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How mass transit influences (in a good way) Twin Cities real-estate values

Courtesy of Metro Transit
A study released on Thursday claims that property values of houses located near transportation with high-frequency service performed 41.6 percent better than similar properties in a region.

Probably since Neolithic times, the real estate business has harped on one mantra: Location, location, location. The theory is pretty simple: Two identical properties (caves, back in those days, I guess) can carry hugely different price tags, depending on whether they’re located in the good versus the lousy school district, in a pleasant versus ugly neighborhood and so on. Location, even within a block can change price. A friend of mine who was chief of research for the New York City Board of Realtors used as an illustration of the concept the “pizza house” on his block in Queens. It sold for $30,000 less than all the other homes in the area because it was pervaded by the smells of oregano and pepperoni from the Italian restaurant next door.

Well, guess what? Now there’s a new mantra in town: transit, transit, transit.

A study released on Thursday by the American Public Transportation Association (APTA) and the National Association of Realtors (NAR) claims that property values of houses located near transportation with high-frequency service performed 41.6 percent better than similar properties in a region.

Michael Meliphy, APTA’s president, claims, “When homes are located near public transportation, it is the equivalent of creating housing as desirable as beach front property.”

I completely understand why APTA would want to show that mass transit makes homeowners richer; they’d get more backing from citizens and government officials to build more of it. I’m a bit mystified about the NAR’s interest, however. Perhaps its leadership is trying to show members that in future the hot action in sales won’t be the suburbs, but the cities, or the parts of cities close to transit.

Jed Smith, managing director of quantitative research for the NAR, cited the usual list of mass transit benefits; it reduces congestion and air pollution, invites investment and business activity and saves energy. Consumers are increasingly “voting with their feet,” he said, choosing to buy homes in areas served by high-frequency transit.

Willing to pay more

That idea makes some sense because there have been findings in recent years that Americans are increasingly willing to pay more to live, not in the classic free-standing house on a big suburban lot, but in a high-density neighborhood that offers a mix of uses (housing, retail, offices and so on) and amenities like parks and transit. At the same time, public opinion polls have shown that Americans’ preference for suburban living continues unabated. If you watch GHTV’s “House Hunters” programs as religiously as I do (I ceased to be ashamed after Hillary Clinton admitted being a fan of “Love It or List It”), you’ll know that both trends seem to be operating simultaneously.

This latest investigation explores how well residential properties located near transit maintained their value compared to properties without transit access. The study period covered 2006 and 2011, and analysts zeroed in on five areas: Boston, Chicago, Phoenix, San Francisco and our very own Twin Cities.

I often wonder why so many outfits do studies whose conclusions are preordained. After all, it’s not exactly news that property near transit is generally more valuable than property not near transit. That effect was visible the minute New York City started building its subways at the turn of the last century. Land near them rose so high in value that builders had to put up apartments. Even and especially now, the closer you live to a subway line, the higher your rent. The non-wealthy can afford a single family home only if they endure massively inconvenient commutes. (Mine from a far-flung neighborhood to Manhattan required a bus and subway ride totaling an hour and 10 minutes each way.)

Perhaps the main message here is the resiliency of values near transit in a lousy market. After all, the five years from 2006 to 2011 were not exactly the ne plus ultra of real estate. Housing prices sagged like wet noodles, dropping by an average of 33.8 percent in the nation’s 20 largest cities, according to Standard & Poor’s. The Twin Cities saw prices fall by about 27 percent.

But the “new mantra” study found that sales prices within “transit sheds” (areas within a half mile of a fixed transit line) saw much lower declines, namely 41.6 percent of the 33.8 percent decline nationally and 48 percent of the 27 percent decline in the Twin Cities.  

Framing the data that way exaggerates the price difference, however. If home values dropped 48 percent less in one of the cities’ two transit sheds, namely along the Hiawatha LRT and the Northstar commuter line, they would be 14 percent higher than the ordinary house not near mass transit.

Darnell Grisby, director of policy development and research for APTA, told me not to apply these numbers to home values because they’re so variable, but I am going to do it anyway. (Don’t tell.) The average house price in the Twin Cities in 2006 was $231,000. By 2011, it had shrunk to about $169,000. If the house had been close to a mass transit shed, however, it would be worth about $192,000. Ergo, values of property near transit are less awful in bad times.

As a corollary, though as yet unproven, prices of houses near transit sheds should show a greater percentage gain in value when prices across the region are rising. Interestingly, houses near the Hiawatha line performed 62 percent better in the Great Recession than those in the region, while those near the Northstar line did only 11 percent better. The best performing areas were near the Government Plaza station in south Hennepin County.

Analysts also calculated access to jobs per square mile near the Twin Cities’ two transit sheds. Hiawatha showed 132,132 per square mile and the Northstar line 108,354, while the region had only 37,484. Of course, that finding is also a bit obvious. Transit lines travel through dense areas with lots of jobs; that’s why they were built in the first place.

Makes a difference

But here are a few numbers that show why building mass transit may make a healthy and happy difference. The average monthly transportation cost for a household on the Hiawatha line was $840, for the Northstar $977 and for the region $1,164.

 

Access to # Jobs Per Square Mile

Monthly Transportation Costs

 

Public Transit Shed

Region

Public Transit Shed Advantage

Public Transit Shed

Region

Public Transit Shed Savings

Boston

170,334

57,563

2x more jobs

$746

$1,097

$351

San Francisco

172,581

56,933

3x more jobs

$746

$1,112

$346

Chicago

139,908

56,300

2x more jobs

$775

$1,074

$300

Mpls-St.Paul

132,132

37,484

3x more jobs

$840

$1,164

$324

Phoenix

88,241

32,290

2x more jobs

$1,006

$1,181

$175

Source: The New Real-Estate Mantra: Location near Public Transportation

That’s good news for cities because with more change jingling in their pockets, families will spend more freely. Higher sales lead to more jobs and higher tax revenues (without raising taxes), better public services and civic satisfaction.

Comments (9)

  1. Submitted by Bruce Jacobs on 03/22/2013 - 10:12 am.

    Real Writing

    I’ve always liked the idea of light rail, take the bus and it to the airport all the time. But I’d never read any real analysis of the benefits. Of course, these days, who does news analysis anymore? Well, as I’m finding out, writers at MinnPost do!

    Thanks, Maryls, for your insightful, careful, witty and pertinent analysis.

  2. Submitted by Ray Schoch on 03/22/2013 - 11:50 am.

    Sometimes, you just can’t win

    Having lived in most of the potential configurations — rental apartment, rental house, condo, owned home, “Drive ‘til you qualify,” 20% down, 3% down, 5% down, 10% down, rent by the month, rent via annual lease, exurban, small suburb, big suburb — I’ll say that it’s unfortunately not always possible to find housing that meets all the needs a resident would like to see filled.

    The last single-family house I lived in when a Colorado resident was a “Drive ‘til you qualify” situation not that dissimilar from Ms. Harris’s. I got tired of the drive, and did some research once it became apparent that Denver was, indeed, going to embark on a sizable mass transit effort called FasTracks. There were no single family houses in the area that interested me that I could afford on a retiree’s income in a “destination” area — and this was before FasTracks was much more than a proposal — so I started looking for condos.

    I found one that fit the urban stereotype in a western suburb of Denver: multiple restaurants from fast food to “casual” to upscale, all within a 15-minute walk; grocery, hardware, and quite a bit of other retail, also within that 15-minute walk; access to interstate highways in less than 5 minutes; and, because I was interested in transit, a FasTracks station was to be built inside that 15-minute circle, as well. A surprise bonus came in the form of a hospital and medical office facility more or less next door to the transit station. I was all set to see my annual VMT (vehicle miles traveled) diminish by 50% at least.

    Then I moved to Minneapolis to be a grandpa.

    Now, instead of the suburbs I’ve lived in all my previous life, all of which had similar “urban” amenities within reasonable walking distance, I live inside the boundary of a “big” city for the first time in my life, in a neighborhood that has none — zero — of those same “urban” amenities.

    I looked at houses along the Hiawatha corridor: couldn’t afford them to begin with, and Hiawatha itself is, shall we say, not pedestrian-friendly. And the grandkids are at the northern edge of the city, so the Hiawatha corridor didn’t make sense from that standpoint. I ended up in a neighborhood of small, single-family houses on 5,000 square foot lots — right on the cusp of the density necessary to make transit work — but there’s no transit in sight except perversely inconvenient Metro Transit buses. If I want the errand that should be within that 15-minute walk radius to take 5 or 6 hours and involve multiple transfers between/among buses, I suppose it’s OK, but even in retirement, I have other things I’d rather be spending my dwindling time on than taking half a day to get to a picture framing shop.

    Beyond that, while looking at dozens of houses, it became apparent that, even between/among neighborhoods that do NOT have light or commuter rail available, housing prices tend to reflect neighborhood income levels. It’s not hard to see the logic of that, but it was a factor I’d not considered in previous housing searches.

    So, mass transit might affect housing prices “in a good way” for those who happen to live along that mass transit corridor (were I still living in that Denver-area condo, its value would be moving up even as we speak, since the light rail line is set to open this year), but for the rest of us, the affect on housing prices is probably minimal, at best, and in a generation, might well have the opposite effect on the price of housing that doesn’t happen to be located in one of those transit corridors.

    I’d say it’s a mixed blessing, at best. Higher housing prices in transit corridors effectively make it impossible for those of modest income, who might actually NEED the low cost of mass transit on a daily basis, to afford to live within reasonable distance of that transit. That doesn’t strike me as a laudable public benefit.

    I tend to view condo living as having all the disadvantages of ownership, but with none of the advantages save the mortgage interest tax deduction (and if there’s a Hell, I hope to see HOA boards in permanent residence), and my experience living in a “big” city has so far fit that same mold — lots of negatives, not many positives.

  3. Submitted by Todd Hintz on 03/22/2013 - 11:59 am.

    SW Line

    My house is a touch over a mile from one of the proposed SW Corridor lines, but I’m still looking forward to taking it downtown. It reduces wear and tear on the car, fluctuating gas prices aren’t a worry, frustration from traffic congestion, and I can read on the train. I’ll probably ride the bike to the station and then ride it again from the final stop to work, getting a little exercise in to boot.

  4. Submitted by Paul Udstrand on 03/22/2013 - 01:31 pm.

    Just one thing

    Real-estate as we know it is actually a recent phenomena, past 200 years or so. Actually it was the post war housing boom more or less created the modern real-estate profession. Prior to that solicitors or lawyers. Where and how people could build and live was mostly a matter of income and social class.

  5. Submitted by Janne Flisrand on 03/22/2013 - 02:18 pm.

    Why do a study of the obvious?

    “I often wonder why so many outfits do studies whose conclusions are preordained.”

    Appraisers are unable to include anything other than “comparable properties” in appraisals unless there is research and data backing up adjustments. This data has long been lacking for proximity to transit, for energy efficiency, and more recently for green certified homes.

    As a note, properties near transit but without enough parking spaces have had their values knocked unfairly. It’s my hope that this will allow appraisers to recognize the VALUE of proximity to transit in their reports.

  6. Submitted by RB Holbrook on 03/22/2013 - 03:07 pm.

    Transit’s value

    One reason the easy availability of transit will be an even bigger booster of real estate values is that in the last few years, the country has endured a long stretch of fuel prices going up, with no realistic end in sight. Some of us old-timers will remember the “energy crisis” of the 70s. Gas prices went up and exurban development slowed down for a time (remember when Mora was the coming place? That ended in ’74, if I recall). Energy prices stabilized and then held steady, especially after it was morning in America and we didn’t have to worry anymore. Now, it’s hard to see what developments could take the pressure off energy prices. Global demand for petroleum has increased so much that new drilling for the same old products isn’t going to help much. High energy prices are going to be fixtures, so it makes more sense to adapt our living situations to them instead of waiting for “cheap” gas to return.

    Well-planned transit (a recent arrival to the Twin Cities) can save homeowners a lot of money, especially if it makes the second car superfluous, as it did for my family. That savings is worth the investment in a home near a train or bus line.

  7. Submitted by Jeff Chapman on 03/25/2013 - 04:03 am.

    The transit factor could not at all be neglected in transactions on properties on settlements. The price tags have always been dependent on the transportation ease in that area.
    http://www.quotemeaprice.com/annuity

  8. Submitted by John Mark Lucas on 04/02/2013 - 09:57 am.

    Transit corridors of opportunity for everyone

    This is the bit of financial education that needs to be shared with everyone. Transit is good real estate investment for homeowners and businesses, saves on living expenses for tight budgets, and gives you greater access to jobs (and amenities). The LRT could now form the backbone of our system in the twin cities, we now need to reinforce the image and services of bus corridors to spread the benefits. I and a growing number of millennials and baby boomers are not transit dependent because we have to, it’s just a better choice. And yes, I’m willing to pay back a little bit of sales tax to expand the system.

  9. Submitted by David Lightstone on 06/17/2014 - 09:59 am.

    Lightstone LLC

    Recently David Lichtenstein, the chairman and chief executive officer of Lightstone Group analyzed this matter on an interview on Bloomberg. This is the video http://www.bloomberg.com/video/lightstone-s-lichtenstein-on-commercial-real-estate-ltf9K23WR8qfHdrWdAmrWg.html where David Lichtenstein talks about real estate values at some of the most prominent retail markets.

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