‘New Urbanism premium’ identified in Kentlands

Researchers determine that good urban design is the reason why consumers are willing to pay more to live in the Gaithersburg neotraditional project. A recent George Washington University study shows that consumers are willing to pay $30,000 to $40,000 more for houses in Kentlands, a neotraditional development in Gaithersburg, Maryland, compared to similar housing nearby. “While a portion of that premium may be attributable to factors other than neotraditional planning,” says associate professor of finance Mark Eppli, “we believe the majority of the premium is attributable to the New Urbanism.” The study uses the hedonic price model, commonly used to assess housing values nationwide. It examines all single home sales on lots one acre or smaller in the 20878 zip code (where Kentlands is located) from 1994 through 1996 — a total of 1,850 transactions. “It is clear that these results could have a significant impact,” says Eppli, who authored the paper with doctoral candidate Charles Tu. “It is risky to do neotraditional developments. If this shows that the risk is paid for, then it could affect what is built in the future.” The study looks at such characteristics as lot size, home size, number of baths, parking, age of dwelling, number of stories and whether the home has a basement. Not all construction materials can be included, so indicators are used to measure overall quality. In this study, wood shingle roofs, which are used extensively in Kentlands, are a primary house quality indicator. All of the home sales in the study are located in the same school district and taxing authority. Tu and Eppli obtained lot size and price information for Kentlands and 13other developments in the 20878 area with 10 or more sales in the three year period. Kentlands lots, which averaged 5,853 square feet, were the smallest by far. Average lot sizes in the majority of other developments were between 50 percent and 100 percent larger than Kentlands — with some projects offering lots nearly 500 percent larger. The lot price per square foot in Kentlands was $15.92 — much higher than any of the competing developments, which ranged from $4.04 to $10.40 per square foot of lot. Because Kentlands’ lots are smaller, actual lot prices in the neotraditional project fall somewhere in the middle of all developments studied, at $93,172 per lot. Lot prices in the other projects ranged from $50,617 to $140,704. Seven projects were cheaper, and six more expensive, on a per lot basis. Before any broad generalizations are drawn from the report, more study is needed, according to Eppli. “First, we’ve got to look at other neotraditional projects around the country to be clear on this. Second, we need to look at Kentlands and developments with similar quality housing.” Eppli has asked the Congress for the New Urbanism (CNU) to fund a broader study. The CNU does not have the money, according to executive director Shelley Poticha, but will help search for outside funding. The study cuts two ways. If the Kentlands “New Urbanism premium” is confirmed, market forces may work against affordable housing in traditional neighborhood developments (TNDs), Poticha says. “New Urbanism has been criticized as elitist, a planning concept for wealthy people,” she says. “Now here it says that New Urbanism adds $30,000 to the price of a house.” On the other hand, the study could answer questions about the profitability of neotraditional projects, she adds. “Plenty of developers are looking for evidence that New Urbanism isn’t some hair-brained idea.” Building more neotraditional communities should make them more affordable, says Mike Watkins, who heads the Gaithersburg office of Duany Plater-Zyberk & Company, which designed the project. Furthermore, the walkability of TNDs theoretically cuts household automobile expenses. “A spouse can earn a second income without a second car, which more than offsets the higher mortgage cost,” Watkins says. Eppli was surprised at the level of premium homeowners pay to live in Kentlands, but adds that it is within a reasonable range for housing. Other factors, such as the school district where a project is located, can generate even larger price differentials for comparable homes. “We cut the numbers a hundred ways to see if we were missing something, or if the Kentlands premium was overstated,” says Eppli. “I was trying my best to bang the premium down, because I thought it was a little high. But in every case, the premium was always there.” Tu and Eppli were left with the one tangible factor that sets Kentlands apart, its urban design. “You can feel it when you are in Kentlands, compared to say, Quince Orchard Knolls (a nearby development) or some of the other conventional projects,” he explains. Other consumers have the same feeling. “At least a portion of the population — it wouldn’t have to be a majority — is willing to pay the premium,” Eppli says. Eppli is not an active proponent of New Urbanism, and says he was never contacted or influenced by new urbanists in the course of putting together this paper.