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Understanding Home Values: What Makes a Good Neighborhood?



When looking into the value of a home – whether you’re looking to buy one, sell one, or just gauge the competition – people quickly discover much of a home’s value has nothing to do with the structure itself.

The home may be in immaculate condition, with plenty of space and plenty of features all working flawlessly, but while that is a large part of the home’s value, a significant chunk relies on the rest of the neighborhood.

A house or condo can be as perfect as it can be, but if it’s in an area nobody wants to live in, it won’t be worth much. You could explore real-estate websites and find waterfront mansions in blighted cities selling for less than cramped apartments in chic urban neighborhoods.

As they say, context is king.

That leaves one question: with all else being equal, what factors play into a home’s contextual value? What would be the reason for a price drop if you took the same home from a “good” neighborhood and placed it in a “bad” one? What even is a “good” neighborhood?

Location, Location, Location

Before we judge the neighborhood the home is in, we need to judge the spot the neighborhood itself is in.

The most direct answer is a good location is a centralized location. This is why homes in the very center of a big city are much more expensive than in its outlying areas. But then we remember ritzy suburbs far from the city are also expensive. What gives?

The idea of being “centralized” isn’t just in terms of being in the exact center of the population, but being close to everything you need.

The best areas – urban, suburban, rural or otherwise – have quick access to major roads and highways, public transit options, jobs, retail and grocery stores, parks and greenery, entertainment and recreation, schools, hospitals and emergency services, etc.

Not only that, but all those things should be good ones. Good, well-funded schools add value better than struggling schools, and a good commuter train station is better for value than a bad bus stop (which is still better than nothing at all).

This is why many far-reaching upper-middle-class suburbs seem to include a clustered shopping area with one of every chain business you can think of, and a huge mansion in the middle of the forest would be worth even more if it were in an actual town or city.

Elbow Room

While good areas are centrally concentrated, the best areas still have some space to breathe. Ideally, a neighborhood would have homes with lots large enough to make every household comfortable, but not so ridiculously large that everything winds up being absurdly far away from everything else. This is what the main criticism of “suburban sprawl” is.

That said, the size of a home’s lot is still important because land is valuable. If there were two identical houses on unequally sized lots, the one with more land would be more valuable.

Location, Location, Location (More Specifically This Time)

Within the neighborhood, things like the individual streets themselves can have an effect on home values. For example, a home on a major thoroughfare will be worth less than an identical home on a side street.



Homes also go down in value if they’re next to something that will see a lot of traffic, people, or noise: big-box stores, churches, fire stations, railroads, etc. While having access to roads and public transit is important, you don’t want to be living right behind the main train station.

However, you can easily overdo it on isolation. If a subdivision only has one way in or out, that will make its homes’ values suffer, because nobody will want to live there on the day the only exit is blocked.

Putting the “Neighbor” in “Neighborhood”

A large part of the home-value equation boils down to the other people living on the same street. Your house can look pristine, but if all the other homes on the block look like they’re about to collapse, your home will look more out-of-place than anything else.

In a good neighborhood, the homes don’t necessarily have to be picturesque, but it should be clear the homeowners are doing their best to maintain their homes.

They also often say a good area should be “walkable,” which is a twofold idea. It should be easy to walk to anywhere you might need to go, but it also should be a place where people feel safe walking.

It goes without saying that high crime rates will hurt an area’s value, and the reasons for why crime happens are far too complicated to delve into here.

But suffice it to say this: even if there’s no major crime in the neighborhood, if it looks like there is, it’s as good as if there actually was a crime problem.

For better or worse, we pass judgment on the people and places we see, so if the homes are disheveled and the residents are less than pleasant, passers-by might think, “If this is the norm in this area, I’d hate to see the worse-than-normal.”

Having bad neighbors can stop being a mere annoyance and start to be a serious problem when they’re preventing you from selling your home.

Things Change

However, the most important thing to take away from all of this is an awareness that the state of a neighborhood isn’t necessarily how it will be forever.

People everywhere seem skeptical of their local government’s ability and interest in getting things done, but with enough public support, neighborhoods can see revitalization. Public transit can be expanded, parks can be built on empty lots, public services can be improved, and all of this can attract better businesses.

Sometimes things get better in some ways and not-as-better in others.

Gentrification is a very touchy subject, but it would be impossible to completely ignore here. Suffice it to say that gentrification isn’t inherently a bad thing, but when new people move into a neighborhood and start improving it, it often has the unintended consequence of raising land values too high so the original inhabitants can’t pay the new property taxes.

It’s indisputable that both good and bad things are happening when this occurs; the question is whether the good outweighs the bad. That’s for you to decide.

Of course, sometimes only bad things happen to a neighborhood, and both urban and suburban areas are susceptible to this.

There are many, many things that can happen to depress a neighborhood, but the worst ones boil down to people leaving – either they leave because bad things are happening in the neighborhood, or bad things are happening in the neighborhood because people are leaving. Either way, it’s never a good thing when people leave.

For example (and this may sound like a stupid joke, but it isn’t), a lot of Northern metropolitan areas are losing people because the residents just decided they don’t want to be cold ever again, among other things.

In cases like these, the suburbs suffer as much as the city in terms of population loss. When it seems like nobody wants to live in an area, local governments neglect it because they don’t see the point in maintaining it if no one’s going to stick around.

How This Affects You

Are you trying to improve your home’s value? Are you trying to predict before you buy a house if the neighborhood will improve or dilapidate? Or do you just want to make your community a nicer place?

We don’t have all the answers, but we can say for certain the best we can do is to participate in improving our communities.

It may not be a fix-all, but it can’t hurt to try, and some would argue it’s a guarantee that things will just get worse unless most people take pride in their community.

Maybe we can’t control what other people do or why they want to do it, but we can try to lead by example.

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