Urban Growth and Real Estate District Dynamics

Chapter: Urban Growth and Real Estate District Dynamics

Introduction

Appraising real estate requires a deep understanding of the forces shaping urban environments. This chapter explores the dynamics of urban growth and its impact on real estate districts. We will delve into scientific theories, practical applications, and the key factors influencing Property value❓❓s❓ within different district types. Understanding these dynamics is crucial for accurate market analysis and informed valuation decisions.

1. City Origins and Growth Patterns

The origin and subsequent growth of a city significantly influence its current land use patterns and real estate values. The “siting factor” refers to the initial reasons for a city’s establishment.

• 1.1 Siting Factors:

  • Transportation Hubs: Many cities originated as transportation centers, such as seaports (e.g., New York), river crossings (e.g., St. Louis), or intersections of trade routes.
  • Power Sources: Proximity to power sources (e.g., coal deposits❓ for early industrial cities) was a key factor for manufacturing-based settlements.
  • Defensive/Political/Commercial Reasons: Some cities were established for military defense (e.g., Rome), political administration (e.g., Washington D.C.), or commercial trade (e.g., Venice).
  • Climate and Natural Advantages: Later, as living standards improved, climate and natural amenities led to the development of retirement communities, recreational resorts, and specialized communities.

• 1.2 Growth Dynamics:

  • Outward Expansion: Cities typically grow outward from their initial site, influenced by:
    • Availability of Developable Land: The physical landscape (e.g., mountains, water bodies) dictates where development can occur.
    • Technological Evolution: Advances in construction, transportation, and communication have profoundly shaped urban sprawl and density.
    • Government Infrastructure: The provision of essential public services (e.g., water, sewer, roads) enables and directs urban expansion.

• 1.3 Density and Development Corridors:

  • Land Scarcity: When land becomes scarce, communities often experience increased land-use density.
  • Development Corridors: These channel new construction to usable land, often along transportation routes.
  • Technological Solutions: New technologies and building materials allow for high-rise construction in areas with challenging geological conditions.

2. Transportation and Urban Form

Transportation infrastructure plays a critical role in shaping modern cities.

• 2.1 Transportation Improvements:

  • Expanded Markets: Improved transportation allows urban settlements to expand and serve larger markets.
  • Growth Patterns: City growth typically radiates from the central business district (CBD) along major transportation routes.
  • Freeway Impact: Major freeway systems can cause migration from the city’s core to suburban areas.

3. Conceptual Models of Urban Growth

Several “social ecology” models attempt to explain land use patterns. (See Stephen F. Fanning, Market Analysis for Real Estate for a more complete discussion).

• 3.1 Concentric Zone Theory (Burgess Model):

  • Describes urban growth as a series of concentric rings expanding outward from the CBD.
  • Zones:
    1. CBD (Central Business District)
    2. Transition Zone (Industry & Poor Housing)
    3. Working-Class Housing
    4. Middle-Class Housing
    5. Commuter Zone (Suburbs)
  • Limitations: Oversimplifies complex urban patterns and doesn’t account for transportation or topography.

• 3.2 Sector Theory (Hoyt Model):

  • Argues that city growth occurs in sectors or wedges emanating from the CBD along transportation corridors.
  • Sectors: Different types of land use (e.g., industrial, residential) expand outward in specific sectors.
  • Influence: Considers the influence of transportation routes on residential and industrial location.

• 3.3 Multiple Nuclei Theory❓❓ (Harris and Ullman Model):

  • Suggests that cities develop around multiple nuclei or centers, each with its own specialized function.
  • Nuclei Formation: Arises due to factors such as specialized activities, clustering of similar businesses, and avoidance of certain areas.
  • Realism: More realistic than the concentric zone and sector models, especially for larger, more complex cities.

• 3.4 Radial (Axial) Corridor Theory:

  • A variation of the sector theory that emphasizes the role of radial transportation corridors in shaping urban growth.
  • Corridors: Growth occurs along major transportation arteries radiating from the city center.

4. Real Estate District Dynamics

Understanding district dynamics is essential for real estate appraisal. A real estate district is a geographic area with a concentration of similar land uses.

• 4.1 General Value Influences:
  • The same forces that influence larger market areas (utility, scarcity, desire, and effective purchasing power) also affect individual districts. However, the emphasis and relative importance of these factors change depending on the type of district.
  • Public Utilities: Availability of utilities (e.g., water, sewer) is a critical factor.
  • Taxes: Property taxes influence the desirability of districts.

5. Characteristics of Different Real Estate Districts

• 5.1 One-Unit Residential Districts:

  • Defining Characteristic: Predominance of owner-occupied homes.
  • Value Influences:
    1. Access to workplaces (proximity to employment opportunities):
       • Commuting Time (T): A significant factor influencing property value.
       • We can model this with a negative exponential function: V = V0 * e^(-αT), where:
         • V = Property value
         • V0 = Base value (without commuting)
         • e = Euler’s number (approximately 2.71828)
         • α = Sensitivity parameter (reflects the market’s aversion to commuting)
         • T = Commuting time
    2. Transportation service.
    3. Access to shopping centers and cultural facilities.
    4. Quality of schools.
    5. Reputation of the area.
    6. Residential atmosphere and appearance.
    7. Protection from unwanted commercial and industrial intrusion.
    8. Proximity to open space, parks, lakes, and recreational facilities.
    9. Presence of vacant land (potential future development).
    10. Private land use restrictions (CC&Rs).
    11. Public land use restrictions (zoning).
  • Homeowners Associations: Residents often take an active role in maintaining property values through homeowners associations or voluntary associations.
  • Telecommuting: The growth of telecommuting impacts residential district dynamics, potentially increasing demand in rural and exurban areas.
    • Formula: Calculate the growth rate (g) of home workers: g = ((HW2 - HW1) / HW1) * 100, where HW1 is the number of home workers in the initial year, and HW2 is the number in the final year.

• 5.2 Multifamily Residential Districts:

  • Defining Characteristic: Predominance of renter occupancy and higher density than single-unit districts.
  • Value Influences:
    1. Access to workplaces.
    2. Transportation service.
    3. Access to shopping centers, cultural facilities, and entertainment.
    4. Reputation of the area.
    5. Residential atmosphere and appearance.
    6. Protection against unwanted commercial and industrial intrusion.
    7. Proximity to employment.
    8. Proximity to open space, parks, and natural features.
    9. Supply of vacant sites (potential future development).
    10. Parking for tenants and guests.
    11. Vacancy and tenant turnover rate.
    12. Proximity to public transportation.
    13. Proximity to linkages, including arterial roads, highways, and interstates.
    14. School districts.
    15. Inventory levels.
    16. Foreclosures and short sales.
    17. Frequency of weather-related problems (flooding, tornadoes, fires).
  • Data Collection: Appraisers must gather data on apartment supply, vacancy rates, and rent levels through primary research or published statistics.

• 5.3 Commercial Districts:

  • Defining Characteristic: Concentration of offices or stores.
  • Types: Highway commercial, retail districts (regional, super-regional, neighborhood shopping centers), downtown central business districts (CBDs).
  • Value Influences: The economic health of a commercial district depends on the vibrancy of its trade area.
  • Trade Area Analysis: Appraisers must identify the trade area served by the businesses in the district.
  • Nearby Land Uses: Property values are affected by the type and character of nearby land uses.

• 5.4 Office Districts:

  • Defining Characteristic: Office uses with supporting retail services and other related services.
  • Types: Central business districts, suburban office parks, concentrations of office properties of a particular class, office condominiums.
  • Value Influences:
    1. Significant locational considerations (time-distance from potential labor force, access).
    2. Building configuration (floorplate size, ceiling height).
    3. Physical characteristics (visibility, attractiveness, quality of construction).
    4. Direction of observable growth.
    5. Character and location of existing or anticipated competition.
    6. Availability of land for expansion.
    7. Pedestrian or vehicular traffic count.
    8. Vacancy and rental rates.

• 5.5 Retail Districts:

  • Defining Characteristic: Concentration of competing retail locations.
  • Types: Regional and super-regional shopping centers, community shopping centers, neighborhood shopping centers, specialty centers, mixed-use centers, strip retail centers.
  • Value Influences:
    1. Quantity and quality of the purchasing power of the population.
    2. Locational considerations (time-distance from potential customers, access).
    3. Physical characteristics (visibility, attractiveness, quality of construction).
    4. Direction of observable growth.
    5. Character and location of existing or anticipated competition.
    6. Retailers’ inventory, investments, leasehold improvements, and enterprise.
    7. Availability of land for expansion and customer parking.
    8. Pedestrian or vehicular traffic count.
    9. Availability of business financing.
    10. Availability of labor.
    11. Location within a city or town or proximity to anchors.
    12. Vacancy and rental rates.
  • Shopping Center Classification: Retail properties are classified by the size of their trade areas. The sizes, trade areas, and leading tenants of different shopping centers are detailed in Table 11.1.

6. Conclusion

Urban growth and real estate district dynamics are complex and interconnected. By understanding the historical context, theoretical models, and key value influences specific to each district type, appraisers can develop informed opinions of value and provide accurate market analysis. The factors outlined in this chapter are critical for assessing the current and future potential of real estate assets within the ever-evolving urban landscape.