Thursday, December 13, 2007

Home Values, Markets, and Natural Amenities

Most news coverage focuses on national housing trends, largely because there's more data available. However, there are huge differences in how home values have performed between markets, and one of the performance drivers is natural amenities.

The natural amenity concept was developed by David McGranahan, an economist with the United States Department of Agriculture. McGranahan was investigating why some rural counties grew while others lost population. His idea is very basic; people move to places that are pleasant. McGranahan developed an index which scored places based on weather (How cold in the winter? How hot and humid in the summer?), topography (hills and mountains are more interesting than flatlands), and water surface (coasts, lakes, ponds and rivers are more interesting than drylands). When he mapped the index and population change, this is what he got:

Better images (and the whole study) are available here. There seems to be a correlation between a market's natural amenities and population growth.

What's this mean for home and apartment values? Nothing good happens to values in markets losing population and jobs (a topic for a separate post, but Ben Wattenburg's book Fewer does an excellent job describing the negative economic consequences of depopulation). Here is a comparison of the OFHEO Housing Price Index between Flagstaff, Arizona (solidly in the dark green of both amenities and growth) and Muncie, Indiana (in the red on both):