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Thinking About / Building Markets

Thinking About:  Building Stronger Neighborhoods



If a neighborhood’s residential real-estate market is weak, the neighborhood is unlikely to be healthy in other ways. Organizations working in such neighborhoods should see building a stronger housing market as a key part of their strategy for neighborhood change. It should not be the only strategy however, because many other forces affect neighborhood health and need to be addressed. Many seemingly unrelated strategies, from crime-fighting to building a community park, may play a role in market-building. A CDC, therefore, should not only have a market-building strategy, but should look at other strategies not only as ends in themselves, but as contributions to the market-building effort.


Influencing Neighborhood Choice

Market-building is about people making choices. Neighborhood housing market change happens when more individuals choose to invest their financial and emotional resources in a particular neighborhood. The investor can be a family moving into the region selecting where to buy a house, a family already living in the neighborhood deciding whether to improve its present house or move elsewhere, or a builder deciding whether to buy a vacant lot and build on it. Their decisions are driven by how they evaluate the features of the neighborhood. Market-building is about changing the features of the neighborhood that affect the likelihood that people will choose it rather than somewhere else as a place to put their money and make their personal commitment. 


The most important decision-makers are the people who already live in the neighborhood and future homebuyers, whether already in the neighborhood or outside. Every neighborhood has families whose income rises through a better job or business success. Market-building is as much or more about holding those families in the neighborhood as about attracting new families into the area.


Buyers typically start out by defining their housing needs and financial limits. In most regions, most middle- or upper-income buyers have many different neighborhoods in which they can find homes within their means. Where they search is defined by the information they have. Buyers will consider buying in certain neighborhoods, reject some areas, and not even consider others based on the information that they get about neighborhoods within the region. The choice they finally make is often based less on the desirability of a given house than on neighborhood stability and amenity value.


While “neighborhood stability” can mean many different things, it is used here to refer to those physical, economic or social features of the neighborhood that are associated with the preservation and potential increase in the value of a property-owner’s investment in a neighborhood. Neighborhood “amenity values” refer to the features of a neighborhood that contribute to the quality of life of its residents, and which are also likely to have an effect on the neighborhood’s competitiveness in the residential marketplace.


Three Strategic Approaches to Building Markets

 A CDC or local government can pursue some combination of three distinct strategic approaches to influence buyer choice, depending on the assets and problems of the neighborhood and its housing stock.





By increasing neighborhood quality in these three areas and effectively disseminating information about the neighborhood’s assets, the CDC or local government can enhance the neighborhood’s competitive position and build its housing market.


While buyers ideally would like to buy the best house in the most stable, high-amenity area, nearly all buyers are to some extent limited in their choices. Few buyers have unlimited funds, and the weight each prospective buyer gives the different features of the house or neighborhood varies widely. Buyers will forego some amenities if they can secure those that matter most to them. For example, a single artist might buy a larger, architecturally distinctive house in a less stable area, while a young couple with children might buy a more modest house in an area with the higher amenity values they are seeking, such as good schools.


The reality that people differ on what they regard as most important in their housing choices carries an important strategic message. A region or city is not a single housing market. The market is the sum of a series of separate submarkets, varying by age, education, ethnicity and other factors. Each submarket has its own preferences. Many developers and local governments identify separate submarkets based on lifestyles and residential choices in order to use this information to find the best fit between a particular group’s preferences and a neighborhood’s assets, and more effectively market individual projects or a neighborhood as a whole. The choice of strategies should always take into account the nature of the specific submarkets the neighborhood is trying to attract.


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