of peer reviewed studies on this topic. It is worth noting that these studies had to demonstrate their methodological rigor to pass through peer review, including the inclusion of control variables for numerous factors that may also impact land values. In contrast, many other non-peer-reviewed studies that consider the real estate development impacts of transit do not control for many factors that also influence property values. For example, they may list all development that has occurred in a new transit corridor and suggest that the full value of that new development (generally billions of dollars) is attributable to the transit improvement. This is in spite of the fact that more development might have occurred away from transit, suggesting transit had little influence, or that other important interventions contributed to the development patterns (for example, geographically targeted subsidy programs) and would have done so even if the transit improvement had not occurred. In spite of the shortcomings, the non-peer-reviewed research has still yielded mixed results. For example, case studies of three light rail projects implemented in the 2000's found that most development that occurred along light rail transit lines, measured in square feet, materialized in employment nodes—especially downtown and also regional sub-centers—but few instances of residential development were noteworthy (Fogarty and Austin 2011). Ultimately, the mixed results actually reflect what urban economists would expect. Urban economic theory suggests that transit would have minimal impact on residential accessibility in auto-dominated environments—which describes many of our modern U.S. cities—and, therefore, have little direct impact on land values. While some studies have identified positive land value impacts, the empirical U.S. evidence evaluated by researchers has been unable to unambiguously reject the hypothesis that arises from our best theories: transit will have modest direct impact on land values in our auto-centric urban areas. Yet, the theory suggests that direct land value impacts can be expected in specific U.S. circumstances where transit provides considerable accessibility benefits. If we hope to see transit have dramatic direct impacts on land values in the U.S. context, transit planners will need to carefully identify instances when considerable accessibility benefits are possible and public officials will need to prioritize those investments that foster the greatest accessibility gains. Resources: Altshuler, Alan, and David E. Luberoff. 2003. Mega-Projects: The Changing Politics of Urban Public Investment. Washington D.C.: Brookings Institution Press; Lincoln Institute of Land Policy. Bartholomew, K., and R. Ewing. 2011. “Hedonic Price Effects of Pedestrian- and Transit-Oriented Development.” Journal of Planning Literature 26 (1): 18–34. Bowes, David R., and Keith R. Ihlanfeldt. 2001. “Identifying the Impacts of Rail Transit Stations on Residential Property Values.” Journal of Urban Economics 50 (1): 1–25. Chatman, Daniel, Nicholas Tulach, and Kyeongsu Kim. 2011. “Evaluating the Economic Impacts of Light Rail by Measuring Home Appreciation: A First Look at New Jersey’s River Line.” Urban Studies. Damm, David, Steven Lerman, Eva Lerner-Lam, and Jeffrey Young. 1980. “Response of Urban Real Estate Values in Anticipation of the Washington Metro.” Journal of Transport Economics and Policy Vol. 14 (No. 3). Debrezion, Ghebreegziabiher, Eric Pels, and Piet Rietveld. 2007. “The Impact of Railway Stations on Residential and Commercial Property Value: A Meta-Analysis.” The Journal of Real Estate Finance and Economics 35 (2): 161–80. Duncan, M. 2010. “The Impact of Transit-Oriented Development on Housing Prices in San Diego, CA.” Urban Studies 48 (1): 101–27. Federal Transit Administration. 2010. “History: The Beginnings of Federal Assistance for Public Transportation.” FTA. http://www.fta.dot.gov/about/about_FTA_history.html. Fogarty, Nadine, and Mason Austin. 2011. “Rails to Real Estate: Development Patterns along Three New Transit Lines.” FTA CA-26-1007-03. Washington, D.C.: Center for Transit Oriented Development. Gatzlaff, Dean, and Marc Smith. 1993. “The Impact of the Miami Metrorail on the Value of Residences near Station Locations.” Land Economics Vol. 69 (No. 1). Giuliano, Genevieve, and Ajay Agarwal. 2010. “Public Transit as a Metropolitan Growth and Development Strategy.” In Urban and Regional Policy and Its Effects. Washington, D.C.: Brookings Institution Press,. Hess, Daniel Baldwin, and Tangerine Maria Almeida. 2007. “Impact of Proximity to Light Rail Rapid Transit on Station-Area Property Values in Buffalo, New York.” Urban Studies 44 (5): 1041–68. Jones, David. 2008. Mass Motorization Mass Transit: An American History and Policy Analysis. Bloomington: Indiana University Press. Knaap, Gerrit, Chengr Ding, and Lewis Hopkins. 2001. “Do Plans Matter?: The Effects of Light Rail Plans on Land Values in Station Areas.” Journal of Planning Education and Research 21 (1): 32–39. Knight, Robert L. 1980. “Transit’s Land Use Impacts: Evidence and a Change of Perspective.” In New Urban Rail Transit: How Can Its Development and Growth-Shaping Potential Be Realized. Vol. 96th Congress, First Session. 96-7. Washington, D.C.: U.S. Government Printing Office. Landis, John, Subharjit Guhathakurta, and Ming Zhang. 1994. “Capitalization of Transit Investments into Single-Family Home Prices: A Comparative Analysis of Five California Rail Transit Systems.” Working Paper 619. Berkeley, CA: Institute of Urban and Regional Development. McMillen, Daniel P., and John McDonald. 2004. “Reaction of House Prices to a New Rapid Transit Line: Chicago’s Midway Line, 1983-1999.” Real Estate Economics 32 (3): 463–86. Mohammad, Sara, Daniel Graham, Patricia Melo, and Richard Anderson. 2013. “A Meta-Analysis of the Impact of Rail Projects on Land and Property Values.” Transportation Research Part A: Policy and Practice Volume 50 (April): Pages 158–70. Orski, C. Kenneth. 1980. “The Federal Rail Transit Policy: Principles and Practice.” In New Urban Rail Transit: How Can Its Development and Growth-Shaping Potential Be Realized. Vol. 96th Congress, First Session. 96-7. Washington, D.C.: U.S. Government Printing Office. Redfearn, Christian L. 2009. “How Informative Are Average Effects? Hedonic Regression and Amenity Capitalization in Complex Urban Housing Markets.” Regional Science and Urban Economics 39 (3): 297–306. SANDAG. 1985. “San Diego Trolley: The First Three Years.” Washington, D.C.: U.S. Department of Transportation. Stokenberga, Aiga. 2014. “Does Bus Rapid Transit Influence Urban Land Development and Property Values: A Review of the Literature.” Transport Reviews, April, 1–21. Yan, Sisi, Eric Delmelle, and Mike Duncan. 2012. “The Impact of a New Light Rail System on Single-Family Property Values in Charlotte, North Carolina.” Journal of Transport and Land Use 5 (2). Land value is what a location is worth when you strip away all that exists upon the land. An economist will tell you that it's the unimproved market value of a site (buildings = improvements). As an illustration, consider two Holiday Inns on opposite sides of town. Both are on one acre lots, built at the same time, and used the same architectural drawings, contractors, and materials to be constructed. Yet, one is closer to a major employer, a large park, and has views of the water. Compared to the other Holiday Inn, the hotel on the water has higher occupancy, people pay more per night to stay there, and the breeze off the water keeps it cooler in the summer and cheaper to heat in winter. Even though they're physically identical buildings, it would cost a hotel investor considerably more to purchase the Holiday Inn by the water. An economist would conclude that the two hotel buildings are of equal value while the one acre of land near the water has considerably greater value than the acre where the other Holiday Inn is located. The difference in land value explains the difference in price. Transit access - like access to major employers, a large park, or views of the water - is an attribute of a location. The access can confer considerable value to the land. Some might say that land value also excludes what is under the land. For example, one might exclude the value of mineral deposits when stating a more pure valuation of a particular location. Since these rights are often sold separately in mineral rich U.S. states, they can be easy to appraise and subtract from the core site value. Though I do not subscribe, some economists might also try to estimate and exclude speculative development value when calculating land values. The "option value" component can be a large percentage of a property's overall market value. Extending the example above, let's say that the Holiday Inn close to the water is zoned by the city to allow any type of commercial development as long as it does not exceed 100 feet in height. This gives the landowner a valuable option to expand the existing building or use the land in a different way. This option may be valuable purely as a contingency or may allow for a more valuable land use than the current hotel (thus redevelopment would be an attractive opportunity). While some landowners might be somewhat unaware of the options that they posses, the option value is an important part of any investor's valuation and will generally be reflected in a competitive offer. The option value can be estimated by appraisers and assessors and subtracted from the overall land value. Transit improvements can have a profound impact on land use controls (zoning, etc.) and can influence market demand for a location. Thus, transit improvements can impact a landowner's options, which is reflected in what people are willing to pay to potentially execute those options in the future. I consider option value to "run with the land" and include it when quoting a land value. This is in keeping with appraisals for land value taxation purposes where land is taxed based on its potential use irrespective of its underutilization. So, once again, land value is what a piece of land is worth once you exclude the value of everything sitting on the land. |
AuthorIan Carlton is a transportation and land use expert specializing in transit-oriented development (TOD). He helps clients - including transit agencies, planning departments, and landowners - optimize real estate development around transit. Archives
March 2019
CategoriesSpecial thanks to Burt Gregory at Mithun for permission to use the Portland Streetcar image above.
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