The impact of Metro 4 on property prices and economic activity
Metro 4 despite still
being in the construction phase seems to be an important determinant of flat
prices and future economic activity in Budapest.
The construction of the
new metro line (Metro 4) in Budapest – running from southwest to northeast – has
been in the centre of attention for the last couple of years in Hungary. In
this short blog entry I will discuss the possible effects of the construction
and the planned completion of the new metro line by March 2014 on house prices
and economic activity.
Transport developments
do not necessarily have to link previously unreachable areas to central ones,
sometimes they can just provide new, alternative ways of transportation which
is the case with Metro 4. The new metro line running from Kelenföldi railway
station to Keleti railway station (with possible extensions on both ends later)
will cover a transport corridor that is already associated with the most
passengers. Despite this, construction does seem to have a significant effect
on property prices – especially in relatively poor neighborhoods according to
studies. Both distance and time costs will be reduced for individuals using
public transportation; traffic and congestions are also expected to decrease. A
slight increase can be anticipated near the ends of the tracks though where the
building of future parking lots is planned. A transport study shows that the
metro construction will hopefully result in 90.000-100.000 less individual car
travels a day in the capital.
The unopened metro line
already has a visible and significant effect on flat prices. Properties that
are closer to metro stations have higher offer prices ceteris paribus, indicating
causality between the proximity of public transport and flat prices. No such
effect of accessibility can be demonstrated for rent levels as the metro line
is not yet available for public use. An estimation of the magnitude of the effect
mentioned gives us around a 2.5% increase in property offer prices that are
located near a metro station. These facts are backed up by theory: if we
interpret the new metro line within the framework of the Central Business
District (CBD) monocentric model we see that the travel cost is a trade-off
against rents and population density when moving towards the suburbs from the
CBD. Since the construction of a new metro line basically reduces travel costs
it is not surprising that property prices are therefore raised – upon
completion rent levels are likely to increase as well.
The property price
increase has a rippling effect on to economic activity. Plans for the renovation
of station surroundings are already submitted e.g. Móricz Zsigmond circus will
gain a more central role as it gets connected to the shopping centre and market
hall nearby. Regional side effects are at work: everywhere in the world metro
stations attract new investments mainly from the commercial and business
sectors. The value changes, if large enough, will generate investment and
development decisions. Therefore the property market can act as a channel for
economic and social changes that in the long-run might change technological and
economic trends – and even the competitiveness of Hungary – to which flat
prices would react with an even bigger increase. From a pessimistic point of
view the extent of this effect is questionable. Since, as mentioned earlier and
shown on the figure, the new line mainly serves as a new way of transportation
on an already busy road, the result is that the explained positive effects
might not be as strong as they could be, should the line be laid down for
example in further outlying areas – which could make the improvements of public
transportation much more efficient.
The effect on property
prices depend on other factors as well; for instance, barriers at the stations,
P+R car parks etc. can also contribute to rising flat prices. Yet, there are
not many negative spatial externalities associated with living near the
underground on the long-run as no noise pollution is present and changes to the
urban landscape are not substantial. On the short-run construction works can be
viewed as a burden, but their effects on flat prices – even though negative – are
not significant. In conclusion we can say that the construction of the Metro 4
in Budapest has started boosting the property market – flat prices have already
increased – and opening the space for new investments for which the extent
depends on several factors discussed earlier. Once the metro line is available
for public use it can be suspected that a rapid increase in rent prices will
follow.
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