Effect of public transit expansion on Real Estate Prices

TTC expansion

RSM 2128: Real Estate Economics

Arun Lamba, Jason Short, Pramod Jindal

December 12, 2012

Agenda

1. Executive Summary

2. Theoretical Background

3. TTC expansion

4. Evidence

5. Conclusion

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Executive Summary

Question • How will the TTC expansion project affect Real Estate Prices in the area?

Conclusion • Real Estate prices will be positively affected

Major Insights • Price appreciation occurs within a specific boundary relative to access

points

• These boundaries are different depending on use

• Peak price increases typically occur three years after completion

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Theoretical Background

• Real Estate asset prices are based on Discounted Future Cash Flows

• Real Estate is unique because of its convertible end use

• Location is important in Real Estate

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TTC – Spadina Expansion

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Impact of public transit on subject area

Empirical evidences suggest that public transits do impact real estate prices substantially, however, the impact varies.1

• Income level of neighbourhood

o In low income neighborhoods, property values increase

o In high income neighborhoods, property values decrease

• Proximity

o Impact on property prices not seen beyond quarter or third of mile

o Perceived distance from station valued more than actual distance from station

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Impact of public transit on subject area

• Type of real estate (Residential vs. Commercial)

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-6%

-5%

-4%

-3%

-2%

-1%

0%

0 200 400 600 800 1000

Ch

ange

s in

Pri

ces

Distance from TTC Station (Feet)

Residential Property

0%

2%

4%

6%

8%

10%

12%

0 100 200 300 400 500 600 700

Ch

ange

s in

Pri

ces

Distance from TTC Station (Feet)

Commercial Property

Impact on the substitute area

Empirical evidences suggest that public transits expansion lead to suburbanization2

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Population Growth (1950-1990)

Whole Metropolitan 72%

City Center -17%

• This was partly attributed to the innovations in urban transportation infrastructure, particularly the construction of new highways

Downtown Toronto Sheppard West

Change in population by 2017

Without TTC Expansion With TTC Expansion

TTC’s expansion to Sheppard West would decrease the population density in Downtown Toronto and increase the density in Sheppard West

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Impact on Population Density

Downtown Toronto Sheppard West

Change in population by 2017

Without TTC Expansion With TTC Expansion

TTC’s expansion to Sheppard West would decrease the population density in Downtown Toronto and increase the density in Sheppard West

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Impact on Population Density

TTC’s expansion to Sheppard West would flatten the rent gradient from Downtown Toronto to Sheppard West

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Sheppard West Downtown Toronto

Rent gradient

Without TTC Expansion With TTC Expansion

Impact on Rent Gradient

Conclusion

• Prices will be positively affected by the TTC expansion project

• Population density in substitute areas will decrease whereas population density in Sheppard West will increase

• Rental gradient between Sheppard West and downtown Toronto will flatten

• Price appreciation will take up to three years

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Q&A

Thank You

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