Wednesday, January 2, 2008

Home Values and Commuting Costs

There is an interesting article in the Pioneer Press about costs and tradeoffs of transportation and housing. I suggest the read.

Location, location, location. Johan von Thunen did not coin that adage on what determines real estate values. But von Thunen's explanations of the relationships between location, transport costs and product prices remain relevant 180 years after he wrote them.

They help explain, for example, why development reportedly is stalling in some distant Twin Cities suburbs while home values in some St. Paul and Minneapolis neighborhoods are holding steady. Not bad for an old German farmer.


Von Thunen also examined how a cheap transportation corridor affects property values. Suppose there is a canal or placid stream. One can load tons of rye onto a barge and move it to market much cheaper than with a wagon. Land prices are higher along the watercourse than elsewhere because produce transport costs are lower.

Ditto for the Twin Cities right now. Property prices have increased along the Hiawatha light rail line. More people want to live where getting to work is relatively cheap and convenient. In response to rising rental demand along the line, developers build apartments and condos. Neighborhood retail businesses spring up to serve the new residents.

The Central Corridor light-rail line is seeing similar activity, even though construction has not yet started. Developers are turning old commercial buildings into condos even though the buyers will have to depend on the No. 16 bus instead of snazzy light rail trains for years yet.

And yes, the same is true for communities along the planned Northstar commuter rail line. There is increased interest in buying property near planned stations.

Von Thunen predicted it all. The only difference is that commuters have replaced rye and the real estate is houses and apartments rather than sandy north German fields, woodlots and pastures.

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