How should property values be accounted for in transit projects?

New Jersey Governor Christie put the new ARC (Access to Region's Core) tunnel on hiatus last week. While generally I am skeptical of paying the high costs of rail instead of other types of investment, I support the ARC project for a number of reasons. First, there is established demand for rail. I don't think these trains will run empty. Second, the Port Authority is picking up a lot of the tab. The Port Authority controls the tolls on the bridges and tunnels, so they can raise revenue if needed. This point is tempered by the possibility that the ARC tunnel may divert money from the NY MTA. I haven't seen these estimates, but I haven't looked very hard, either. Third, the Hudson river creates bottlenecks. There are few substitutes, and building bridge supports is a worse solution to building tunnels. Lastly, New Jersey is about to run out of land! They have to build at densities that are amenable to transit. The New York City suburbs are expected to grow by over three million people in the next 20 years. There simply isn't room for cars and parking. So I support the project.

However, one argument for the project that I don't like is that it will raise property values, as suggested in this column in The Architect's Newspaper and elsewhere. From the AN:

He will also forfeit the $18 billion increase in property values to many New Jersey communities (only one of the many benefits that an independent study by the Regional Plan Association forecasts).

Are these property value increases benefits? Only if you look at one side of the ledger. Higher property values are offset by higher costs. Higher property values lead to higher rents (of course higher rents are caused by greater accessibility), so there may be some crowding out of certain households who do not value access to Penn Station. Higher property values leads to higher property taxes, which most people incorrectly state are a benefit when in fact the property taxes are a transfer. So there will be some private gains that accrue to property owners and some higher rents that reflect better access. These are private gains and losses, and may be subject to critiques of gentrification and displacement.

But the idea that an increase in property values is an unambiguous benefit is incorrect. What New Jersey should do is pursue value capture strategies (see David Levinson's work for details) that take advantage of the increases in property values and taxes to help pay for the cost of the train and tunnel. By capturing the increased value those who receive the benefit are more likely to be the ones paying rather than everyone paying for benefits that accrue to a few.