The capitalization of subway access in home value: A repeat-rentals model with supply constraints in Beijing

Urban rail transit enhances accessibility of the communities it serves and often contributes to the value of local real properties. A small number of studies have gone beyond the traditional cross-sectional hedonic analysis to use repeat-sales data in the US for more robust estimation of rail transit's impact on property value. While the empirical literature generally supports the positive capitalization of rail transit in home value, it has produced widely varied estimates and failed to incorporate the theoretical insight that more elastic housing supply would reduce the extent of local amenities' capitalization in home value. Observing Beijing's rapid expansion of subway lines during the late 2000s, this study uses repeat rental transactions from 2005 to 2011 to investigate how home value reacts to the change in the home's distance to nearest subway station. Repeat-rentals estimates suggest a rent-distance elasticity of -0.02, 70% below the cross-sectional hedonic estimate. Moreover, using the unique history of state-owned enterprise relocations as instrument for intra-city variation in land supply, we find that the capitalization of subway proximity in home value is weaker where land supply is more elastic. Our findings support the significant bias caused by omitted variables in the hedonic estimates and confirm housing supply's role in explaining the intra-city spatial variation in estimates.