This is the third in a series of posts documenting my journey towards a Masters in Urban Planning research project. This one dives into one idea (exploring the potential impact of increasing land valuations on rail project costs) more deeply, including some thoughts on potential methodology. I’m still brainstorming other ideas and very open to being swayed, so feel free to share any other research ideas you may have in the comments!
Effects of Land Valuation on Rail Infrastructure Project Costs
When it comes to project delivery, American rail infrastructure projects are notorious for cost overruns and lengthy delays. Whether it’s California High Speed Rail, Seattle’s light rail extensions, the Second Avenue Subway in New York City, San Francisco’s Central Subway, or (potentially) the BART extension into Silicon Valley – the public can’t be blamed for having little confidence in fiscal figures stated in any initial project estimates.
There has been some research into why cost overrun is so common in rail transit projects in the United States. There doesn’t seem to be one definitive and clear conclusion yet, but one hypothesis might benefit from more research: the potential effect of rising land acquisition costs during the life of projects. The theory is that as early public discussion and construction begins on an upcoming new rail corridor, real estate speculation causes land values near the project to increase dramatically – thus making it more costly to acquire that land (even using eminent domain) if needed during the construction process. This can happen faster than governments or project owners can react (for example, by preemptively purchasing the land), so any cost estimates published are quickly made obsolete. (This seems related to how land values decrease near proposed freeways, even before they are built.)
In certain international cities, transit agencies can sometimes actually profit from the increase in land values around stations being built. This so-called “value capture” is a well-established component of the business models of some agencies, most famously exemplified by MTR in Hong Kong. However, in these situations, the government often already owns the land and can sell it to the transit agency at a low price while they mutually benefit from the increased development that subsequently happens.
Scope of Research
This research can focus on rail infrastructure projects in the United States and other countries where governments generally do not own much land for development. Research questions could include:
- Are land acquisition costs a primary reason for rail project cost overruns?
- To what extent are they a contributor to overruns (versus the many other possible reasons)?
- Do announcements of rail projects or their intent by governments cause significant increases in land value around proposed project sites (due to real estate speculation)?
- Collect a sample of retrospectives / post-mortem reports on rail infrastructure projects with cost overruns in the United States, Canada, Australia, and Europe.
- If possible, identify what percentage of each overrun was explicitly attributed to unexpected land acquisition costs.
- Based on sample, find the 95% confidence interval of this parameter.
- For projects where land acquisition costs were cited as a problem, pull historical land value data for the neighborhoods the project would have impacted:
- Redfin/Zillow for home prices up to and through the year of project completion
- County property tax records showing land value trends
- Measure difference between land value before and after the first announcement of projects.
- Conduct a difference of means t-test between a group of properties due to be acquired through eminent domain and ones outside of the project’s sphere of influence but in the same neighborhood, OR
- Conduct a paired difference (one-sample) t-test with just the differences before and after for a set of properties acquired through eminent domain.
If we can show (with statistical significance) that the expected percentage of cost overruns attributed to land acquisition costs is greater than 0%, or that significant differences in land values exist before and after a rail project announcement, we could conclude that land acquisition costs are a primary reason for these overruns.