Understanding Development around Rail Transit Stations

The potential for transit to catalyze or support economic development around rail transit stations is often a motivating factor encouraging communities to expand an existing system or construct a new one. Streetcar cities across the country have experienced significant development and increases in property values along their alignments and in station areas, and light rail and some commuter systems have experienced similar benefits.  However, the decision making process related to rail transit investment is far from trivial – these major capital investments take years, sometimes decades, to plan and construct and important decisions are made from start to finish. The appropriate rail and vehicle technologies, the location for the final alignment and stations, operational standards, and long-term master plan schedules need to be factored into system design and planning efforts. Adding to the complexity are decisions related to single sites, which are magnified when considering issues and concerns for an entire system.

Putting aside the technical aspects of building or expanding a transit system, debates among technical staff and engineers, political leaders, local community members and businesses, as well as the general public, are common when making decisions related to large infrastructure projects. Some discussion inevitably focuses on the trade-off between the financial commitment required and the benefits generated for users, communities and the public at large. The key to settling these debates is having objective criteria for assessing the potential for success. 

Proponents of transit-oriented development cite case studies and metrics related to job creation, property value premiums, development generated, increased tax revenues, reduced roadway congestion, and regional productivity. Opponents argue that the costs required to bring the project to fruition (e.g., direct payments and subsidies) may never be fully recovered. Understanding the true impact of transit investment, particularly with respect to development, is difficult and continues to be a work in progress.  Nonetheless, there are analytical approaches useful in shedding light on the issue and the experiences of existing rail transit systems can also be helpful.

For most significant transit investments, securing project funding can be challenging. But, even if a project can be funded, a question remains as to whether it should be pursued. Is it the best use of public funds, or even a reasonably worthwhile one? Further complicating the decision landscape is the reality that sources of funds often depend on transit station location, design or corridor alignment.

Questions concerning whether a project should go forward, as opposed to whether it is feasible, exemplify a departure from strict financial analysis of an investment to one that focuses on its economic value – an analysis that is often misunderstood. With its theoretical and largely esoteric approach to evaluating the value of something – which can differ markedly from its price – economic analyses are sometimes considered to be more of an academic exercise than a pragmatic approach to determining the real payback of an investment. However, economics can provide an objective framework for assessing alternatives and determining the best candidates for implementation from a variety of perspectives, including the ability of the investment to promote station area development. In fact, economic analysis is standard practice in transportation project appraisal and has been a key part of the United States Department of Transportation’s approach to evaluating funding requests through its Transportation Investment Generating Economic Recovery (TIGER). Many rail transit projects have pursued and been awarded funding through the TIGER program.

Economic Analysis and Transit System Benefits

Methods for measuring the benefits of a transportation investment that relate to its use are relatively standardized. For example, a person’s value of time spent driving versus taking rail transit can be derived from prevailing wage rates of travelers.  Computing other types of use-related benefits is also reasonably straightforward and includes estimating changes in out-of-pocket costs (e.g., fuel and fares), environmental pollution emissions, infrastructure wear and tear, or the number and severity of accidents. These can be estimated and monetized in dollar terms, to allow for a comparison between the use-related benefits and the project’s total costs, which may help reveal the net value of the project to the public. 

Transit projects may offer additional benefits not associated with transit use because of the ways transit can transform urban neighborhoods. It has long been recognized that land value and transportation infrastructure, in general, are intertwined. These links can be prevalent with rail transit because the limited access and high-capacity design of the mode induces demand for people and firms to locate close to stations. A higher density of land development may in turn cause an increase in property prices. In these cases, a system’s ridership may only reveal part of the value of rail transit because an increase in the number of people around these station areas – whether they are residents, employees or shoppers – drives demand for new, diverse and high quality amenities and walkable access to them.   In successful examples of transit-oriented development, the increases in property prices reflect improvements in the quality of life in those neighborhoods.

The economic value of access to amenities can be over and above the value of the neighborhood transit system. For example, some people choose to live in amenity-rich areas even if they never use the rail transit system. Transit stations can help generate this amenity value through the process illustrated in Figure 1.

This process highlights the positive influence that transit-oriented neighborhoods can have on the quality of life in residential and mixed-use areas, and how this influence can affect development and property values around rail stations. Conceivably, in some large, high-amenity cities demand for rail transit access can produce a self-perpetuating form of growth in the housing, consumer amenity, labor, and professional services markets.

Competitive and skilled workers desire opportunities to make a decent living or grow their careers. Businesses are more likely to hire labor and make capital investments in places with stable demand for their products or services. Likewise, these firms compete for the best employees and need to be located in places that potential employees can readily access. Ultimately, the degree and speed of transformation around rail stations depends on land use policies that enable retail businesses, employers and residents to mutually benefit from shared locations.

Accepting the potential for economic development around rail stations and understanding the factors that impact the reality and magnitude of development in communities are two different things.  As a result, economic analysis related to rail transit must be more sophisticated in its approach.  The analysis needs to characterize and estimate the benefits for riders of the system, but also the benefits to others who choose to work, live or shop near transit stations simply because they enjoy the atmosphere present there. These two different categories of benefits generated by rail transit systems are described below:

• Direct Transportation Benefits, which typically include users’ travel time, out-of-pocket costs, safety, comfort, and the ability to make a mode choice (e.g., take the train rather than drive) as well as externalities from use (e.g., reduced automobile emissions), and
• Wider Community Benefits, which include various features of “neighborhood form,” such as retail establishments, entertainment services, and public infrastructure and services, as well as opportunities for social interactions indirectly attributable to transit development. Wider community benefits are tied to the presence of rail transit rather than its use.

Direct transportation benefits may be computed from standard economic practices, but wider community benefits are most readily observed in property value changes and real estate development.  Evidence for the influence of rail transit systems on nearby property values generally indicates that property prices rise near transit stations, but the results vary widely from site to site, even for the same transit and property types. Drivers of such differences include attributes of the local transportation system and neighborhood form.  The magnitude of development around station areas is also impacted by local conditions, such as whether the neighborhood is already built-out and the presence of vacant or underutilized properties (e.g., surface parking lots) that could be repurposed or expanded with supportive zoning policies.

Factors Impacting Station Area Development and Property Values

Methods exist to overcome these conceptual and practical issues in understanding rail station development and transit’s impact on property values, but they have yet to be standardized in the economics literature. In practice, more information is necessary to assess the value at a particular site. It can be reasonable to draw information on development and property value premiums from a previous study and apply it to a new site, but it depends largely on whether the site conditions are comparable.   Some factors have been identified as influencing station area development, particularly property value premiums, including: 

• Property Type and Demographic Preferences – Demand for single- and multifamily properties depends on population dynamics and demographics.
• Location Accessibility – A transit system will increase property values if the system is efficient, reaches multiple destinations, and connects to major employment centers. Price effects decline though with increasing distance to downtown.
• Station Location and Design Features – Design features that enhance walkability between the station and commercial and residential areas generate higher property prices.
• Nuisance and Noise – Properties located very close to a transit station or a transit line may sell for less than those farther away.
• Neighborhood Profile – Neighborhood characteristics, especially transit-oriented zoning and its focus on higher density, mixed-use and walkable places, appears to positively influence property values near transit.
• Regional Transportation System – The levels of congestion and transit alternatives across the existing transportation network can influence demand for rail transit service and, in so doing, increase development and property prices near stations.
• Economy and Market Characteristics – In areas where property prices have risen over time, the impact of transit on housing prices could be higher in fast growing markets, and vice versa.
• Public Policies and Investment – Public initiatives (e.g., incentives and pro-growth policies) often influence the success of generating development around transit stations.

Understanding these factors for a particular station area is useful in determining whether there is significant opportunity for development. While economic analysis may seem like a “nice to have” option when planning a transit investment, considering the economic implications of a new or expanded transit system early on may help the project maintain momentum, rather than becoming stalled or abandoned altogether.

Communities and funding agencies increasingly demand an early understanding of why a particular transit investment is important to them.  Residents of a potentially impacted neighborhood want to know what is in it for them, and funding agencies are requesting more information related to the overall economic benefits of a proposed investment.  Thinking about an investment in economic terms, which extend beyond just the ability to pay, is an important element in successful system planning and implementation.  To members of a community, as well as potential funding agencies, a measure of the transportation- or use-related-benefits, as well as wider community benefits, can help make a project and its likely impact more tangible.

While evidence suggests that a solid transportation system supports economic development and quality of life, how best to measure these effects continues to be assessed by planners and economists.  This is particularly true when considering the impacts of transportation projects on land use and property values.  Numerous cities across the nation have made efforts to better understand and estimate these impacts, and indications are that their efforts have been worthwhile. 

Kansas City Example 

As an example, consider the experience of the Kansas City Streetcar, a two-mile-long starter line that will run along Main Street, connecting businesses, restaurants, art galleries, educational facilities and residents to the Central Business District and other destinations. Champions of the Kansas City Streetcar were intrigued by the economic development observed in other streetcar cities, such as Portland and Seattle, and they understood the importance of economic analysis at all phases of planning and development. To better understand the potential impact of the streetcar, economic analysis was utilized to estimate direct transportation benefits and wider community benefits.

Direct transportation benefits were estimated using standard economic approaches and included travel time savings, emission reduction, and other benefits associated with improved access and mobility offered by the rail transit system.  Wider community benefits factored in the City’s economy and real estate market, as well as the experiences of other streetcar cities, and were based on tax assessor, demographic, and real estate data.  Locations that would be accessible by the streetcar were also considered, along with existing planning efforts and zoning. These community benefits are above and beyond the transportation benefits associated with improved mobility and choice.  They reflect the changes in land use and neighborhood form anticipated to be generated by the transit system investment. 

The economic analysis was useful to the City in its public outreach efforts but was also utilized as part of a winning TIGER application that resulted in $20 million toward the project.  In addition, elements of the community development analysis were used in assembling the final finance plan, which included establishment of the Kansas City Downtown Transportation Development District to help fund the system. 

Construction of the streetcar starter line is under way and real estate professionals have already observed an uptick in prices along the alignment.  New development has also been announced, including a 257-room hotel and a new apartment building:  According to the Kansas City Star, “When selecting a parking lot along the Kansas City streetcar line as the site for a 50-unit, five-story apartment building, Boulder-based developer Linden Street Partners was clear: ‘The streetcar is the big thing that drew [Linden Street Partners], absolutely.’”

Economic analysis helped determine the final alignment, secure funding, and better articulate the potential for development along the alignment and near stations. It utilized the experiences of other streetcar cities, but also factored in qualities unique to Kansas City, the alignment and possible station locations.  Wider community benefits have yet to be realized, as the system is not yet operational, but the potential for improved mobility and access already seems to be supporting development and changes in property values along the streetcar alignment.

CONCLUSION

Much can be gained from an in-depth understanding of the experiences, successes and failures of communities that have undertaken rail transit investments, including a better understanding of the factors that can support rail station development. Bridging the gap between people who believe that economic development is generated by transit systems and those who question whether the investment is justifiable is exacting, but economic analysis can help estimate the net public value of projects. Direct transportation benefits, as well as wider community benefits, can be estimated and help the public and decision-makers better understand the potential for station area development in their communities. This development is by no means guaranteed and challenges still exist, but using lessons learned from existing systems and the findings of empirical analyses conducted to date can help communities anticipate the potential impacts of transit projects on land use and neighborhood form. This information can help lay the groundwork for ensuring that a transit investment in the near term leads to community development and value creation in the long term.

Christopher Behr is a principal economist with HDR in Silver Spring, Maryland. For more than 20 years, he has accumulated a breadth of experience in evaluating infrastructure and policy for a variety of clients across multiple sectors including transportation (seaports, railroads, highway), water / wastewater, energy (production and transport), and buildings in the U.S. and overseas. Recent work that he has led for US Environmental Protection Agency, US Department of Transportation and numerous local transit agencies has given him new insights into the economic value of Smart Growth initiatives and Transit-oriented Development. He holds a bachelor’s degree in economics/finance from the University of Vermont, a master’s degree in natural resources from the University of Wisconsin-Madison, and a master’s degree in civil engineering from Cornell University. Pamela C. Yonkin, a principal economist with HDR in Boston, has more than 20 years of experience in regional economic analysis, economic development impact studies, benefit/cost analysis, and economics instruction.  Specifically, she has led benefit-cost analyses and economic development studies for rail corridors and proposed streetcar systems.  Ms. Yonkin has also been involved in funding and finance assessments and studies for bus and streetcar projects, and has contributed to station area planning activities. She holds a bachelor’s degree in mathematics from Hobart and William Smith College, and a master’s degree in economics from the University of Virginia.