Suburban Nation - Andres Duany [45]
A final reason behind the undue influence of the market experts has to do with how developments are financed. Few real estate projects are funded entirely by their own developers; most depend on huge loans from banks, pension funds, and other institutions looking for safe investments. Such investors, before financing a development, typically require market surveys demonstrating the success of previous similar projects, called “comparables.” To qualify for funding, projects have to be presented as not materially different from the comparables—with unsurprisingly repetitive results. Developers that possess the initiative to try something different—such as creating a mixed-use community—find themselves unable to move forward without the blessing of a market analysis advocating their proposal. This is something that most market experts are unable to provide, as their data is collected from the subdivisions recently built by their conventional clients.
QUESTIONABLE CONVENTIONAL WISDOM
With or without the advice of the market experts, the development industry is also led astray by its own conventional wisdom, most significantly its well-worn mantra of “location, location, location.” This can be true enough, but the evidence suggests that good design, generally discounted by developers, can have an impact equal to or greater than location on the value of a property. Two houses in Coral Gables provide an instructive example. They are located across from each other on the same street and are served by the same schools. Both contain about 3,000 square feet of air-conditioned space on a 10,000-square-foot lot. But the house above recently sold for $370,000, while the house below sold in the same year for $1.4 million. What is the difference between the two properties? Design. One is classically inspired, is carefully detailed, and sits toward the front of its lot, creating a large interior yard of uncompromised privacy. The other is a standard one-story ranch house sitting smackdab in the middle of its lot, with residual yards all around, none of which is particularly usable.
The value of design: two houses with similar statistics but vastly different prices
Seaside: a holiday resort designed on the model of a traditional town
An important point to make here—which helps explain the higher value of both traditional houses and traditional communities—is that expensive older real estate owes its price to more than just its history, its mature trees, or what the art historian Alois Riegl referred to as “age value.” There is no doubt that historical significance can also contribute to property values, and the age of Georgetown and Boston certainly plays some role in those cities’ vertiginous housing markets. But age value does not explain the neotraditional developments of Seaside and Kentlands, both built in the 1980s, in which houses and homesites sell at a significant premium over similar properties nearby. At Seaside, which is located in the middle of nowhere, a small lot a quarter mile from the water sells for twice the price of a twice-as-large oceanfront lot in a nearby subdivision.2 At Kentlands, houses sell for a $30,000 to $40,000 premium over comparable units on larger lots in neighboring subdivisions. 3 The difference is not age, or location, but design: the fact that the properties at Seaside and Kentlands are part of a town, a place where people want to be.
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