Real estate pricing research provides evidence that properties potentially exposed to perceived or actual risks may experience price impacts. Looking Under the Hood reviews publications that illustrate the theoretical, methodological, and data challenges faced by scholars and practitioners studying detrimental conditions and their impacts on property values.
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Ko[1] set up a study focused on the impacts, if any, from the development of light rail systems in Minnesota’s Twin Cities. To quantify the impacts, the author utilized hedonic regression, contingent valuation, and Value Benefit Transfer (VBT). VBTs in this article involved comparing the impacts of an existing rail system to the proposed new rail development. The rail lines of study, the blue and green lines, opened in 2004 and 2014 respectively. The blue line and the green line are relatively comparable with similar size and volume of passengers. It is important to note that the blue line was existing at the time of development of the green line and both lines were used for the VBT analysis. Furthermore, the blue line services airport passengers and benefits from park and ride infrastructure, while the green line does not. Furthermore, the blue line is located distant from “expensive homes” when compared to the green line.
The residential dataset of single and multifamily sale characteristics was obtained from Hennepin and Ramsey Counties. For single family homes, the dataset included approximately 3,594 transactions. Similarly, for multifamily homes, approximately 277 sale observations were included in the dataset. ArcGIS geospatial techniques were used for geographic measurement purposes.
The hedonic modeling provided evidence that single-family properties near a blue line and a proposed green line station benefited in the magnitude of 5.7% to 6.8%. After development, proximity to a station was found to be an amenity for both lines. Conversely, homes located near a railway without a station experience a decline in property values, with homes near the green line experiencing diminution five times greater when compared to blue line properties. For multifamily properties, model specifications were poor, and thus no conclusion could be made. Similarly, in terms of “value benefit transfer”, an 18% difference was observed. However, no conclusion could be made due to a lack of precision.
[1] Ko, Kate. 2021. Case study of property value transfer attributed to transit: spatial and temporal hedonic price impact of light rail in Minnesota’s Twin Cities. Journal of Public Transportation, 23 (1): 1-25.