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Thursday, January 21, 2010

Sobering Data For Cincinnati's Streetcar Plan? In Portland, The Real Estate Bubble Has Burst

CINCINNATI (TDB) -- Advocates of building a streetcar line in Cincinnati could be right. The $182 million project might trigger a housing and commercial revival. But real estate prices have collapsed in Portland, the Oregon city whose 9-year-old streetcar system has been held up as a model. The Portland Real Estate Blog reported earlier this month the city's real estate market is miserable:
"Issued building permits through October declined across the country with Portland and other Oregon markets fairing worse than the national and regional averages." (The data in the graph above is from the National Association of Home Builders.)
And The Cincy Blog noted this week that Portland's home prices have deflated at rates few U.S. metropolitan areas have seen: "Good news for property owners around greater Cincinnati- we’re not listed in the recent Forbes Magazine article naming U.S. cities with the fastest-falling housing prices."
Where have home prices fallen the most? Here's the list:
1. San Diego-Carlsbad-San Marcos, Cal.
2. Salt Lake City, Ut.
3. Charlotte-Gastonia-Concord, N.C.-S.C.
4. Denver-Aurora, Co.
5. Portland-Vancouver-Beaverton, Or.-Wa.
6. Atlanta-Sandy Springs-Marietta, Ga.
7. San Jose-Sunnyvale-Santa Clara, Cal.
8. San Francisco-Oakland-Fremont, Cal.
9. Austin-Round Rock, Tex.
10. Seattle-Tacoma-Bellevue, Wash.
None of this suggests that a Cincinnati streetcar won't be economically viable. Nor does it mean that it won't be fun to ride. But the real estate data from Portland shows property values fluctuate based upon macroeconomic conditions. Reckless lending, Wall Street excess, financial shenanigans and high leverage presaged an overheated real estate market and the biggest economic blowup since the Great Depression. Streetcars didn't create the boom in Portland, and they didn't let the air out. Blame and credit seems to belong to a speculative bubble.


  1. Subways are much more expensive, but they have a much better payoff in the long run. They don't add to the congestion of the surface street grid. I see no point in adding to Cincinnati's gridlock by putting streetcars there.

  2. The economists who estimated the worth of the streetcar discounted Portland's real estate boom heavily with respect to what might happen in Cincinnati.

    If you go through the math, Cincinnati will only see about one-fifth the real estate impact experienced in Portland on account of the streetcar there. Still, even after discounting, the Prevent Value Net Benefits of the Cicninnati Streetcar are about 2.7 times the Present Value of the total costs to construct the streetcar and operate it for thirty years.

    You'd have to look pretty hard to find a public project with such a high return. Interstate highway projects get clearance if their benefits exceeed their costs by only a 1.1 to 1.0 ratio. May highways have been found to have negative net benefits, i.e. we'd have been better off if the highway had never been built and we'd just left the money in the bank.