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How Location Impacts the Price of Properties

How Location Impacts the Price of Properties

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How Location Impacts the Price of Properties

Introduction

Ownership of property is a vital asset that billions of people worldwide seek. Individuals and commercial entities strive to add this feature to their portfolio. It provides a sense of security for homeowners because it eliminates the cycle of rent payments and has a higher return on investments for real estate companies because of its ability to appreciate in market value. The location of any property is an integral factor in its eventual pricing (Fisher & Martin, 2008). Different geographical landscapes, infrastructural developments, and sociocultural amenities are prevalent in many rural and urban areas. These amenities have a bearing on the value of the adjacent properties and examination of this vital variable is important because it offers insight into the underlying issues. This report will scrutinize the influence that location has on any piece of real estate by comparing theoretical parameters against an actual study of a random area. The findings will be revealed as sources of evidence that reinforce the notion that the price of a property is dependent on its location.

Theoretical Background

The Wall Street Journal identifies the availability of employment opportunities within the locality as a major contributor to the decision-making process of property ownership (Barbanel, 2016). It further states that the frequency of such jobs is bound to attract a large number of investors within the area because it would guarantee their continuous survival depending on their profession and skills. As such, the likelihood of greater competition for these assets is very high. An increase in demand like the one envisioned in this concept results in rising property prices to match the needs of prospective buyers. Industry experts concur that socioeconomic characteristics of the local population have an impact on this phenomenon. For instance, they cite issues such as the relative age, income level, education level, religion, marital status, the average size of a family, average age, and rate of birth and death as strong influencers too. In fact, these demographics are an apt representation of the societal setup and highlight the numerous considerations that inform the choice of investment in a particular area (Rascoff & Humphries, 2015). They also exhibit the various factors that drive property prices in several localities. It is a commonly-held belief that properties bearing similar models have divergent price ranges depending on their location. The external environment under which such buildings are constructed makes the difference.

An analysis of real estate literature reveals that consumer behavior is also directly linked to the value of adjoining properties. For example, the average lifestyle of the populace drives the level of activity within a given jurisdiction and facilitates a certain scope of interest for that region. Sites that draw little attention experience a reduction in inhabitants and those that generate great excitement gradually swell up very quickly (Larsen, Carey, & Howell-Carey, 2007). The former remains desolate while the latter has a larger populace that exerts pressure on the existing housing and business complex markets. It is, therefore, more likely for areas with a bigger population to experience an increment in the worth of the properties. Historians have advanced an accurate theory that depicts the presence of various infrastructure as the main driver of population growth. For example, accessibility to major transportation systems, healthcare facilities, educational institutions, and social amenities are primary concerns that members of the public consider before moving to an area (Monnery, 2011). It is also a vital aspect of background checks that firms conduct before making investments. Collation of data from several housing reports satisfactorily reinforces this concept that properties in urban areas fetch higher prices than those in rural neighborhoods because of the latter’s proximity to such services. Buyers have to weigh between lower prices with minimal civilization and highly priced properties amidst a convenient environment.

Current print and electronic media are awash with an analysis of the recent 2008 global financial crisis, which emphasizes the role that the sub-prime mortgage market played in this fiasco. Amongst the itemized reasons provided for the sudden drop in homeownership in specific areas is the detrimental effect of natural calamities and the affinity of such regions to these disasters. These phenomena have a negative impact on the surrounding areas. People would shun these regions because they are prone to disastrous natural events that cause death and destruction of property. As such, it is clear that the prices of land and property in these locations would be significantly lower than those in relatively “safe” zones. It is imperative that investors and potential buyers study the history of the geographical landscape they would like to make such investments because they could either recoup their money or suffer humongous losses following similar attacks.

The sociopolitical capital of any location has a direct bearing on its ability to attract and retain inhabitants. For instance, scholars agree that people desire to live in an area that is safe, clean and friendly. These factors provide a sense of security and stability to the people. Therefore, it is understandable that regions with high levels of insecurity, racial and political intolerance and religious sensitivities irk the populace and contribute to their mass exodus. Their relocation is primarily driven by the fear of experiencing physical, emotional and psychological attacks by their association with the area. Such developments inherently affect the cost of doing business, availability of basic items and affordability of homes or office complexes (Malloy, 2013). It is therefore apparent that lower property prices would result from such a catastrophic exit and the area that such individuals will relocate to will experience a surge in their value. This implies that areas with a negative reputation have a corrosive effect on the pricing of such assets and those that enjoy positive coverage benefit from higher margins.

Research Methodology

A study on the effects of green infrastructure (GI) on the pricing models for various properties is an apt approach for examining the impact of locations on the value of such assets. This initiative will address the overall sway that integration of GI strategies has on the property prices of different localities within Milwaukee. It will cover industrial, commercial and residential areas. The main research question was; does inclusion of GI programs facilitate an increase in the sales price of a property? It was only logical that adoption of hedonic regression models was the best method for conducting the study. Under such circumstances, the objects that were observed included bio-swales, storm water trees, porous pavements, wetlands, rain gardens, cisterns, local landscaping sites and greenways. Current property assessment data spanning three decades were used, and emphasis was laid on the activities that were under active implementation on the sites rather than those on neighboring sites. These were juxtaposed against the local population density, household incomes, and race.

Empirical Analysis

The study highlighted vital variables that could have an impact on its findings. For example, the level of poverty, percentages of all ethnicities, and the number of vacant lots within a 500-100 feet radius, the lot area, and building area were closely monitored for this aspect. It was noted that the industrial area initially had a base property value of $4M but registered a $1.2M increment after the cleanup and restoration exercise. It was also observed that the figure for assessed values of non-industrial taxable properties rose from $160M to $200M. Commercial entities experienced a $400, 000 increase in the additional assessed value within a similar period especially for those that were located closer to the Central Business District. Residential properties peaked with an equally similar percentage. It was clear that the area witnessed a hike in the value of the properties after the introduction of green infrastructure projects within the locality.

Conclusions and Recommendations

A closer examination of the retrogression models reveals that the GI interventions initiated by a local NGO in conjunction with other private-public entities were instrumental in the rising property values. Planting of trees across streets and flowers in front of lawns enhanced the aesthetic beauty of the region and stirred greater interest in locals and visitors alike (Madison, 2013). These features generated a lot of positive press amongst the populace because it reinforced the notion that the locality had a serene environment with a handful of recreational grounds suitable for outdoor activities. Numerous developers capitalized on this perspective to paint their investments as suburban dwellings that would guarantee a healthy socioeconomic lifestyle for prospective inhabitants.

The residents participated in the cleanup exercises under the guidance of the NGO, which ensured that a proper drainage system was installed. The area was prone to flooding, and because of its rural setting, some rivers had to be rerouted to avoid their passage in the vicinity of the large developments. Creation of buffer zones aided in the realization of this goal, which prevented flood water from spilling over into the neighborhoods. Such enhancements ensured that buildings retained their structural integrity and property owners spent less money on maintenance costs. They dedicated the surplus cash to the refurbishment of the assets, and an eventual increase in the prices ensued. It is notable too that local authorities had more funds for communal development than earlier on. The public entity concerned was preoccupied with fulfilling its mandate, such as the provision of social amenities. Their actions resulted in a higher valuation of the town’s real estate.

A closer look at the town’s transformation during this period shows that the level of infrastructure was upgraded following successful completion of the restoration phase. For example, better roads were built. The level of public educational institutions was also raised a notch higher while a few more healthcare facilities sprung up across the town. Such developments provided a facelift to an otherwise derelict town that had been choked by poor road network and inaccessibility of vital services (Madison, 2013). The new roads eased the cost of doing business. A renewed level of interest was witnessed by parents with school-going children because such establishments were now in plenty. The town’s ability to sustain better living standards was reinforced by the quality healthcare clinics that dotted around it too. These additives made property prices skyrocket over time because they enhanced the area’s profile.

The retrogression model also offered insights into the correlation between a building’s proximity to the Central Business District (CBD). Properties that were located further from the CBD fetched lower prices. This is attributed to the closeness of such properties to vital socioeconomic facilities such as parks, banking services, integral business premises and government offices. The GI interventions mentioned above also aid in the creation of a cleaner and purer atmosphere, especially within the CBD. The environment is controlled, and there is less pollution, which helps people have a healthier respiratory system. It follows then that buildings in this space had higher valuations because of these ideal environmental conditions. Addition of landscaping and vegetation significantly improved the aesthetic appeal of the properties. The costs incurred were recouped by a marginal increase in the price of the buildings.

Preservation of historic relics, installation of proper waste management systems, erection of structured parking lots, and acceptance of people from mixed races enhanced the community’s profile as an organized and caring area. In fact, the high ethnic tolerance levels changed the public’s perception of the location and led to a higher population density after that. Acceptance of people from all segments of the society reinforced the transformative agenda adopted by the instigators of change and differentiated the region from surrounding localities. It ensured that individuals felt welcome to the area irrespective of their ethnic affiliation, which served to promote cohesion. As such, the area received a lot of social capital, unlike other places that practiced discrimination. The tranquility prevalent in this zone contributed a great deal to the upsurge of housing prices because of the rising demand from non-locals.

The revival of the industrial site launched a new phase of employment opportunities within the area (Madison, 2013). Many companies sprung up in the spot and begun huge recruitment drives aimed at staffing the burgeoning enterprises with talented workers for greater production output. Attractive wages were used as incentives for luring people into the location. Housing units also cropped up for use by the employees while the demand for other social amenities also rose. It was a multi-pronged approach to the growth of the population density. As more people descended on the town for the lucrative jobs, brisk business was observed. It extended to the real estate sector where demand for accommodation had catapulted the rise of residential units. Such developments enhanced a higher valuation of the lots and buildings resulting in the growth of prices.

The world is facing an existential crisis occasioned by global warming (Blackledge, 2017). Pollution is a major cause of this phenomenon, and its reduction would positively alter this scenario. Local authorities should spearhead the regulation of the transport sector by enacting legislation that bans the unnecessary entry of motor vehicles in designated spots. For instance, members of the public can be encouraged to use bicycles rather than personal cars. Additionally, citizens can be enticed to switch their modes of transport and embrace all public transportation systems available such as buses and trains. It is envisioned that any mass movement of people using these means would significantly influence lower rates of pollution and augment the aforementioned GI strategies. The community would benefit from further positive press, attract more non-locals to the area and facilitate higher property prices. It is also prudent that property owners be compelled to repaint their buildings on an annual basis to improve their aesthetic appeal. Encouragement of such individuals to maintain the unique architectural designs would boost such efforts too. These actions would develop the area’s character and give it an exclusive outlook that distinguishes the region from others. There would be a greater return on property investments because the real estate sector would be rejuvenated.

Office complexes should be incorporated into the green initiatives by adopting energy saving mechanisms within their premises. They too can fill their properties with vegetation that would aid in air circulation within the surroundings. Proper waste disposal mechanisms will also reduce the possibility of clutter within the neighborhoods for a much safer and cleaner environment (Kess & Weltman, 2009). In fact, corporations should be subjected to waste management activities as part of their corporate social responsibilities within the community. Such a united front would ensure the area receives a boost in the elimination of environmental pollutants. It would be an idyllic location for living, working and socializing. The prices for the various tangible assets would automatically rise for the benefit of all stakeholders.

This paper creates a link between theory and practice. It shows that actions are often performed after people have made pragmatic decisions with minimal margins of error. For example, the concept of property prices rising after the restoration of a dilapidated town with modern infrastructural developments and incorporation of green initiatives is proven right by this study. The project also signifies that experience alone cannot be used as the only guiding factor when performing an action. Possession of the right aptitude is vital during such circumstances because of the variations in the context under which different policies are implemented. It is also clear that one must have an intimate understanding of the theory as a way of avoiding committing mistakes when conducting the analysis. Theory helps people gain insight into the matter under discussion while practice fulfills the intended conceptualizations. They are therefore interlinked. For example, the notion that racial tolerance contributes to higher property values is confirmed by the case study. Observations obtained through the retrogression model highlight an increased sense of security amongst the populace and continuation of business activities that raise the community’s profile and attract more non-locals. The demand for property in this area rises because of the increased interest from prospective inhabitants.

The paper also served as an eye-opener into the differences between theory and practice. The latter can highlight unforeseen challenges that may require a rethink of the former. For instance, it became apparent that despite buildings having the same location, their valuations could vary depending on the architectural designs, type of construction materials and the extent of modifications. Under such circumstances, theory should be seen as a guide but not the sole principle in life. Following it should be done cautiously because problems may still arise and alternative courses of action needed to remedy the situation. It also became apparent that both principles work in tandem and cannot be exclusively separated. They are mutually dependent on each other, and even though slight variations may occur, an action facilitates the relevance of a theory.

 

References

Barbanel, J. (2016, January 15).  New York City property values surge. Wall Street Journal. Retrieved from https://www.wsj.com/articles/new-york-city-property-values-surge-1452907433

Blackledge, M. (2017). Introducing property valuation (2nd ed.). Abingdon, Oxon: Routledge.

Fisher, J. D., & Martin, R. S. (2008). Income property valuation (3rd ed.). Chicago, Ill: Dearborn Real Estate Education Co. Bottom of FormBottom of FormTop of Form

Kess, S., & Weltman, B. (2009). Tax incentives for home ownership, part I. Chicago, IL: CCH.

Larsen, J. E., Carey, B., & Howell-Carey, C. (2007). Wiley Pathway real estate. Hoboken, NJ: John Wiley & Sons.

Madison, C. (2013). Impact of green infrastructure on property values within the Milwaukee metropolitan sewerage district planning area. UWM Center for Economic Development, Wisconsin.

Malloy, R. P., & Smith, J. C. (2013). Real estate transactions: Problems, cases and materials (4th ed.). New York, NY: Aspen Publishers.

Monnery, N. (2011). Safe as houses? A historical analysis of property prices. London, UK: London Pub. Partnership.

Rascoff, S., & Humphries, S. (2015, January 24). The secrets of street names and home values. New York Post. Retrieved from https://www.nytimes.com/2015/01/25/opinion/sunday/the-secrets-of-street-names-and-home-values.html Top of Form

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