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Abstract:

cover
SERC/Urban and Spatial Programme Discussion Paper
Traffic Externalities and Housing Prices: Evidence from the London Congestion Charge
Cheng Keat Tang
August 2016
Paper No' SERCDP0205:
Full Paper (pdf)

JEL Classification: R21; R31; R38; R41; Q25


Tags: housing prices; capitalization effects; congestion charge; traffic externalities; marginal willingness to pay; difference-in-difference

This study exploits the introduction of the London Congestion Charge (CC) that greatly improves traffic conditions in Central London to provide new evidence on the capitalization of traffic externalities onto housing values. The Congestion Charge restricts traffic into the cordoned area by imposing a flat fee on drivers whenever they enter during charging periods. I show that the introduction of the CC in the Western Extension Zone (WEZ) increases home prices by 3.68\% relative to untreated housing units within 1 kilometre away from the CC boundary. These estimates, which measures the marginal willingness to pay to avoid negative traffic externalities, are robust to many changes in specifications, suggesting that homeowners pay to avoid traffic so as to reduce commuting time, to enjoy better air quality and less traffic noise, and to travel on safer roads.