The Myth of Light Rail’s Property Value Impact

I recently had a tedious Facebook debate with Ed Casper about (or at least starting with) the notion that light rail has a significant positive effect on property tax revenue. The mechanism by which it is purported to do this is enhancement of property values along the light rail corridor.

The original commentator reposted something about light rail’s effect on pollutants. Valley Metro Rail documented in their original feasibility study a very slight–but statistically significant–INCREASE in pollutants at street level (ignoring for a moment the fact that emissions are created wherever the electricity for the rail is generated). This effect is primarily due to increased idle times of automobile traffic delayed by traffic signals timed to favor rail traffic.

Mr. Casper responded to my sharing of the above information (which was for the benefit of the original poster, NOT Mr. Casper) with a vaguely tangential comment about the economic impact of light rail:

The increased property values create additional tax revenue. Nothing is all good or all bad.

To which I responded:

There is no empirical evidence of any NET “additional tax revenues,” especially when one includes the millions of dollars of subsidies (system operating and capital costs not paid by riders) which are ultimately funded by taxpayers…

Proponents try to make the case (unsuccessfully IMHO) that light rail is an economic development tool, because they cannot prove that it is a self-supporting (let alone cost-effective) component of a transit system…

There is undoubtedly some increase in property values along light rail routes. However, most of that increase is due to high-density housing projects, which pay property tax at comparatively low rates. Such projects also dilute the housing market with what amounts to taxpayer-subsidized dwelling units. Without a corresponding net increase in population (which AZ is NOT experiencing), the supply-vs-demand ratio actually depresses rents and property values for comparable units which are NOT on the rail line.

Any significant property value bumps for a few selected property owners are drowned out by the small property value incremental decreases across the entire inventory…and don’t come close to making up for the capital cost and operating losses of the rail system…to say nothing of the cost to business owners who go under during the construction phase (and the lost sales tax they WOULD have paid).

Mr. Casper has challenged me to cite some studies to back up my assertion that there is no NET increase in property tax revenue due to construction of light rail. I don’t think he’ll believe me even if I do, and I doubt anyone has done a formal study of net (i.e., community-wide) effects of light rail on property tax revenue. So, let’s revert to a simpler question: What is the effect of light rail on property tax revenue within the light rail corridor? If there isn’t a whopping positive economic impact there, then there certainly isn’t one elsewhere.

I did a Google search for “light rail property values” (property tax is based on property value, so tax revenue should increase with value…ignoring for a moment the fact that many properties developed along light rail corridors have received property tax breaks).

One of the first hits on that search is a paper by the Federal Reserve Bank of St. Louis, entitled, “Light-Rail Transit: Myths and Realities.”

I’ll spare you the tedious statistics from the paper’s citations, and instead quote a few lines which are pertinent to the property value question:

The research generally finds that rail transit has a positive impact on residential property values, although the impact is relatively small

But some studies also show that residential property values can be affected negatively because light rail is seen by some as a nuisance…

One clear benefit of rail transit, however, is higher property values for homes and businesses located near a transit station. In fact, in many cities one can see economic development occurring around transit stations, although this may not be causal evidence of the relationship between rail transit and economic development

But again, the increase in property values and economic development are subsidized benefits and may not be greater than the subsidy costs

A study conducted and published closer to home, by Arizona State University researchers, is titled, “Light Rail Economic Impact Analysis, Task 1 Final Report.” This study returned very mixed results, and expressly stated the difficulty in controlling for variables other than light rail itself.

So no real case was made in support of the notion of significant property tax revenue enhancement even in the highly-localized study area.  This echos the effect cited in the Federal Reserve Bank paper.

I’m going to stop with those two citations because, a) Mr. Casper should do his own homework, and b) I don’t have time to educate folks who won’t.

But I welcome his or anyone else’s comments here.

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3 Comments

  1. John,

    Bellevue, Washington (near Seattle) fought expansion of the regional light rail system for several years. So far, it has not been built, and it may never be built.

    A study by Hebert Research of Bellevue found that expansion of light rail into Bellevue would: 1) cause 7400 Layoffs; 2) cause “1.4 Billion Dollars in Economic Damage to Bellevue” 3) 100 businesses would have to move or shut down (and, for relocation, note that there is very little available commercial real estate in Bellevue and the east side of Seattle, due to an urban growth boundary),

    It would be interesting for a research firm to conduct a similar study for Scottsdale.

    As readers may already know. Bellevue is similar to Scottsdale, since both cities offer upscale shopping, restaurants, entertainment, performing arts, and lodging for the greater Seattle and Phoenix regions, along with high tech companies such as Microsoft in Bellevue (and also Redmond, WA.).

    Also, light rail in Bellevue would destroy several acres of wetlands, and result in cutting down hundreds of mature Douglas Fir trees. Bellevue, just like Scottsdale, has both policies and also HOA’s that protect trees. The loss of tree coverage will lower property values in Bellevue, and this loss of residential property values was not considered by Hebert’s study.

    The loud screeching noises of light rail in Bellevue during nightime hours, waking people up, also lowering residential property values, was also not considered.

    Bellevue is a demographically similar city to Scottsdale. They both are the premier regional shopping destinations, full of wealthy entrepreneurs. For example, Microsoft is in both Bellevue and neighborhing Redmond. Bellevue Square, developed by F. Kemper Freeman Jr., is known as one of the best malls on the west coast, just as Scottsdale Fashion Square is known as the best mall in the American Southwest.

    The economic damage sustained by both of these malls will reach infinity in terms of dollars if you look out well into the future, since light rail causes significant traffic congestion. Shoppers will not visit downtown Scottsdale or downtown Bellevue, if light rail makes it difficult and time consuming. -Tom Lane

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