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A subway or elevated train system is one whereby the rail service is provided on an exclusive right-of-way, fully under the control of the train operator. The first subway line was opened in London, England, in 1863. The second was opened in Budapest, Hungary, in 1896. The first subway line in North America opened in 1897 in Boston.

The logic in free market societies was that the only way to escape the congestion of city streets was to build a separate transport network at a different grade from the ground, where congested city streets were to be found. Digging underground is expensive, so the less expensive option of building above ground led to elevated railways. The earliest of these were built in New York City in 1868, Boston in 1887, Chicago in 1892, and Liverpool, England, in 1893. Most of these elevated lines were built above existing streets. Some cities, such as London, did not allow such elevated lines because most streets were narrow, and such lines did not enhance the aesthetics of the urban environment.

Role of Grade Separation

Grade separation, whether in the form of a subway, elevated railway, or sometimes both—as in the most recent London Docklands system—is to give the train operator complete control of the system. This allows faster operating speeds and high-frequency services, with as little as one-minute between trains. This gives greater passenger capacities than can be economically provided by roads. Typically, a subway or elevated line operating at two-minute intervals can carry 30,000 passengers per hour. A highway with car commuters having the same capacity would need to be 21 lanes wide in each direction.

When the public purse is funding transit and road building, then subways or elevated railways are usually the more economic option compared to highway building. This analysis ignores the disruption to the city during construction and then permanently when opened. Boston's “Big Dig” showed this on a massive scale when Interstate 93 was diverted into a tunnel nearly four miles long through the city center. It turned into the most expensive road project in the history of the United States.

For both subway and elevated systems, passenger access is the most sensitive planning and design issue, with a trade-off between the high costs of each station and the generation of passenger trips. Stations can cost as much as track tunneling costs for a subway system. There is, however, an upside to station provision, as was first discovered after the Yonge Street subway line opened in Toronto in 1954, and more recently the London Docklands line. Property values increase adjacent to subway/elevated stations, thanks to the improved access provided.

In Toronto, this led to an increase in property tax revenue, which in less than 20 years paid for the Yonge Street subway line. In London, the value of land by the yet-to-be-built Docklands line increased within three months by more than the cost of the London Docklands line. As the land was in public ownership, the net cost of the London Docklands line was remarkably low, although separated into different departmental accounts.

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