The "Lake Effect" Shows the Importance of Public Places


We’re pleased to introduce Robert Sulaski, a joint communications intern with Strong Towns and the geoanalytics firm Urban3. He will be contributing stories throughout the summer of 2019, spotlighting the important implications that Urban3’s work’s reveals about how to create financially strong and resilient places. This is the first one. –Strong Towns staff.


Water has a magnetic effect on people. It gives life to an area by drawing people in to a natural gathering and recreational space. Even manmade fountains or pools turn a mundane square into a lively place. Naturally, this attraction to properties near water leads to higher land values; think about what a lake or beach house costs. When property near water holds a higher value than landlocked properties, let’s call it the “lake effect.” In Minnesota, “The Land of 10,000 Lakes,” there is a lot of potential lake effect.

If local government’s goal is to create long term fiscal health, which requires high enough taxable land values, then it is important to make productive use of limited precious resources, including waterfront property. This tax revenue is crucial to the survival of our towns; it pays for necessary community services and infrastructure that must be maintained in the long run, especially once the illusion of wealth created by new growth starts to fade. Once you’ve given up a wealth-producing resource like waterfront access, it’s hard—if not impossible—to get it back.

Perhaps privatizing water access—restricting it to only homes directly along the water—would increase land value by limiting the resource and making it an exclusive luxury? Or would public access and green space be more effective at increasing the nearby tax base? In Minnesota, we can see how these different approaches affect the land value and communities in two lakeside areas.

Figure 1. Click to view large image (Source: Urban3)

Private vs. Public Lakefront: Which Wins?

Lake Minnetonka sits about 10 miles west of Minneapolis and stretches an additional 10 miles further west, making it the largest lake in the metropolitan area. Nearly all lake access is private; if you don’t live directly on the water, you cannot get to it.

Less than three miles southwest of downtown Minneapolis is the city’s famous “Chain of Lakes.” We’ll examine a section of it which contains several smaller bodies of water—Lake Bde Maka Ska, Jo Pond and Lake Harriet—which we will refer to as the “Minneapolis lakes.” Like Lake Minnetonka, these lakes are surrounded by residential neighborhoods, but there is one key distinction: the Minneapolis lakes have an entirely public waterfront. The lakes are ringed by public paths and parkland, with the nearest homes located across the street.

This provides a perfect natural experiment: does private or public waterfront produce more overall value? To examine this, Urban3 compared the land value of all taxable, developed property within 1000 meters of both areas.

The small city of Wayzata on the north shore of Lake Minnetonka stands out in Figure 1. It may not come as a surprise that it is home to several country clubs and a yacht club with sky-scraping land value per acre (VPA) spikes. However, other land near Minnetonka barely registers on the graph—the lots shaded in yellow and beige have fairly low value despite their proximity to a huge lake. On the other hand, one look at the Minneapolis lakes shows a relatively consistent land VPA distribution even as you move away from the water. In other words, the entire area surrounding the Minneapolis lakes is valuable, whereas the Minnetonka area has both extremely valuable and relatively low-value properties.

Click to view large image (Source: Urban3)

Josh McCarty of Urban3 explains what makes the Minnetonka land VPA distribution so interesting:

The complex shape of the lake should add value to properties that, while not touching the lake, are very close to multiple points of access. Because those access points are privately owned and restricted, their geographic proximity becomes void. This is visible in the land value pattern, which drops starkly from $600k to over $1m, down to just a few hundred thousand within the distance of a single property. Interestingly, one area of the lake that does seem to hold its value deeper in is close to a county park and a marina which would offer some public access.

Essentially, homes on the many peninsulas and bays of Lake Minnetonka do not have easy lake access unless their property is on the water. While many homeowners are able to see the lake behind their neighbor’s backyard, they may have to travel miles around the lake for one of several public access points. This lack of direct access seems to impact land value.

Lake Minnetonka Minneapolis Lakes
Properties 9,131 9,502
Acres 7,705 1,745
Land Value $4,147,432,279 $2,124,947,133
Total Value $7,564,002,153 $6,940,188,721
Peak Land VPA $13,940,264 $4,296,949
Overall Land VPA $538,251 $1,217,576
Overall Total VPA $981,651 $3,976,666

Comparison by the Numbers

Although the land surrounding Minnetonka is worth nearly double that of the Minneapolis lakes area, it is more than four times the acreage. Pound for pound, the Minneapolis lakes pack a significantly bigger punch in terms of land value; the average land VPA is $1.2 million, while Minnetonka’s is a little over a half million. This refers to the value of the underlying land alone.

Furthermore, the total (land + structure) VPA sets the two areas even further apart. The Minneapolis lakes have a total VPA of nearly $4 million, more than quadrupling Minnetonka’s total VPA.

We can also understand the value of public lake access by comparing the relationship between distance from the water and land VPA in each surrounding area, as opposed to only the lakeside properties. A small gap at the leftmost edge of the Minneapolis Lakes graph shows where public paths, green space and a street separate residential uses from the lake. In the Minnetonka graph, taxable land value starts immediately at the left (a distance of 0 meters from the water).

Properties near Lake Minnetonka have a land value of up to $13.9 million per acre. However, the value plunges as distance from the lake increases. The Minneapolis lakes have a relatively modest peak land VPA of $4.2 million, but even a kilometer from the water, land VPA of over $1 million is common.

McCarty said that this observation is more complex than simply private vs. public lake access. The Minneapolis lakes are not only closer to the city, but also largely consist of older homes. Additionally, its great size means wrapping Lake Minnetonka in paths and recreational areas would be a difficult and expensive project even if it were made public. These are just a few factors which make it an indirect comparison. Even so, with such significant differences, it seems likely that public lake access and green space contribute to the financial health of an entire community.

Comparison by Communities

Putting the numbers aside, what if you were deciding between living in one of the two areas? Lake Minnetonka is best explored by car on the many roads that wind around the lake, circle the bays and enter the peninsulas; good luck finding a sidewalk or path to walk on. Beautiful homes separate people from the water, making it easy to forget that you’re near a lake at all; it feels as if you are in a regular, suburban neighborhood in most parts.

 

Lake Minnetonka

 

The Minneapolis lakes look and feel significantly different. A parkway circles the water with views of the lake but walking the area is an option as well. A combination of pedestrians, runners and cyclists use the sidewalks and bike paths along the lake. Further from the water, smaller yards feel more inviting and sidewalks on both sides of the road connect the community and guide pedestrians to the lake.

 

Lake Bde Maka Ska

 

Explore Google Maps to find that these differences exist all around the various lakes, not just in the specific example locations shown here. Which area would you prefer to live in? Which has a greater sense of place? Which seems more financially sustainable? Which is a stronger community?

The area around the Minneapolis lakes contains some of the city’s most valuable and in-demand neighborhoods. While some may be drawn to the area by the lake access itself, others may have this preference due to the quality of the homes, the relatively central location, the variety of businesses in these neighborhoods, the health benefits of walkable development, the environmental benefits, or the simple pleasure of walking versus auto transport.

We cannot say that public vs. private lake access is solely responsible for all of the differences in land value or community design seen in these Minnesota examples, but I am convinced that public lake access—or public space in general—plays a significant role by increasing the taxable land value, providing the funds to maintain infrastructure and to build stronger, healthier places.