Street Improvements Don't Pencil Out

Are street projects good for house values?

Depends on the project.

Economics undergraduates Ethan Rasmussen and Famery Yang arrived at that conclusion after an exhaustive cost-benefit analysis of proposed street improvements in Springfield, Oregon.

Rasmussen and Yang did the analysis last spring as part of their requirement as honors students in the economics department. Numerous organizations responded to the department's invitation to propose projects for the students to study; Rasmussen and Yang were drawn to one proposed by Springfield officials, who sought an analysis of the effect of street improvements on house values as it considered asking residents to pay for upgrades through property assessments.

Rasmussen and Yang first surveyed the existing literature on property valuation and infrastructure investments. Then they ran an economic test called a "hedonic price regression" to estimate the impact local street conditions have on residential house prices. Using data on house prices and other property characteristics from a regional land database maintained by Lane County, the two isolated the effects of street improvements and estimated the value of improving local streets to varying degrees.

Rasmussen was stunned by the amount of data necessary for the analysis.

The team was lucky to have the county database as a resource because it provided more than 1,000 examples of homes for the study. But in fitting the available data to the parameters of the project, the young research team quickly winnowed the usable samples down to just a few hundred; nonetheless, Rasmussen had to ask Springfield for even more data before the team could draw conclusions.

"We ended up with somewhere around 2,000 homes in our data set. But the actual number of observations we were able to draw from ended up being quite a bit less," Rasmussen said. "I didn't quite realize how much work it would take and how important it would be to have a solid data set with a lot of observations. It was one of those things that you're warned about going in, but until you actually start trying to do some analysis and draw conclusions from the results, you don't fully understand how important it is."

Rasmussen and Yang found that for the most part, street improvements don't pencil out for homeowners.

Private benefits to the average homeowner were only 23 to 34 percent of homeowner assessment costs, depending on the value of the house. The bottom line: residents could expect to pay $15,000 to $17,000 more in assessments than is captured in improved house value, the analysis found.

There was one caveat, however: Converting gravel roads to asphalt resulted in a return on investment as high as 123 percent to the homeowner. Homes on asphalt streets commanded a 16 percent higher sales price than those on gravel streets.

The project, which won the economics department's "best honors paper" award last year, was one of many completed for Springfield during a yearlong partnership with the university through the UO's Sustainable City Year Program.

Richard Perry, Springfield traffic operations engineer, said the student analysis was far more thorough than he had expected. City staff members enjoyed providing the students with a challenging problem, Perry said, and Springfield benefitted as well.

"We are very limited on resources--there are a lot of things we don't have time to get to," Perry said. "It multiplies our effort. We put in an hour and we got fifty hours back. That's a pretty good deal."