Land Near Transit Stations: The New Beachfront Property
In light of recent land use planning controversies, especially in Brooklyn, city dwellers and transit riders might be interested in a recent article in Multifamily Executive magazine, a publication for those who invest in and develop multi-family housing. According to an expert in the field “development sites in transit zones have become the new beachfront property: prized, scarce footage with scant new supply.” You wouldn’t have heard this 20 years ago, when everyone thought transit was only for those who were too young, old, sick or poor to drive, those left behind as the better off migrated from obsolete, poor urban areas to vibrant, modern, auto-oriented areas. But there has been a sea-change in attitudes and preferences, and developers all across the country are trying to respond.
What has happened is a simple matter of supply and demand. Fifty years ago, vibrant pedestrian-oriented urban neighborhoods and downtowns, connected by mass transit, could be found all across the country. Many of those who lived there, however, really wanted detached houses with backyards, and to travel by automobile to places with plenty of free parking. The supply of urban living thus exceeded the demand. Since most of the suburbs, and suburb-like post-WWII cities, had yet to be built, the supply of such places was less than the demand. Suburban and Sunbelt American became more valuable, urban American less valuable.
Fast forward 50 years, and suburban America is now ubiquitous, generic, almost everything almost everywhere. Almost everyone who is not poor lives in a detached house on a suburban-type lot, drives everywhere, watches TV, and shops in shopping centers with free parking. Most people still want the suburban life, but the supply nonetheless exceeds the demand. And most of urban America has rolled over and died economically, becoming unlivable for those who can afford to live elsewhere (think Cleveland). Electric streetcars competing with the occasional horse and buggy have been replaced by motor coaches stuck in traffic. With more and more people choosing to live a pedestrian and transit-oriented lifestyle, the demand exceeds the supply. And the cost of living in most of the remaining viable urban areas -- New York, Boston, San Francisco -- has exploded relative to comparable housing in the suburbs.
As per Multifamily Executive “in a majestic country of some 2 billion acres, talk of any land supply shortage might seem a little premature. But even allowing for a modest increase in stations, only 300,000 of those two billion acres are within walking range of rail transportation. And with many of those acres already built-up, undevelopable, or devoted to untidy necessities like parking, development land in transit station zones has become highly desirable, very rare, and extremely expensive.”
Can new transit lines be added? “New rail line extensions and stations cost tens of millions, hundreds of millions, or even billions of dollars. As a result, these important public investments usually take decades of planning and concentrated political will to implement. Many rail corridors were established more than a century ago, and it's getting harder to find new places to put rail over, under, or through the urbanized suburbs that need it the most.”
So what does this publication recommend? “Another way to make new, transit-oriented land is to stack existing land: to create density. This is the most hopeful avenue for planners, who have advanced the cause of higher density at sites close to transit with courage, persistence, and the support of motivated developers. But Manhattan-style density is not politically or physically available around many rail stops in the country. Take a look at the leafy suburbs along Chicago's lakeshore, Philadelphia's Main Line, or New York's Metro North, and you sense the political challenge in creating transit zones through intense rezonings in these settings.”
And in the city? “Adding both density and rail stops in the city and close-in suburbs near existing rail may be more viable politically, but it's physically and economically tougher to do. Land values near urban heavy rail stations—subways—can be measured in dollars per square inch. And that's before the developer pays for demolition and relocation costs and the government shells out public dollars to build subway tunnels and underground stations in these close-in locations. Either way, where the will and investment are mobilized to make new stations in combination with approvals for high-density development, the transit-oriented development land cost crunch is just beginning. Because new stations take so long for the public to establish, smart land investors are usually there to greet them when they arrive. When local transit authorities do have surplus land, they are taking appropriate advantage of opportunities to reap the value sown in this ground by their massive rail and station investments. This is just good asset management.”
So what is the market for development sites like in the vicinity of transit stops? “Strong. Expensive. And that's just the land acquisition aspect of the project.” High rise development is also much more expensive to build that low-rise -- the two-family rowhouse may be the cheapest housing out there on a per-square-foot basis. “The good news is that people will pay top dollar for good high-density development near transit, even with this high-rise premium. The bad news is that high density is expensive to build and prices people out of the market. The laudable planning goal of centering high-rises around transit inevitably tends to defeat the most loyal transit users, who have household incomes that don't give them a prayer of living in hip new high-rise districts. Not many Macy's shoppers will be walking to the Tysons Corner Center mall when the new Metro station arrives.”
These are now national trends, but they started, and are strongest, in New York City. And they are something to think about as development and planning controversies move forward. All over the country, developers are trying to recreate what we have here, with condos rising in Downtown Los Angeles, Downtown San Diego, Downtown and LoDo in Denver, and the Flats in Cleveland. Center City Philadelphia is spreading to more and more neighborhoods. Even Downtown Detroit is doing a little better, with people moving in, even though the city has been half dead and the rest of the state of Michigan is dying. You even have attempts to create a “hip urban lifestyle” in Downtown St. Louis, a city that beat out Detroit to be the murder capital of the country last year, Downtown Memphis, Downtown Columbus and Downtown Indianapolis. There have even been attempts to insert more mixed-use, pedestrian oriented retail and mid-rise condos into some suburban areas like Escondido, especially if there is a commuter of light rail stop nearby. There is a debate going on across the country whether higher densities will allow urban communities or just lead to even worse suburbs, places where everyone still drives and parks but has even less room to do so. And developers are pushing new light rail and bus rapid transit systems in places like Raleigh-Durham-Chapel Hill.
It will be interesting to see, in the coming real estate bust, if the massively overbuilt urban and faux urban condos or the sprawling developments on the exurban fringe are hit harder. I think the latter in many areas. Where a viable urban community already existed, as in Brooklyn, or has taken hold, as in San Diego, I think a price drop would merely turn what would have been a luxury area into a very nice mixed income area, with land price declines making future development possible. As it was in the beginning, urban and transit-oriented development is now a market driven phenomenon. It is only if these new areas succeed, and become acceptable New York alternatives, that the price pressure on New York City can be relieved. In the short run, however, I’m not in a NIMBY frame of mind. I take the global environmental view, and would rather have more people stacked up in transit oriented Brooklyn than have more land paved over on the exurban fringe.Here is the link: http://www.multifamilyexecutive.com/industry-news.asp?sectionID=543&articleID=424002
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