A closer look at the connection between MRT and property value
While proximity to mass rapid transit (MRT) stations is often touted as a boon for property prices, Diao, Li, Sing and Zhan (2021) examine how noise for being close to MRT rail tracks triggers a contrary effect.
25 March 2022
In the local vernacular, mass rapid transit stations in Singapore – popularly known as “MRT stations” – often double up as major commercial nodes outside the central business district. In addition to their primary function as transportation facilities, MRT stations in dense neighbourhoods are also magnets for commercial and retail activity. The stations at Paya Lebar, Tampines and Jurong East, for example, are surrounded by shopping malls, offices and ample community space.
With such “accessibility convenience”, proximity to MRT stations is a highly desired locational attribute for many homebuyers and owners.
Is being near to MRT all that good?
Urban economic literature has well-documented capitalisation effects of being close to rail transit stations on housing prices. For example, Diao, Fan and Sing (2017) discovered that the opening of the Circle Line created an estimated S$1.23 billion housing wealth effect for households near stations on the Circle Line.1
While the broad consensus is that being near an MRT station is a good thing, on a more detailed approach, urban rail transit actually represents a mix of both amenities and disamenities, the latter of which includes noise and vibrations from passing trains and potential privacy issues, especially for homes in the immediate vicinity of MRT tracks and which are at the eye level of train passengers.
In their paper “Disamenities of Living Close to Transit Tracks: Evidence from Singapore”, Diao, Li, Sing and Zhan (2021) add to the literature by investigating train noise as a disamenity and quantifying its effect on housing prices.
Scope of study, measurement and research hypothesis
The residential market in Singapore comprises a private housing submarket and a public housing submarket made up HDB flats, with the latter being further divided into a primary and resale segment. “HDB flats” is a popular moniker for flats built and sold by Singapore’s public housing agency, the Housing & Development Board (HDB).
The primary HDB market is highly regulated, with new flats being sold at concessionary prices only to eligible Singaporeans. On the other hand, the resale market operates in a laissez-faire manner, and prices are freely negotiated and agreed upon between willing buyers and willing sellers.
Also, considering that private homes are on average further away from train tracks (1.3km vs 0.7km for HDB flats), Diao et al. analysed resale HDB transaction data covering 10 years from 2011 to 2020. The resale HDB segment of the residential market uniquely meets the dual requirement for being subject to market dynamics and being able to interact meaningfully with the study’s independent variable – distance from the MRT track.
Due to constraints on onsite measurement and lack of data on actual noise, the researchers used perpendicular linear distance from a flat to the nearest MRT track as a proxy for noise level. The research hypothesis was that home prices would correlate positively with distance from MRT track: the greater the distance (meaning lesser noise disamenity), the higher the resale price.
Treatment units and control group
Residents living amid a dense urban landscape are expected to contend with various negative externalities including road traffic noise, congestion and pollution, among others.
The empirical methodologies are divided into two parts. First, the researchers use the aboveground and underground MRT tracks in the tests to isolate and investigate the effects of train noise from MRT trains. The two MRT tracks share the same accessibility convenience but have different exposure to disamenities, such as noise, vibration and privacy concerns. Housing blocks near the underground MRT tracks are less affected or unaffected by MRT train noise than houses that face the aboveground MRT tracks.
They selected housing blocks within 1km of boundaries running parallel to an aboveground train track in the treatment group, while blocks within the same threshold distance of an underground train track made up the control group.
Second, the researchers examine the mitigating effects of the Government’s installation of noise barriers for houses located along the aboveground MRT train tracks. The first two phases of the barrier installation projects were completed in 2018 and 2020, respectively, whereas the Phase 3 installation will only be completed by 2023. The noise barriers are expected to reduce noise levels from passing trains by approximately 5 to 10 decibels, which is a noticeable improvement for residents living near MRT rail tracks. Suppose the installation of the barriers reduces noise effects: we should expect prices for houses within 500 meters of the noise barriers to increase more than prices of other houses unaffected by the train noise (outside the 500-meter buffer area), all other factors being kept constant (ceteris paribus). .
Findings
Through regression analysis based on 100,445 observations made on the full sample, the researchers found that resale prices for flats in the treatment group increased by approximately 4% for every 1km increase in distance away from aboveground MRT tracks. This finding shows that homebuyers were willing to pay higher prices to live farther away from MRT tracks to avoid disamenities from train noise.
As a test of robustness, the researchers next excluded homes within a 400m radius of MRT stations to disentangle the “accessibility convenience” factor and see if the hypothesis was still relevant. The correlation continued to hold, though with a smaller variation of 3% per 1km increase in distance.
Exogenous intervention – noise barriers
The Government in 2013 announced plans to install noise barriers along aboveground tracks in areas experiencing severe noise disturbance. Using this initiative as an exogenous intervention and 2011 as the benchmark year, the researchers examined the effect of noise barriers on resale prices.
Flats in the treatment group subjected to the first intervention exercise announced in December 2013 saw their price discount rates attenuated. Project announcement and subsequent completion respectively reduced the discounting effect of noise disamenity by between 2.1% and 4.8% when houses moved 1km nearer to the noise barriers.
After controlling for the accessibility-convenience effect of being near MRT stations (i.e. excluding flats within a 400m radius of MRT stations), a similar phenomenon was observed, albeit with a smaller effect ranging between 1.8% and 3.0%.
To obtain further corroboration, the researchers examined data connected to a second intervention exercise announced in 2015. Disamenity discounts were once again observed but in greater magnitude this time. Disamenity discounts following the second announcement decreased between 4.4% and 4.5% for houses located 1km closer to the noise barriers. The stronger outcomes were attributed to a higher anticipation effect for residents from the earlier exercise.
The mitigating effect of noise barriers on price discounts of flats in the treatment group presents independent and converging evidence of a relationship between MRT-track noise disamenity and home prices.
Theoretical contribution
By deep-diving into the noise disamenity caused by transit trains, Diao, Li, Sing and Zhan’s research highlights the downsides created by MRT infrastructure. The findings and statistics uncovered in the study would be useful in informing a broader, multivariate analysis of the impact of urban rail transit on property values.
Authors:
Diao Mi is a Professor at Tongji University. Li Qiang is an Associate Professor at Deakin University. Sing Tien Foo is a Professor of Real Estate and Director of the Institute of Real Estate and Urban Studies at NUS, and Zhan Changwei is a PhD student at Department of Real Estate, Business School NUS.
1. Diao, M., Fan, Y., & Sing, T. F. (2017). A new mass rapid transit (MRT) line construction and housing wealth: Evidence from the circle line. Available at SSRN 2899470.