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Property price rises can be accurately predicted ahead of transport improvements shows new study

An economic model which accurately predicts the increase in property prices to result from new transport links will provide planners with crucial information about the cost and social benefit of future projects. 

The new approach, developed by Dr Gabriel Ahlfeldt at the London School of Economics and Political Science, would allow transport planners to gauge the likely increase in tax revenues from rising property values prompted by developments such as new rail or underground lines. It could also provide the evidence for charging a levy on landlords who benefit from the effects of public subsidy for transport. 

The model is outlined in a new discussion paper, If We Build, Will They Pay?, published by the LSE's Spatial Economics Research Centre. 

Dr Ahlfeldt's predictive system is designed to more accurately assess the revenues and benefits of major transport projects such as the £15 billion Crossrail scheme through central London and Britain's proposed high speed rail network which could cost up £34 billion. 

Docklands Light RailwayHis model has three main components – a measure of the attractiveness of each urban area in terms of its links to other places of potential employment, a method of predicting which travel mode passengers will choose when new transport links give them options and a way to evaluate how property values will respond to shifts in economic 'gravity'. 

In order to test the reliability of his model, Dr Ahlfeldt applied it to the real life case of the extension of London Underground's Jubilee Line and the Docklands Light Railway, completed in 1999. He found that it predicted almost exactly the actual rise in property values which was seen in the surrounding areas of East and South East London – about £675 million (at 1999 prices). 

In particular, the model demonstrates that a one per cent improvement in a location's accessibilty to employment opportunities results in a rise in property value of between 0.25 and 0.3 per cent. 

Dr Ahlfeldt said: 'Major transport projects entail some of the largest public expenditure programmes in the world and yet, until now, we have not been able accurately to predict how property values will rise as a result of these improvements. This is a matter of great public and policy interest because it helps to calculate the social benefits that transport projects bring and the additional revenue they raise through property taxes, such as stamp duty or council tax for instance. 

'There is also increasing discussion about whether property owners who benefit from publicly-funded projects could be asked to contribute more by governments or local authorities. This model allows a meaningful statistical analysis of these issues.' 

While the paper uses the example of underground and light rail projects, the economic method it introduces can be equally applied to road-building or other forms of transport improvement. 

The full paper: If We Build, Will They Pay? Predicting Property Price Effects of Transport Innovations (SERC Discussion Paper 75)| 

More information about Gabriel Ahlfeldt and his research|

 

Ends

 For more information contact: 

Dr Gabriel Ahlfeldt +44 (0)207 852 3785 g.ahlfeldt@lse.ac.uk| 

LSE Press Office. +44 (0)207 955 7440 pressoffice@lse.ac.uk|

 

  Posted 24 March 2011

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