Buy, Sell, or Hold? Land Use and Land Use Policies

Real Estate Values, Affordability, Volatility, and Forward Pricing; Ranking the top 35 Metro Areas in the US…

Places Platform LLC and Smart Growth America, today released “Foot Traffic Ahead 2023,” a comprehensive report on the shifts in metro and sub-market demand, relative momentum toward economic sustainability and the market effects of the Covid pandemic.

Download the report at: https://smartgrowthamerica.org/resources/foot-traffic-ahead/

I (along with my partners John Reilly and Terri Murphy) have been working closely with the Team at Places Platform for about 2 years now. A major “Data Partner” on this project is Yardi, a company I had the pleasure to work at between 2011 and 2014, after Yardi purchased Point2 Technologies and RealTown, where I served as CEO prior to the acquisitions.

The results of looking at a “unified view” of all real estate in a metro area in a unique way yields some very interesting results.

Here are the Foot Traffic Ahead findings and conclusions by Chris Leinberger.

Chris is a Co-Founding Partner & Managing Director

Former owner and Managing Director of RCLCo, one of the largest real estate advisory firms in the US, and former Senior Fellow at Brookings. Currently Co-founder & Managing Director of Arcadia Land Co. and Endowed Professor and Chair, GWU Center for Real Estate and Urban Analysis.

“These unique insights are possible because of our unified understanding of Land Use Form and Economic Function of Land, known as the Places Lens™. The Places Lens™ is a powerful innovation that can help address the structural challenges of valuation, affordable housing, social equity and market liquidity.”

Summary Conclusions from Foot Traffic Ahead 2023:

• The pandemic caused a “bump in the road” for walkable urbanism, modestly reducing the rent and for-sale price premiums over drivable sub-urban. Walkable urban product types (office, multi-family rental, retail and for-sale housing) still have substantial price premiums on $/SF basis. On average the price per square foot premium of these four product types are:

o Office rent premium: 40.4% (highest is metro NYC at 105%)

o Retail rent premium: 47.4% (highest is Las Vegas at 136%)

o Multi-family rental premium: 39.4% (highest is metro NYC at 80%)

o For-sale housing premium: 33.5% (highest is Washington DC at 89.9%)

• Walkable urban land in the 35 metros is only 1.2% of total land mass. The highest ranked 7 metros this percentage is doubled to 2.5%. This small land area has an outsized economic and population contributor due to 5-20 times density and mostly generates profitable net fiscal impact for local government while much of the drivable sub-urban places are subsidized. The major reason for the high walkable urban price premiums is the artificial constraint on walkable urban land availability. In most metros it is illegal to build walkable urban densities and mixed-use development on the 98.8% of land that is drivable sub-urban.

• Downtowns, which are heavily office dominated, have been most affected by the pandemic. However, Downtown Adjacent places (surrounding most downtowns), Urban Commercial, & Urban Universities were not that affected by the pandemic, and many times did better.

• Urbanizing suburbs have been emerging over the past decade and have continued and even increased during the pandemic.

• Type II Walkable Urban Neighborhoods have grown in most metros, particularly in the neighborhoods built pre-1940 that were built originally as walkable urban places.(WalkUP). These neighborhoods suffered dis-invested in the late 20th century as they lost their retail and valuations fell. Recently, new small-scale retail and substantial household rehabilitation has made them walkable and increasingly valuable again. This is the heart of the gentrification issue…but we will shortly run out of this housing stock to rehab.

• Short and mid-term provision of affordable housing continues to be required due to the pent-up demand for walkable urbanism.

• There is no amount of federal, state, or local government resources to build enough entry and middle level housing to meet the pent-up demand for walkable urban housing and housing in general. State and local governments must up zone 5-8% of metro land to allow for walkable urban development and flood the market with appropriately zoned walkable urban land.

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