Light rail is the next big thing for inner Sydney property prices – a tall tale or true?

April 30th, 2011

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In addition to being at the heart of the newly elected State Government’s election pledges to fix Sydney’s long standing public transportation problems, Sydney’s existing and proposed light rail systems are seen by some watchers of the Sydney property market as one of the biggest potential influences on the future direction of inner city residential and commercial property prices in the medium to longer term.

Assuming the newly established body called Infrastructure NSW generates momentum on this front, property investors and owners can expect repeats of sensational headings like this from the 13 March 2010 edition of the Sydney Morning Herald appearing under the headline

“Light rail to push up house prices” :

“Property values along light rail corridors could soar, a new report suggests… A new paper from the lobby group the Tourism and Transport Forum, supporting the extension of Sydney’s limited light rail network, cites examples in the United States where land values within 800 metres of mass transit have risen by as much as 120 per cent.

”Light rail is also seen to have a positive effect on property values,” the forum’s paper says.

It refers to increases in house prices of 32 per cent near the Metrolink lines in St Louis, Missouri; 45 per cent increases in the value of apartments along the line in Santa Clara, California; a 120 per cent increase in the value of office space along the same line; and a 30 per cent rise in retail space values along the light rail system in Dallas, Texas…

A study found that after dedicated bus transitways opened in Brisbane, ”median property values for suburbs adjacent to the transitway increased by between 3.9 per cent and 20.86 per cent within a few months of opening, compared with a value change of between minus 4.35 per cent and 6.63 per cent for non-adjacent suburbs”

It is therefore timely to ask the question: “Is it a tall tale or true that Sydney property prices will “soar” as a result of proposed light rail projects?”

First, some facts:

The present light rail network

The light rail network currently comprises 12 stops running between Central Railway Station and Lilyfield in the inner west. The first phase of this line between Central and Wentworth Park became operational in 1996 and the second part between Wentworth Park and Lilyfield became operational in 1999.

Proposed inner west extension to that network

A 5.6 kilometre extension of the proposed network from Lilyfield to Dulwich Hill involving around nine stops along the way was approved on 16 February 2011 by the then Minister for Planning. It is understood that the new State Government intends to continue with the project and with an adjacent cycle and pedestrian pathway known as the Greenway.

Because the extension will adapt a disused goods rail line, completion is scheduled for as early as 2012. As an inspection of the line carried out by Curtis Associates researchers in late March 2011 revealed very little evidence of work having commenced, this target seems ambitious.

Proposed extension to Central

It is understood from media releases that the new State Government presently favours an extension from Central to Circular Quay to create a new spine of the network.

Proposed extension to the eastern and southern suburbs

During the election, the now Premier announced an intention to conduct a feasibility study into also extending the line from Central to the University of New South Wales at Kensington along Anzac Parade near Randwick.

Now, the analysis:

Studies into the effect of railway stations on property values

Contrary to some glib media reports, infrastructure projects such as light rail are not simply a case of ‘build it and they will come (and by inference, property values will rise)’.

According to independent property researchers Analytica,:

  • although some American studies have found up to 40% increases in property prices as a result of improved rail transportation, the majority of those studies found increases in a range of around 4% to 10%
  • little or no similar research had been conducted in Australia and that whilst the Environmental Impact Study commissioned by the previous State Government into the inner west light rail extension concluded that the development had the potential to improve property prices within the study area, it did not attempt to quantify that potential
  • infrastructure projects such as light rail also have negative effects including increased vehicular traffic from commuters coming into the area to use the infrastructure, privacy issues for some properties as well as adverse visual, noise and vibration impacts of the infrastructure itself
  • overseas studies suggest that as a general rule and subject to mitigating features such as landscaping, railway infrastructure has a negative impact on prices of properties within the immediate vicinity of that infrastructure (around 250 metres)
  • the positive effects of railway station cease beyond a 1 kilometre walk from a station. In an analysis of a statistically significant number of Lilyfield property transactions between 1999 and 2010, Analytica found that from the opening of the Lilyfield Light Rail Station in 1999, the average sale prices of houses within 1 kilometre of that station gradually caught up with and in 2008 eventually overtook the average sales prices of houses between 1 to 3 kilometres of that station. The former group of transactions showed a 1.5% higher average annual compound price growth over that period than the latter group
  • the positive effects of light rail on property prices in the suburbs affected depends upon the extent to which the light rail:
  • improves access to employment opportunities
  • competes with any alternative modes of public transport in terms of both time
  • and frequency (light rail being typically slower than heavy rail but faster than buses) and
  • improves the wealth of the suburb in which it is built.

Generally speaking, the greater the improvement or competitive advantage, the greater the likelihood of the light rail having a positive impact on property prices.

It is also clear from the above analysis that the influence of light rail on property prices in any particular location will depend on the extent to which that light rail helps each suburb meet increased demand as a result of trends favouring sustainability over dependence on motor vehicles. Similarly, building one part of the light rail system may have a direct impact on the popularity and penetration of the other parts; it not being difficult to envisage for example, that an extension of the system from Central to Circular Quay to create a new spine of the network could improve the appeal of the suburban light rail network in the longer term.

Conclusion

Given that the areas likely to be affected by the proposed light rail are more urban than suburban and therefore already serviced by public transport, the correct answer to the question posed at the beginning of this CurtiseCall is likely to be “tall tale” rather than “true”. That said and as with the myriad factors which influence property values, light rail remains a topic which Sydney property buyers need to consider closely on a case by case basis as it poses risks as well as opportunities.