Expensive is not the same as valuable – particularly when it comes to cities.
Big price tags on large properties offer the alluring promise of boosted tax revenue for both taxpayers and city officials. Yet our cities’ tax system is based on both the value of the buildings and the value of the land.
As properties get bigger, they tend to gobble up land faster than their value increases. Lawns expand faster than the homes they surround. Big retail centers require even bigger parking lots. The price tag may grow, but the value per acre steadily decreases. The promise those pricy properties once offered winds up broken.
This is a critical problem as cities scrutinize their budgets. Decreased value per acre means cities have to tax their residents more just to raise the same amount of money. At the same time, they have to pay for more streets, more pipes, more plows and more police and firefighters than they would if the land were used more productively.
Analyzing Parcel Sizes and Values
I wanted to see which parts of Hennepin County are the most productive. So I used the open-source mapping software QGIS and the parcels dataset from the county’s magnificent GIS open data site. I then divided the total market value by the parcel area (in square feet) to calculate a value per square foot for every parcel in Hennepin County.
Using that figure, I sorted the parcels into seven septiles, each with an equal number of parcels. That gave me five buckets for parcels in the middle – two above-average categories, two below-average categories and one average category. Meanwhile, it also created two buckets for the extreme outliers – government properties with no value on the low end and downtown Minneapolis high rises on the top end. The darker the blue, the greater the value per square foot. Click on the photo below to view the map. Major shopping centers and office buildings have been marked with stars. The legend is below the photo.
Click photo to view full map.
Legend for map of Hennepin County property values per square foot. / Source: James Warden
Traditional versus suburban neighborhoods
The resulting map largely echoed the points authors at Strong Towns and streets.mn have been making for years: traditional development tends to be a much more productive use of land than suburban development. Cities with old street grids are painted a deep, royal blue. Those with winding streets and spacious lots have much fainter hues.
The differences are starkest when you drill down into the history of adjacent neighborhoods that developed at different times. Thanks to converging rail lines, Hopkins had grown into a stand-alone city by the end of the 19th Century. Maps from 1896, when the city was called West Minneapolis, show the same grid that still forms the city’s core extending all the way to 14th Avenue. The homes there today date back as far as the turn of the century.
The neighborhood just across Shady Oak Road doesn’t appear on government maps until 1954. It mostly developed with the curving avenues we associate with post-war suburbs instead of the grids of old cities like Hopkins. Most of the homes, particularly those on suburban-style streets, date to the post-war period, although Fairview Avenue has a few homes built in the first decade of the 1900s.
Two streets illustrate how this played out on the ground. Minnetonka’s James Road is about 0.3 miles long between Fairview Avenue and Oak Drive Lane. Hopkins’ 14th Avenue, the westernmost street in that 1896 grid, is almost exactly the same distance. But James Road has 18 parcels on both sides of the street compared to the 20 homes that Hopkins has on only one side of 14th Avenue.
In this particular case, Hopkins has opted to use the east side of the street for a park, a city building and apartments. But the traditional design effectively puts twice as many homes on the same amount of street as the post-war suburban design. That’s a very efficient use of infrastructure.
The result is that it takes more land and infrastructure to accommodate homes on the Minnetonka side of Shady Oak than it does on the Hopkins side. Minnetonka’s side of Shady Oak is light blue. Hopkins’ side is dark blue.
Values per square foot around along Shady Oak Road. Hopkins is on the east side of the map, and Minnetonka is on the west. / Source: James Warden
To be sure, the Hopkins homes are not large, but they are a far cry from the high density development so many people fear. Cities can see big gains in wealth just by shrinking lot sizes a bit and scaling back yards.
The challenge is that history guides today’s decisions. Hopkins continued extending its grid well after the 19th Century. Lots in that grid conform to the earlier pattern even when they were built amid the post-war boom.
In Minnetonka, though, large lot sizes have been cemented as part of that city’s character, sparking debates as developers sought to build new types of housing that better suited the market. The Star Tribune detailed the challenges in a 2013 story:
When Minnetonka developed in the 1950s and 1960s, the city wanted to preserve the topography and wooded areas instead of creating a grid system. In Minneapolis, a typical lot is about one-tenth of an acre. But in Minnetonka, half-acre lots became the norm, in part so the city could rely on septic systems instead of sewers.
[Mayor Terry] Schneider, a longtime resident, said those decisions helped create rural-like curvy roads and “funny-looking” lots that left pockets of available land tucked in established areas.
“It left us with quirky-looking parcels you wouldn’t see in most communities,” he said. It “was a great goal, but it made it more difficult to redevelop.”
Traditional retail versus shopping centers
Retail centers follow a similar pattern. Maps show the Greater Minneapolis street grid extending close to what is now Southdale Center as early as 1952 (although there’s a half-century gap in the USGS online map record before then and some of the Xerxes Avenue homes date to the late 1940s). Edina made the decision to interrupt that grid when it signed off on the mall, which opened in 1956.
Looking at the property by itself, this decision was unequivocally good. The mall still provides among the best dollar per acre of Hennepin County shopping centers – not up to Mall of America standards, but certainly better than the Ridgedale and on par with Eden Prairie Center.
Values per square foot around Southdale Center and the Galleria, marked here with stars. / Source: James Warden
It’s also arguably catalyzed commercial and office development just across the street, particularly the Galleria. But the reverse is true for nearby residential parcels. Value per square foot are lowest for homes nearest the mall and increase the farther they are from the mall.
This trend is even more amplified at Minnesota’s most famous shopping center, The Mall of America, where property values drop off sharply near the mall.
Values per square foot around the Mall of America, marked here with a star. / Source: James Warden
An alternative to this choice can be seen just two miles up the road from Southdale at 50th and France. The shopping district may not be as big as Southdale, but it has incredibly high wealth per acre that enhances instead of subtracts from the value of nearby neighborhoods.
The multiplying effect grows when communities chain together small pockets of traditional commercial so no home is ever too far from a neighborhood commercial area to reap the benefits. For example, homes start to prosper from the wealth of 50th and France before they get too far from Linden Hills to completely lose the value of that neighborhood. The result is a wide swathe of properties with top-tier value per square foot.
Values per square foot around 50th and France. The well-known shopping district is marked with a star. / Source: James Warden
Lessons
These are not lessons you really need a map to understand. It’s clearly cheaper for a family to pay for a road when there are more families on that road to share in the maintenance costs. It’s just as clear that no one wants to live by a big mall like Southdale. But these basics can get lost in emotional discussions about a city’s character and the lure of big projects.
Even knowing this, cities may still choose to prioritize other goals over economic efficiency. People with sufficient wealth have long chosen to pay for more space. A city may choose to target high-wealth families willing to pay a premium for isolation or it may have desirable natural resources that attract wealthy people who can pay higher taxes. That’s why properties ringing Lake Minnetonka have top-tier value densities even with large lots.
The key is for taxpayers to recognize these trade-offs. There’s not much problem with a homeowner on a large Minnetonka lot happily paying the larger tax bill needed to plow, police and maintain suburban neighborhoods. The big problem comes when homeowners don’t like their tax bills but are unwilling to accept the types of development that would moderate the cost of government.
As cities consider the future shape of their neighborhoods, it is vital that they consider the financial sustainability of the plans they approve.
I’ve been waiting for analysis like this around Hopkins/Minnetonka.
FWIW, I recall Hopkins splits the cost of infrastructure reconstruction 15/85 for residents. Residents pay 15% city covers 85%. Commercial and institutional pay full price. So the entire city is sharing the cost as it goes.
This is great. It basically replaces the MinnPost property value map which is interesting for people who covet expensive estates but far less valuable for those of us who care about building productive growth.
This also points out that growth is not necessarily good. Cancer is a type of growth, after all. Low-value growth is the cancer of land use – it is unproductive. We need productive growth, and increased productivity of existing areas, not just growth.
So basically people on smaller lots cost less in terms in infrastructure but pay more per square foot into the tax pool … and people with larger lots whom it costs more to provide infrastructure for pay less per sqft … which equals subsidy. I wish there were a way to quantify the infrastructure cost per lot so we could see exactly how much suburban development is costing vs. what it’s paying.
@ Wayne,
It should be possible to make a reasonable estimate based on the linear footage of pipeline, overhead lines, etc., plus square footage of concrete/blacktop to serve each lot.
My 40′ city lot needs an incremental 20′ of roadway times however wide a city street is, plus an incremental 20′ of overhead wiring, a fraction of a pole, and 20′ of water, sewer, and gas pipeline. Add another 40′ of sidewalk, and 20′ of paved alley.
A 1 acre lot, assume square, needs 1/2 of about 210 feet of all of the above, except a full length sidewalk at 210 feet. So, roughly ten times the infrastructure of my city lot.
This is being done by Urban3 and StrongTowns. Their work is groundbreaking and insightful… Lafayette, LA may be the biggest study to date. They literally mapped out the expenses for every parcel. And it doesn’t look good. http://www.strongtowns.org/journal/2015/5/10/lafayette
Only if you assume that your lot and the larger lot are valued at the same amount, since property taxes to pay for that infrastructure are based on a percentage of the value.
The values are market driven. So on the one hand, the larger lot will be move valuable and pay more tax. On the other hand, if that large lot is out in a 3rd ring suburb and your lot is in an attractive area of the central city, your location could be more valuable.
If you have a fixed amount of money to buy property, you face tradeoffs in the variety of things which affect the value of a particular parcel. Besides size and location (mentioned above), market forces also value things like school district, street noise, convenience to transportation, stores, etc. People will differ greatly, some finding a benefit in a feature that others find to be a detriment.
The end result is therefore not a simple calculation of infrastructure per foot. Hence, I would argue there is no subsidy simply based on density. The real subsidies are more macroscopic, in government policies that favor mega-projects, TIF financing for big box stores, cheap money / low interest rates for sprawling development.
The Suburban Growth Ponzi Scheme is also a subsidy, often correlated with density. http://www.strongtowns.org/the-growth-ponzi-scheme
But the tax is on the total improved value of the land, not the land itself. I strongly doubt that the value of a home built on a .2 acre lot is typically worth twice as much as a home built on a .1 acre lot. Of course, there are exceptions: I’m sure there are homes in the Interlachen area of Edina in 1-acre lots that actually are worth 7x as much or more than what’s built on my .15 acres. But in general, the more individual homes you get into an area, the more valuable the improvement.
Special assessments are another consideration. The smaller the lots, the smaller the assessments needed for things like street reconstruction, sidewalks, or street lights — there are simply more people to bear the burden. Especially in cities like Edina that assess 100% of street costs, even a relatively wealthy person in a valuable home can be burdened by a street assessment in the tens of thousands of dollars.
I like this analysis, but think you may have oversimplified things a bit — particularly in not looking beyond the single-family home at all.
>”It’s just as clear that no one wants to live by a big mall like Southdale”
One Southdale Place the Edina Westin Galleria condos beg to differ. I agree that it reduces the desirability of a single-family home — but even in a compact, traditional lot size, that’s not usually a very high value per acre.
The upside to the more suburban plat is that there are larger lots that are easier to redevelop. In Richfield, except for single-family homes being replaced with other single-family homes, almost no project doesn’t involve combining lots. The most (in)famous example in Richfield is Best Buy, where blocks of homes and a car dealership were combined to create one large (and probably more suburban) higher-value parcel.
I also think the 50th & France area becomes a bit of a chicken/egg. A large area of high value is Edina’s Country Club District, which preceded most of 50th & France — and presumably became desirable mainly for its namesake. You then also have a hundred years of inertia: the Lincoln Hills neighborhood in Richfield (traditional neighborhood you featured, due east of Southdale) is filled with modest homes. So it’s unlikely a very well-heeled buyer, seeking something larger, would want to buy such a home to tear down and replace with the most expensive home on the block. It makes more sense, generally, to buy a cheaper home in an already-more-expensive neighborhood.
My conclusions from looking at this data would be:
1. If you’re doing a greenfield single-family home development, you should follow traditional platting and design, with small lots and a tight grid (and preferably alleys). Because it does create more value than big lots.
2. If you already have a suburban, big-block, big-development area, focus energy on big-block developments that can bring more value and residents (like One Southdale).
3. If you already have a traditional, small-block/grid area, consider what small investments or policy changes can be made to make that area more desirable. Even if a developer wanted to build 50th & France today, could they?
James, this is excellent.
One suggestion for the map, if I may:
Greatly reduce the darkness of the parcel outlines, or remove the outlines altogether. When zoomed out, pretty much the entire map shows up dark/black – not because of the high value/acre, but because of the line density of the parcel outlines. Getting rid of the outlines on the parcels (or going with the lightest gray possible) should help with that.
Great suggestions. There are a few things about the map I’m not happy with. Your outlines issue is one. I couldn’t get the legend to appear on the public map. And I couldn’t get the value per square foot calculation to appear on the public map. It was my first stab at using QGIS and QGIS cloud. I’m hoping to learn more as I go along. For now, I love seeing what conclusions other people like you and Sean Oleary draw from the map. My hope is that there will be people who notice things I didn’t and write about it.
With exploring around Lake Minnetonka a bit more, values along the lake are high, but step off the lake and property value per sq. ft. drops a lot … except in the old village settlements of Excelsior, Deephaven, Wayzata. There, the old village tiny parcels are holding real value.
I’d love to see this kind of comparison between places where lake/riverfront is privately owned or controlled (like beaches that are technically public but all the access is controlled privately) vs. the Minneapolis/St Paul areas where the actual lake and creekfronts are really public and the private property is generally across the street. It seems like our method spreads the value of the waterfront farther without making the places closest to the waterfront less valuable.
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This appears to be based on improved value. If so, aren’t you simply pointing out that 4 houses per acre has a higher taxable market value than 1 house per acre.