The California highway system is a sinuous myth of legend, snaking through the great Los Angeles stories like an old-world demon. It has totemic power in movies like LA Confidential and Who Framed Roger Rabbit (which, don’t laugh, is sneakily the greatest LA film ever), where corrupt politicians and gangsters compete so that their the freeway will run near their lands. It is taken as axiomatic that highway proximity will greatly improve land values, and while it is true that being near the highway—as with the canals and railroads that were its ancestor—is great for commercial property, that isn’t always the case with residential property. Fix-and-flip professionals looking to buy a property to improve its value should consider the impact, for good and ill, that highway proximity has on a house.
The Importance of Transportation
When looking at property to buy for residential rehab, there are a lot of things to look for. You have to analyze the neighborhood for the kinds of businesses it has, and what kind it could attract. Resident demographics tell the story of where the area is and where it is going. And access to transportation is one of the best indicators of the future property values of a neighborhood.
For years, highways were the most important part of the American transportation system. Originally built for military and industrial purposes, the highway was how cities emptied out, as people could move to the suburbs but still commute to work in the downtown areas. The era of cheap gas made this possible. It’s why people considered cities to be dead in the 70s and 80s. Even when corporate headquarters moved to the burbs, people in further-flung suburbs and exurbs still relied on the highways.
That’s changed, though. People, especially younger tech workers, are moving back into the downtown areas, and cities have begun to organize around transit-oriented hub development (look at San Diego for an example of that). Transportation, which once emphasized the highway, is now gearing around light-rail, trains, and buses. The proliferation of established companies moving back into downtown areas to join their startup competitors is a perfect indication of this inward-motion trend.
So where does that leave highways?
Residential Highway Proximity as a Property Value Drag
It’s difficult to say exactly how much impact being near a highway has on property values. There are a lot of other factors to consider which makes it hard to zero out any one in particular. But we do know that there seems to be a direct negative correlation between immediate highway access proximity and residential real estate values.
According the a California Department of Transportation study[1. “Appendix D – Transportation Effects on Property Values,” http://www.dot.ca.gov/ser/vol4/downloads/chap_appdx/AppendixD_PropertyValues_21102011.pdf] conducted a few years ago, “(a) majority of the studies surveyed found that price appreciation for properties abutting the freeway, or within approximately 500 feet (about 150 meters) of it, lagged behind that of properties in either the secondary impact or control zone”. Zones further away from the “abutting zone,” as per a study by the Forensic Appraisal Group[2. “Highways,” http://www.forensic-appraisal.com/highways], were impacted less. Now, it admitted that different studies came up with different values, ranging from 5-15%. However, there did seem to be correlation.
Now, to be fair, this study was from the early 90s. The basic contributing factors still remain, though. They include:
These can be mitigated, of course, by ease of transportation to the booming downtown areas. Indeed, when analyzing an area and looking at employment demographics, older workers who own a home outside the city but work downtown mean that highway access is more at a premium.
However, that’s a very specific case. For the most part, as study after study has shown, being near a highway lowers property value. People just don’t want to deal with the noise, the air, and the angry drivers. Highways might have built the modern west, and have been enormously important in California’s economic development. But for fix-and-flip professionals looking for a house to buy and improve with their hard-money loan from Socotra, a highway entrance sign should be a glaring red light.