By Jim Leach, Founder/President of Wonderland Hill Development Co & Chairman of CoHousing Partners
June 20, 2012
Lee Bartholomew, a professional appraiser, had the challenging assignment in 1991 to appraise the finished home values for Muir Commons; the first cohousing community completed in the United States. Considered one of the most experienced appraiser of cohousing homes in the nation and for the majority of California communities he has begun accumulating and assessing data from cohousing sales throughout the country.
During the 2012 National Cohousing Conference this month in Oakland, California, Bartholomew presented recent research regarding market values from several cohousing communities in Northern California. He revealed post-‐ recession resale data that challenged comparable housing markets within California. It was surprising to learn that cohousing units were achieving market values of 24% to 112% higher than comparable homes within the market. This significantly higher price percentage cannot be justified from the added cost and value of common facilities and green upgrades alone.
So what is it that drives the market value for cohousing prices and why would it be different than the conventional housing market for similar size and quality homes? To some extent it could be supply and demand. When considering the entire housing market there aren’t many cohousing homes available for purchase. Comparatively, the proportion of buyers seeking cohousing units to the number of investors seeking conventional housing types is very small.
To a significant extent the market value for cohousing homes is determined by attributes and features not typically found in for sale in mainstream housing. Bartholomew invents two general categories for the idea of community; its “bones” and its “soul”. The “bones” of community include common amenities that are unique to cohousing, like the common house and higher quality green specialties built into the structure and its surrounding landscape. The “soul” is the real value of the intentional neighborhood community, that which is defined as the social capital generated by a group of neighbors cooperating to create diverse relationships with one another. Obviously the value of these unique attributes can vary from one cohousing community to another. The diversity that goes into building the “soul” is unique thus so is the design: The qualities built into the common facilities and, more importantly, the commitment and strength of the social community. Location has always been a primary driver of market value in housing, having said that, there is an inherent attribute to cohousing that is not typical compared to conventional housing locations. That inherent attribute is the quality and social value of the micro neighborhood that the home is part of; often referred to as the cohousing community. Typical housing neighborhoods, one block or a group of homes, may have extra value than others within the same neighborhood. Extra value is usually attributed to appearance; the relative attractiveness or aesthetics of the homes and landscape within the block. However, in cohousing communities the extra value is based on both appearance and the social value of the community; its inherent attribute. This year as the great recession still grinds on in many American cities, the first early sprouts of new market rate housing within the building sector are beginning to appear.
It’s a slow and tentative housing recovery but one that’s feels like its time has arrived. These spouts are helped in large part to low interest rates which to some extents allows homebuyer to meet very stringent qualifying requirements. In spite of tight builder margins, one challenge to meet is the price for new housing. Prices seem high relative to the used-‐home market that has been impacted by foreclosures and homes that were not constructed to today’s expectations for higher quality energy efficiencies and more thoughtful greener standards. New homes are priced based on actual cost to build which in most places did not decline with the housing market and has recently begun to inflate due to labor and material shortages.
What does all of this mean for cohousing prices? It is not particularly good news for those trying to jump start new cohousing communities. For new communities the prices have typically been based on the actual cost to create the homes and common facilities with relatively small margins for project contingency and profit. Cohousing neighborhoods are relatively small in scale and are generally custom designed due to the diversity homebuyers that come together to build a community. Therefore each cohousing community comes across as unique or “one of a kind.” Cohousing has extensive common facilities; their costs to develop are significantly higher than production built housing of similar apparent quality minus the common facilities and some green features desired by cohousing buyers.
Production builder profit margins were higher prior to the recession when equivalent cohousing homes attracted prices 10% to 20% higher. In today’s environment that spread can be 30% to 40%; in some instances more. This is not an unusual situation for the housing market where specialty and “one of kind” custom homes are priced 100% or more above conventional new homes. New home prices have always been a challenge for new cohousing communities; these groups of future neighbors will typically seek affordability when designing their common features and amenities.
As cohousing increasingly becomes recognized as a ‘progressive’ housing choice in our sustainably challenged American culture, the market resale prices will better reflect the real value gained from the “bones” and “soul” of the neighborhood community.