Association for Public Policy Analysis & Management

This paper develops estimates of the local impact of higher levels of density on single family home values. In many metropolitan areas in the United States, population growth is creating pressures for increased development. Commercial and residential development projects often elicit protests from local residents who suggest that greater density will produce negative congestion effects such as increased traffic, crowding in schools, and crime. Academic literature links the response from homeowners to concerns over the potential negative impacts on property values. This logic suggests that opposing new development serves the self-interests of homeowners by protecting the investments in their homes. While the negative impact of density on housing values is a popular narrative, there is scant empirical evidence to suggest a negative relationship between density and residential property values.

In this study, we hypothesize a non-linear relationship between density and home values. At low levels of density, increases in density are expected to enhance residential property values as homeowners reap the benefits of added convenience, new amenities, and improved infrastructure. In this state, the benefits of increased density outweigh the negative, but modest, congestion effects. At some point in the urban development process, the negative congestion effects associated with density will begin to dominate the positive effects of development. Determining the inflection point in this relationship is the goal of this study.

This study uses historical property assessor and transaction data obtained from Zillow to analyze the impact of density on home values in a number of metropolitan areas between 1995 and 2017. This data set provides detailed property information (size and characteristics of housing units) and makes it possible to provide quantity and quality adjusted housing value estimates. We construct multiple density measures based on the square footage of structures, the number of housing units within a given distance of a home, and population density. The multiple measures of density allow analyses to assess potential variation in the impact on home values from different types of density. Two instrumental variables (soil quality and topographical slope), both of which affect density but not home values, are used to support a causal relationship between density and home values.

Findings from this research will increase our understanding of the relationship between density and property value. In particular, this study seeks to identify the point, if any, at which additional density has a negative effect on residential real estate values. These findings may be used to inform policy debates about urban density that are prevalent in growing urban areas in the U.S.