Quote:
Originally Posted by Charles5
Now, the new owner has paid $550K for a property which has a value of $550K including the rail service. The rail company now approaches the individual and requests a subscription again. The cost of the subscription still equals ½ of the difference in value of the property with rail service compared to without rail service. These two figures remain $550K with and $500K without. So, the new owner now has the choice to agree to pay $25K on the sale of his home, thus being out of pocket $25K or he can refuse to pay the subscription at which point in time the rail company now longer provides service, the value of the property drops back down to the original value without rail service ($500K), and the owner will be out $50K upon sale. This second owner will lose one way or another, either $25K or $50K.
The cycle repeats itself for each subsequent owner. In summary, the increase in property value due to the addition of a service is a one-time boost. Secondary owners will have already paid a premium in their purchase price for this service and cannot expect each subsequent buyer to pay more and more for the same property with the same service. (Remember that we're using current year dollars to eliminate the inflation variable as well as any other non-relevant factors.)
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It depends on whether the premium is a percentage or a fixed amount and what limited literature exists seems to suggest it is a percentage.
If say the skytrain in Vancouver had been funded in this system and being near a skytrain station yields a 10% premium (as an example, it is probably lower than that) then the person that sold a house for 200k in 1990 would have paid skytrain 10k, the person that sold for 400k in 2000 would have paid 20k, the person that sold for a million this year would have paid skytrain 50k, etc.
The problem is such a system requires a very constrained real estate market where land is at a premium (due to an island, mountains, peninsula, etc) and house prices are going to increase faster than inflation over time and not be subject to the normal boom/bust cycle of real estate: Hong Kong, Singapore, Vancouver, Manhattan, etc. I can't see it working in a region without such constraints (rural Ottawa for example).
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