Congestion pricing is dead in the water again. But New York City's traffic and subway problems continue to get worse while the population and Cuomo and De Blasio's battles continue to grow. Something has to give. With that in mind, the question remains, if congestion pricing ever happens, what is the relationship between congestion pricing and NYC real estate?
In October 2017, Governor Andrew Cuomo assembled a group of community leaders for his “Fix NYC Advisory Panel” to advise him on congestion pricing. At the time, he declared it “an idea whose time has come.”
Friday’s release of the governor’s budget makes it clear that Cuomo has decided its time had not come. Since the 1970s, New Yorkers have heard talk of implementing congestion pricing rise and fall. Despite seeming like it had a real chance this time around, it has been shelved again.
According to Mark Chin, CEO of Keller Williams Tribeca, congestion pricing must happen. “It is the only way out of our subway problems. It has got to happen, there is no other way around it.”
Perhaps this is just a thought experiment with the most recent quashing of the congestion plan but assuming congestion pricing does happen someday, what would it mean for New York City real estate?
Other major world cities have implemented congestion pricing, therefore, we have some idea what it has meant for other cities. But, as always the case, New York City is a beast of its own, so there are some trends it would most likely follow and others for which it would forge a new path.
Map: HNTB/Fix NYC
Our traffic problem
New York City is ranked third worst traffic city in the world after Moscow and Los Angeles. New York’s average car speed in midtown, from 59th Street to 35th Street, from Ninth Avenue to the East River, averages 4.7 mph, “slightly faster than walking speed.”
Cuomo’s Fix NYC panel’s report addressed the city’s traffic congestion problems. The panel’s first recommendation tasked the MTA to fix the public transportation issues in order to provide reliable alternatives to setting dynamic tolls for driving below 60th street.
The highlights of Fix NYC’s recommendations were: an $11.52 toll on all private cars entering the central business district (defined as Manhattan below 60th Street), $25 for trucks and a surcharge of $2 to $5 for for-hire vehicles which would result in $1.8 billion a year toward public transportation. They estimated this would lead to a 20% increase in traffic speeds and a huge reduction in the amount of time New Yorkers would spend getting to their destinations.
According to the study Necessity or Choice: Why People Drive into Manhattan, Manhattan's Central Business District (CBD), "is the largest and densest CBD in the United States. It is far better served by public transportation than any other location in the country.” On a daily basis, 830,000 vehicles enter the CBD, of which approximately 60% of vehicle traffic were personal cars. That means only 40% were trucks, buses, commercial vehicles or taxis.
The most significant finding of that study was 90% of people driving in Manhattan choose to drive even though they have public transportation options available to them.
"For most commuters who work in the Manhattan CBD, driving is a matter of choice, not a necessity.”
Another big part of our traffic problem is that almost 40% of cars traveling into the CBD are only using NYC as a conduit to get somewhere else. Amazingly, many car commuters find the routes across Manhattan faster and cheaper than alternate routes.
And a final big issue is the rampant abuse of parking placards. While Bloomberg tried to cut down on parking placards, Bill De Blasio has issued more, adding to the increase of traffic and lack of parking. According to a New York Times article on the abuse of placards, “city-issued parking placards entitle the bearers to park in designated zones. The city says that there are about 160,500 total in circulation.” Placards entitle owners to free parking in specially designated spots. The demand for placards is so high there is even a black market for them. Adding tolls to drive into the CBD would definitely make people think twice about driving in for free parking.
Therefore, congestion pricing would not only reduce traffic and environmental issues, it would also cut down on parking placard abuses and take New York out of the running as one of the worst traffic cities in the world.
Congestion pricing around the world
“The Stockholm charges went from the most expensive way ever devised to commit political suicide to something that the initially hostile media declared to be a success story.”
– Jonas Eliasson, Director, Stockholm City Transportation Administration
At this point, our politicians are not willing to take the risk but Singapore, London, Stockholm, and Madrid have. All of those cities have seen huge reductions in traffic due to the added congestion tolls. The report says Singapore saw a 24% reduction and London had a 25% reduction with a 20% drop in carbon dioxide emissions. Despite the fact that Stockholm’s efforts were met with huge opposition, they saw immediate improvements with a 25% drop in traffic. Milan’s “Ecopass,” program charged vehicles based on their emissions class, banned the worst polluting vehicles and has also seen great success.
So what does congestion pricing mean for real estate?
In 1998, Singapore implemented an Electronic Road Pricing (ERP) system with a network of tolls to tax vehicles entering designated areas in the city center during peak hours. A 2015 Journal of Economics’ studyfound, “The results show that the November 2010 congestion toll rate increases cause a 19% drop in retail real estate prices within the cordon ERP areas relative to retail real estate prices outside the cordon ERP areas. However, the toll rate hike has no significant impact private office and residential real estate within cordoned ERP areas.”
In 2007, when the Bloomberg administration was seemingly moving forward with congestion pricing, the Real Deal reported, “Some brokers felt a congestion pricing scheme would also not have an adverse impact on commercial real estate. ‘It probably won’t affect commercial rent values or commercial investment sales values that much, and I think companies that need to be in Midtown or Wall Street will still be there,’ said Eric Anton, senior managing director at commercial brokerage firm Eastern Consolidated.”
Congestion pricing’s impact on residential real estate
Mark Chin, CEO of Keller Williams Tribeca, has thought a lot about congestion pricing and what it would mean for New York City. “The effects are pretty simple. There would be a distinct line drawn at 60th street. If you cross, you pay a fee. People who live just north of the line will see a lot of people trying to park who don’t want to cross over. I expect that effect will be for about a 15 block radius. On the good side, inside the CBD, it will be much more pleasant and people will prefer to live where there is less traffic.”
Amy McDonald, a broker with Triplemint, says she lives on a large boulevard and would love to see and hear less traffic out her window. “I face 6th Avenue, which is a major uptown route, and I would love to have less cars.” Most of McDonald’s clients live on the Upper West Side and own cars but she does not see a CBD toll as an issue for them on a daily basis as they tend to use their cars to get out of the city and therefore would not cross through the CBD.
Chin believes that any outer boroughs with good access to public transportation will see a positive effect on residential values. Those boroughs without good access will see a dip. “You would see a depressive effect on those places that have a subway hole.”
If and when congestion pricing ever moves beyond politician's banter, Chin thinks the most important issue is educating consumers about what is going on in the city. Charging a toll to drive into certain parts of the city will directly affect the value of buildings in and around the CBD. Consumers should be mindful of that.
An additional consideration is weighing the benefits of the toll proceeds that would funnel into the MTA to improve the public transportation against the disproportional affect congestion pricing has on the upper and lower income population from the start. Unlike some other taxes, every car is charged the same, no matter the income level of the driver.
This is no doubt a complicated issue but with the city’s population increasing every day and new buildings rising at a rapid rate, something has to be done. Considering the possibilities when making a longterm investment, like housing, might make you want to take an alternate route.