New Highways, House Prices, and Urban Development: A Case Study of Toll Roads in Orange County, CA

We examine the link between highways and urban development by employing both hedonic analysis and multiple sales techniques to study the impact of the construction of toll roads in Orange County, California, on house prices. 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 Backbone in particular, created an accessibility premium; home buyers are willing to pay for the increased access that the new roads provide. Such willingness to pay influences both development patterns and, potentially, induced travel (the association between increases in highway capacity and increases in vehicle miles of travel). 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.