Smart growth lifts sales prices, home values

Smart growth communities achieve higher residential sale prices and value per square foot than conventional suburban developments, according to a study released by the US Environmental Protection Agency (EPA) February 8.

This report uses resale data from 18 smart growth developments and 18 conventional suburban developments in 8 states coast to coast to contrast their appreciation between 1998 and 2004.

In approximately 80 percent of the comparisons conducted, housing units in smart growth developments sold for higher average prices per square foot, the study notes.

“The data analysis supports the hypothesis that smart growth products perform as well as, if not better than, their conventional suburban counterparts,” writes principal author Lee Sobel of EPA. The study provides a market basis for developers and local decision-makers to pursue a growth strategy that encourages more housing units in smart growth, new urbanist, or traditional neighborhood developments, he adds.

The report, Market Acceptance of Smart Growth, is consistent with previous studies, notably Valuing the New Urbanism, released by the Urban Land Institute in 1999.

William Anderson and Jade Shipman of Economic Research Associates, an industry analyst, were contributing authors. Representatives of the National Association of Home Builders, the National Association of Realtors, Smart Growth America, Marquette University, the University of San Diego, and EFO Capital Management also assisted with the report.

In its examples of smart growth, the study looked at relatively large-scale “greenfield” developments as opposed to smaller infill developments. The following general conclusions can be drawn from the data, according to the authors:

• Smart growth communities demonstrated higher home prices than their conventional suburban counterparts.

• Conventional suburban development houses were generally larger than their smart growth counterparts.

• Smart growth houses posted higher prices per square foot than their conventional suburban counterparts.

• Houses in conventional suburban developments generally had larger lots than their smart growth counterparts.

• Smart growth houses were generally newer than their conventional suburban counterparts.

• Property taxes and homeowners’ association dues were generally comparable between smart growth and conventional suburban houses.

Yet the authors pointed to a number of “interesting revelations:”

• Smart growth communities generally offer larger lots for townhouses than do their conventional suburban counterparts, and they can include single-family house lots of comparable size, despite their overall emphasis on compact site design. Indeed, in nearly half of the projects surveyed, living area in smart growth houses was the same as or larger than in its conventional suburban counterpart.

• Higher prices per square foot for smart growth projects means that, when compared to a conventional suburban house of identical size, a consumer premium is reflected in the resale price for the smart growth product. Given the careful consideration in this study of other factors such as taxes, homeowners’ association fees, and size variables, this premium can be seen as a valuation of the smart growth project’s design and site characteristics.

• On average, smart growth houses tended to be newer than their conventional suburban counterparts, possibly reflecting a market shift away from conventional suburban development toward building communities that reflect smart growth principles.

• In many instances, the comparative analysis was limited to single-family detached housing units because the conventional development counterpart had no attached housing. Yet the smart growth housing outperformed the conventional comparable even with mixed housing types sharing the same blocks and streets. Some parts of the real estate industry have suggested that homebuyers do not want to live in neighborhoods with different types of housing or different price points (which translates to having different types of people living in the neighborhood). This finding suggests that plenty of homebuyers want to live in this type of diverse neighborhood and that home prices are not negatively affected by such a strategy.

Download the full report at the link below.