Transportation formula measures rent

by Neil Sharma on 09 Nov 2018

A report analysing the impact of augmented transportation on Greater Vancouver housing could help real estate investors find shrewd deals.

Specifically, the report by the Real Estate Intelligence Network, uses a precise formula to determine where valuation increases lie.

“The formula is fantastic because it’s an added layer of security for your investment,” said Jennifer Hunt, REIN’s vice president of research. “The transportation formula goes right down to the metre, so we’re largely looking at accessibility to highways, LRTs, the SkyTrain or some sort of commuter train, and that can increase value. Infrastructure affects different property types differently. For example, multi-family residential gets a bigger lift in rents and value than single-family homes closer to the SkyTrain, but all property types get a lift of about 15% in rent and value if they’re within around 800 metres of a SkyTrain.”

The report uses peer-reviewed research, which Hunt says builds upon itself, from cities across the world and applied it to case studies.

“If you want to know right down to when an announcement about major infrastructure development is made, you’ll see an increase, then a decrease during construction, and then there’s an overall net benefit when it’s complete,” she said. “By knowing this, you’ll know even when to purchase real estate around transportation. Not only that, but you’ll know which property type.”

The formula can even ascertain how much value amelioration a station upgrade can have on surrounding homes.

Interestingly, the report determined, through the “compensation principle,” that commuters who live closer to the SkyTrain generally save about $1,200 a year in transportation costs.

“Therefore,” said Hunt, “in relation to other research on transportation’s effect, the rent will be higher. There’s a premium on rent, and if tenants want to live closer to transportation and can afford those higher rents, they may benefit from transit savings of about $1,200.”

The same principle appears to hold true in Canada’s largest city, as well. According to Christine Cowern, a sales representative and team lead at Keller Williams Reffered Urban Realty, rent in downtown Toronto—which has the highest concentration of subway stations in the city—easily trumps every other geographical location in the region.

“Most people looking for rentals in Toronto are looking in the downtown core,” she said. “Take a downtown unit and compare it to a similar one on Queen St. W., which is without easy subway access, and you’d easily pay $400 to $500 more in the core for that luxury.”

Midtown is the second-most expensive rental market in Toronto, and Cowern notes that, like downtown, it is sufficiently serviced by below-grade transit.

“Even a streetcar doesn’t hold the same value as a subway,” Cowern continued. “One-hundred percent, tenants will pay a premium to live downtown. Not only do you have subway access, which is crucial because people need to be able to travel easily within the city, and especially with traffic being as bad as it is, it’s fantastic for them to hop on the subway.”

 

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