Good investors pay careful attention to many aspects of a property and the neighbourhood, but did you know that transportation has a profound effect on real estate? In multiple cities, multiple countries, and multiple continents, researchers have been measuring the impact that transportation has on real estate—all the way back to the mid 1800’s. This is not a new phenomenon—but many investors overlook this criteria when choosing their next property.
The following is a very simplified post about the effects of transportation—thanks to the Real Estate Intelligence Network’s recent research and publication: the Edmonton Transportation Effect Report, by Don R Campbell, Jennifer Hunt, and Rebecca Wissink, 1st edition, 2018. I suspect we’ll see Calgary specific information in the spring.
There is a social trend in Canada to build communities where people can live, work and play. However, this simply isn’t possible for everyone. A 2016 Census report showed that 68% of Calgarians drive to work, 11.4% carpool, and 14.4% take transit. I am especially impressed by the 1.5% that bike to work regularly, and the 4.7% that walk to work—January must build a lot of character! In Calgary, this suggests that 79.4% of commuters rely on good access to roads and highways to get to their workplace.
So what should we as investors be looking for to support the drivers AND the transit riders? Research suggests that being close to an LRT station OR a highway access point (think onramp) can increase property value from 1% to 40%–on average, in Canada, that seems to work out to a 10% increase. How close? Research also suggests that being too close to an LRT station or a highway access point can decrease property values. The sweet spot seems to be between 274 m and 800 m. The very same house inside this radius will have BOTH higher rents AND higher property values—when compared to an identical house that is farther away. It is important to be clear here: just being close to the line, or close to the highway actually has a negative effect on property values. People value the access points—not the noise and/or pollution of the roads or rail lines.
As a side note, when a new project is announced, real estate near a new transit station or highway onramp go through a predictable fluctuation in values. During pre-construction, these properties rise in value as consumers and investors realize the benefits of the new transportation. During construction, noise, dust and traffic delays decrease property values: just ask anyone living near Anderson road these days! Then post-construction, the property values rise again, to settle at roughly 10% higher than a similar property farther away from transit or highway access.
Very few investors will be getting out their tape measures, but the principle is important: accessibility to transportation creates value, for both the property and the rent rates. Consumers are very clear about this: they will spend more on housing costs to save time in their commute. For homebuyers and renters, they can also save money by living closer to transit or highway access; the research suggests an average annual savings of approximately $1200. AND the time and money savings increase when the commuter lives farther away from the “downtown” or central business district.
Our goal as investors is to maximize our returns. Our business model as Rental Housing Providers is to offer the customer (our tenants) a good quality service and product. It only makes sense to include transportation access as one of our key criteria to choosing a property.
