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Market Acceptance of Smart Growth

More often then not, home buyers are willing to pay a premium to live in smart growth developments and housing in smart growth developments often have a greater resale appreciation than their conventionally designed suburban counterparts. Studies cited in this article include a study of 18 smart growth and 18 conventional suburban developments where 56% of the smart growth developments had higher resale appreciation than their suburban counterparts, 33% had lower resale appreciation, and resale appreciation for the rest were roughly the same or were inconclusive. Another study showed that in Maryland, houses in two smart growth neighborhoods were valued at 16.1% and 9.5% higher than houses in the surrounding conventional subdivisions.
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The data analysis supports the hypothesis that smart growth products perform as well as, if not better than, their conventional suburban counterparts. Of the 21 comparisons generated for housing units in the 36 developments (18 smart growth, 18 conventional suburban), the smart growth housing units outperformed their counterparts on resale price in 10 of the studies, while the conventional suburban housing units outperformed in six of the studies. The remaining projects demonstrated resale performance that was roughly equivalent or was inconclusive. Some generalities can be drawn from the analysis:

  • Smart growth communities demonstrated higher home prices than their conventional suburban counterparts.
  • Conventional suburban development houses were generally larger than their smart growth counterparts.
  • Smart growth houses posted higher prices per square foot than their conventional suburban counterparts.
  • Houses in conventional suburban developments generally had larger lots than their smart growth counterparts.
  • Smart growth houses were generally newer than their conventional suburban counterparts.
  • Property taxes and homeowners’ association dues were generally comparable between smart growth and conventional suburban houses.

Yet there are also a number of interesting revelations within these broad conclusions:

  • Smart growth communities generally offer larger lots for townhouses than do their conventional suburban counterparts, and they can include single-family house lots of comparable size, despite their overall emphasis on compact site design. Indeed, in nearly half of the projects surveyed, living area in smart growth houses was the same as or larger than in its conventional suburban counterpart.
  • Higher prices per square foot for smart growth projects means that, when compared to a conventional suburban house of identical size, a consumer premium is reflected in the resale price for the smart growth product. Given the careful consideration in this study of other factors such as taxes, homeowners’ association fees, and size variables, this premium can be seen as a valuation of the smart growth project’s design and site characteristics.
  • On average, smart growth houses tended to be newer than their conventional suburban counterparts, possibly reflecting a market shift away from conventional suburban development toward building communities that reflect smart growth principles.
  • In many instances, the comparative analysis was limited to single-family detached housing units because the conventional development counterpart had no attached housing. Yet the smart growth housing outperformed the conventional comparable even with mixed housing types sharing the same blocks and streets. Some parts of the real estate industry have suggested that homebuyers do not want to live in neighborhoods with different types of housing or different price points (which translates to having different types of people living in the neighborhood). This finding suggests that plenty of homebuyers want to live in this type of diverse neighborhood and that home prices are not negatively affected by such a strategy.

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Last modified by Gayle Diehl

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