The Road to Higher Prices: Will Improved Road Standards Lead to Higher Housing Prices?

Abstract

We study the impact of improved road standards on housing prices in a region of Southern Norway, where towns are located along the coast, like pearls on a string, with sparsely populated areas between the towns. In this region towns have since long been linked together by a road, but in 2009 a new highway, roughly parallel to the old road, was opened. The new highway runs Eastwards from the main town in the region and reduced one-way commutes to the main town by 10–15 min. We examine how this change in transportation infrastructure has affected housing prices, using difference-in-difference regressions to identify the impact of the new highway. Three smaller towns located East of the main town constitute the treatment region, while four towns and communities West of the main town form the control region. We find that the new highway on average increased housing prices in the treatment region by about 5%, but the effect on price differed substantially between the towns. The full impact on housing prices materialized when the new highway was opened. We estimate that the increase in total housing capital in the treatment region amounts to almost 84% of the construction costs of the new highway.