Tracking apartment appreciation - An analysis of the effects of a new tramway on the housing market in Tampere, Finland

Abstract

In this master’s thesis, we study if the new tramway affects the housing prices in Tampere. We analyse the housing unit transaction data from the Finnish Federation of Real Estate Agency with the hedonic Difference-in-Difference method. We find a significant positive effect on square metre prices, showing an increase of 7.4%, following the announcement of Tampere’s new tramway within 800 metres of walking distance from the closest tram stop. Additionally, the tramway effect persists until 1,600 metres from a tram stop. We use the walking distance instead of the more generally used straight-line distance to determine the distance from a house to the closest tramway stop, which portrays more accurately the distance a resident must walk to reach the closest one.

We divide the study period into two periods according to the two sections of the tramway. Both sections have a clear anticipation effect on the housing prices within 800 metres of the tramway stops. Interestingly, Section 2 of the tramway yields a higher premium of 11.8%, while Section 1 yields a slightly lower premium, with an average treatment effect of 6.0%.

In this study, we examine the net effects of the average treatment effect, including various factors explaining apartment prices during the construction of the new tramway. These factors include enhanced accessibility to the city centre and other service hubs, increased supply of new residences, urban development, environmental considerations, and changes in the neighbourhood dynamics.

Our primary motivation for this study was the curiosity to find if large public transit infrastructure projects positively impact housing unit prices in Tampere, where the public transit system differs greatly from the capital area of Finland. Furthermore, this study could be utilised as part of an individual house buyer’s process when looking for a new home or an investment.