Spring 2014

The Economic Benefits of Transit Service

How do we determine why and under what conditions investments in transit contribute to the economic growth of cities? Many planners and theorists argue that better public transit solutions have a clear correlation to improved urban economies and better opportunities for people living and working in these regions. And indeed, some evidence suggests that transport improvements do enable the growth and densification of cities, downtowns, or industrial clusters, providing better accessibility to ideas and labor and thereby returning a net benefit.

But, the relationship is not simple. There is also evidence to the contrary—that transit may just redistribute benefits. By reducing transport costs, public transit improvements could even lead to cheaper land, sprawl and de-densification, and reduced proximity of firms, workers, and consumers to each other.

So how do cities make the right decisions about funding public transportation improvements that are intended to bolster the local economy? To get to the answer, several fundamental questions need to be addressed. What effect does public transit have on physical agglomeration measures like employment density? What effect do any such changes have on economic productivity? Are local development changes near transit stops just a shifting-around of residents and workers, or do they signal genuinely new economic activity?

New River Line diesel train. The goal as with many rail transit projects is to attract so-called choice riders. Some evidence that this happened; for example, a substantially higher share of riders on the River Line access it via park and ride than bus users.

New River Line diesel train. The goal as with many rail transit projects is to attract so-called choice riders. Some evidence that this happened; for example, a substantially higher share of riders on the River Line access it via park and ride than bus users. Enlarge [+]

In his current research on the impacts of transport improvements on agglomeration economies, Assistant Professor of City & Regional Planning, Dan Chatman, points out that the scarcity of both readily available data and good theories about transit and economic growth make answering such questions a challenge.

Building on a body of previous research that showed the connection between employment density and higher wages, Chatman and his colleagues sought to trace the links between transit, agglomeration, and productivity, and constructed models based on data from approximately 90% of the 364 metropolitan areas in the U.S.

Supporting advocates for the benefits of transportation improvements, the study found significant indirect productivity effects. For example, in the case of central city employment density, estimated annual wage increases across metropolitan areas averaged $45 million for a 10 per cent increase in seats or rail service miles per capita. However, since the costs of providing new transit service or improving existing transit service can be quite high, the productivity benefits associated with transit-induced agglomeration may not in many instances swing the balance to a positive benefit-cost calculation. But the study results do suggest that there are unanticipated benefits from densification and growth due to transit improvements. Particularly in large cities where roads are congested, space is at a premium, and rents are high, the additional benefits may provide a justification for transit service improvements.

In a separate study that took an in-depth look at the economic impacts of New Jersey’s River Line, a less positive picture emerged. Originally proposed in the 1990s, the River Line broke ground in 2000 and began operation in 2004. From its conception, there were arguments both for and against the proposed project. Public officials hoped that it would help to revive the adjacent towns’ economies, bringing visitors to local tourist attractions and capturing commuters to prime destinations or transfer hubs, while the inevitable not-in-my-backyard protests came from residents who feared that the rail line would drive down property values.

Map showing household income in the 4 county area along the River Line.

Map showing household income in the 4 county area along the River Line. Enlarge [+]

Specifically focusing on single family homes near the 34-mile stretch of rail service between Camden and Trenton along the Delaware River, Chatman analyzed home sales values before and after the line opened, comparing properties of different types near the River Line to a large set of properties sold in the four-county region, between 1989 and 2007. For low-income area properties near stations, property values appreciated significantly. But for properties farther than one-quarter mile away, the net estimate was neutral and, in the two to three mile radius, the estimate was negative, suggesting a redistribution of property appreciation gains. For the small number of houses in higher-income areas, having a River Line rail station within a quarter-mile was also associated with slight reductions in value.

It is important to recognize that these findings only reflect relatively short-term impacts. With the River Line now operating at near to full capacity, there is evidence that new higher-density development could increase, eventually leading to a more positive outcome.

For urban planners and cities debating the economic value of public transportation investments, these results suggest that large cities with significant road congestion should expect large economic benefits from public transit expansions that enable central city densification. At the same time, while improvements to transit service in other locations may benefit lower-income households and other groups with higher reliance on transit, they may not confer the same levels of generalized economic benefit. Nevertheless, as cities and metropolitan areas become more congested, it is critical that we continue to strive to understand the complex relationships between transit, urban growth, and productivity so that we make the wisest decisions with the greatest overall benefit.