Price disparities in the housing market vs. transportation costs for households. A case study of real estate development projects in Szczecin

Abstract

Motives: Land situated on the outskirts of cities and even outside their borders is being seized for urban development, as well as for housing purposes. Properties in such locations are usually significantly cheaper than those located in the city centers. However, living in a suburban location often entails higher commuting, education, and entertainment costs. Therefore, the following question arises from a property buyer’s point of view: is it more economically advantageous to purchase more expensive property in a downtown district or a cheaper one located peripherally and incur higher transportation costs? Aim: The purpose of the study was to compare the transportation costs incurred by households in peripheral locations with the property price differentials between suburban and central city districts. Results: The study covered the city of Szczecin. Data for the study were obtained from public sources and analyzed with tools such as the payback period, simple rate of return, net present value (NPV) for 10 and 20 years, and internal rate of return (IRR) for 10 and 20 years. The results indicate that in certain cases, very high commuting costs might encourage potential buyers to consider the purchase of more expensive property in a central city location where these costs are significantly lower or not necessary.