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Take the Q Train

Value Capture of Public Infrastructure Projects

+ Arpit Gupta, Stijn Van Nieuwerburgh, Constantine Kontokosta

Abstract

Transit infrastructure is a critical asset for economic activity yet costly to build in dense urban environments. We measure the benefit of the Second Avenue Subway extension in New York City by analyzing local real estate prices which capitalize the benefits of transit spillovers. We find 10% price increases, creating $7 billion in new property value. Using cell phone ping data, we document substantial reductions in commuting time especially among subway users, offering a plausible mechanism for the price gains. The increase in prices reflects both higher rents and lower risk. Infrastructure improvements lower the riskiness of real estate investments. Only 30% of the private value created by the subway is captured through higher property tax revenue, and is insufficient to cover the cost of the subway. Targeted property tax increases may help governments capture more of the value created, and serve as a useful funding tool. 

 

Read the Working Paper

Arpit Gupta is an Assistant Professor of Finance at New York University Leonard N. Stern School of Business.

Stijn Van Nieuwerburgh is the Earle W. Kazis and Benjamin Schore Professor of Real Estate and Professor of Finance at Columbia University’s Graduate School of Business, which he joined in July 2018.

Constantine E. Kontokosta, Ph.D., is an Associate Professor of Urban Science and Planning and Director of the Civic Analytics program at the NYU Marron Institute of Urban Management. He also directs the Urban Intelligence Lab and holds cross-appointments at the Center for Urban Science and Progress (CUSP) and the Department of Civil and Urban Engineering at the NYU Tandon School of Engineering, and is affiliated faculty at the NYU Wagner School of Public Service.

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