The Economic Impact of Upgrading Roads

Improvements to transportation networks, especially those in growing areas, tend to have impacts on local land markets. In principle, an improvement to a link in the network will confer economic benefits to adjacent and nearby properties by increasing the utility that the network provides. Traditional methods of economic analysis for highway improvement projects have focused primarily on user benefits and sought to quantify them through the estimation of reductions in travel delay or user cost. However, urban economic theory suggests that many of these benefits are capitalized into local property values, yielding a localized spillover effect. Accordingly, it should be possible to develop rough estimates of the value of the benefits from a highway project by estimating the response of local land markets to the improvement. This report explores the nature and magnitude of benefits accruing to nearby properties that arise from major highway construction or reconstruction projects, more precisely those that add capacity to an existing highway. Highway projects in three Minnesota counties (Hennepin, Jackson, and Olmsted) form the basis for our analysis.