The Relationship of Housing Prices and Transportation Improvements: Location and Marginal Impact

Abstract

In this paper, I examine the relationship between housing prices and transport improvements. The relationship between distance and housing prices is known to be negative for a densely populated area. I will examine whether this relationship holds for a sparsely populated area, and will test whether this relationship is convex with respect to distance. A macro panel dataset from Iceland will be used. The existence of the expected relationship is among the main findings. Thus, transportation improvements between the CBD and other localities have greater marginal impact on the local real price of houses in closer localities compared to those which are farther away.

Rapports marginaux entre prix de l'immobilier et améliorations dans les transports: emplacement et impact marginal

Résumé Dans la présente communication, j'examine le rapport entre le prix de l'immobilier et l'amélioration des transports. On sait que le rapport entre la distance et le prix de l'immobilier est négatif pour les zones à forte densité de population. Je vais examiner si ce rapport reste vrai pour des zones à faible densité, et effectuer des essais afin d’établir si ce rapport est convexe en fonction de la distance. Un ensemble de données de macro panel provenant d'Islande sera utilisé. Une des principales conclusions est l'existence de rapports prévus. Ainsi, les améliorations des transports entre CBD et d'autres lieux ont un impact marginal supérieur sur le prix réel local de l'immobilier dans des localités plus proches, par rapport à des localités plus éloignées.

La relación marginal de los precios de la vivienda y las mejoras del transporte: ubicación e impacto marginal

Extracto En este trabajo examino la relación entre los precios de la vivienda y las mejoras en el transporte. Se sabe que la relación entre la distancia y los precios de la vivienda es negativa en las áreas densamente pobladas. Examinaré si esta relación se mantiene en un área escasamente poblada, y ensayaré si es convexa con respecto a la distancia. Se utilizará un conjunto de datos de macro-panel procedente de Islandia. La existencia de la relación esperada es uno de los principales descubrimientos. Así, las mejoras del transporte entre el CBD (distrito central de negocios) y otras localidades tienen un mayor impacto marginal sobre el precio local real de la vivienda en localidades más próximas, en comparación con las que están más alejadas.

Keywords:

• House prices
• transportation improvements
• distance gradient
• local

JEL classification:

• R40
• R21
• R41
• C23

Acknowledgements

The author is a doctoral student at the University of Iceland. The author is grateful for the supervision of Gylfi Magnússon, Sveinn Agnarsson, and Frank Goetzke. Furthermore, the author is thankful for general comments from Ívar Jónsson, Lilja Mósesdóttir, and Thorbergur Thórsson. Financial support from the Regional Development Office of West-Iceland, Bifröst School of Business, the Icelandic Regional Development Institute, and the Icelandic Road Administration is gratefully acknowledged.

Notes

1. Some 43,100 km² of Iceland's land mass is at an elevation of less than 400 meters.

2. According to the Icelandic Road Administration and Statistics Iceland, only about 800 km of state-administered roads were paved in the year 1981, rising to 4,400 km at the beginning of the year 2007, or approximately 50% of major and collector roads.

3. The Land Registry of Iceland collected these data from the original source: written contracts between home sellers and buyers. The data were available both in terms of contract prices and cash prices. The contract price is the total house price according to the written contract between a seller and buyer. However, it is common for the contract price to be paid in several payments over a certain period. Both the duration and number of payments vary substantially from contract to contract. In order to make housing price data more comparable, the Land Registry of Iceland calculates a so-called cash price for every contract. This is, in fact, the present value of the contract price. The dependent variable in this paper is the cash price.

4. The age of a house influences its real price. As a house gets older, the house price decreases by 0.9% in real terms for every year, ceteris paribus. House size has a significant impact on local housing prices; the price increases by 0.2% for every square meter of house enlargement. Rooms per dwelling, presence of balcony, garage and parking returned significant impact along with expected signs. The dummy variable for new aluminium factory on the east coast returns negative sign; this was unexpected. A thorough inspection of the data showed that the supply (HNPP) and total income (TINC) were responsible. The supply variable was constructed as number of houses divided by local population. Since the period of time covers only the construction period of the aluminium factory and other necessary facilities the population increased extremely which reduced the local supply of houses down with respect to population. The total income increased at the same time. So, the method traces the increase in local housing prices to the supply and total income and the difference is negative reflected by the dummy variable.