Do Streetcar Lines Really Lead to Appreciation?
Real estate investors know that the key to actually living that old adage, “buy low and sell high,” is being able to read between the lines when it comes to spotting potential in local housing markets. One of the most popular “insider secrets” for this type of market forecasting lies, literally, between the lines of transit maps. Housing analysts and economists often look to the planned expansion of public transit, particularly non-bus options, when making predictions about future appreciation in an area. One of the most popular things to look for is an existing or already-approved-for-installation streetcar line.
Why We Love Streetcars
Streetcars attract the interest of real estate investors for one big reason: appreciation. In the locations where they “work” best, they tend to attract trendy restaurants, thriving art communities, hot start-ups, and a young professional population happy to live and work on the streetcar line while paying top dollar for the priviledge. A well-designed streetcar line seems to be an ideal indicator of “forced appreciation,” when an area appreciates faster than it would naturally due to good community planning or some other external force that creates a high level of desirability in a locale. However, warned Jarrett Walker, author of Human Transit and founder of transit consulting firm Jarret Walker & Associates (JWA), streetcars may be more of a symbol of growth in an area rather than an actual catalyst for that growth.
The issue, Walker said, lies in a “simple misunderstanding of how streetcars work in Europe, where they are usually protected from traffic delay and have a range of priorities over cars that make them very useful for expanding where a rider can go.” Walker added that in the United States, streetcars are often inferior to other methods of mass transit because they “cannot go around minor delays in the lane such as poorly-parked cars or traffic incidents that buses go around easily.” As a result, a streetcar in an area may not actually increase the volume of desirable human traffic in an area and can contribute to congestion. “The long-term value of a location, in its transportation terms, is based on where you can get to easily from [that location],” he said. “We can quantify how many jobs, retail opportunities, etc. can be reached in a fixed time by transit and/or walking from a given point, just as you can for driving,” to establish that value as well.
So why does streetcar development so often result in rapid appreciation in an area? Quite possibly because at the present, the investing and development communities are using the same symbology, meaning that when a streetcar line is planned for an area, the general expectation is that growth is coming and the industry reacts accordingly, pouring money and resources into that area and providing the actual fuel for that appreciation. “Over time, though, symbols fall out of fashion,” said Walker. “That’s why I suspect, purely on these theoretical grounds, that long-term real-estate value [that arises from transit like streetcars] will eventually come to reflect where you can get to rather than just where there is a sexy technology nearby.”
Where the Streetcars are Working for the Market
Even accepting that streetcar lines may be a symbol of market growth rather than an actual instigator for that growth in all circumstances, as long as the rest of the industry is still using the streetcar as a symbol indicating that an area is ripe for investment, real estate investors can benefit from looking out for this key indicator. However, a streetcar does not necessarily guarantee that appreciation or market growth will occur. Some streetcar lines in particular are often cited as success stories for streetcar development and expansion.
According to a report from Reconnecting America that analyzed how transit affects real estate values, the Portland streetcar that initially linked the main part of downtown Portland to the “Pearl District, an old warehouse and manufacturing area next to downtown,” ultimately resulted in “3.5 billion in new development occurring within two blocks of the streetcar [line].” The Portland streetcar is one of the oldest lines in the country at 25 years of age, and a go-to success story for streetcar development.
Tucson Modern Streetcar (Sunlink)
When Tucson first approved the idea of a streetcar line to link the downtown Tucson area and the University of Arizona campus with the Mercado District (a retail area complete with award-winning dining and a trendy “village” development designed after homes in Italy and Greece) and Menlo Park, developers reacted to the approval of the project positively and immediately. Although Sunlink was not fully completed until several years later, as early as 2010 developers had begun to move into the Mercado area, buying up land for that unique village development and creating millennial-attracting mixed-use developments that featured retail, housing, and office space. At the time, appraiser Jason Brown stated unequivocally in a city government “trend report” that “the scope and success of [these projects] are based largely in anticipation of the streetcar line to the area, without which development would likely be forestalled.”
Five years later, real estate agent Kent Simpson was asked by the Arizona Senate Transportation Committee to determine the “positive or negative effect, if any, the Tucson Streetcar had on residential real estate values.” Simpson concluded that Sunlink, which, at present is still thriving, posting 1 million passenger rides ahead of schedule and receiving local accolades right and left, saved Tucson metro homeowners in its general area more than 10 percent when the local market fell (12.7 vs. 23.1 percent) simply by virtue of its approved installation and expansions, “As the market started digging out of the rubble in 2010 to the end of 2014, values in the corridor rose at a rate 100 percent faster than the rest of the Tucson metro.” He went on to say that with every milestone reached in terms of “bringing the Modern Streetcar project to fruition” in Tucson, residential real estate transactions spiked along the line.
Ridership and Real Estate
It is clear that at least at present, streetcar lines are a good indicator for real estate investors looking for areas that will likely appreciate in the near future. However, as Walker warned, if the streetcar falls out of favor in the development sector as a symbol of progress-to-come, investors could end up holding properties that are not as desirable as they had expected and that are harder to exit profitably. “If transit technology is designed to be attractive and fashionable at the expense of being functional, it’s obviously sacrificing creating lasting real estate value for the [purpose of] selling real estate now,” Walker said. “Notions of attractiveness go out of fashion, but functionality doesn’t.”
Real estate investors hoping to invest using short-term strategies, like wholesaling and fix-and-flipping, will likely benefit from the prevailing idea that streetcars equate to appreciation as long as that symbology remains in place, while longer-term investors who rely on a streetcar’s ability to attract tenants who will value the ridership opportunity may need to dig a little deeper into the planning of a streetcar line in order to determine whether Walker’s “lasting value” is likely in an area. When evaluating for that lasting value, look for whether or not the streetcar will have a designated lane that will help it avoid traffic-related slowdowns, if the streetcar has the ability to accommodate predicted ridership volumes, and whether it will have a long enough “line,” the length of the route it traverses, to make it worth waiting for the streetcar rather than simply walking down the street. “Portland’s original streetcar did well despite being slow and unreliable by design, because it served a place with all of those features either existing or ready to be built,” Walker noted.
Sidebar: What Exactly is a Streetcar?
Streetcars are often confused with cable cars and trolleys. Streetcars run on steel rails and are propelled by onboard electric motors. They require a “trolley pole” to draw power from a wire that runs overhead along the streetcar’s route. Cable cars, on the other hand, run on steel rails but are propelled forward by an underground cable that runs at a continuous speed. Streetcars and cable cars are often referred to synonymously as trolleys, but the term should only be used to refer to streetcars because only they have the trolley pole that is used to draw power from the overhead lines. Streetcars may also be referred to as “trams.”
In all cases, investors should determine if a streetcar line is actually a streetcar or whether it may be a tourist-targeting bus designed to look like a historic trolley or cable car or other transit option designed to attract tourism dollars by soliciting “historic” rides rather than serving a practical transit function.