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Urban In-Fill & Land Use Patterns
November 14 | 2013

Urban In-Fill and Land Use Patterns

It’s often said that the three most important factors in real estate investing are “location, location, location.”  Multi-family housing is subject to this truism in special ways.  We’ll explore here the phenomenon of urban in-fill and some ways in which larger cities tend to grow.

How cities develop – and where demand for new development is most likely to occur – is a key part of analyzing a property’s prospects.   Investors able to identify a pattern in how that growth unfolds will have discovered one of the keys to successful real estate investing.  A major factor in that development is the important factor of accessibility, i.e. transportation routes.

Many cities have historically grown along highways that radiate out from the city, like spokes on a wheel.  The focus is the central business district; as the area grows, homes and businesses are sited along the transportation routes that permit easy access to the center.  While these “spokes” lead the way, the general growth pattern of cities is more complicated, and is often referred to as “concentric growth,” or the “ring pattern.”  This refers to closer-in circles around the business district being filled in first, with outlying areas eventually becoming more populated as well.  Many cities thus develop somewhat of a “star” pattern, with the spokes leading the way and the circles gradually filling in with development.

At some point, however, further radial expansion becomes of less value, simply because the transportation time and cost to the city center begins to become discouraging.   Cities must then continue to develop their infrastructure internally, in order to keep up with the increased population.  Not only does this internal development often serve market demand – witness the increasing number of “urban lofts” – but higher densities can also reduce per-capita infrastructure costs.

Good city planning thus uses transit-oriented development, which attempts to place higher densities of jobs or residents near high-volume transportation.  Some cities might even use zoning to require that multi-story apartment buildings and commercial areas be within a certain proximity of train stations or multi-lane boulevards.  When a city reaches a certain density, trains or light rail systems become increasingly viable.  New York, Chicago, Philadelphia, Boston, and San Francisco all have well developed commuter train systems, and Los Angeles and other cities are increasingly spending significant resources on commuter train lines in order to limit congestion on over-utilized highways.

These transportation developments can then act to spur gentrification in what might have formerly been lower-income areas.  As workers become better linked to employment centers, the new transportation routes can encourage investment in areas that had previously suffered neglect and economic depression.  As transportation costs diminish, household income becomes available to be spent on more consumer goods, spawning growth in retail sectors as well.

Access to transportation remains a key factor in evaluating real estate development, and within larger cities the construction of train or light-rail lines are becoming increasingly important in providing access to downtown areas or other employment centers.  In city areas slated to become the beneficiaries of such new means of transportation, real estate investors often see opportunities, particularly in the multi-family sector, as demand for housing near such transportation routes is often likely to increase. 

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