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More Room Diversity Leads to Higher Housing Values

The Connecticut Economy

Municipalities that diversify their housing options are likelier to have higher home values, UConn’s quarterly economics journal reports.

In an article on research by Dr. Steven Lanza, The Connecticut Economy’s executive editor, writes that municipalities that had “room diversity” – a range of housing units with different numbers of rooms – tended to have higher housing values.

The finding is consistent with the views of housing policy experts that a wide supply housing types leads to churn in housing markets, bringing together many more buyers from different income levels with sellers who have a wider array of homes to sell or rent. The result: more activity, for transactions and the likelihood that housing values will stay high or rise.

Lanza used 5-year estimates from the American Community Survey (ACS) from 2011 which in addition to recording home values across communities, also reports on the number of housing units in each structure and the number of rooms in each unit.

Lanza used various regression models to determine the effect unit diversity and room diversity each have on home price and price changes over time. The models indicate that home values have a strong correlation with towns that have high room diversity.

Conversely, the models showed that home prices are lower where housing units are more diverse and multifamily housing plays a larger role. Towns that have a higher ratio of rental housing to ownership housing seem to have below average home values.

Lanza’s findings indicate that home values are higher in towns with a wider array of home sizes and expanding on this diversity adds to home values over time as opposed to towns that lack residential diversity.

Lanza suggests that towns can benefit greatly from this finding by investing more in denser, more affordable homes in a walkable town center.  One tools Lanza suggests for towns are Incentive Housing Zones. The state has a program where towns can apply for a grant to establish IHZ’s to allow developers to increase housing density and affordable housing (most likely housing that is smaller than the rest of that town’s housing stock).

Click here to access the CT Economy and read Connecticut Housing: Variety Adds Some Spice to Price


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