Housing market has already anticipated the effects of the West Metro
The opening of the Helsinki’s western metro line finally took place in November 2017, over a year after the latest planned opening date. Despite this, the new metro line has already influenced the housing market around its stations for several years. My research shows that the West Metro has raised the housing prices by approximately four per cent in the immediate vicinity of the new stations, where the travel time saved due to the metro will be the most tangible.
What do the housing prices say about the effects of the West Metro?
The most obvious effect of a major traffic investment such as the West Metro is the improved accessibility in the neighbourhood of the future stations. The new metro line offers a fast, reliable connection to the city centre of Helsinki as well as to other stations, shortening travel times and improving the comfort of travel. This means that the metro reduces the travel costs of the people living in the area. Due to these obvious effects, it is likely that the metro investment will increase the desirability of the neighbourhoods near the stations and the demand for housing, which will eventually raise the housing prices. Improved accessibility is therefore capitalised in the housing prices.
On the other hand, the West Metro may lengthen travel times in some areas and make travel more difficult. This is because the West Metro is part of a larger reform of the transport system, which includes the reorganisation of the existing bus routes. In the reorganisation, metro feeder lines will replace bus routes that connected suburbs directly to the Helsinki city centre. In practice, this means that those who live further away from the new metro stations will have to use two different modes of transport to visit the city centre. The fact that the accessibility of the city centre has been thus reduced may slow down the price development of the areas with feeder traffic. On the other hand, the new metro line will also improve the accessibility of other metro stations in these areas, which will raise the housing prices correspondingly. In addition to this, the development of an urban structure that follows the metro will bring more local services and jobs to the vicinity of the metro stations, possibly reducing the importance of the accessibility of the city centre. Due to these opposing effects, it is unclear how the changes in accessibility will eventually affect the housing prices in the feeder traffic areas.
Besides the direct travel costs, the West Metro also affects the desirability of the neighbouring areas indirectly. With better accessibility, the urban structure in the vicinity of the stations can be made more compact. Densification will bring more residents, services and investments to the areas, which increases not only their desirability but also the housing price level. A large number of travellers on feeder lines passing through the station areas may further increase the offer of services, feeding the positive price development. On the other hand, the large number of people passing through and living in the neighbourhood of the stations may also diminish the attractiveness of the area, if the constant streams of people cause congestion in the traffic or services, or lead to general unrest or even increased crime in the neighbourhood of the stations.
The construction of a new metro line may also have several other effects that are eventually capitalised in housing prices. Some of these effects raise the housing prices, while others lower the price level. In practice, it is impossible to identify all effects, but the use of housing prices in connection with a good study design makes it possible – by looking at the homebuyers’ willingness to pay – to discover the overall impact on the residents of the neighbouring areas.
Based on economic theory, it is to be expected that the housing market will anticipate the future effects of traffic investments after the details of the investment have been published. This means that it is possible to assess the effects of the West Metro from the point of view of the residents of the area already during construction, before the metro line is completed.
How was the research conducted?
The present research investigated how the housing market reacted to the changes in the urban structure that occurred as a result of the first phase of the West Metro in the vicinity of the stations during the construction period of the metro line. The study focussed on the geographical scope, timing and average magnitude of the effect on price.
The housing price data of the Central Federation of Finnish Real Estate Agencies (KVKL) was used as the basis for the analyses. The data is based on the real estate sales by the largest agencies and it covers the construction period until 2016. In addition to the purchase prices, the data also includes comprehensive information on the characteristics of the dwellings as well as their exact locations. The location information made it possible to place the properties on the map, which enabled a precise assessment of the effects of the metro at various distances from the new stations.
In an ideal situation, the answer to the research question would include information on how the housing prices would have developed in the target area if the construction of the metro had not started. In that case, the difference in housing prices between the alternate scenarios would reveal the overall effect of the metro on housing prices. However, it is not possible to observe alternate realities, and therefore the price comparison must be implemented by using a different, carefully selected reference area.
In the study, the effect of the metro was assessed based on the price development of the target and reference areas by using the difference-in-differences (DID) method, which has been used in various published studies on the effects of traffic investments (see for example Billings 2011 or Gibbons and Machin 2005). The most important requirement of this method is that the housing prices in the target and reference areas need to have developed in a similar fashion before the construction of the metro was announced. If this is the case, the differences in price development after the metro announcement can be interpreted as due to anticipation by the housing market (and thus related to the metro). In the study, residential areas in the vicinity of commuter train stations in Helsinki and Espoo were used as reference areas, excluding the Helsinki city centre.
How has the West Metro affected the housing prices?
The study showed that the housing market had anticipated the effects of the West Metro already years before the metro started to operate. The results also reveal that the benefits of the metro are focused specifically on the immediate vicinity of the metro stations. The metro line project has raised the housing prices by approximately four per cent on average within a radius of 800 metres from the new metro stations, which corresponds to a rise of approximately 160 euros in the dwelling prices by square metre. Further away, the metro construction has not affected housing prices. Based on the results, it would seem, therefore, that the benefits brought by the metro clearly overcome its disadvantages in the vicinity of the new stations, while further away the effects cancel each other out. The results of the study are in line with international findings, according to which the effects of traffic investments are the largest within walking distance of stations (see for example Gibbons & Machin 2005).
The study showed that the price increase in the vicinity of metro stations was specifically due to the construction of the metro and that the experimental design allowed us to control for the other factors influencing housing prices. In the diagram showing the annual prices per square metre (see Figure 1.), it can be seen that the housing prices developed from 2006 to 2009 in a very similar manner between the target and reference groups. Correspondingly, the price trends separate from each other quickly within a few years from the start of the construction of the metro in early 2010. The similarity of the price trends before the construction of the metro and the positive effect on price in the target areas after the construction of the metro began are a strong indication that the observed difference in prices is specifically due to the metro.
The West Metro has had a major impact on the overall value of the existing housing stock, and thereby also the wellbeing of the residents, already before it was opened, even though the effect on price is only focused on the immediate vicinity of the new metro stations, not more widely on the neighbouring areas of the stations. This is due to the relatively dense existing urban structure close to the new metro stations. In 2016, the areas with a positive effect on price within a radius of 800 metres from the new metro stations had nearly 28,000 residents within a total of 1.7 million square metres of housing. It is possible to make a rough estimate on the magnitude of the overall effect in euros in the light of these statistics on the urban structure and the results of this study. Based on the results of the estimation, the West Metro has raised the average housing prices per square metre by approximately 160 euros, meaning that the value of the housing stock as a whole has increased by nearly 300 million euros due to the metro.
In public discussion, it has been noted that the construction of the West Metro could also affect housing prices along the eastern part of the existing metro line, especially close to the old metro stations, which would further increase the direct benefits of the metro. The assumed increase of prices in the east is based on the idea that the West Metro enables smooth commuter traffic from East Helsinki to South Espoo, where a considerable number of jobs are located. This study also investigated the potential effects in the vicinity of the East Metro stations. However, based on the results, the construction of the West Metro has not affected housing prices along the East Metro by 2016.
What lessons to learn from the study?
The strength of the research design used is that it studies the actual choices made by homebuyers. These choices are based on the actual budget limitations of the families and careful consideration of the characteristics of the home and the neighbourhood. Using only survey data, for example, it would be very difficult to discover what families truly value in traffic investments. Even if surveys could reveal that the families in the target areas value the renewal brought by the West Metro, they nevertheless cannot reliably answer the question of how much these families would be prepared to pay for the renewal.
In addition to the scientific contribution, the research results are also useful from the point of view of impact analyses related to traffic investments. The study illustrates how housing prices can be used in connection with a good research design as a part of the impact assessment of traffic investments. With the area of influence defined in the study and the average magnitude of the effect on price, it is possible to calculate the overall effect on the wellbeing of the residents of the target areas. At this juncture, however, it is important to remember that a large number of potential benefits are linked to a traffic investment such as a new metro line, and defining the benefits experienced by the residents of the target areas is not enough to assess the cost-effectiveness of the metro investment. That would require information on the total benefits for the whole society. In addition to the effect on the housing market, they also include other effects that may become evident locally or more widely at the level of the entire urban area in issues such as the productivity of companies, the labour market, the commodities market and the commercial property market.
In addition to impact assessments, the research results can also be used directly in the planning of the urban structure, and especially the development of the station areas along the West Metro and its forthcoming extension. Based on the results, the urban structure should be developed and densified especially within walking distance of the new metro stations, so that the increase in land value could be utilised as effectively as possible.
Oskari Harjunen is Senior Researcher in the Urban Research and Statistics Unit of the Helsinki City Executive Office.
Billings, S. B. (2011), "Estimating the value of new transit option" Regional Science and Urban Economics 41(6), sivut 525–536.
Gibbons, S. and Machin, S. (2005), "Valuing rail access using transport innovations" Journal of Urban Economics 57(1), sivut 148–169.
Harjunen, O. (2018), "Metro Investment and the Housing Market Anticipation Effect". Working Papers 2018:2. City of Helsinki, Executive Office, Urban Research and Statistics.
KVKL:n asuntohinta-aineisto [Central Federation of Finnish Real Estate Agencies, housing price data] <http://www.kvkl.fi/kvkl-hintaseurantapalvelu.html>
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