Wondering what kinds of properties will hold value in the future?
From the New York Times:
http://www.nytimes.com/2012/05/27/opinion/sunday/now-coveted-a-walkable-convenient-place.html
May 25, 2012
Now Coveted: A Walkable, Convenient Place
By CHRISTOPHER B. LEINBERGER
WALKING isn’t just good for you. It has become an indicator of your socioeconomic status.
Until the 1990s, exclusive suburban homes that were accessible only by car cost more, per square foot, than other kinds of American housing. Now, however, these suburbs have become overbuilt, and housing values have fallen. Today, the most valuable real estate lies in walkable urban locations. Many of these now pricey places were slums just 30 years ago.
Mariela Alfonzo and I just released a Brookings Institution study that measures values of commercial and residential real estate in the Washington, D.C., metropolitan area, which includes the surrounding suburbs in Virginia and Maryland. Our research shows that real estate values increase as neighborhoods became more walkable, where everyday needs, including working, can
be met by walking, transit or biking. There is a five-step “ladder” of walkability, from least to most walkable. On average, each step up the walkability ladder adds $9 per square foot to annual office rents, $7 per square foot to retail rents, more than $300 per month to apartment rents and nearly $82 per square foot to home values.
As a neighborhood moves up each step of the five-step walkability ladder, the average household income of those who live there increases some $10,000. People who live in more walkable places tend to earn more, but they also tend to pay a higher percentage of their income for housing.
Although we have not studied all urban areas to the same degree, these findings appear to apply to much of the rest of the country. In metropolitan Seattle in 1996, the suburban Redmond area, home to Microsoft, had the same price per square foot as Capitol Hill, a walkable area adjacent to downtown, based on data from Zillow. Today, Capitol Hill is valued nearly 50 percent above Redmond.
In Columbus, Ohio, the highest housing values recorded by Zillow in 1996 were in the suburb of Worthington, where prices were 135 percent higher than in the struggling neighborhood of Short North, adjacent to the city’s center. Today, Short North housing values are 30 percent higher than those of Worthington, and downtown Columbus has the highest housing values in that metropolitan area.
In the Denver area, Highlands Ranch, an upscale, master-planned community 20 miles south of downtown, had housing in 1996 that cost on average 21 percent more than housing in Highlands, a troubled neighborhood adjacent to downtown Denver. Today, Highlands has a 67 percent price premium over Highlands Ranch.
People are clearly willing to pay more for homes that allow them to walk rather than drive. Biking is part of the picture, too. Biking and walking are part of a “complete streets” strategy that public rights of way should be for all of society — not just cars.
The rise in bike-sharing systems in Minneapolis, metropolitan Washington, and soon New York City makes it possible to imagine a future in which a third of a city’s population gets around primarily by bicycle. The popular Web site Walk Score has just added Bike Score to let people know which neighborhoods are most bikable.
Demand for walkable urban space extends beyond city centers to suburbs; in metropolitan Washington, more than half of the walkable places are in the suburbs, like Reston Town Center, 22 miles from downtown Washington; Ballston, in Arlington County; and Silver Spring, in suburban Maryland. Residents can easily get to grocery stores, cafes, libraries and work by rail transit, biking and walking.
Why is there an urbanization of the suburbs? Some baby boomers want to sell their large suburban houses and move to a walkable urban place but stay close to friends and family. Young families want the advantages of walkable urban life but also high-quality suburban schools. This trend is about both the revitalization of center cities and the urbanization of the suburbs.
To address the affordability challenge, a sensible strategy would include changes like zoning that allows homes with units in the back or over the garage. But the long-term solution is encouraging the building of more walkable places, which will reduce the price premiums by creating more supply.
(Disclosure: I am the president of Locus, a coalition of real estate developers and investors, and a project of Smart Growth America, which supports walkable neighborhoods and transit-oriented development.)
Different infrastructure needs to be built, including rail transit and paths for walking and biking. Some research has shown that walkable urban infrastructure is substantially cheaper on a usable square foot basis than spread-out drivable suburban infrastructure; the infrastructure is used much more extensively in a small area, resulting in much lower costs per usable square foot.
It’s important that developers and their investors learn how to build places that integrate many different uses within walking distance. Building walkable urban places is more complex and riskier than following decades-long patterns of suburban construction. But the market gets what it wants, and the market signals are flashing pretty brightly: build more walkable, and bikable, places.
A professor at the George Washington University School of Business and a senior fellow at the Brookings Institution.
