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Predicting property booms from station to station

Whenever governments announce plans for major new transport links, there is often a rush to invest in property in the areas that are going to benefit, in the expectation of a boom in prices.

This is because there is clear evidence that across the world properties sell for higher prices the closer they are to a station because a shorter walk saves time, which can be used to do more desirable things. But knowing exactly how much a new line will impact on property prices could be a valuable way of generating funding to get new schemes off the ground. 
speeding train
Dr Gabriel Ahlfeldt, lecturer in urban economics and land development at LSE, has devised an economic model to predict this effect more accurately. He explains: “An increase in property prices gives an indication of how local residents and firms value the project, which would otherwise be difficult to assess. Also, higher property prices generate greater public revenues due to land or property taxes. Being able to estimate the size of this effect would be very useful for local authorities. Lastly, some people argue that if local firms and residents get all or most of the benefits of a new transport project, then they should bear a portion of the cost. In order to decide what proportion, we need to know how the benefits end up being reflected in the capital value of local properties. All this knowledge could help generate funding for new schemes.”

Dr Ahlfeldt adds: “Previous studies have demonstrated how property prices have changed in terms of percentages depending on the distance to the new station. However, I do not think this is enough to allow an accurate prediction for future transport projects. The economics of transport networks are notoriously complex. The effect a new station has on the value of a property does not only depend on the distance to the nearest station, but also on the connections offered and whether attractive alternatives are already in place. A new line can also improve access around stations on the existing network as new interchange options are established.”

Dr Ahlfeldt’s new economic model to predict property price increases has three main components – a measure of the attractiveness of each urban area in terms of its links to other places in the city; a method of predicting which mode passengers will choose when new links give them options; and a way to evaluate how property values will respond to improved access to jobs. One major innovation from Dr Ahlfeldt’s research is what economists call a ‘bilateral transport cost matrix’, which is used to analyse costs and impact. It not only connects properties to the transport infrastructure itself, but via the transport network to all other locations in the city. This gives detailed property price predictions for all locations in the area. 

HousingHe used the model to predict property price effects of the 1999 extension of the London Underground and Docklands Light Railway networks. The model predicted a complex pattern of property price impacts that vary substantially in magnitude, distance and even spread along the existing networks. To do so, the model only used data that was available before 1999.

Dr Ahlfeldt explained: “Since 1999, enough time has passed to compare the predictions with the adjustments which occurred in reality. To cut a long story short, the very encouraging result of this comparison is that property prices adjusted almost one-to-one with the predictions.

“With recent advances in geographic information technologies, I believe we can improve our understanding of how new transport infrastructure reshapes our cities. It is time to start thinking about how to use these new technologies to improve transport planning in practice.”

Posted July 2012

 

 

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Dr Gabriel Ahlfeldt

 

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