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Home owners prepared to pay a premium for lower traffic congestion

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London homeowners are prepared to pay a premium to live in inner city areas where the congestion zone applies, new research from the London School of Economics and Political Science shows.

The benefits of reduced traffic congestion, ease of parking, and better noise and air quality have pushed up house prices in some areas by as much as £30,000.

This is the finding from LSE doctoral candidate Cheng Keat Tang who has analysed more than 500,000 house sale transactions within five kilometres from the congestion charge boundary, comparing homes near to each another just in and out of the zone.

Mr Tang has examined the impacts of the congestion charge (CC) after it was introduced in central London in 2003; Kensington, Chelsea and Westminster in 2007; subsequent hikes in the charge and the removal of the Western Extension Zone in 2011.

“The rationale for the CC is not only to mitigate traffic bottlenecks and improve traffic flow and commuting time, but also to generate revenues to improve the public transport system. Other benefits include reduced noise and air pollution and safer roads,” Mr Tang said.

When the CC was introduced in 2003, it reduced traffic congestion by 20 per cent and delays fell by 30 per cent, according to Transport for London figures. There was also a 27 per cent overall reduction in private car use in central London. The implementation of the CC was also associated with a 12 per cent reduction in air pollutants.

Indeed, homebuyers pay for these benefits. When the WEZ was implemented, a 4 per cent increase in house prices followed, relative to comparable transactions outside the zone and traffic volume fell by approximately 4 per cent as well. However, such price appreciations were not documented in the original CCZ when it was first introduced in 2003.

There are some explanations for this. “ The initial introduction of the CC was not well-received by residents. Many were unsure whether the charge would achieve its intended aims. Furthermore, based on Census data, residents in the WEZ are more likely to own a car and drive more to work, stay further away from their workplace and earn much higher wages. All these factors could explain a larger willingness to pay to avoid traffic congestion,” Mr Tang suggested.

Apart from London, congestion charge zones apply in five other global cities: Stockholm, Singapore, Gothenburg, Dubai and Milan.

Notes to editors

Cheng Keat Tang is a doctoral candidate in the Department of Geography and Environment at LSE. He can be contacted at C.K.Tang@lse.ac.uk. The paper is available at: http://www.spatialeconomics.ac.uk/textonly/SERC/publications/download/sercdp0205.pdf

21 September 2016