Walkability + Density = Smokin' Hot Returns

Case Study 5.3

Walkability+ Density = Smokin Hot Returns

A New Era of Urbanization & Density

“To have a meaningful impact, a sustainable growth strategy must go beyond designing green buildings and become a part of a broader urban planning strategy for an entire community to address quality of life and protection of our physical environment.�

Walkability + Density A New Era of Urbanization & Density

= Smokin Hot Returns A Paradigm Shift Towards Urban Densification We have entered a new era of urbanization, where undoing the damage of sprawl has become the greatest urban challenge of the 21st Century. Throughout the 20th Century suburban sprawl was a way of life. Today, our suburban communities have become cumbersome to navigate and their infrastructure costly to maintain. Low density development will continue to destroy our natural areas by paving and developing greater swaths of land, increasing air and water pollution, escalating our infrastructure costs and degrading our quality of life.

Sprawl, ironically, has increased our dependence on the auto and negated the perceived lower cost of housing with suburban commuters having to endure the spiraling cost of gas. Furthermore, aging Baby Boomers and Millennials, who are mostly in their teens and twenties, are more inclined to live in urban areas where they can enjoy the cultural offerings of the city including shopping, dining, museums or attending sports and entertainment events.

Suburban Sprawl Screeches to a Halt Census data shows growth in suburban counties nearly screeched to a halt in 2011. By contrast, counties at the core of metro areas are growing faster than the nation as a whole and we are moving towards a renter nation for the foreseeable future. The 2008 financial and foreclosure crisis along with

“...the Brookings Institution projects the US population is expected to increase 33% by 2030 to more than 376 million Americans; an increase of 94 million people since 2000, which results in 34 million new households created during this same period.�

soaring gas prices, has forced more people to rent and relocate to close-in neighborhoods adjacent to large employment centers. Additionally, the Brookings Institution projects the US population is expected to increase

Christopher B. Leinberger, Visiting Fellow of the Metropolitan Policy Program

33% by 2030 to more than 376 million Americans; an increase of 94 million

with the Brookings Institution reports post-recession housing values across

people since 2000, which results in 34 million new households created

the US foretells what appears to be a structural shift in the real estate

during this same period. Moreover, an estimated 9.1 million new renters will

market. While US home values dropped steadily between 2008 and 2011,

enter the housing market between 2010 and 2015. This explosion of new

distant suburbs saw the starkest decreases while close-in neighborhoods

households and renters is having a profound impact on the landscape of

either held steady or in some cases, saw price increases. This is a noteworthy

American cities as we brace ourselves for strong urban growth, where we are

shift because it signals the reversal of the suburban sprawl model that has

already seeing an increase in real estate values.

dominated our demographic growth since the end of WWII.

To have a meaningful impact, a sustainable growth strategy must go beyond designing green buildings and become a part of a broader urban planning strategy for an entire community to address quality of life and protection of our physical environment.

At the metropolitan scale, city planners should be encouraging high density mixed-use growth models which have tangible benefits to society and at the same time deliver attractive returns on investments. Compared to more dense urban areas in Europe, US cities are still in their infancy of urbanization. The illustration below contrasts the urban densities of US and European cities and reveals that US cities are at a very early state of densification.

High density mixed-use developments make it easier for people to access jobs, affordable housing, shopping, entertainment and convenient transportation. Moreover, mixed-use developments

Beyond Green: High Density Growth = Sustainability

evolve into walkable communities, contribute to the public

As we rethink our urban development strategy and come up with solutions that are

misconception that higher density developments create more

economically, ecologically, and socially sustainable, we must also respond to the

regional traffic congestion and parking problems than lower density

environmental damage caused by sprawl. Within the public sector, local and governmental

developments. Yet, according to the Urban Land Institute, higher

planning agencies now recognize the inefficiencies of suburban sprawl and realize that

density development actually generates less traffic than low density

we are just at the beginning of a higher density growth period. This transition represents a

development by making walking and public transit more feasible

paradigm shift in our thinking about urban growth and density.

and reducing our dependence on automobiles.

realm, conserve land and create more green space; all of which reduce our carbon footprint. The general public is still under the

National and International Density of People Per Acre

PARIS 91

HOUSTON 5.5

BOSTON 17.2 LOS ANGELES 9.7

NEW YORK 30

CHICAGO ROME 21 39 SAN FRANCISCO 23.5

The Walkability Factor = Smoking Hot Returns A recent Brookings Institution economic analysis reveals real estate

More Walkable Places Perform Better Economically1 Office Rent Premium

$8.80/sf

= 41% Premium

Retail Rent Premium

$6.72/sf

= 47% Premium

Retail Sales Premium

80%

= 80% Premium

values are increasing as neighborhoods become more walkable.

The in-depth study evaluated real estate values encompassing the Washington DC metro area and revealed walkable neighborhoods perform substantially better economically. Previous research identified Washington DC as having a high number of walkable places and for this reason, served as a focus for the study which identified 201 walkable, urban places. Economic analysis concluded

Average Apartment Rent Premium $301/Month = 31% Premium Average Home Sale Premium

$81/sf

= 86% Premium

that, as the number of environmental features that facilitate walkability and attract pedestrians increase, so do revenues for office, retail and residential sales. It becomes perfectly clear that walkable mixed use neighborhoods delivered astonishing premiums in their economic performance over stand alone neighborhoods. It is interesting to note from this analysis that the synergy of all user groups benefits the entire mixed-use community.

“Economic analysis concluded that, as the number of environmental features that facilitate walkability and attract pedestrians increase, so do revenues for office, retail and residential sales.”

The “Smokin Hot” returns identified in the Brookings study are significant enough to turn the heads of the development and investment community to embrace density and walkability as a profitable and sustainable growth model. Supporting this data on walkability is a survey by the National Association of Realtors which reports 58% of home buyers surveyed prefers mixed-use neighborhoods where people can easily walk to stores and other businesses. Changing demographic trends show that two thirds of home buyers today factor walkability into their home selection decision, preferring the convenience of buying within walking distance to shops and restaurants. Significant challenges, none the less, exist and make it difficult to develop large scale mixed-use projects. High land costs, cumbersome entitlement process, and reluctance of lenders to finance mixed-use projects remain the hurdles that must be overcome to create micro villages.

The Micro-Village as an Alternative to Sprawl As an alternative to suburban sprawl, the natural evolution in the urbanization of American cities is to create inviting urban village environments or micro villages that provide a distinctive sense of place.

To achieve sustainable growth, a well-conceived urban design combined with responsible public planning policy will help shape our urban environment into high density mixed-use districts. These mixed-use neighborhoods will ultimately take the form of micro villages where people prefer to walk instead of drive. Walkability has become the new green in high density urban areas providing pedestrian access to public transportation, public parks and biking trails.

Under the stress of today’s fast paced lifestyle, we find Millennial and Boomers seeking households located in the heart of high-density employment centers. Creating high density mixed-use districts appointed with outdoor cafes, public plazas, park space, hike/ bike trails and tree lined streets establishes not only a viable growth strategy, but also a highly profitable development strategy delivering premium returns. You would think the real estate industry would seize the opportunity to execute high density mixed-use projects, however, well established development patterns are difficult to break. New research on profitability of mixed-use development is catching the attention of developers, architects and investors.

“As an alternative to suburban sprawl, the natural evolution in the urbanization of American cities is to create inviting urban village environments or micro villages that provide a distinctive sense of place.�

Walkability Barriers Despite increasing market demand for walkability there remain public and private sector barriers to walkable mixed-use developments. Planning policies still encourage low density suburban development and the financial industry still views high-density mixed-use developments as higher risk capital for debt and equity financing. As the inertia of suburban sprawl continues to wane and the financial success of mixed-use urban development increases its market share, the capital markets will follow.

We now find ourselves at a tipping point where the public’s desire to locate their households near walkable mixed-use neighborhoods has attracted the attention of a broad set of interest groups to promote urban densification. Lenders, for example, find cause to integrate walkability into their underwriting policies; developers and investors now look at walkability when considering prospects for acquiring property; Local and regional planning agencies are beginning to incorporate walkability in their strategic development plans, and private foundations that provide funding to advance sustainability practices are encouraged to consider walkability.

By getting the public sector and private enterprise to understand the economic, social and environmental benefits of densification, American cities are setting the stage for responsible growth by establishing planning policies to encourage high density mixed-use development.

Successful micro village communities are infused with a vibrant urban life that is a more entertaining and engaging alternative to our auto dependent suburban lifestyle. Our urban future is bright and awaiting innovative investors, developers and architects to take advantage of the “Smokin Hot” returns!

¹Brookings | May 2012; Walk This Way: The Economic Promise of Walkable Places in Metropolitan Washington, D.C.; Christopher B. Leinberger and Marieta Alfonzo.

ABOUT the AUTHOR Founding Principal, Scott Ziegler, AIA, is a recognized authority and thought leader in the multi-family industry, as well as a frequent guest speaker. Mr. Ziegler’s visionary leadership, insight and comprehensive knowledge of the profession have led his firm to design over 70 award winning projects that have garnered regional and national recognition. Multi-family Executive Design Awards recognized Ziegler Cooper’s design of The Austonian as a Grand Award Winner for Project of the Year (High-Rise: Condos) and as a Merit Award Winner for Project of the Year (Green). Multi-Housing News Design Excellence Awards program recognized The Austonian for Best New Development, High-Rise and Highland Tower with Best New Development High Rise (Silver). With over 30 years of experience, Ziegler is adept in providing design direction to his clients in the form of density studies, developing appropriate unit mix, unit design, lifestyle demographics, amenity packages, interior design and insight into future design trends.

Contact Scott: sziegler@zieglercooper.com. 713.374-0008

Scan the QR code with your smart phone for more information on the Living Place Studio

Ziegler Cooper Architects 600 Travis Street Suite 1200 Houston, Texas 77002 (p) 713.374.0000 (f) 713.374.0001 www.zieglercooper.com