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Transit Improvements Boost Property Values Commuting Measured in Minutes, Not Kilometres
July, 2008
By Don Campbell, Melanie Tennant and Ray Reuter
Community and regional planners can and do use transportation to guide growth. Ontario's Places to Grow Act, 2006, outlines a plan to accommodate this growth through increased efficiency and use of public transit and the creation of compact urban centres, wherein residents live and work within the same community.
The Act also addresses the need to move not only people, but also goods between communities and across the province. The Ministry of Transportation maintains that the Places to Grow Act is not only supported by the increased efficiency of transit but also in the increased efficiency of highways.
It is calculated that commuting in the Greater Toronto Area (GTA) currently takes 32% longer than it would in free-flowing conditions. The economic cost of congestion in the GTA is estimated at about $2.2 billion per year. By 2031, without improvement, this cost will rise to nearly $4.1 billion.
Addressing congestion and easing commuters' frustration also affects property values, as more people find desirable areas outside of the central core in which to live. The basic theory in real estate is that the more attractive the location, the higher the value of the property. As the demand in that area expands, the result is higher values.
Yet, this location theory is often misunderstood. Location is not just a subjective desire (e.g., to be close to the beach), but is actually a combination of a number of fundamentals, each of which underpins desirability. Transportation accessibility is one of the key fundamentals.
Generally, one of the attributes coveted by homebuyers is nearness to the central business district (CBD). As saturation occurs and homes are no longer affordable, people begin to find locations outside the vicinity. Access to good highway systems, mass transit and commuter rail is sought in order to afford easy access to the CBD. Accessibility is a critical determinant of residential land values, and the improved access between urban centres and residential neighbourhoods greatly improves the value of homes.
This is even evident when light rail precedes development. Positive effects on land values in proposed station areas have been noted - supporting zoning for higher densities and discouraging the development of low-density housing in station areas.
As fuel prices continue to rise across the globe, commute times, commute costs and accessibility to job centres become key determinants for potential homebuyers and commercial enterprises. Residents now measure their commute distances in minutes, not kilometres - a process that leads to higher demand for properties that are located farther from their jobs in distance, yet closer in terms of commute time.
SUBWAY & RAIL TRANSIT BENEFITS
The benefits of light transit, as well as heavy commuter rail expansions, go beyond the expected decreased commute times and a reduction in carbon emissions. In studies conducted across North America, the values of homes in neighbourhoods close to mass transit had premiums ranging between 3% and 40%, depending on the different types of housing and socioeconomic positions of the real estate owners.
Studies show that there appears to be a higher positive impact on property values located near commuter railway stations over light and heavy railway. The positive effects of proximity to rail transit, however, were limited to homes located within a half-mile radius of stations. Even announcements of improvements that will shorten and ease commutes have resulted, historically, in high-valued housing developments - in comparison to new developments located a distance from these opportunities.
Additionally, development sites near rail stations have tended to draw a higher density of development, resulting in a higher value or rent for these homes. The impact is felt more dramatically in older more established neighbourhoods, with new developments also able to ask a premium for their residential properties.
Areas in which the average income of the residents was at or below the median incomes of the whole region received the largest percentage increase in property values. As the average income of an area increased above the median, rail links did not have as much effect. This is due generally to increased reliance on transit as a means of primary transportation for people with incomes below the median.
Some impacts from transit negatively affect housing values. In studies of various North American cities, noise, nuisance, associated crime and increased traffic combined to decrease property values in the immediate vicinity of stations.
Studies indicate that the proximity to mass transit has even more impact on the values of commercial properties. The movement of a large number of people is conducive to increased retail activities, expanding the attractiveness of the area to commercial investors and retailers. Whereas the value of homes located immediately adjacent transit stops is often less than areas beyond eyesight, the value of retail property is only higher when adjacent rail stations.
GTA PROSPECTS
On June 15, 2007, the Ontario's Premier and Minister of Transportation announced MoveOntario 2020, a 12-year plan to fund 52 transit projects to improve transit services provided in southern Ontario by GO Transit, the Toronto Transit Commission (TTC), and other regional transportation agencies. The project is anticipated to create 175,000 jobs during the construction phase with 60% of projects completed by 2014 and 95% by 2020.
Highlights of the announcement include: the extension of the Yonge subway line to Highway 7; increasing speed and reducing emissions by electrifying the GO Lakeshore line and expanding capacity on all GO lines; two rapid transit lines across Hamilton; and light rail across the city.
First off, the TTC is commencing an expansion of the Spadina subway line from its current terminus at Downsview station (Sheppard Avenue and Allen Road) to the Vaughan city centre. Two other line expansions are planned in the future along the Yonge and Scarborough subway lines.
HIGHWAY ACCESS FACTORS
As with rapid transit, accessibility to major highways and highway improvements have proved to be major determinants for increased property values. Research shows that, as highway networks are created and existing corridors to the central business district (CBD) are improved, the value of real estate in the area increases.
Classical economic theory posits that when a highway is initially built, large parcels of land that previously had poor accessibility - or none at all - are suddenly considered underpriced. This results in a rapid correction in the market, driving up the value of the land. Development is usually quick and the impact significant.
Improvements to existing highways show a positive increase to land prices, although to a lesser degree. Studies show that prices fall during the construction phase of the improvements. Noise, emissions, dust and traffic delays negatively affect the sale price of land in areas immediately adjacent the construction resulting in price drops of $0.05 to $0.50 per square foot of land. In fact, one study showed that values did not reach pre-construction levels until five years after construction was completed.
The main difference between the rapid transit findings and the highway findings is the impact of the noise factor from operating highways. The increase in value of residential properties located closest to the highways was partially offset by up to a 1.2% reduction for every two-decibel increase in highway noise level. However, counter-intuitively, houses close to highways (where it is anticipated there would be associated noise) were not found to take any longer to sell than those farther removed.
This same study revealed that properties located in commercial-industrial areas serviced by these highway improvements experienced a 16.7% increase in value after the highway was opened. Research into the impacts of specific projects indicates that the design of the freeway is important:
( Depressed freeways contributed the most to residential property values, yet had limited impact on commercial property values, except for those located adjacent to exit and entrance ramps.
( At-grade designs had the most positive impact on commercial property values, while still providing a strong positive impact on residential values.
( ?Elevated highways had the least impact on all land values.
Values of commercial properties located 800 metres or more from a freeway exit were valued at $50,000 per acre of land and $3 per square foot of structure less than properties located closer, proving once again that accessibility is key.
ANTICIPATING VALUE JUMPS
Economists posit that "the basic value of an investment - be it in highway or anything else - is the value of the resources it releases for other uses", which suggests that the importance of reducing time spent commuting as a result of transportation improvements and more efficient public transit ought to be, and is, realized in the value of property surrounding a station or highway extension.
In the GTA/Greater Golden Horseshoe context, regions affected by these improvements can be divided into two tiers. The first tier will witness the largest property demand increase; the second tier, although still strongly affected, will feel the impact on a smaller scale.
Regions benefiting from the Spadina subway line extension to Vaughan, TTC and GO train improvements in Scarborough and expanded GO train service to Barrie can be considered in the first tier. The second tier includes: Milton, which has recently added a GO train station; North Brampton, which will gain new highway access with the expansion of Highway 410; and, Uxbridge and Stouffville, which are slated for new GO train stations.
The preceding is an excerpt from The GTA Transportation Effect, The Impact of Transportation Improvements on Housing Values in the Greater Toronto Area.
Don R. Campbell is the President of the Real Estate Investment Network and a researcher, author and lecturer on real estate matters. For more information, see the web site at www.reincanada.com.
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