Academic journal article The Journal of Real Estate Research

Evaluating Subdivision Characteristics on Single-Family Housing Value Using Hierarchical Linear Modeling

Academic journal article The Journal of Real Estate Research

Evaluating Subdivision Characteristics on Single-Family Housing Value Using Hierarchical Linear Modeling

Article excerpt

A b s t r a c t

This research quantifies the financial effects of value creation concepts in relation to housing values in a single-family residential development using hierarchical linear modeling (HLM). As a result, value creation concepts such as sense of arrival, greenway connectivity, and the median length of a culde- sac have positive effects on single-family housing values while the number of accessible entrances and the median length of block variables have negative effects on single-family housing values. These results indicate that higher values in a subdivision may result from smaller blocks, interconnected greenways, and a single entrance that provides a sense of arrival.

In real estate development, developers increase real estate value by utilizing financial support and/or public incentives from the creation of various financing vehicles to maximize the value and return on the development.1 In order to secure financing for the development, developers often require permission from public partners, private partners, or possibly both depending on financing venture structure. Financing vehicles focus mainly on the financial structure of the deal, but these vehicles do not focus on the actual physical development of the project. An alternative way to create real estate value is to incorporate value creation concepts in the design of real estate development projects. Value creation concepts are defined as weighing the trade-offs of design in creating real estate value by maximizing design principles while minimizing financial costs (Sharkawy, 1994). Value creation concepts include the effects on the overall schematic design of residential subdivision development.

In a single-family housing development, the value creation concepts are defined as variables that increase housing value at the subdivision level. For example, all homes in one subdivision may share a common value (e.g., the number of entrances, the presence of fountains, etc.) when the subdivision is designed and built. In this case, although such common values in a subdivision may influence individual housing values, the financial effects of the common values on the single-family homes may not be easily identifiable using traditional modeling methods such as the hedonic price model. Until recently, the effects of value creation concepts on single-family homes within subdivisions have not been extensively examined. Only a few recent peer-reviewed papers discuss a few variables at the subdivision level that evaluate common value effects on singlefamily housing. For example, Thorsnes (2002) found a positive relationship between the value of homes and the preserved area attached to the subdivisions. Guttery (2002) showed the negative effects of an alleyway in a subdivision on single-family housing values.

In conventional housing valuation studies, structural, locational, environmental, and neighborhood attributes are considered as characteristics affecting singlefamily housing values. It is important to note that previous research rarely showed the effects of subdivision characteristics on housing values, for neighborhood attributes differ from subdivision characteristics. The neighborhood attributes are generally measured on the basis of the neighborhood's geographical boundaries. For example, neighborhood variables are measured on the basis of Census Tracts/ Block Groups/Blocks, which are geographic units defined by the United States Census Bureau.2 These geographic units are used as proxies for neighborhood attributes. On the other hand, subdivision boundaries are defined by developers. Both census tracts and block groups are normally not equal to subdivision boundaries. Hence, neighborhood attributes may not reflect a developer's unique design values or represent the precise value of the subdivisions. More importantly, a neighborhood may have multiple subdivisions that differ greatly, diluting the possible significance of subdivisions and the impact on real estate valuation. …

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