Tuesday, February 25, 2014

Urban traffic externalities: quasi-experimental evidence from housing prices

This paper exploits a quasi-experiment to value the benefits of reducing urban traffic externalities. As a  source of exogenous variation we use the opening of a new bypass in The Hague, the Netherlands, that  reduced traffic on a number of local streets, leaving others unaffected. We calculate the effect of the change in traffic nuisance on housing prices and find that a reduction of 50% in traffic density induces a 1% increase in housing prices on average. Reductions in traffic nuisance are valued much more positively when the traffic  density is already high. We do not find evidence of anticipation effects up to 3 years before the change.  Furthermore, our results indicate that traffic nuisance effects are likely to be biased in cross-sectional studies.
The estimated elasticity of housing prices to traffic density is on average -0.02 for houses adjacent to the street; it is factor 2 to 4 smaller for houses located further away from the street. For houses located on very busy roads the effect of traffic density turns out to be much stronger: for streets with traffic flows above 15,000 cars per day an elasticity coefficient of -0.1 is estimated. Furthermore, we show that the total benefits of traffic nuisance reduction amount to some 8% of the reference costs of the bypass construction. 
The effect of the traffic density change reaches as far as 40 meters from the affected street. Column 2 of table 2 (baseline model) reports the elasticity of the prices of houses not adjacent to the street to be between -0.005 and -0.01.
One can compute the benefits of traffic nuisance reduction brought about by the bypass studied in this paper. Following a conservative approach that only accounts for the effects on houses adjacent to the affected streets, and takes the medium density elasticity of -0.02, the total local benefits for the houses in our dataset amount to 1.4 million euros in Leidschendam-Voorburg and 2.6 million euros in The Hague Mariahoeve.  Assuming that the houses in the dataset are a random sample from the housing stock, the total benefit of  reduced nuisance equals some 18 million euros.15 This is 3.5 million euros per kilometre bypass. To gain an insight into the relative importance of these benefits, we compare them with the reference construction costs of a two-lane bypass.16 Vos (2004) reports that a simple two-lane highway on ground level costs some 10 million euros per kilometre. Where tunnels and bridges are involved, as was the case with the bypass near The Hague, the cost easily quadruples to more than 40 million euros per kilometre (V&W, 2003). This simple calculation suggests that, for a bypass to be cost-efficient it must generate other benefits in addition to the reduction of urban traffic nuisance. For the bypass in our study an important benefit was the improved accessibility of The Hague.

by Ioulia Ossokina and Gerard Verweij
CPB Netherlands Bureau for Economic Policy Analysis
February 19, 2014
Keywords: Traffic externalities; Quasi-experiment; Housing market; Hedonic approach.

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