by Stephen Smith

The Wall Street Journal ran an article a few days ago claiming that the MTA’s recent NYC transit cuts have lowered real estate prices along train and bus lines that have been axed. While it’s not a quantitative study, the anecdotes are compelling:

“The buyer who buys in Astoria is looking for a cheaper price and to get into Manhattan quickly,” said Ms. Palmos, adding that she is having the same problem with a condominium building in Upper Ditmars, north of Astoria. Apartments there that she said would have easily sold for $500,000 with the express bus nearby are now languishing on the market at prices about $420,000. ” ‘How far is it to the train?’ That’s the first thing people ask me,” said Charles Sciberras of Realty Executives Today, a longtime Astoria broker. “The closer to the train the higher the demand… Two to three blocks away from transportation is very easy for me to rent.” […] “The best areas in Brooklyn have great transportation into the city—the most expensive neighborhood in Brooklyn is Brooklyn Heights—you can get just about anywhere in the city easily. You go out into where there is less transportation, the prices go down,” Mr. Giordano said. “It’s one of the many emotional decisions that people make that can add or detract value from real estate.”

What’s most striking to me is that a simple express bus route can raise prices by $80,000 for a single apartment. Multiply this by the thousands of apartments along the bus route and it appears that the lost value from the cut bus route ought to exceed, by orders of magnitude, the cost of maintaining the route.

But of course, since the MTA doesn’t see a penny of the value it creates, it isn’t surprising that “the impact on property values isn’t something the agency takes into account.” One way for transit agencies to benefit from the value they create is the use of “tax-increment financing” or “special-assessment districts” that levy taxes on infrastructure improvements specifically on those who benefit, but these mechanisms are pale imitations of the only way to truly link transit-induced value and real estate: allowing joint ownership.

Transit agencies in the US can’t/don’t develop property and property developers can’t build transit, but it wasn’t always that way. Around the turn of the century, when America’s great mass rail-based transit systems were being built, they were often built by developers who had large stakes in land around their stations. The transit systems could even be loss-leaders that subsidized their developers’ real estate positions, and joint ownership allowed for the sort of coordination necessary to build what’s today known as “transit-oriented development.”

Progressives and planners in the US soon put an end to this practice by subsidizing roads and placing onerous restrictions on transit operators that eventually let to nationalization, as did governments throughout the world. Some Asian governments, however, have begun to backtrack. Japan’s rail privatization in the late ’80s made transit operators some of the country’s largest real estate developers (.pdf), and Hong Kong’s private transit companies have similar large property investments around their stations. (For an in depth discussion of the Hong Kong model, see this pdf.) Singapore, where the state owns and operates both the transit systems and the vast majority of residential units, could even be considered an example of joint private ownership, if one considers the one-party city-state to be akin to a private entity.

Although private ownership of NYC train lines seems about as likely as legalized heroin in the short-run, private bus services run by property developers (of groups thereof) could serve as a more politically palatable stepping stone. Very tentative steps toward private bus service have been started, but it will take much more to allow developers to be truly innovative with transit.