Volume 1, No. 4, Summer 1997

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How Residential Property's are Impacted by Adjoining Commercial Uses

It is well established that the value of a new single-family residential property is lower when it is adjacent to commercially, (as opposed to residentially), zoned land and/or developments. However, it is not quite so clear what occurs when the residential property is already existing and the adjacent land use changes. This fundamental question is posed time and again, primarily by homeowners who challenge a proposed commercial re-zoning or development on the basis that the change would negatively impact the value of their adjacent residential properties. Developers and homeowners are oftentimes locked in a heated battle, with the city councils and planning commissions in the middle, attempting to balance the needs and wants of the residential users with the desires of the commercial developers. And, as many developers have found, a united group of homeowners can greatly influence city councils and planning commissions, often gaining enough power to ultimately determine the type of project a developer may be allowed to complete. These conflicts often lead to a series of development issues and questions which we will address.

When Are Residential Property Values Discounted By Adjacent Commercial Uses?
It is clear that the market indicates a decrease in value for residential property when adjacent to commercially-zoned sites. In newer subdivisions, the discount is most often reflected in the price of the lot itself, prior to home development. Some of the factors contributing to this discount include potential traffic increases, lighting, aesthetics, privacy, and noise; all of which are associated with commercial development. The net effect of these factors is a decrease in the overall price of the finished home in comparison to an identical property across the street. Simply, the market generally uses the principal of substitution. If Residential Property #1 is surrounded by similar residential uses, and Residential Property #2 is located adjacent to a commercial property, and both are listed for the same price, the typical home buyer would rather purchase Residential Property #1. Experience has shown that Residential Property #2 will either remain on the market for a longer period of time, or the seller will reduce the price to reflect its less desirable location. This scenario holds true, regardless of whether the adjacent commercially-zoned property is vacant or developed.

Another issue is the extent of value discounts for residential lots located in close proximity to busy thoroughfares and highways. Again, the market has shown that these properties experience value discounts similar to those of residential lots adjacent to commercially zoned sites, primarily for the same reasons (ie: increased traffic, noise and lack of privacy).

	Adjacent to Residential Zoning	Adjacent to Commercial Zoning
Adjacent to Busy Thoroughfare	Discount	Discount
Not Adjacent to Busy Thoroughfare	No Discount	Discount

Another way to pose this question is to investigate whether residential properties experience a cumulative loss in value when they experience both close proximity to busy thoroughfares and highways and are adjacent to commercially-zoned sites, especially if the commercial sites are developed. In this case, the market suggests that the answer is no.

Since the busy street or highway already includes traffic, noise and decreased privacy, most, or more likely, all of the overall discount in the adjacent single-family residential property value due to commercial development or rezoning has already been reflected in the initial discount. Market evidence also suggests that the location of a residential property near a busy thoroughfare can decrease its market value at least as much as its mere location near commercially-zoned land. Anyone living in a house along an arterial route has experienced its obvious negative side effects.

What Decreases Residential Property Values More-Commercial Zoning Or Commercial Construction?
Many existing residential communities are situated on land adjacent to commercially zoned land not yet developed. Sometimes, opposition results with the introduction of commercial construction plans which propose development upon the undeveloped land. Homeowners claim loss in their property values to follow the proposed construction. However, the market evidence strongly suggests that the mere act of commercial construction is not what causes adjacent residential values to decrease. Instead, the more deciding factor in residential value loss is the result of prior commercial zoning. This zoning or re-zoning may have occurred years before the proposed commercial construction.

Are Value Discounts Greater For New Homes Or For Existing Homes?
When residential properties are located adjacent to busy thoroughfares and/or commercial zoning, the market evidence seems to suggest that the resulting value discounts are greater for new homes than for older homes. This makes common sense if one accepts the proposition that newer homes are generally more expensive and have a higher physical depreciation base to start from.

Does Commercial Redevelopment Have An Impact On Adjacent Residential Properties?
In redevelopment situations, again the question of the impact on adjacent residential property values arises. Commercial sites are typically ripe for redevelopment when the likelihood of leasing or renovating the existing structure is remote or the existing property is functionally obsolete. A new, productive commercial development with attractive landscaping, coupled with enhanced noise buffers, does not appear to have any additional detrimental affect on adjacent single-family residential property values in comparison to a previous commercial use. In fact, vacant commercial properties actually pose greater security issues than occupied properties and will likely have a depressing effect upon surrounding property values over time. Redevelopments can maintain a neighborhood's life cycle by limited decline and encouraging renewed interest in aging, fully developed areas.

Conclusion
In summary, the marketplace suggests that residential property values are discounted by adjacent commercial uses, whether the adjacent commercial property is vacant or developed. The value discount occurs on a one-time basis-that being at the time the commercial zoning is established. In addition, factors such as close proximity to busy thoroughfares and highways often have an equal or greater impact on residential property values as commercial zoning. These market generalities often produce great implications when considering a change in adjacent land uses.