How Walkability Impacts Multifamily
A groundbreaking report by Smart Growth America explores the implications for investment in key markets across the country.
Walkable urban places have earned plenty of buzz in recent years for a multitude of reasons. A groundbreaking study explores the links between walkability and investment and in multifamily and other real estate categories.
Released by the nonprofit Smart Growth America, Foot Traffic Ahead, Ranking Walkable Urbanism in America’s Largest Metros 2023 takes a detailed look at the 35 largest U.S. metropolitan areas.
Walkable urban places are characterized by a mix of different real estate product types, according to Chris Leinberger, co-founder & managing director of Places Platform LLC and the study’s author. Those property categories include multifamily, office, retail, industrial and single-family housing. Also central to these walkable areas: civic resources, such as museums or sports venues, within a half-mile radius.
Walkable urban areas and drivable suburban locations constitute “two entirely different ways of building,” Leinberger told MHN. “Everything about it changes from your site acquisition to your financing, your construction types, your marketing, your management.”
To measure walkability and rank metropolitan areas, the study draws on data from research partners Yardi Matrix, Rocktop Partners LLC and the American Enterprise Institute Housing Center’s Walkable Oriented Development database, as well as additional sources.
Counting all property types (office, retail, for-sale homes and multifamily rentals), the highest-ranking metropolitan regions for walkability are New York City, Boston, Washington, D.C., Seattle, Portland, San Francisco, Chicago and Los Angeles. The two lowest-scoring metro regions are San Antonio and Las Vegas. These scores, the walkability of urban places, impact commercial real estate’s prices as well as location and tenant satisfaction. These scores, the walkability of urban places, impact the affordability of housing in the area as well as residents’ overall health and satisfaction.
In the 35 metropolitan areas studied, 30.4 percent of all multifamily rentals are in walkable urban places. This percentage varies widely, however. For example, the New York City metropolitan region features 70 percent of all multifamily rental inventory in a walkable urban place. Chicago follows at 45 percent of its inventory, then Boston at 44 percent. At the other end of the spectrum, only 4 percent of all multifamily homes in the Las Vegas area are located in walkable urban places.
Communities connected to walkable urbanism benefit from a sense of community, increased public health, safety, social justice and racial equity and climate sustainability. But this comes at a cost. Due to the benefits of walkable urbanism, increased prices in these areas make it hard for housing affordability and social equity. According to the study, these communities more than often come at a price premium.
Through the rankings of each region’s walkable urbanism, multifamily follows the same trend: The more walkable an urban place is, the more multifamily inventory is concentrated in a walkable neighborhood.
In the top level of walkable urbanism, from 31 percent to 70 percent of the multifamily inventory is in walkable locations. These include New York, Boston, Portland, San Francisco and coastal urban areas, with the notable exception of Chicago. Key links among these diverse areas: accessible transit systems, less urban sprawl and significant environmental awareness.
For metropolitan areas in the second level, from 13 to 30 percent. This is a significant drop from just one tier above. Cities in this category include Denver, Houston, Miami, Austin and Pittsburgh.
Columbus, Nashville, Baltimore, Detroit and the Dallas-Fort Worth metropolitan areas are among those that fall into level three. These areas are working on redeveloping walkability or implementing the necessary systems for the first time. Here, communities in walkable areas are 7 percent to 20 percent of the entire multifamily inventory.
In the fourth and least walkable group of metropolitan regions, the share of multifamily communities in walkable areas ranges from 4 percent to 14 percent. These areas include San Diego, Phoenix, Orlando, Las Vegas, Tampa and many Sun Belt locations.
In every region included in the Foot Traffic Ahead, Ranking Walkable Urbanism in America’s Largest Metros 2023 report there is a significant multifamily unit price premium. On average, this premium for walkable urbanism compared to drivable sub-urban multifamily housing is approximately 41 percent.
“What we saw during the pandemic was [multifamily] walkable urban price premiums retreated a little bit,” Leinberger told MHN. “There were roughly 45 percent rent per square foot premiums in 2019 for walkable urban apartments.”
For almost every area, the percent change in premiums since 2018 has decreased, but this does not mean the premiums reflect more affordability in walkable urban areas. For example, in the New York City region the premium is 80 percent and in Chicago the premium is 65 percent for multifamily units in walkable areas.
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So, will premiums remain where they are at post-pandemic levels, or will they rise again? Leinberger anticipates multifamily price premiums will reflect a V shape after the impact of COVID. “We have all the signals to expect that it is a V rebound, and it will continue to be not just significantly priced premiums but going even higher,” he said.
The issue of an undersupply is only furthered by the limited space usually occupied by walkable urban developments. “The places that we are identifying, these walkable urban places … are 1.2 percent of the 35 metros and their land mass,” said Leinberger. “They generate 19 percent of the GDP in the country, not just in the 35 metros, and 6.8 percent of the U.S. population.”
Market shift share, which measures the absorption of walkable urban areas compared to the base of the market share and the shift in that share from 2017 to 2021 showed only a decreased in New York City. According to the report, in every other market, walkable urbanism grew much faster than the base market grew.
With such high demand and such limited space across the top 35 metropolitan areas, as well as the nation, regions are looking at how to implement more walkability into existing areas and develop new walkable urbanism. Not every region, however, is adopting at the same rate.
Regions included in the study that have above average current as well as future indices of walkable urbanism are Boston, Washington DC, San Francisco, Miami and Charlotte. These cities, already leading the pack for walkability, are expected to continue to do so.
According to Leinberger, the top seven metropolitan areas, aside from Los Angeles, have all produced sufficient enough walkable urban land to allow the market to perform well. Despite high price premiums in these locations, there are opportunities for multifamily development and investment.
By contrast, regions that are currently below average in their foot traffic ahead index but above average in the future momentum index include Atlanta, Nashville, Dallas-Fort Worth, San Diego and Orlando.
Places that are implementing more walkable urbanism and creating more transit systems, such as Dallas-Fort Worth, have tremendous multifamily potential. “There would be a market that you would be able to build a large base of multifamily and spread those fixed costs over a large number of apartments because they are putting in the transit investment and they’ve upzoned the land,” said Leinberger.
For multifamily investors, investing where there is walkable urbanism means investing in a region with a high demand for space. The multifamily market will continue to favor walkable urbanism. Investors can take the implications of these figures by Smart Growth America to mean that regions with high walkability already, and regions that are working on increasing their walkability rating, will continue to succeed.
Leinberger believes the key to further creating walkable urban places is upzoning. “We estimate that in 98.8 percent of our metropolitan areas it’s illegal to build walkable urban development,” explained Leinberger.
Upzoning land, he said, would produce a huge increase in development activity. The more area that is rezoned for walkable urban developments the less expensive the land will be, driving down prices for every property type and easing the affordability crisis the U.S. is currently facing.
“The reports of our city’s death are greatly exaggerated,” Leinberger said. “Yes, our downtowns that are dominated by office are in trouble, but walkable urbanism is also in downtown adjacent places that surround downtown.”
Walkable urbanism could be the answer to many of the U.S.’s housing needs and problems while offering direct benefits to the residents that live in walkable urban located multifamily communities. However, to make walkable urban places the answer, we must first make more.