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.
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.
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.
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.
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.
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.