New Highways, Urban Development and Induced Travel

We examine the link between highways and urban development by employing both hedonic analysis and multiple sales techniques to study the impact on house prices of the construction of toll roads in Orange County, California. Urban economic theory predicts that if highways improve accessibility, that accessibility premium will be reflected in higher land prices. Our empirical analyses of house sales prices provide strong evidence that the toll roads (the Foothill Transportation Corridor, in particular) created an accessibility premium: homebuyers are willing to pay for the increased access that the new roads provided. Such willingness to pay influences both development patterns and, potentially, induced traffic. The results are consistent with the idea that induced travel is caused, in part, by changes in urban development patterns that are linked to increases in highway capacity