Commercial Property Value and Proximity to Light Rail: A Hedonic Price Application

When the public sector sponsors projects to promote general welfare, disproportionate benefits or disproportionate burdens often fall on individuals. In Santa Clara County, California, private property owners claimed a burden due to the existence of a light rail transit system (LRT). Looking at rental rates for commercial property this research tests several hedonic specifications to determine what effect, if any, the LRT has on proximate property values; it compares transit accessibility with highway accessibility as determinants of rent; and it uses a series of hedonic indices to analyze the effects over time. Traditionally, hedonic price models have relied on sale price as the variable of interest. Rental rates, which are both more abundant and more dynamic, thus more sensitive to changes in the market, are used in place of sale price. The substitution allows for more robust models. Results indicate that controlling for other factors, properties that lie within 1/2 a mile of a light rail station command a higher lease rate than other properties in the County. When controlling for highway access, the rail proximity benefit was maintained and it was shown that highway coverage in the County is adequately dense that there are no particular locational advantages associated with highway coverage. Furthermore, as the transit system matured a greater benefit accrued to the proximate properties but in times of more intense general market pressure, the rent premium was dampened.