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Anticipated Capitalization of the Santiago Metro System on Housing Prices

Housing units with closer access to public transportation enjoy a higher market value than those with similar characteristics but poorer access. This difference can be explained by the less expensive cost of transport to the main workplaces and shopping areas in town. For this reason, investments in public transport infrastructure, for example, building a new metro line, are capitalized totally or partially on land property and housing prices. This work analyzes empirically the degree of capitalization on housing prices when the new Line 4 of the Santiago de Chile Metro System was built. In particular, and given that the new line started operating in December 2005, the degree of anticipated capitalization on housing prices at the moment of announcing construction of Line 4 and at the moment of informing on the basic engineering to determine the location of the stations has been estimated. A unique data base has been used, containing all home buying and selling operations in the Greater Santiago between December 2000 and March 2004. The results show that the average apartment price rose between 3.3% and 4.4% as a consequence of having announced the construction, and between 4.5% and 5.7% after information on the location of the stations was made known. This increase was not distributed evenly but depended on the distance to the closest station. An indirect effect of this kind of capitalization is that property tax collection increases if landed property is reassessed according to the price rise. This effect is not negligible in magnitude and could stand for a minimum between 14% and 20% of investment in the new metro line, which gives way to an interesting discussion with respect to the form of financing the metro network extension.

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Paper provided by Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines in its series ILADES-Georgetown University Working Papers with number inv176.

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Length: 28 pages
Date of creation: Dec 2006
Date of revision:
Handle: RePEc:ila:ilades:inv176
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  1. Gibbons, Stephen & Machin, Stephen, 2005. "Valuing rail access using transport innovations," Journal of Urban Economics, Elsevier, vol. 57(1), pages 148-169, January.
  2. Hamilton, Bruce W, 1976. "Capitalization of Intrajurisdictional Differences in Local Tax Prices," American Economic Review, American Economic Association, vol. 66(5), pages 743-53, December.
  3. Bartik, Timothy J, 1987. "The Estimation of Demand Parameters in Hedonic Price Models," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 81-88, February.
  4. Rubinfeld, Daniel L., 1987. "The economics of the local public sector," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 11, pages 571-645 Elsevier.
  5. Dewees, D. N., 1976. "The effect of a subway on residential property values in Toronto," Journal of Urban Economics, Elsevier, vol. 3(4), pages 357-369, October.
  6. Gramlich, Edward M & Rubinfeld, Daniel L, 1982. "Micro Estimates of Public Spending Demand Functions and Tests of the Tiebout and Median-Voter Hypotheses," Journal of Political Economy, University of Chicago Press, vol. 90(3), pages 536-60, June.
  7. Roback, Jennifer, 1982. "Wages, Rents, and the Quality of Life," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1257-78, December.
  8. Gyourko, Joseph & Tracy, Joseph, 1991. "The Structure of Local Public Finance and the Quality of Life," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 774-806, August.
  9. Blomquist, Glenn C & Berger, Mark C & Hoehn, John P, 1988. "New Estimates of Quality of Life in Urban Areas," American Economic Review, American Economic Association, vol. 78(1), pages 89-107, March.
  10. Bowes, David R. & Ihlanfeldt, Keith R., 2001. "Identifying the Impacts of Rail Transit Stations on Residential Property Values," Journal of Urban Economics, Elsevier, vol. 50(1), pages 1-25, July.
  11. Heckman, James J & Ichimura, Hidehiko & Todd, Petra E, 1997. "Matching as an Econometric Evaluation Estimator: Evidence from Evaluating a Job Training Programme," Review of Economic Studies, Wiley Blackwell, vol. 64(4), pages 605-54, October.
  12. Gyourko, Joseph & Tracy, Joseph, 1989. "Local public sector rent-seeking and its impact on local land values," Regional Science and Urban Economics, Elsevier, vol. 19(3), pages 493-516, August.
  13. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
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