Causal identification of transit-induced property value uplift in Canada’s Waterloo Region: A spatio-temporal difference-in-differences method application

Yu Huang, Dawn Cassandra Parker, Robert Babin, Fanhua Kong

Executive summary

Building upon Dr. Yu Huang’s Ph.D. thesis (supervised by Professor Dawn Parker), this research investigated the net effects of the light-rail transit (LRT) development on residential property value in Kitchener Waterloo (KW). We aimed to better understand when and where transit policies impacted housing sales prices and offer insights into the economic benefits of mass transit investments in a mid-sized urban area. The study was recently published in Cities.

The study analyzed residential transactions between 2005 and 2018 with an advanced modelling approach, namely, spatio-temporal difference-in-differences (ST-DID) models. The models enable us to answer the following questions: 1) Is there evidence of residential property value uplift caused by the LRT interventions (planning, announcement and construction) in the mid-sized urban area? 2) Do the impacts differ across single-family and multi-family housing? 3) Is value uplift more prominent in particular TOD station areas? Results show that the new LRT system started to impact the housing market since the funding was secured, especially for single-family housing. TOD contexts also contribute to the varying LRT impacts on housing prices, making value uplift more prevalent in particular station areas. We provide evidence of property value uplift in particular station areas post the LRT announcement. The findings can provide guidance for value-capture programs and cost-benefit analysis for transit-oriented development in mid-sized cities of North America.

Key findings

LRT announcement playing a role in uplifting single-family housing sales prices

The study first examined when the LRT line started impacting the housing sales prices. The LRT system was confirmed as the preferred transit technology in 2009, followed by the official announcement of secured funding in 2011. The Stage One LRT system (19 km) began construction in 2014 and was completed in 2018. In line with these significant policy interventions, we define four phases for the LRT development: Phase I - Before LRT Period (before June 2009); Phase II - Planning Period (June 2009–May 2011); Phase III - Post-Announcement Period (June 2011–August 2014); and Phase IV - Construction Period (September 2014 - Jan 2018). Our findings show that, for single-family housing within 800 meters of walking distance to the LRT, the LRT announcement contributes to an additional price increase of 3.44 %, and the effect continues during the LRT construction period (with a 3.38 % value uplift), compared to those within 800-1600 meters of walking distance to the LRT. Consistent with many studies, we argue that solid financial commitments assure investors’ confidence and produce the highest increment of price increase. It is also important to note that single-family home sales in this location and time period reflect both values of residents who will live there and the investments of land speculators, who may be assembling land for future development.

For multi-family housing, however, we did not find significant additional price changes in response to the LRT policy interventions. Due to long windows for approval and construction, the LRT impacts on multi-family housing might emerge with a time lag compared to single-family housing that is acquired for land speculation and conversion. Also, note that we are only looking at ownership condominiums. Many are rented, but not explicitly multi-family rental properties. Thus, our finding on multi-family housing does not reflect the rental housing price changes in response to LRT investments.

Spatially varying impacts of LRT on housing sales prices

The above analysis presents the average estimates of LRT impacts on the whole treated area (within 800m pedestrian network distance) sales prices but does not reveal the possibly varying effects across LRT station areas. Different TOD contexts may produce significantly different impacts on housing. It is thus essential to know how housing prices in each of the 19 TOD station areas have responded to LRT policies.

Model results show that several TODs in Waterloo contributed to an additional sales price increase for single-family housing in response to LRT policy interventions. This indicates higher LRT impacts on Waterloo single-family housing than in Kitchener during this period. Particularly, the TOD area near the major universities has experienced a dramatic value uplift since the LRT announcement, with around a 40 % price increase. The small post-World War II single-family houses in this area were primarily rented for students before the LRT plan. New zoning changes, concurrent with the LRT development, progressively facilitated the conversion of these houses to higher-density residential. Thus, the high land value uplift estimate for these areas should be viewed with some caveats. Since students generally walk or take a bus to campuses, part of that land value uplift is attributed to the student housing rental investments. We also see significant price premiums starting from the planning period for a TOD area in one of the downtown cores, with about a 10 % price increase.

Conclusion

This study provides insights into the causal relationship between transit investments and land-value uplift in a mid-sized and growing urban area through the lens of housing sales price changes. After estimating a set of rigorous space-time DID models, we can draw the following conclusions. First, the LRT announcement produced the highest price premium for single-family housing (an overall 3.44 % additional increase) even before the LRT was running, while we did not find significant transit-induced price changes for multi-family housing. Second, several TODs in Waterloo contributed to the value uplift of single-family housing, while only a few particular TODs in Kitchener led to the value uplift of multi-family housing, indicating the heterogeneous impacts of LRT on different TOD areas. Briefly, we provide a pre-LRT analysis in a car-dependent mid-sized urban area, which offers insight into speculative investment in TOD areas and/or resident anticipation of future accessibility benefits. Our findings in this and related studies show early land value uplift, reinforcing the idea that cities considering TOD should pay particular attention to the possible negative impacts (such as gentrification, housing unaffordability and displacement of lower-income households).

Learn more:

Huang, Y., Parker, D. C., Babin, R., & Kong, F. (2024). Causal identification of transit-induced property value uplift in Canada’s Waterloo Region: A spatio-temporal difference-in-differences method application. Cities, 145, 104676. https://doi.org/10.1016/j.cities.2023.104676