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Traffic Externalities and Housing Prices: Evidence from the London Congestion Charge

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  • Cheng Keat Tang
Abstract
This study exploits the introduction of the London Congestion Charge (CC) that greatly improves traffic conditions in Central London to provide new evidence on the capitalization of traffic externalities onto housing values. The Congestion Charge restricts traffic into the cordoned area by imposing a flat fee on drivers whenever they enter during charging periods. I show that the introduction of the CC in the Western Extension Zone (WEZ) increases home prices by 3.68\% relative to untreated housing units within 1 kilometre away from the CC boundary. These estimates, which measures the marginal willingness to pay to avoid negative traffic externalities, are robust to many changes in specifications, suggesting that homeowners pay to avoid traffic so as to reduce commuting time, to enjoy better air quality and less traffic noise, and to travel on safer roads.

Suggested Citation

  • Cheng Keat Tang, 2016. "Traffic Externalities and Housing Prices: Evidence from the London Congestion Charge," SERC Discussion Papers 0205, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:sercdp:0205
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    2. Andrea Baranzini & Stefano Carattini & Linda Tesauro, 2021. "Designing Effective and Acceptable Road Pricing Schemes: Evidence from the Geneva Congestion Charge," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 79(3), pages 417-482, July.
    3. Özhan Yılmaz & Ebru Voyvoda, 2017. "An Integrated General Equilibrium Model for Evaluating Demographic, Social and Economic Impacts of Transport Policies," ERC Working Papers 1706, ERC - Economic Research Center, Middle East Technical University, revised Jun 2017.
    4. André de Palma & Zhi-Chun Li & De-Ping Yu, 2023. "An analytical model for residential location choices of heterogeneous households in a monocentric city with stochastic bottleneck congestion," THEMA Working Papers 2023-01, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    5. Ding, Hongliang & Sze, N.N. & Li, Haojie & Guo, Yanyong, 2021. "Affected area and residual period of London Congestion Charging scheme on road safety," Transport Policy, Elsevier, vol. 100(C), pages 120-128.
    6. Tao Li, 2020. "The Value of Access to Rail Transit in a Congested City: Evidence from Housing Prices in Beijing," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 48(2), pages 556-598, June.
    7. Jerzak, Connor T. & Libgober, Brian, 2020. "The impact of a transportation intervention on electoral politics: Evidence from E-ZPass," Research in Transportation Economics, Elsevier, vol. 80(C).

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    More about this item

    Keywords

    housing prices; capitalization effects; congestion charge; traffic externalities; marginal willingness to pay; difference-in-difference;
    All these keywords.

    JEL classification:

    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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