On my way home from work the other day I caught this Marketplace program about the increased demand for housing near transit. As may seem obvious to the audience of this blog, but there’s a massive sea-change afoot in consumer demand for housing near transit, but this is likely news to the typical Marketplace listener.
I got to thinking about the numbers. Exactly, how much does transit availability specifically effect real estate prices? Is there a similar effect for walkable neighborhoods? Are we doing enough to keep supply in pace with this increased demand? What second-order effects does transit construction and the demand emanating therefrom have?
Rather than write 4000 words on the economic data around TOD, I’ll focus on just the first two questions today, and I’ll visit the others in future posts. I apologize in advance for all of the links and quotes.
How much does transit availability effect real estate prices?
The story, as has been told and told, is that Americans are increasing interested in living near transit. The story quotes Chris Leinberger – whom I’ve mentioned here before and will come back to repeatedly in these posts - on a home in Dupont Circle near the DC metro
LEINBERGER Within walking distance of transit, we’re seeing anywhere from a 40 to 200 percent price premium. The market is willing to pay 40 percent more to three times more.
Next they visit a home in the exurbs far past the last Metro stop:
LEINBERGER: This is a car-dependent house. You cannot live here without taking your car to literally every trip from your home… As Americans increasingly choose to live near transit, the value of homes like this has plummeted — 60 percent since the year 2000.
I’m convinced there’s an increase, but I want more details. A forty percent premium seems reasonable but a 200% premium seems fairly astronomical, I wonder if there isn’t a combination of effects at work in Leinberger’s numbers making the comparison seem more dramatic than it is.
First, from a study by Roderick Diaz from Booz-Allen:
A separate study of the impacts of the BART system examined the impact on home values. Statistical models developed to analyze the impact of proximity to rail on property values showed that for every meter a house in Alameda County was located closer to the nearest BART station, its sales price in 1990 increased by $2.29. For every meter a house was closer to the nearest BART station in Contra Costa County, the sales price increased $1.96. According to the models, a house immediately adjacent to BART would sell for close to 38% more than an identical house not near any BART service (35 kilometers away). Effectively, this comparison may represent the difference between the sales price of the home near a station of a mature rail system and the sales price of a home in a region without a mature rail system.
Emphasis Added. The last line is the money quote. These are all suburbs, so Diaz is not comparing San Francisco to Tracey. Simply building rail can increase property values in a region that hasn’t got rail to start with. But 35 kilometers is a very long distance, BART is an old, large system, and San Francisco is a huge city. What happens to newer systems in smaller cities? From the same study, this time about Portland:
Within the 2 years after the 1986 beginning of operation of the rail line, residential properties in the East Burnside area within 500 meters of the transit were, on average, 10.6% greater in value than homes outside of 500 meters.
If you’re really into numbers, here’s a Parsons Brinckerhoff summary of studies from about ten years ago with lots of data.
Is there a price premium for walkable environments in general?
The answer here is a resounding yes. According to this study from CEOs for Cities, a single Walkscore point increases the price of a home by $1413 in Seattle, and an astonishing $5260 in Chicago. In the Seattle case, very little of that housing supply is served by rail transit – though most of it is served by a lot of bus transit. The correlation in the article controlled for home amenities, transportation access and other factors. Even the people out to prove the study wrong show it clearly indicates at minimum a supply problem in the stock of walkable housing. Interestingly, there are even people who want walkable housing without transit.
If we take for granted the fact that there has been a continual increase in demand for housing in walkable, transit-accessable areas in the past ten years, it should be the case that these difference in prices have become magnified in the time since these studies were conducted. It does seem that housing near transit has increased in value during a time of falling housing prices in Denver, and they have fallen far less in the Pheonix area where the bottom has fallen completely out of the housing market. If you are interested in more detailed data, the best source is the Center for Neighborhood Techonlogy, which has a nice database and some interactive tools where you can compare access to transit to home prices and rents among others.
It’s not hard to see why housing near transit is more expensive. Going back to Leinberger:
The average American household spends 17 percent of their pre-tax income on transportation, 94 percent of this amount is for ownership and maintenance of cars. However when the data are disaggregated, drivable sub-urban households spend about 25 percent on transportation while walkable urban households only spend about 9 percent. This 16 percent difference represents well over a trillion dollars in households spending each year. If this spending was redeployed from cars to housing, education, and savings, it would be a major economic driver (excuse the pun).
So there’s a pretty clear trend, though I’m not sure the 200% premium is justified on an apples-to-apples comparison. There are a number of here via VTPI that suggest the premium is somewhere in the 20~50% range, which is still significant. Curiosity satisfied. Next I’m going to try to look at the size of the demand and whether transit oriented housing supply is keeping pace.