Urban tolls would reduce cost of housing, provide major social benefits study shows

November 16, 2008

An elaborate modeling of housing prices and traffic congestion in cities across the US concludes that financing roads with comprehensive congestion priced tolls rather than taxes rather would provide major benefits in reducing housing prices and sub-optimal densities - 'sprawl' - as well as reducing the familiar delays and uncertain travel times. Moving to tolls or other direct road use charges will significantly improve overall welfare, economic efficiency and standards of living, the study says. Authors are Ashley Langer University of California Berkeley and Clifford Winston, Brookings Institution. The study is reported in Brookings-Wharton Papers on Urban Affairs 2008.

It's a complex work. The methodology attempts to model the effects of congestion pricing on home location decisions, home prices and density. It allows for changes in land use and density, but sets limits to density permitted. Existing congestion conditions in various metro areas are fed into the model, and an array of different values of time saved provided for. The model differs from earlier ones in that it allows for that heterogeneity of values of time saved rather than assuming people are the same and using an average.

The model allows for the fact people will sort into commute distances inversely with their value of time, so different people will react differently to congestion pricing and gain different benefits.

The overall effect of comprehensive road pricing managed for free flow is likely to be decreased housing prices, higher density living especially in middle suburbs. Pricing encourages people to live somewhat closer to their work.

Toll revenues are put at $120b based on VMT elasticity of -0.3.

Net social benefit is substantial at around $41b (2000$s).

Lower assumed elasticity of VMT and higher ceiling densities increase tolls and net social benefit. For example VMT elasticity of -0.1 and a high allowed maximum housing density increases tolls to $146b and net social benefit to $58b. At the lower end with VMT elasticity at -0.5 gross tolls are $102b and social benefits $28b.

This doesn't depend on any reduced non-transport infrastructure or service costs claimed by smart growth advocates. If these materialized they would be an additional bonus.

The modeling focuses on the congestion price benefits of managing the existing roads. Further gains not explored could result from using some of the large toll revenues for improvements to the road network that could be more easily undertaken with a  stable source of funding.

The study doesn't allow for job-shifting in response to congestion pricing, or relocation of workplaces, but these should add to net benefits also.

No mode shift change is modeled.

Winston says a major unmeasured benefit could be that with congestion and 'sprawl' issues managed by pricing, there would be far less pressure to use inefficient zonings, growth boundaries, subsidies to transit oriented development and perverse taxes for roads.

The 'pork barrel' and earmarks would take a hit.

We live in large metro areas rather than being dispersed in secluded places because of economies of agglomeration or living close, allowing us to take advantage of a wide range of job opportunities, social, shopping, service and recreational opportunities by intra-urban travel, and businesses gain by the range of skills they can tap.

see http://www.tollroadsnews.com/sites/default/files/RoadPricing.pdf

Winston tells us he's working on a  book on privatizing urban roads.

THOUGHT: Singapore has an increasingly comprehensive traffic management-oriented road pricing scheme along the lines being modeled by Langer and Winston. It must offer some real world insights into the costs and benefits. 

TOLLROADSnews 2008-11-16

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