NYC’s Congestion Fees Should Impact More Than Driving Cost

Starting in 2021, New York City will become the first American city to impose congestion fees on vehicles entering the center of Manhattan. Intended to ease traffic congestion and also raise funding for repairs to the city’s aging subway system, congestion fees will be imposed electronically through technology similar to that for cashless tolling.

Congestion fees will surely make driving around Manhattan more expensive, but are also likely to have other less talked-about consequences. London’s 2003 imposition of congestion pricing boosted home values within the zones. A 2018 paper by Cheng Keat Tang examining the changes revealed that although home values inched up just 3%, that minimal increase translated to an enormous $13 billion gain in value. The rationale is that home values were positively impacted by declines in surrounding vehicle traffic.

Not surprisingly, retail-oriented real estate will probably experience just the opposite effect. The Journal of Urban Economics reported a 2015 study showed congestion fees in Singapore resulted in an almost 20% in-zone decline in retail real estate values.

Can we anticipate the repercussions on New York City will be approximately the same? For a well-informed forecast, we turned to Jeffrey Berman, general partner at Camber Creek, a strategic venture capital firm focused on investment in real estate technology companies. Berman heads the firm’s New York City office and has studied the likely impact of congestion fees within the zone on Manhattan real estate.

Residential and commercial

Berman believes New York City will follow the pattern of earlier cities that have adopted congestion pricing. Residential real estate prices within the zone will increase, while commercial real estate values may actually decrease. “More interesting will be impacts around the zone border, which are likely to be the exact opposite,” Berman says, noting the zone will cover the expanse of Southern Manhattan from 60^th to the Battery.

“Residential real estate prices just around the zone border will be driven down. Just think if you live on 59^th Street and are used to driving upstate, you may want to move north of the border. And if you’re living on 61^st and drive to Wall Street, you’re going to move south of the border. The market of individuals willing to live right on the border is going to be a subset of the broader market, which will ultimately impact the prices.”

The impact on commercial real estate around the zone should be, in Berman’s words, “really interesting.” Parking garages just north of 61^st Street should begin charging substantial premiums compared to garages south of 61^st Street.

“Shopping just north of 61^st Street will be easier because people can still drive there, likely increasing retail rents on the margin,” Berman says. “But southern Manhattan is still among the most dynamic places in the world, and at the end of the day people will still be shopping, working and eating out there.

“We already have a real life example here in New York City. When the city closed Times Square to cars, there was little to no impact on retail.”

Plan ahead

Given that congestion pricing is still a couple years off, there’s plenty of time to prepare for the changes. What preparations might be appropriate? If you drive into southern Manhattan and budgetary constraints are a concern, consider switching to public transit or telecommuting, Berman says. Meantime, get ready for an expansion of tech-enabled multi-modal options, such as bike shares and scooters, Berman predicts.

“We have questions ourselves on what the impact on retail will be both inside and outside the zone,” Berman says. “Business owners and landlords alike should start planning for potential changes to traffic counts – vehicular and pedestrian.” 

 

This post first appeared on Forbes.com. To see the original, click here.