New light-rail transit leads to sizable increase in nearby housing values

A house for sale near the Green Line light rail Light-rail transit (LRT) is commonly thought to stimulate economic development and boost property values. However, knowledge gaps have made it difficult to gauge exactly how much property values increase and when the increase happens.

In a new study, U of M researchers Jason Cao and Shengnan Lou help fill those gaps. Using tax parcel data and modeling techniques, they assessed the impacts of the Green Line LRT on sale prices of single-family houses near station areas in Saint Paul. They also examined when the value uplift occurred, focusing on two key time points—before and after the Federal Transit Administration’s announcement of the full funding grant agreement (FFGA) in April 2011, and before and after the start of Green Line operation in June 2014.

“In contrast, most studies examine only how property values change after a transit system begins operating,” says Cao, an associate professor with the Humphrey School of Public Affairs and the principal investigator.

The findings show that the Green Line lifted the values of houses within a quarter mile of stations and that most of the value uplift occurred right after funding for the Green Line was confirmed. Using before and after data, the researchers found that housing values rose by $9.20 per square foot following the FFGA announcement. Prices continued to rise, and by the time operations started, values had risen by $13.70 per square foot. Prices have remained stable since then.

“Pinpointing the timing of price increases is critical for benefit-cost analysis,” Cao explains. “Higher property taxes associated with the value uplift provide revenues and help justify local government investments in transit infrastructure. If a before-after analysis looks only at property values after service begins, the ‘premium’ obtained from LRT is undervalued.”

Overall, Cao says, the higher property values benefit homeowners along the Green Line corridor, which is particularly important because of the overrepresentation of low-income homeowners in the area. On the downside, higher home values can result in higher property taxes and increase rental rates, potentially displacing some existing low-income homeowners and renters and contributing to neighborhood gentrification.

Cao also notes that some increases in housing values along the Green Line corridor should be attributed to associated policies and investments, such as streetscape improvements and grant and marketing programs that helped small businesses survive during LRT construction and thrive afterwards. In addition, zoning amendments implemented in April 2011 increased the development potential of existing properties, which helped to boost housing values. “These policies and plans related to LRT investments also seem to increase property value,” he says.

The study was funded by CTS, and valuable guidance was provided by Donna Drummond, planning director of the City of Saint Paul. “The study is very useful in helping us understand the potential impact of transit investments on property values as we plan for other transit corridors in the city such as Riverview and the Gold Line,” she says.

Posted in Economics, Planning, Public transit, Transportation research, Urban transportation
One comment on “New light-rail transit leads to sizable increase in nearby housing values
  1. John S. Adams says:

    >>> Beware of falling for the logical fallacy that freshmen learn in their logic class: “Post hoc, ergo propter hoc” (i.e., “After, therefore because of . . .”).

    In studies of the sort summarized here, simply looking at changes in property values near a transit line does not definitely mean that the changes in values can be attributed mainly–or even partly–to the
    plans for and subsequent deployment of the line, nor does it mean that there will be a net gain in
    property values for the community. There might be, but this kind of analysis does not prove the point.

    At most we might be able to argue that increases in property values (beyond average inflation) that might have occurred in other parts of the residential landscape have instead occurred instead near the lines, and that there may have been no net gain of overall residential (or office, or commercial, or office) property values. We just do not know.

    Moreover, the neighborhoods of the eastern part of South Minneapolis that are best served by the line contain a large proportion of lower-priced houses that have been classified as “starter homes” in the years following the Great Recession, and are properties that have appreciated in market price faster than normal as the housing market recovered from the recession because the effective demand for them has been high and available supplies have been limited inside the city.

    This topic addressed by this report was examined in a CTS study a few years back that was sponsored by
    the American Institute of Architects (AIA). I encourage those interested in the topic to examine the Executive Summary of the report: “Transit as a Catalyst for Community Economic Development,”
    CTS Report #07-07. The report is available online through the CTS web site.

    John S. Adams
    Emeritus Professor of Geography, Planning & Public Affairs
    Former Senior Research Associate, Center for Transportation Studies

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