Nonlinear Spatial and Temporal Effects of Highway Construction on House Prices

  • Ekaterina Chernobai
  • Michael Reibel
  • Michael Carney


This paper studies the effect of a newly completed highway extension on home prices in the surrounding area. We analyze non-linearities in both the effect of distance from the highway and the effect of time relative to the completion of the road segment. While previous studies of the effects of nearby amenities on property and land values have focused on either cross-sectional spatial or temporal patterns, the joint analysis of the two dimensions has not been thoroughly investigated. We use home sale data from a period of 11 years centered around the completion of a new highway extension in metropolitan Los Angeles. We combine a standard hedonic model with a spline regression technique to allow for non-linear variations of the effect along the temporal and spatial dimensions. Our empirical results show that the maximum home price appreciation caused by the new highway extension occurs at moderate distances from the highway after it is completed. Lower price increases for this period are observed for homes sold closer to the highway or much further away. This price pattern gradually fades away in the years following the construction completion. A similar, although weaker, price pattern is also observed in the first years of the construction period. There is no statistically significant distance dependency in the 2 years in our sample prior to the beginning of the construction. This indicates that the housing market is not fully efficient as the information about the impending construction of the highway is not immediately incorporated into sales prices.


Spatial and temporal dependence Distance effects House prices Spline regression GIS 



We are grateful for the helpful comments of the participants of the 2008 American Real Estate Society annual conference. We also thank the Research, Scholarship, and Creative Activities program of the California State University for providing us with the funds necessary to purchase the data used for this study.

We would also like to thank Torto Wheaton Research for sponsoring the prize that the paper won for best paper in the Market Analysis category at the 2008 American Real Estate Society annual conference.


  1. Alonso, W. (1964). Location and land use. Cambridge: Harvard University Press.Google Scholar
  2. Archer, W. R., Gatzlaff, D. H., & Ling, D. C. (1996). Measuring the importance of location in house price appreciation. Journal of Urban Economics, 40, 334–353.CrossRefGoogle Scholar
  3. Bao, H. X. H., & Wan, A. T. K. (2004). On the use of spline smoothing in estimating hedonic housing price models: Empirical evidence using Hong Kong data. Real Estate Economics, 32, 487–507.CrossRefGoogle Scholar
  4. Benjamin, J. D., & Sirmans, G. S. (1996). Mass transportation, apartment rent and property values. Journal of Real Estate Research, 12, 1–8.Google Scholar
  5. Bourassa, S. C., Hamelink, F., & Hoesli, M. (1999). Defining housing submarkets. Journal of Housing Economics, 8, 160–183.CrossRefGoogle Scholar
  6. Bourassa, S. C., Cantoni, E., & Hoesli, M. (2007). Spatial dependence, housing submarkets, and house price prediction. Journal of Real Estate Finance and Economics, 35, 143–160.CrossRefGoogle Scholar
  7. Bowes, D. R., & Ihlanfeldt, K. R. (2001). Identifying the impacts of rail transit stations on residential property values. Journal of Urban Economics, 50, 1–25.CrossRefGoogle Scholar
  8. Brasington, D. M., & Hite, D. (2005). Demand for environmental quality: a spatial hedonic analysis. Regional Science and Urban Economics, 35, 57–82.CrossRefGoogle Scholar
  9. Brown, G. M., & Pollakowski, H. O. (1977). Economic valuation of shoreline. Review of Economics and Statistics, 59, 272–278.CrossRefGoogle Scholar
  10. Can, A. (1992). Specification and estimation of hedonic housing price models. Regional Science and Urban Economics, 22, 453–474.CrossRefGoogle Scholar
  11. Can, A., & Megbolugbe, I. (1997). Spatial dependence and house price index construction. Journal of Real Estate Finance and Economics, 14, 203–222.CrossRefGoogle Scholar
  12. Case, B., Clapp, J., Dubin, R., & Rodriguez, M. (2004). Modeling spatial and temporal house price patterns: a comparison of four models. Journal of Real Estate Finance and Economics, 29, 167–191.CrossRefGoogle Scholar
  13. Debrezion, G., Pels, E., & Rietveld, P. (2007). The impact of railway stations on residential and commercial property value: a meta-analysis. Journal of Real Estate Finance and Economics, 35, 161–180.CrossRefGoogle Scholar
  14. Dubin, R. A. (1998). Predicting house prices using multiple listings data. Journal of Real Estate Finance and Economics, 17, 35–59.CrossRefGoogle Scholar
  15. Dubin, R., & Sung, C.-H. (1987). Spatial variation in the price of housing: rent gradients in nonmonocentric cities. Urban Studies, 24, 193–204.CrossRefGoogle Scholar
  16. Fik, T. J., Ling, D. C., & Mulligan, G. F. (2003). Modeling spatial variation in housing prices: a variable interaction approach. Real Estate Economics, 31, 623–646.CrossRefGoogle Scholar
  17. Gatzlaff, D. H., & Smith, M. T. (1993). The impact of the Miami Metrorail on the value of residences near station locations. Land Economics, 69(1), 54–66.CrossRefGoogle Scholar
  18. Gibbons, S., & Machin, S. (2005). Valuing rail access using transport innovations. Journal of Urban Economics, 57, 148–169.CrossRefGoogle Scholar
  19. Goodman, A. C. (1978). Hedonic prices, price indexes and housing markets. Journal of Urban Economics, 5, 471–484.CrossRefGoogle Scholar
  20. Griliches, Z. (1971). Price indexes and quality change. Cambridge: Harvard University Press.Google Scholar
  21. Harrison, D., & Rubinfeld, D. L. (1978). Hedonic housing prices and demand for clean-air. Journal of Environmental Economics and Management, 5, 81–102.CrossRefGoogle Scholar
  22. Haurin, D. R., & Brasington, D. (1996). School quality and real house prices: inter- and intrametropolitan effects. Journal of Housing Economics, 5, 351–368.CrossRefGoogle Scholar
  23. Hughes, W. T., & Sirmans, C. F. (1992). Traffic externalities and single-family house prices. Journal of Regional Science, 32, 487–500.CrossRefGoogle Scholar
  24. Kahn, M. E. (2007). Gentrification trends in new transit-oriented communities: Evidence from 14 cities that expanded and built rail transit systems. Real Estate Economics, 35, 155–182.CrossRefGoogle Scholar
  25. Kilpatrick, J. A., Throupe, R. L., Carruthers, J. I., & Krause, A. (2007). The impact of transit corridors on residential property values. Journal of Real Estate Research, 29, 303–320.Google Scholar
  26. Kong, F., Yin, H., & Nakagoshi, N. (2007). Using GIS and landscape metrics in the hedonic price modeling of the amenity value of urban green space: a case study in Jinan City, China. Landscape and Urban Planning, 79, 240–252.CrossRefGoogle Scholar
  27. Lafferty, R. N., & Frech, H. E. (1978). Community environment and the market value of single-family homes—effect of the dispersion of land uses. Journal of Law & Economics, 21, 381–394.CrossRefGoogle Scholar
  28. Larson, K. L., & Santelmann, M. V. (2007). An analysis of the relationship between residents’ proximity to water and attitudes about resource protection. The Professional Geographer, 59, 316–333.CrossRefGoogle Scholar
  29. Leech, D., & Campos, E. (2003). Is comprehensive education really free?: a case-study of the effects of secondary school admissions policies on house prices in one local area. Journal of the Royal Statistical Society Series A-Statistics in Society, 166, 135–154.Google Scholar
  30. Mahan, B. L., Polasky, S., & Adams, R. M. (2000). Valuing urban wetlands: a property price approach. Land Economics, 76, 100–113.CrossRefGoogle Scholar
  31. Marsh and Cormier. (2001). Spline regression models. Sage University Papers Series on Quantitative Applications in the Social Sciences, series no. 07–137. Thousand Oaks, CA: Sage.Google Scholar
  32. Matthews, J. W., & Turnbull, G. K. (2007). Neighborhood street layout and property value: the interaction of accessibility and land use mix. Journal of Real Estate Finance and Economics, 35, 111–141.CrossRefGoogle Scholar
  33. McMillen, D. P., & McDonald, J. (2004). Reaction of house prices to a new rapid transit line: Chicago’s Midway Line, 1983–1999. Real Estate Economics, 32, 463–486.CrossRefGoogle Scholar
  34. Mikelbank, B. A. (2004). Spatial analysis of the relationship between housing values and investments in transportation infrastructure. Annals of Regional Science, 38, 705–726.CrossRefGoogle Scholar
  35. Mikelbank, B. A. (2005). Be careful what you wish for: the house price impact of investments in transportation infrastructure. Urban Affairs Review, 41, 20–46.CrossRefGoogle Scholar
  36. Muth, R. E. (1969). Cities and housing. Chicago: University of Chicago Press.Google Scholar
  37. Nelson, J. P. (1978). Residential choice, hedonic prices, and demand for urban air-quality. Journal of Urban Economics, 5, 357–369.CrossRefGoogle Scholar
  38. Plaut, P. O., & Plaut, S. E. (1998). Endogenous identification of multiple housing price centers in metropolitan areas. Journal of Housing Economics, 7, 193–217.CrossRefGoogle Scholar
  39. Rosen, S. (1974). Hedonic prices and implicit markets: product differentiation in pure competition. Journal of Political Economy, 82, 34–55.CrossRefGoogle Scholar
  40. Smersh, G. T., & Smith, M. T. (2000). Accessibility changes and urban house price appreciation: a constrained optimization approach to determining distance effects. Journal of Housing Economics, 9, 187–196.CrossRefGoogle Scholar
  41. Song, Y., & Knaap, G. J. (2003). New urbanism and housing values: a disaggregate assessment. Journal of Urban Economics, 54, 218–238.CrossRefGoogle Scholar
  42. Waddell, P., Berry, B. J. L., & Hoch, I. (1993). Residential property values in a multinodal urban area: new evidence on the implicit price of location. Journal of Real Estate Finance and Economics, 7, 117–141.CrossRefGoogle Scholar
  43. Yiu, C. Y., & Wong, S. K. (2005). The effects of expected transport improvements on housing prices. Urban Studies, 42, 113–125.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC 2009

Authors and Affiliations

  • Ekaterina Chernobai
    • 1
  • Michael Reibel
    • 2
  • Michael Carney
    • 1
  1. 1.Department of Finance, Real Estate and LawCalifornia State Polytechnic University, PomonaPomonaUSA
  2. 2.Department of Geography and AnthropologyCalifornia State Polytechnic University, PomonaPomonaUSA

Personalised recommendations