The impact of an urban toll-ring on housing prices

Over the last decades, there has been considerable interest in the use of tolls on cars driving into towns. Not only has this been a hot political topic; this issue has also attracted substantial attention from economists. The focus in most of the economics literature has been on how tolls impact traffic volumes, and on how tolls may be used to reduce negative externalities of car use. Less attention has been devoted to how property values and house prices inside and outside toll rings may be affected. From the urban economics literature, it is however well known, that local commuters’ cost of accessing centrally located amenities and work-places will be discounted into house prices. The magnitude of this effect will be contingent on the extent to which tolls also reduce congestion, external effects related to noise, etc. Moreover, since the imposition of a toll ring will alter the long-run spatial equilibrium of a town and the surrounding area, it will set into motion processes of sorting and re-location of households, and possibly also a re-location of some work-places. Consequently, the effects of tolls on house prices may be quite different in the short-run and long-run.In this paper we aim to determine the long-run impact of a toll ring on house prices. In order to assess how much a household initially residing outside the toll ring may gain from relocating to a dwelling within the toll ring we construct a simple household model for choice of location. In the empirical part of the paper we exploit a sample of about 15000 dwellings sold during an eight-year period in the Norwegian town of Kristiansand. We estimate various hedonic house price functions that account for not only whether the house lies within the toll ring or not, but also the precise location of houses and the distance from houses to important amenities. Accounting for other factors beside that of toll, that may impact the sales price of a house, is important in order to identify the impact of the toll ring on house prices. Our findings indicate that introducing a toll ring increases the price of houses located inside this ring with 3 percent. We expect that our findings will be useful in the discussion on establishing toll rings around towns, and on road pricing in general. These issues are particularly relevant for the Norwegian context, where tolls recently have become increasingly more important, not only as means to reduce congestion and other negative externalities, but also as a part of financing the construction of new roads.