THE IMPACT OF CONGESTION CHARGING ON LONDON'S REAL ESTATE HOUSING MARKET

Abstract

Since February 2003, a form of road pricing has been implemented in London’s most congested city center. The London Congestion Charge was introduced to reduce traffic volume and congestion. A Congestion Charge Zone (CCZ) was set up in central London with the Inner Ring Road as the boundary. Transportation infrastructure was improved using revenue gained from the charge and traffic congestion was alleviated as a result of the scheme. Hypothetically, a more efficient transport system and lesser congestion should have positive spillover benefits for the economy and this would be reflected in land and housing prices. Using housing prices from the 6 main boroughs cordoned off by the CCZ and those outside of it, the paper looks to investigate the impact the charge had on housing markets, specifically those within the zone. Using three policy shocks with the first being the implementation of the London Congestion Charge and the following two rate hikes, the effects the charge had on residential real estate prices is isolated. The results show that initially, the implementation of the charge led to 13% drop in housing prices compared to pre-charging levels but the subsequent two congestion charge hikes caused a 4% and 8% increase in housing prices. Using a difference-in-difference approach we will look at how congestion charging has affected properties prices within the CCZ (treatment group). The results are statistically and economically significant. Initially, relative prices within the CCZ fell as there were demands shocks and inaccessibility around the zone. However, housing prices as compared to those in the control group increased during the next two rate hikes due to a greater desirability of the land due to lesser congestion and a more efficient transport system in Central London.