Study confirms TND price premium
A study comparing four traditional neighborhood developments (TNDs) in separate regions of the U.S. with nearby suburban housing presented further evidence that buyers are willing to pay an average of $20,000 more for homes in communities with new urbanist design. The premium ranged from 4 percent to 25 percent, averaging 11 percent overall. The study, by George Washington University Department of Finance researchers, is a follow-up to a similar 1998 study which looked at the Kentlands development in Gaithers-burg, Maryland.
Sponsored by the Congress for the New Urbanism (CNU), and overseen by the Urban Land Institute (ULI), the follow-up study examines: Southern Village in Chapel Hill, North Carolina; Harbor Town in Memphis, Tennessee; Laguna West in Sacramento, California; and Kentlands (a second time). Sales and characteristics of single homes and townhomes in these TNDs from 1994 through 1997 are compared to transactions in surrounding developments. Researchers Mark Eppli, a professor, and Charles Tu, a graduate student, control for factors such as house size, lot size, number of baths, parking, age of dwelling, number of stories, construction quality, and whether the home has a basement. After accounting for these and other characteristics, the researchers found that consumers pay more to live in new urbanist communities due to their urban design.
TNDs are designed to be walkable and compact, and to contain a mix of uses, a town center, an interconnected street system, and a high quality public realm. The premium in the four TNDs is $5,000 at Laguna West, $16,000 at Southern Village, $24,000 at Kentlands, and $30,000 at Harbor Town. After completing the 1998 Kent-lands study, Eppli was cautious. Now he is more confident. “The premium is really occurring, at least it is occurring in these communities, and they are located throughout the United States,” he says. He adds that the price premium is large enough to be “statistically significant.”
The study was reviewed by ULI and CNU experts. The communities studied have been under construction for 5 to 10 years — time enough for the urban design to have an impact on housing values (urban design often doesn’t impact sales until streets and public spaces are defined). In addition to the four communities studied, the researchers wanted to examine Celebration, Disney’s new town near Orlando, Florida, and Northwest Landing, a TND in Dupont, Washington. However, both projects are selling substantially different housing — in type and cost — from other developments in their school district and local tax area, Eppli says. For the best results, TNDs must be compared to sales of similar housing in the same area, he explains.
The results of the study are good news for developers who are building new urbanist communities, because it suggests that extra money put into better planning and a higher quality public realm pays off in higher real estate values. However, the results should not be construed to mean that developers make more money building TNDs, Eppli cautions. The study did not examine development costs, absorption rates, revenues from rental property or other factors that determine profitability of a new urbanist project.
Because the results indicate that market forces cause home prices to rise in TNDs, they underscore the challenges of offering affordable housing in these communities. However, Eppli and Tu did not examine the impact of apartments, condominiums or accessory units — housing types that are abundant in TNDs — on the the affordability of these projects. Also, new urbanists point out that if TNDs are planned and executed correctly, residents of these communities can reduce their automobile costs. ULI plans to publish the study in May under the title “Valuing the New Urbanism”(price: $25.95 for nonmembers). Contact the ULI office in Washington, D.C., (202) 624-7000.
