Take the Q Train: Value Capture of Public Infrastructure Projects

50 Pages Posted: 18 Oct 2019 Last revised: 19 Aug 2020

See all articles by Arpit Gupta

Arpit Gupta

NYU Stern School of Business

Stijn Van Nieuwerburgh

Columbia University Graduate School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); ABFER

Constantine Kontokosta

New York University (NYU) - Marron Institute of Urban Management

Multiple version iconThere are 2 versions of this paper

Date Written: August 18, 2020

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, the most expensive urban transit infrastructure project in recent memory, by analyzing local real estate prices which capitalize the benefits of transit spillovers. We find 8% price increases, creating $6 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.

Keywords: Public Finance, Land Value Taxation, Urban Development, Value Capture

JEL Classification: R10, R42, R51

Suggested Citation

Gupta, Arpit and Van Nieuwerburgh, Stijn and Kontokosta, Constantine, Take the Q Train: Value Capture of Public Infrastructure Projects (August 18, 2020). NYU Stern School of Business, Available at SSRN: https://ssrn.com/abstract=3466847 or http://dx.doi.org/10.2139/ssrn.3466847

Arpit Gupta

NYU Stern School of Business ( email )

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Constantine Kontokosta

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