Multifamily properties with sustainability features have a significantly lower risk of mortgage default. That’s the conclusion of a May 2013 report by Professor Gary Pivo, which is available from Fannie Mae. The lengthy and self-explanatory title of the report is The Effect of Transportation, Location, and Affordability Related Sustainability Features on Mortgage Default Prediction and Risk in Multifamily Rental Housing.
Professor Pivo was able to access Fannie Mae’s database of multifamily loans. The study looked at 37,385 loans that ranged in age from brand new to 30 years old; the average loan age was 6 years. The default rate of properties in this study was a very low 0.86%. That means only a few hundred properties were in default.
The average location on the urban-rural spectrum was “metro city” — between the urban center and the urban outskirts. The average number of dwellings on each property was 95 (standard deviation was 125 dwellings) and the average construction date was 1968 (standard deviation was 26 years). Both of the latter two measurements had a large standard deviation, meaning the data values were spread over a wide range.
The study tested the portfolio of loans with seven sustainability variables. The variables were based on U.S. Census 2000 statistics for census tracts, census block groups, and other sources.
- Commute time: Commute time in minutes for those who work outside the home
- Rail commute: Do at least 30% of the residents take a subway or elevated train to work?
- Walk commute: The percentage of residents who walk to work
- Retail presence: Are there at least 16 retail establishments nearby?
- Affordability: Are some of the units required to be affordable?
- Freeway presence: Is the property located within 1,000 feet of a freeway?
- Park presence: Is the property located within 1 mile of a protected area?
In a September 2009 paper The Market for Smart Growth, market researchers at Robert Charles Lesser & Co. reported strong market demand for housing in new urban communities. In a number of U.S. cities, their consumer surveys found at least one-third of the market prefers new urbanism, transit-oriented development, and urban and suburban infill communities:
Proprietary consumer research conducted by Robert Charles Lesser & Co. LLC (RCLCo) in various U.S. real estate markets has consistently found that about a third of respondents, given the option, would seriously consider New Urbanist communities and housing products in selecting a new home. The majority of the RCLCo studies were conducted for builders and developers as input to planning new smart growth developments. … An examination of the survey evidence relative to consumer housing preferences in the context of demographic projections demonstrates that the size of the market for dense walkable communities is increasing. (emphasis added)
There’s a lot of confusion and skepticism about what Americans really want in a neighborhood. The conventional “American Dream” has, for more than a century, been an house with an acre or so of land in the idyllic suburbs. A lot of Americans still desire that dream — but what percentage, and under what conditions? And will the majority want that dream in the future, or are cultural shifts in the offing? Let’s look at some surveys and projections about the market for neighborhood types.
Several surveys of market preferences have found that a solid majority want large, detached homes, while at the same time there is substantial support for walkability and proximity to mixed use. A 2002 National Association of Homebuilders survey found that a majority wants big, low-cost, spread-out houses, but also that 25 to 35 percent wants destinations within walking distance, sidewalks, workplaces closer to home, and infill in the center city or inner suburbs.