Done well, transit can generate substantial real estate value
As with any major urban infrastructure improvement, it stands to reason that investments in our transit services can contribute value to our cities.
Modern U.S. transit investments can be mega projects that serve thousands upon thousands of riders each day. Investments in transit service quality, like increased frequency or new vehicles, can substantially influence individuals' travel choices. Furthermore, transit investments can directly and indirectly contribute to more environmentally sustainable and healthy communities. All that said, taking full advantage of the opportunity - actually impacting property values and shaping real estate development - is what's hard. |
It stands to reason that investments in our urban transit services can contribute value to urban places. That said, taking full advantage of the opportunity is what's hard. |
Urban economic theory suggests that transit access can directly impact land values
Theoretical models of urban development suggest that landowners will pay more for land that is accessible to more places, thus we expect useful transit services will contribute to rents, prices, occupancy levels, and, thus, land value. There is no one-size-fits-all change in land value that can be expected from transit improvements. Real estate is local and every transport network is unique, thus the land value impacts of transit are also context-specific.
There is no one-size-fits-all change in land value that can be expected from transit improvements. Real estate is local and every transport network is unique, thus the land value impacts of transit are also context-specific.
In fact, theoretical models predict both positive and negative land value impacts from transportation investments. For one, landowners may not value being extremely close to a rail transit station where noise and other nuisances detract from the location, thus land values might be lower very close to transit services. Also, being too far from a station can make properties relatively less attractive than those close to the station, thus we might observe that land values further from a station decline following a transit investment. As long as transit services provide incremental accessibility to nearby properties, one would expect that rents, prices, occupancy, and land values of those properties would positively reflect the additional attractiveness.
When new transit services provide significant accessibility benefits, it can reshape local markets
Transit investments, like the addition of the New York Ave Metro Station in Washington D.C., can add significant accessibility benefits and be a driver for change in local real estate markets.
Ridership at the New York Ave Metro Station more than doubled in the first five years it was open. The new ridership was driven partly because of the massive land use changes that occurred around the station, development enabled by the new transit access. |
To directly create real estate value, transit planners can seek out routes and station locations where transit can provide distinct accessibility benefits. Examples might include:
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Real estate operators can benefit directly from transit access in numerous ways
We anticipate that property operators experience direct cost and benefits from transit investments that are reflected in land values. For example, transit improvements can make retail sites more accessible to customers. Likewise, improved transit services can make office space more accessible to more residences. These can both improve the attractiveness of a space to existing users and make a space attractive to more users. The higher demand for the space can translate into higher lease rates and sales prices. Transit investments can also have temporary construction impacts and longer term noise impacts, both of which can reduce revenue. In most instances, the benefits are thought to outweigh the costs.
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But, designing transit to directly impact real estate is difficult in the United States
For transit to directly generate positive real estate value, the key is that the transit is designed to maximize accessibility gains relative to other transportation options. Areas served by stations or stops have to be significantly more accessible.
For transit to directly generate value, the key is that the transit is designed to maximize accessibility gains relative to other transportation options.
The unfortunate reality is that this can be difficult in modern U.S. cities. The car is king in the United States and it's difficult for a transit investment to add substantial incremental accessibility in the average U.S. neighborhood. Also, especially in older cities built before the car, it's often the case that optimal transit routes are already served by legacy transit systems. It's a rare and exciting occurrence when transit planners can unlock the potential of an isolated location with a new transit investment. Thus, it is not surprising that research has found that U.S. transit investments have NOT unambiguously impacted land values.
For U.S. transit improvements to consistently have positive direct impacts on land values, U.S. transit planners must design every transit project to maximize relative accessibility benefits and political bodies must prioritize funding for those transit projects with the greatest anticipated incremental benefits.
For U.S. transit improvements to consistently have positive direct impacts on land values, U.S. transit planners must design every transit project to maximize relative accessibility benefits and political bodies must prioritize funding for those transit projects with the greatest anticipated incremental benefits.
The evidence suggests that U.S. transit investments may be more likely to have INDIRECT impacts on land values
Transit produces benefits for individuals and society in diverse ways. Many of the indirect impacts of transit - generally described as non-user benefits - are capitalized into the value of land just like direct impacts. Indirect impacts of transit include:
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Transit's influence on public policy is one of its most salient indirect impacts
While few proposed transit projects may be able provide enormous accessibility benefits in today's U.S. landscape, transit projects are still able to influence public opinion and political realities in profound ways. In particular, researchers have suggested that transit investments have been able to influence land values and real estate development indirectly by fostering local land use policy changes. We've known this at least since the 1980's:
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.
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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. 96. 96-7. Washington, D.C.: U.S. Government Printing Office. p. 200
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In many instances, these indirect policy impacts of a transit investment can be quite large. Given what we know from case studies, transit projects can spur zoning changes, inspire infrastructure improvements beyond transit infrastructure, justify the use of redevelopment powers, and contribute to the formation of catalytic subsidy programs. These indirect results can strongly influence real estate economics and foster new development around transit. In strong U.S. markets, particularly those with organized opposition to growth, these policy impacts can inform real estate development outcomes much more than the improved access.
Beyond accessibility and indirect impacts, transit also has valuable X-factors
In addition to accessibility benefits, transit services may also directly influence people's choices - and, therefore, land values - in ways that we do not yet fully understand. Though researchers have not rigorously explored the ways that transit improvements influence behavior, the topic is regularly discussed. For example, it is a common refrain that rail transit investments offer a sense of permanence that attracts people, including real estate developers, to invest in rail-served places in ways that bus services and other infrastructure investments cannot match.
Beyond accessibility benefits and indirect impacts, transit improvements may:
Beyond accessibility benefits and indirect impacts, transit improvements may:
- Shift the gaze of buyers, sellers, investors, developers, and lenders such that real estate investments are more likely to occur around transit rather than alternatives with equally attractive financial returns that are located elsewhere.
- Provide a visual amenity that has a positive value for nearby real estate users.
- Signal public commitment to an area that is reflected in higher prices/rents and in lower cap rates (a measure of real estate investors' perceived risk).
Transit improvements can impact vertical real estate development both directly and indirectly
Investments in transit services can have substantial impacts on real estate development. Anticipated benefits might include:
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Maximizing the real estate value generated by transit improvements requires a multifaceted skillset
There isn't a guidebook that tells you how to maximize the amount of real estate value that a proposed transit improvement can foster. Professionals must partner with other public and private institutions and learn whole new lexicons and ways of thinking to understand and influence outcomes. Ultimately, it comes down to professionals and politicians relying on trusted relationships, data, analysis, public input, and instincts to make optimal decisions in very complex situations.
When transit professionals and political bodies have done their job well, transit improvements can generate substantial real estate value. Successful stakeholders are rewarded (over long periods of time) as they watch cities transform in response to well planned transit improvements. |