Impacts of the Hiawatha Light Rail Line on Commercial and Industrial Property Values in Minneapolis Kate Ko and Xinyu (Jason) Cao Hennepin-University Partnership Jan. 2010

Introduction

The Light Rail Transit improves the accessibility of the Hiawatha corridor. Central question  How has the Hiawatha LRT affected commercial and industrial property sales prices?

Introduction Why commercial and industrial properties? Local governments and state legislators anticipate higher property and sales tax revenue as part of their returns on this investment (tax increment financing). Any impacts on businesses will guide local economic development of other LRT lines. It provides quantitative evidence for continuous federal support under FTA New Start.

Literature Review Recent Studies on Property Prices and Transitway Cervero and Duncan (2002): analysis of the California rail transit systems, finding property premiums for proximity to stations ranging from -$104,267 to $813,124 Fuerst (2007): analysis of Manhattan, New York mass transit system, finding price per square foot elasticity with respect to distance in feet ranges from to Recent research has been limited: in terms of number, findings, and geography

Hedonic Pricing Function A property is a bundle of the following 5 aspects: Structural: building age, lot size, gross building square footage, number of stories Transportation network accessibility: distance to LRT stations and highway on-ramps Economic agglomeration: distance to CBD, Mall of America, number of workers, land uses Prestige of location (socioeconomic): household income, owner-occupied housing value, portion of African American Labor pool accessibility: number of working residents

Hypotheses Pre and post LRT matters: the opening of LRT generates positive externality Proximity matters: property premium is driven by accessibility of LRT

Data and Estimation parcel data from Metropolitan Council and City's Assessors Office 2000 block group level data from Census Census Longitudinal Employment and Household Dynamics Regress transaction prices on 5 types of attributes

Study Region

Results – Sub-region Property prices in both periods are mainly driven by structural characteristics.  Lot size  Gross building area Agglomeration economy is a factor.  Number of workers We did not find the impacts of access to LRT and highways on property values.  Firms benefit from LRT locally.

Results – Station Area Prices are driven by structural characteristics as before in sub-region.  Lot size  Gross building area  Number of story Economic agglomeration plays a role.  Number of workers Positive accessibility effect exists only after opening of LRT, but the effect is non-linear.  Distance to LRT stations  Distance to LRT stations squared

Accessibility Effect - Station Area

Conclusions The findings confirm our hypotheses: Proximity to LRT is a primary force in driving higher property values. The positive impact of LRT's accessibility extends to 1400 m away from stations.

Acknowledgements The research is funded by Transitway Impacts Research Program. Thank Jeff Matson and Rachel Jordan for assisting data collection and management.