Road tolls could shake up urban markets

AACI | Vice President, The Regional Group of Companies Inc.
  • Oct. 28, 2015

Road tolls have been big in the news since Ontario Transportation Minister Steven Del Duca said more are in our future as a way to combat growing road congestion.

John ClarkHis comments coincided with the release of a report from a group calling itself The Ecofiscal Commission, which stated:

“Road use has traditionally been freely available to anyone with a driver’s licence, and the open-access nature of roads makes them vulnerable to overcrowding.

“Each driver’s presence imposes costs on all others, and the pollutants from each car impose costs on all people who breathe the air. Yet drivers are not bearing the full costs associated with their actions.”

Amen to that. If something is free, people use it to excess.

Any regular reader of this column knows how much an advocate I am of urban development that puts people close to where they work and eases commuter gridlock. Highway gridlock only serves to hasten the need for costly repairs of our transportation infrastructure, which the public purse is challenged to afford.

So yes, I agree – drivers should be expected to shoulder a portion of the cost.

Changing where people chose to live

But what impact could this have, not just on commuting patterns, but on the housing and commercial/light industrial markets as well?

Take the #417 here in Ottawa – the key artery for rush-hour traffic from the ‘burbs. We already have HOV lanes, but these don’t cross the entire city. From the west, the HOV lane merges back into regular traffic right at the point where the morning snarl is at its worst. Heading in the other direction, it starts at the point where the evening snarl has already untangled itself.

So there isn’t really much value in making existing HOV lanes into toll roads. You would have to take one of the existing regular traffic lanes and make it a toll lane.

That would only serve to make what’s left of the open road even more congested during rush hour. People would have three choices – public transit, the toll road, or living where they can get to work within a reasonable time without having to get on the highway at all.

This decision quickly divides the commuting population into two camps, those who can afford to use the toll road, and those who can’t.

What are you willing to pay for time saved?

Toll roads don’t come cheap. Take Toronto’s 407 ETR. With a car, it will cost you an average of about 31 cents a kilometre to take it during rush hour. If you drive it for 50 km each way, to work and home, that adds up to $31 a day. That’s $155 a week, or $7,440 a year, assuming you take four weeks vacation. Users get perks like an awards program, but still that’s a lot of money.

People do it to avoid the congestion of the 401. I drove the full length of the 407 once on a trip through Toronto and found it well worth the money. But that was only on one occasion.

Many people can’t afford that kind of daily expense.

Faced with the potential scenario of tolls, people are going to adjust where and how they choose to live. This shift isn’t going to happen overnight, but I do see it happening over time.

Shifting the municipal tax base

People with the money to pay the toll may choose to live further out, where they can have a bigger lot and a quieter smalltown lifestyle, because they can still get to work in the urban core relatively quickly on a high-speed toll road.

That means property values in more outlying communities might creep up from greater demand. This would eventually translate into a higher suburban property tax base.

People who can’t afford the toll might gravitate toward the urban core, or opt for jobs closer to home. All those shiny new condo towers might shift to become more affordable housing options. That could lead to lower assessed values, which in turn is going to drive down property taxes in some parts of cities.

Overall, this would mean a significant shift, over a period of some years, mind you, in the allocation of the tax base and development land values. Housing options in the urban core might increase while property values might come down from current high levels. New upscale neighbourhoods might be out somewhere next to a cornfield.

Look at London

Hitting drivers in the pocketbook does have an impact.

Take, for example, London and its congestion charge on vehicles coming into the city core.

Ten years after introduction, traffic volumes were down 10 per cent and overall vehicle kilometres were down 11 per cent. These may not sound like big numbers, but consider the fact that, during that decade, the population of the region (and the number of potential drivers) rose by almost 14 per cent.

Of course, toll roads in Ottawa and elsewhere across Ontario would have to occur in tandem with new investments in our transportation infrastructure.

For Ottawa, this includes the new light rail transit system. As Phase 2 gets up and running through the next decade, residents will have far more versatility when it comes to getting to work without having to pay tolls or change where they choose to live and work.

The car can spend more time relaxing in the driveway, or like some of my kids have chosen to do, people can have no car at all.

To discuss this or any other valuation topic in the context of your property, please contact me at [email protected]. I am also interested in your feedback and suggestions for future articles.

John Clark is Vice President with The Regional Group of Companies Inc. He has more than 33 years of experience in the real estate appraisal field, is a fully accredited…

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John Clark is Vice President with The Regional Group of Companies Inc. He has more than 33 years of experience in the real estate appraisal field, is a fully accredited…

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