“Rail Transit Stimulates Economic Development”

The latest argument for rail transit is that it magically promotes economic development. Buses can’t do the same, say rail advocates, because bus routes can be changed overnight. According to this argument, rail’s inflexibility is actually an advantage because developers know the rail line will stay there for years and will plan their developments accordingly.

The truth is that new transportation infrastructure promotes economic development only if the transportation it supports is faster, cheaper, and/or more convenient than the transportation that previously existed. Most rail transit is slower, far more expensive, and less convenient than the door-to-door service offered by automobiles, so it will do little to promote economic development.

“Urban rail transit investments rarely ‘create’ new growth, but more typically redistribute growth that would have taken place without the investment,” says a study commissioned by the Federal Transit Administration. “The greatest land-use changes have occurred downtown, in the form of new office, commercial, and institutional development,” the study adds. “The strengthening of downtowns stems in part from the fact that downtowns are the hubs of all rail systems.”

In other words, rail transit does not stimulate economic development, but it might shuffle it around. In this shuffle, the main winners are downtown property owners while other property owners where development might have taken place without the rail line end up losing. At best, the overall tax base doesn’t change. At worst, as discussed in the section on Tax Burden and Economic Growth, the rail lines actually slow economic development.

Most of the places that claim that rail transit has stimulated economic development are concealing the fact that they had to provide subsidies to developers to attract new development to the rail lines. When Portland’s first light-rail line opened in 1986, for example, it rezoned all of the land around its rail stations for redevelopment. Ten years later, planners admitted to the city council that “we have not seen any of the kind of development–of a mid-rise, higher-density, mixed-use, mixed-income type–that we would’ve liked to have seen” along the light-rail line. Council members noted that Portland at that time was in the midst of an economic boom, yet a high percentage of the city’s remaining vacant land consisted of rezoned parcels near light-rail stations.

As a result, Portland decided to start subsidizing development along its light-rail and, later, streetcar lines. To date, the city has given developers more than $1.4 billion worth of subsidies in the form of below-market land sales, infrastructure improvements, tax breaks, and other incentives. Portland’s suburbs offered even more subsidies to developers along rail lines.

For example, the city built several parking garages along the route of its first streetcar line, then claimed that all of the development around the parking garages was due to the streetcar. Meanwhile, a segment of the streetcar line that received no subsidies also attracted almost no new development, showing that it is the subsidies, not the streetcar, that generates development.