“Location, location, location” is a well-known real estate axiom, and the value of a particular building or piece of land is heavily influenced by the access it provides to different kinds of amenities and services.
Among those services that affect housing prices is access to public transportation. A new Econsult Solutions analysis says property values in the Philly region would be severely hurt by planned cuts to SEPTA service if Governor Shapiro and Senate Republicans can’t come to an agreement on transit funding this spring.
With state transit funding potentially endangered once again in this year’s budget negotiations, SEPTA has warned that it will need to massively cut rail, bus and subway service in July unless it receives an additional $213 million from the city or state.
According to Econsult, that would result in property value losses totaling $19.9 billion throughout the region. These cuts could also mean a loss of 76,700 regional jobs, supporting $6 billion in earnings.
Access to job centers and transportation are some of the large inputs that matter to the value of a location, with people often factoring in their work commute heavily when choosing a place to live. If all of a sudden the transit service sucks, and the roads and highways are all traffic-clogged because more workers shift to driving, it’s easy to see how some of that value gets stripped away, both in the city and in the suburban counties.
This is what Econsult calls the “transit value premium from transit service.” Econsult’s analysis found that properties in the city have slightly more transit value premium than in the suburbs, but the potential loss of value is more significant along some of the suburban regional rail lines like Cynwyd and Paoli-Thorndale.
People pay more attention when transit cuts threaten to hurt their nest eggs, but the concept of the transit value premium also has important implications for how we should think about the connection between future transit investments and the region’s housing supply agenda.
If the state and region could agree on a funding scheme for SEPTA, the agency has several ambitious capital initiatives on deck in the SEPTA Forward plan, including Bus Revolution, trolley modernization, and Reimagining Regional Rail. SEPTA’s board still hasn’t released the final Reimagining Regional Rail plan, but a key element is bringing every-15-minute service to more of the regional rail network — a significant upgrade to transit service and access within the region.
From a rider standpoint, this is no small upgrade. When the train comes hourly, you have to check the schedule, and the stakes of missing the train are high. With trains running every 15 minutes, you can leave the house without checking the schedule, knowing that another train isn’t far behind. With frequent service running into the evenings and on weekends, people living further from the city can come downtown and stay longer, spending dollars at Philly’s hospitality businesses. More service workers, medical workers, and others who don’t work 9-to-5 might begin to find regional transit is an option that works for their schedules.
This kind of level change in the quality and frequency of regional transit service could add a lot of new access value in the locations receiving the upgraded service, which in turn would increase the value of the land under everyone’s properties. There’s a strong relationship between transit frequency and ridership, where the more frequent the service is, the more people generally will use it, and the more of an attractor it will be from a housing and jobs standpoint.
Increase transit value premium, increase housing
What happens to the value premium from better transit access is the housing question for state and regional elected officials to grapple with, with important implications for transit funding too.
The transit value premium for people’s properties changes based on the quality and frequency of the transit service being provided. If land values go up, but the number of homes stays the same, the value premium from transit just translates to higher home prices for the existing housing stock.
Land prices impact the rents an apartment building owner can charge, and whether new construction is viable or not, so some people might look at those higher land prices as an opportunity to try and upgrade vacant land or single-use buildings into apartments or mixed-use buildings that could produce more revenue, and house more people along the way. But this is often illegal due to misguided local growth control laws regulating what can be built where.
The state transit funding debate is a great opportunity to make an intervention. In the case of transit station areas, there’s an even clearer state interest in preempting local growth control laws than with the more ambient need to address the statewide housing shortage.
Southeastern PA is a region unlike any other in the state, and while transit is certainly important to the economic fortunes of other regions in the Commonwealth, it is absolutely core to how our region works.
Our state government spends a lot of money to run transit services and build capital infrastructure — most of all on regional rail — but then municipal governments who host that infrastructure are empowered to squander all the secondary economic benefits the state could be getting from this spending. Those include more housing, more transit ridership, more tax receipts from sales, wages, and business taxes, and more jobs and investment.
A bipartisan state bill (SB1126) from Republican Senators John DiSanto, Dan Laughlin and Greg Rothman introduced last term in Harrisburg, which was supported by Democratic Senators Tim Kearney and Nikil Saval, would have preempted municipal governments’ ability to maintain some common growth control laws like parking mandates, and excessively large minimum lot sizes and short building height limits — some of the top blockers for the development of dense housing near transit. That bill didn’t get a committee hearing, but interest has only grown since then among lawmakers and housing stakeholders.
There’s been talk of doing more on transit-oriented development policy locally too in Philadelphia and some other southeastern towns, but it’s important to be realistic: There are 56 separate municipalities in the southeast who host regional rail stations, and each has its own zoning authority. The conventional wisdom among planners and elected officials has been that changing the status quo should be an exercise in persuasion at the municipal level. But this is both impractical and naive, especially when municipal political dynamics usually push in the opposite direction in favor of ever-stricter rules.
Even in that idealistic scenario, if the goal is attracting a lot more housing investment in our region, and fast, the last thing we need is a hodgepodge of 56 somewhat different transit-oriented development laws. That would be a boon for real estate lawyers and the big development firms who can afford them, and a loss for home builders and buyers.
What we need instead is a state law establishing a set of zoning standards for a quarter-mile or half-mile radius around transit stations that municipalities must accommodate. This will get the job done faster, and bring more housing cost relief to the Philly region sooner by clarifying the rules across a large connected geographic region.
Turning the transit value premium into transit money
The other upshot of the property value premium from transit is that it could be a natural source of local transit funding, if we can find the will to use it.
SEPTA is unique among its peer agencies for the extent to which it relies on state funding, and how little it relies on local and regional funding sources.
In addition to securing more general funding from the state, SEPTA’s next biggest priority in Harrisburg is passing legislation allowing counties to pass dedicated transportation taxes and fees, chosen from a broad menu of options like sales, wage, real estate and ride-sharing taxes. A bill (HB1307) from Representatives Ben Waxman and Joe Hohenstein was introduced last term, but didn’t make it out of committee. Lawmakers are likely to try again this term, but the prospects for passage are unclear.
Property taxes are a hard pill to swallow politically, but they are also the most stable and rational tax choice for regional transit funding considering what we know about the value premium from transit service. SEPTA service adds value to nearby properties, so taxing back some portion of that value to fund the service would be an economically rational approach — especially in a world where the agency is able to execute on initiatives like Reimagining Regional Rail that will boost property values and housing development potential even more.
There are a few ways to approach this besides an across-the-board small increase in the property tax. Lawmakers might consider taxing only the growth of property values from this point forward — a feature common to ”tax-increment financing” approaches. Or they might consider a small square-footage tax on improvements to property. The Commonwealth already has a Transit Revitalization Improvement District (TRID) program that allows for special taxes on station-area land that can finance capital improvements to the transit infrastructure. Allegheny County just passed one this week—the second municipality ever to do so. Rep. Ben Waxman recently circulated a memo about his intention to revamp the TRID law for the third time in its history to increase its appeal, but no details are available yet.
With frequent service running into the evenings and on weekends, people living further from the city can come downtown and stay longer, spending dollars at Philly’s hospitality businesses. More service workers, medical workers, and others who don’t work 9-5 might begin to find regional transit is an option that works for their schedules.
The political prospects of relying on the county elected officials to pass these local tax options, even if authorized by the state, are a little dubious, and it would be more powerful and effective for the state legislature to pass them directly instead of leaving it up to lower governments to carry out. That isn’t unprecedented in other places with large legacy transit systems to maintain — New York’s MTA has a payroll tax that only applies to the MTA’s service area.
Our state lawmakers might not be ready to be so bold, but in a highly-fragmented local government system such as ours, it seems clear why direct state-level intervention on housing and local funding sources is vastly preferable to kicking the decisions down to dozens of local decision-makers and hoping for the best.
Southeastern PA is a region unlike any other in the state, and while transit is certainly important to the economic fortunes of other regions in the Commonwealth, it is absolutely core to how our region works. As the Econsult analysis shows, property values, local business, the nighttime economy, and more depend on transit and will suffer greatly if Harrisburg fails to deliver funding.
But as the wealthiest and most productive region of the Commonwealth, we also have opportunities to do more for ourselves — or have the state force our hand — to stretch the economic benefits of transit investment further with a virtuous cycle of better service, more housing, and local funding sources that leverage the value created by both.
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