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Smart Growth: The Business Opportunity for Developers and Production Builders
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- Background
- The Business Opportunity for Developers and Production Builders
- The Papers
- Placemaking: Creating the Product, by Victor Dover
- The Market for Smart Growth, by Gregg Logan, Stephanie Siejka, and Shyam Kannan
- The Market Acceptance of Single-Family Housing Units in Smart Growth Communities, by Mark J. Eppli and Charles C. Tu
- Smart Growth & Conventional Suburban Development, by Jonathan Ford
- Production-Built Homes: The Cost Advantages of Smart Growth, by Jason Miller
- Branding and Marketing Smart Growth Communities, by Jackie Benson
Background
The benefits of smart growth are well defined, but less discussed are the business decisions needed to bring smart growth projects to market. As a result, investors, developers, and home builders might not have all the necessary tools to decide whether to invest in smart growth development models. Smart Growth: The Business Opportunity for Developers and Production Builders provides eight white papers that present a "business case for smart growth" to help those considering whether to pursue smart growth projects.
This effort is aimed particularly at developers and builders who are active on greenfield sites (undeveloped land). While infill development and development in existing communities play a key role in smart growth, most growth and development takes place on new land. There is consumer demand for smart growth master-planned communities, but greenfield developers and builders might not be as familiar with compact, mixed-use community design as infill developers are.
Developers who understand the business reasons to provide smart growth products can create environmental benefits and still satisfy their business goals. Though much of the information in the white papers is relevant to infill and rural developers, this effort is intended to assist large-scale developers and production builders of master-planned communities who might consider building smart growth projects.
These papers grew out of a gathering held in 2007 at Kentlands, a smart growth community in Gaithersburg, Maryland. EPA invited land developers, production builders, land acquisition officers, marketing vice presidents, investors, designers, demographers, trade organization representatives, and other real estate professionals to participate in the discussion.
Many participants had experience developing and building smart growth projects. A few were skeptical of new development models. Others were there to learn and look for new business opportunities to bring back to their companies. During the gathering, real estate experts presented white papers on relevant business points for real estate investment, with particular attention to their application for smart growth projects. These papers are presented below.
EPA thanks all of the participants who contributed their time, knowledge, and experience by suggesting the relevant business points to examine, refining the white papers, and sharing their on-the-ground experiences.
The Business Opportunity for Developers and Production Builders
The points below, and the white papers they correspond to, build upon each other to lay out the business opportunity for developers and production builders:
- Smart growth developments are definable real estate products. They offer residents a range of conveniences in compact, mixed-use, and walkable places. (See Placemaking: Creating the Product)
- Consumers want this product. (See The Market for Smart Growth)
- Existing smart growth developments have shown over the past 10 years that the consumer is willing to pay a premium to live in one of these communities. Among other things, this premium confirms market acceptance of the product and can minimize risk for investors by showing prospective homebuyers the strength of their investment in a home in a smart growth neighborhood. (See The Market Acceptance of Single-Family Housing Units in Smart Growth Communities)
- Land infrastructure costs to plan and develop smart growth communities are definable, measurable, and competitive with conventional suburban communities. Infrastructure costs in a smart growth development compare favorably with infrastructure costs in conventional developments. (See A Comparative Analysis of Infrastructure Costs in Smart Growth and Conventional Suburban Communities)
- An analysis of design and construction techniques used in home construction finds more cost efficiencies in the smart growth prototype than in a prototypical conventional suburban unit, especially when using the typical tools of production builders-stock plans, stock materials, and stock components such as doors and windows. (See Production-Built Homes: The Cost Advantages of Smart Growth)
- When selling smart growth communities, builders and developers can market the benefits of living in a safe, convenient, accessible community and are able to distinguish their product from the conventional housing market. (See Branding and Marketing Smart Growth Communities)
These business points are discussed further in the white papers below. These papers are meant to help real estate professionals understand the business opportunity of smart growth projects. The papers are presented in an order that defines the smart growth concept, translates the concept into development guidelines, defines the market for smart growth, and looks at development and construction issues associated with horizontal infrastructure costs, phasing, vertical construction, and sales and marketing.
There are no special smart growth formulas. The papers apply traditional real estate analysis to the smart growth product. Many of the papers offer metrics and methods that developers and builders can use for their own project analyses.
The Papers
Placemaking: Creating the Product
In this paper, Victor Dover of Dover, Kohl & Partners Town Planning discusses how things that make smart growth neighborhoods smart also make them desirable — and command a premium from homebuyers eager for the benefits of living in such a community. Good design and placemaking create the product, and this paper succinctly describes the elements that distinguish smart growth neighborhoods from conventional subdivisions.
The Market for Smart Growth
Gregg Logan, Stephanie Siejka, and Shyam Kannan of Robert Charles Lesser and Company, LLC, reviewed studies of consumer demand for smart growth and found that about one-third of homebuyers would prefer to purchase a home in a smart growth neighborhood. This paper identifies the disparity between existing supply and unmet demand, an enormous business opportunity for developers and builders looking to expand their market share by creating a smart growth business line.
The Market Acceptance of Single-Family Housing Units in Smart Growth Communities
Mark J. Eppli, Professor and Bell Chair in Real Estate at Marquette University, and Charles C. Tu, Associate Professor of Real Estate at University of San Diego, found that people are willing to pay more money to buy a home in a smart growth project than a similar house in a typical suburban development. This study of two smart growth communities in Maryland, Kentlands and Lakelands, finds that housing premiums in smart growth communities are sustained or increase over time.
Smart Growth & Conventional Suburban Development: An infrastructure case study completed for the EPA
This paper by Jonathan Ford, P.E., contains a study of two projects comparing conventional suburban development and traditional neighborhood development infrastructure costs. When comparing conventional scenarios to traditional neighborhood designs, the study found that infrastructure costs for the traditional neighborhood scenarios were consistently less than for the conventional development scenarios.
- Smart Growth & Conventional Suburban Development: An infrastructure case study completed for the EPA
Production-Built Homes: The Cost Advantages of Smart Growth
Jason Miller, MFA, CNU, the editor of both TNDhomes.com and TND Series Vols I – III, tackles the perception that building a home in a smart growth community or traditional neighborhood development costs more than building a home in a conventional suburban development. This paper finds that in almost all cases, the smart growth product is either cost neutral or more cost efficient than production-built conventional suburban units.
Branding and Marketing Smart Growth Communities
Jackie Benson of J. Benson Marketing writes that while builders and developers must understand the technical details of the amenities that make up smart growth communities, the brand that they are selling is much more than the sum of the amenities. Builders and developers that successfully package the benefits of good placemaking with good environmental stewardship will demonstrate the value of their communities not only to homebuyers, but also to municipalities.