Working Paper: NBER ID: w26789
Authors: Arpit Gupta; Stijn Van Nieuwerburgh; Constantine Kontokosta
Abstract: 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 $6 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: Transit Infrastructure; Real Estate Values; Commuting Patterns; Difference-in-Difference; Urban Economics
JEL Codes: G10; G18; G5; R3; R38; R41; R42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Subway extension (Y60) | Reduction in commuting times (R41) |
| Subway extension (Y60) | Increase in real estate values (R31) |
| Subway improvements (R42) | Lower riskiness of real estate investments (R33) |
| Lower riskiness of real estate investments (R33) | Higher rents (R21) |
| Lower riskiness of real estate investments (R33) | Changes in price-rent ratio (R31) |
| Subway extension (Y60) | Capture of private value through higher property tax revenues (H13) |