“Take the Q Train: Value Capture of Public Infrastructure Projects”, Arpit Gupta, Stijn Van Nieuwerburgh, Constantine Kontokosta2022-05 (Georgism)⁠:

Transit infrastructure is a critical asset for economic activity yet costly to build in dense urban environments. We measure the benefit of the Second Avenue Subway extension in New York City, the most expensive urban transit infrastructure project in recent memory, by analyzing local real estate prices which capitalize the benefits of transit spillovers.

We find 8% price increases, creating $7.46^$5.5₂₀₁₃ billion in new property value. Using cell phone ping data, we document substantial reductions in commuting time especially among subway users, offering a plausible mechanism for the price gains.

The increase in prices reflects both higher rents and lower risk. Infrastructure improvements lower the riskiness of real estate investments. Only 30% of the private value created by the subway is captured through higher property tax revenue, and is insufficient to cover the cost of the subway.

Targeted property tax increases may help governments capture more of the value created, and serve as a useful funding tool.

[Keywords: infrastructure finance, real estate, house prices, public finance, urban transit, value capture, commuting]

…We find small effects when comparing the period before and after 2007, 2008, or 2009. We find much larger effects on rents when comparing rents before and after 2010, 2011, … 2015. This is consistent with there being substantial disamenities from construction early on—recall the heavy construction phase started in 2007—which dissipated as heavy construction finished. Those negative rent effects during the heavy construction phase loom large when the post period is defined as all years from 2007 onwards, dragging down the estimated treatment effect. In contrast, when the demarcation line is 2012, all the negative effects on rents due to subway construction are located in the pre-period while the benefits are in the post-period, resulting in large difference-in-differences estimates. The declining pattern for the later years suggests that there were some anticipation effects, even in the rental market, for example due to improved neighborhood amenities (eg. a new Whole Foods supermarket) in anticipation of the subway opening.

…8. Value capture: In this section, we take our baseline estimates for the value created by the subway based on the observed transactions and use them to compute the aggregate value creation for the stock of residential real estate on the UES. We then use property tax data to compute how much of this value creation flows back to the city in the form of higher taxes. We find that while there is an overall gain, the government’s ability to recoup these expenses depends critically on the ability to tax real estate. Our analysis abstracts from the specific government entity responsible; we implicitly assume that one local government bears construction costs and earns future property tax revenues. We abstract from fare revenues, other tax revenue sources such as greater sales or income tax revenue, and costs of operating and maintaining the new subway line and stations. Our focus is on the scope for property taxation to recover the cost of project investment.

…Valuing the total stock of treated real estate at $93.55^$69₂₀₁₃ billion pre-treatment, our baseline estimate suggests a $7.5^$5.53₂₀₁₃ billion gain from the 2^nd Ave subway extension to private landlords. We estimate that the city will only recoup about 30% of the gain, or about $2.29^$1.69₂₀₁₃ billion, in the form of future property taxes. The former number well exceeds the $6.1^$4.5₂₀₁₃ billion cost of the project, while the latter number falls substantially short. This suggests that additional taxation, in the form of targeted property tax increases, might be useful to help finance public infrastructure projects. More broadly, value capture could prove a useful instrument in the financing tool box to help fund the large future infrastructure needs.

See Also:

• Local Effects of Large New Apartment Buildings in Low-Income Areas

• The impact of upzoning on housing construction in Auckland

• Land Value Taxation and New Housing Development in Pittsburgh

• Site Value Taxation on Australia: Where Land Is Taxed More and Improvements Less, Average Housing Values and Stocks Are Higher

• The congestion costs of Uber and Lyft

• Turnpike trusts and the transportation revolution in 18^th century England

• Survival of the Unfittest: Why the Worst Infrastructure Gets Built, And What We Can Do about It

• Creative Destruction: Barriers to Urban Growth and the Great Boston Fire of 1872