Collecting Transit's Earnings, and
What to do When There Aren't Any
[Adam Kerman is Executive Director, The Transpit Riders' Authority,
Chicago, Illinois. Reprinted in
GroundSwell, September-October 2006]
The following presentation was given during a panel on "Practical
Solutions to Transit Problems" at the annual Council of
Georgist Organizations conference held July 20, 2006 at Des
Plaines, IL. Moderator was Chuck Metalitz, director of the Henry
George School of Chicago, IL. Kerman's speech is reprinted in
On Friday morning, July 21, 2006, the Illinois Central suburban
service observes its 150th anniversary. The Illinois Central was
founded by a land speculator to promote development of Cairo on the
Ohio River, and by politicians, including Abraham Lincoln and
Stephen Douglas. Douglas, then a United States Senator, was
instrumental in securing the federal land grant for the railroad,
the first in the nation. The land grant was turned over to the
state. Lincoln used his connections in Springfield to quash bids for
rival railroads. The city of Chicago wanted a breakwater built to
protect homes built too close to the lakefront on the south side.
Because no one elsewhere benefited, its construction was politically
unpopular. Solution? Have the railroad to enter the city on a
right-of-way it did not want as it was away from industry, on
submerged lands along the lakefront. This forced the railroad to
build the breakwater. Douglas, who owned some of these submerged
lands, sold right-of-way to the railroad and was rewarded with a
seat on the board for his efforts in securing the land grant.
Paul Cornell was another land speculator. He owned 300 acres in
what is now the fine neighborhood of Hyde Park, home of the
University of Chicago and Museum of Science and Industry. It was
well outside the city limits and badly located. He deeded
right-of-way to the railroad in return for daily suburban service to
his property. Significantly, the service was operated at a loss for
several years and had to be subsidized by Cornell. Eventually, the
railroad would stimulate suburban development along the lakefront.
The principal of the relationship between transportation and land
value is still well known to our politicians today. Dennis Hastert,
Speaker of the House, representing an area at the far western edge
of metropolitan Chicago, has speculated in farmland in Kendall
County for years. His land holdings are worth millions and he
recently received a $2 million profit on land he sold.
Coincidentally, he has secured $207 million in federal funding for
the Prairie Parkway through Kendall County, several miles from
parcels he owns.
Ten years ago, Regional Transportation Authority hired a
consultant to learn of the positive or negative effect passenger
railroad stations, either commuter rail or rapid transit, either
city or suburbs, had on residential property values. The consultant
discovered that there was a positive effect on single-family home
values within a short walk of the stations of 500 feet. The premium
is 25.8%. In 1996 prices, the difference was nearly $52,000. The
consultant made no effort to break out the land value from the
property value, so it is difficult to estimate the percentage
premium on land value. The station's effect wore off at about 5000
feet, just under a mile. The authors speculated that home owners did
not wish to live too close to the tracks where they might be
adversely affected by the noise based on review of other studies but
weren't able to reach a conclusion from tools available to them at
the time that didn't allow them to adequately determine distance of
closely-located homes. Interestingly, they concluded from review of
other literature that rental value of units in apartment buildings
did not suffer from being too closely located to rail stations,
perhaps because their design blocks much of the additional noise.
They found no positive or negative effect on commercial land located
near railroad stations in other studies.
Is it possible to capture some portion of land value to pay for
the cost of necessary public transportation? For instance, a typical
minimal Metra cost, three-man crew (one in the engine and two on the
train) plus fuel and running maintenance costs about $1 million a
year, or the premium of 20 of the best located homes.
The Orange Line to the southwest side and Midway Airport opened 13
years ago. Intriguingly, the authors of a study from 1994 found that
residential land values within one-half mile of the station sites
were 17% higher than they otherwise would have been in 1990, three
years before the line would open. On opening day, it was 20% higher.
They also found that the increase from improved transportation was
1.9% per mile from the central business district for sites within
one half mile of train stations. They felt that, even by 1994, the
market had not yet fully adjusted to the presence of the new rapid
A Brookings Institute study from last year argues that the cost of
transportation is critical to determining true affordability of
housing. After all, it is the second highest cost in the household
budget. Its measure of affordability aggregates both transportation
and housing costs. They'd like their affordability index used in
calculating mortgage and rental qualifications and to avoid social
policies that would force lower-income families to outlying areas
with poor public transportation options because housing costs only
are examined and transportation costs are ignored.
From census data, they found that, regardless of income, people in
areas near train stations had lower transportation expenditures
because they drove less and owned fewer vehicles. They argue that
social policies should change so that housing suitable to families
with a variety of income levels should be built near train stations.
In the Chicago area, they found that the area around 32 stations in
the city was higher density, 32 units per acre, and had the highest
percentage of non-auto commutes, 38%. At 178 stations, 30 in the
city, they found wasted potential as low as four units per acre and
11% non-auto commute. They found greater income diversity in the
suburbs near railroad stations; in the city, they found greater
racial diversity. Curiously, the study's authors observed that the
forces of gentrification was resulting in both more expensive
housing replacing affordable housing and fewer total units of
housing were within a short distance of rail stations. However, this
has not been my observation. I've seen four-unit condos replace
single-family homes and don't know of instances where buildings with
fewer units replaced buildings with more units.
In the last ten years, housing prices have increased dramatically.
This has not resulted in recovery of all neighborhoods in the city,
even those areas near rapid transit stations. In certain parts of
the west and south side, looking out the window of a rapid transit
car, one sees lot after lot of potential, with either dilapidated
buildings or long-vacant lots, probably cleared at taxpayers'
expense. This is still true years after the rapid transit lines were
rebuilt at tremendous cost to the taxpayers. Would implementation of
site value taxation be enough to overcome social problems that could
allow these neighborhoods to recover?
In the Victorian era through the 1920's, when the rapid transit
was new and the city was filling out, pleasant communities would
develop with transportation, shops and services all within walking
distance. Closely-spaced rapid transit, and in some cases, commuter
railroad stations, were a key factor in encouraging this pattern of
development. In that era, there weren't zoning restrictions
preventing the construction of multiple-family housing. There
weren't minimum requirements for off street parking to artificially
raise the cost of housing that we have today. Would eliminating city
ordinances that prevent the market from building multiple-family
housing with no off-street parking be enough to allow these
neighborhoods to recover?
What we are doing today simply isn't working. Spending money to
replace and restore older rapid transit lines isn't enough to effect
useful social change. It doesn't result in land use reform.
Someday, perhaps, urban planning and local politicians will catch
up with the ideas of Henry George.