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Anticipated Capitalization of the Santiago Metro System on Housing Prices

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Abstract

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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  • Claudio Agostini & Gastón Palmucci, 2006. "Anticipated Capitalization of the Santiago Metro System on Housing Prices," ILADES-Georgetown University Working Papers inv176, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.
  • Handle: RePEc:ila:ilades:inv176
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    More about this item

    Keywords

    Metro; Apartment Prices; Anticipated Capitalization;

    JEL classification:

    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R53 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Public Facility Location Analysis; Public Investment and Capital Stock

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