Collecting Transit's Earnings, and
What to do When There Aren't Any

Adam Kerman

[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 entirety.

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 transit line.

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.

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