The Impact of the Montgomery Village Golf Course on Real Estate Prices and Tax Revenue in Montgomery Village

By David A. Lechner Executive Summary: Montgomery County Zoning Commission and the County Council may soon be faced with a proposal to change the zoning status of approximately 100 acres of land located in the middle of Montgomery Village, in the heart of Montgomery County. This analysis shows that such a change would have a significant negative impact on property values of approximately 200 homes in Montgomery Village and a modest negative impact on all home located in Montgomery Village, with a total impact of between $25M and $66M. This lost value would have a negative impact on annual tax revenue in Montgomery County of $500K to 1.2M (using a nominal 2% real estate tax rate). An annual tax revenue loss of approximately $900,000 per year would counteract any positive tax revenue provided by the new homes that could be built on the re-zoned MVGC property, which would come with additional costs to the county in terms of school teachers and impacts. Background: The Montgomery Village Golf course is located in Montgomery Village, MD, in an area covered by town sector zoning and developed in the 1970s. Montgomery County has benefited from the increased tax revenue provided by the higher valuation of properties that adjoin the MVGC for the past 30 years. The MVGC owner has publicly discussed a proposal to redevelop a portion of the property, approximately 100 acres, for residential housing. The MVGC is comprised of a total of about 300 acres, but almost 200 of those acres cannot be built on due to utility easements and wetlands status. Methodology: Several pieces of data are needed to assess the impact that such a re-zoning would have on property values and tax revenue, namely 1) a measure of the effective benefits that a Golf course provides to a real-estate sale or market, 2) the current property values and number of houses in each adjoining property, and 3) some estimate that the change in value might have on the entire local Montgomery Village community. 1. Golf Course Impact: The first factor needed to calculate the impact of a change from a Golf Property to residential housing is a factor that represents the impact of a golf course on property values. Several studies have shown that on average a Golf Course view has a beneficial impact on property values compared to a normal non-view residential area, with the impact ranging between 21% to 27%. Other studies have found a 28% benefit for a Private course, and a 15% benefit for a public course managed by a private company. For this analysis two values are considered, 20% and 25%, since the MVGC has been a private course for 30 years, but a change in status in the future might make it a semi-public course (e.g. via sale of the business to new owners).

2. Current Property Values. The number of houses adjoining the MVGC was counted by examining Google-Image maps of the local area. In reviewing these maps, and walking and driving through the local area, it is apparent that there are several different developments adjoining the MVGC, all of which are a part of the Montgomery Village community. The real-estate web site Zillow provides recent comparative sales history and current askingprices for local real estate, and was used in each of the different development neighborhoods surrounding the MVGC. The results of those searches are shown below in Table 1.

Table 1: The estimated total real estate value of 388 properties adjoining Montgomery Village Golf Course in 2011 is $105 Million Dollars.
Zillow Comp #1, $K FAIR RIDGE: Delcastle: (35 Adjoining properties) Duffer way (50) Duffer 2: (75) ARROWHEAD: Hob Hill (30 of 75) GREENTEE Chattleroy (30 of 38) Greenside (32 of 62) Brassie (36 of TBD) Tippet (40 of TBD) Club Lake (60 of 150 adjoining) Total: Zillow Comp #2, $K # Houses Adjoining MVGC Avg. Prop Value in 2011, $K Total RE Value of Adjoining Properties, $K

400 319 293

550 329 300

35 50 75

$ 475 $ 320 $ 300

240

30

$ 240

285 285 285

30 32 36 40

$ 285 $ 295 $ 220 $ 160

210 220, 220 160

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

16,625 16,000 22,500 7,200 8,550 9,440 7,920 6,400 10,500 105,135

175

60 388

$ 175

The calculated impact of the changed in zoning and subsequent construction of residential units on the MVGC property is shown below. This assumes that all of the properties are impacted by the change in status, and that any new use of the remaining 200 acres is of comparable impact as the residential construction. This may not be the case if those 200 acres are used for purposes

such as a park, but other uses have also been proposed in public discussions (e.g. farmland, cemetery) that might have even great negative impacts on property value.

Table 2: The change in zoning of the MVGC property would impact local values of adjoining properties by between $21M and $26M.
Total Property Value Impact Factor 25% 20% $ 105,135.00

Lost Property Vaue: $ 26,283,750.00 $ 21,027,000.00

3. The impact of the loss of the Golf Course could also have a negative impact on most of the Montgomery Village real estate market. According to Wikipedia, Montgomery village has 12,097 housing units, and an average real estate price for the 20886 zip code is $331,697.00 in 2010. This is a total real estate value of $4,012,538,609.00 (4 Billion dollars). Since the MVGC property is prominently located in the middle of the Montgomery Village community, with broad views by all that drive into the area, there could be a negative impact to all home sales. The loss in value of the adjoining properties would have a definitive numeric impact as they act as comparable sales when the appraisals are done in other parts of the community. A nominal 0.1% impact on the value of all Montgomery Village real estate would be $4 Million dollars, while a 1% impact would be $40 Million. Given the range of values above, the total impact on real estate values in Montgomery Village is estimated to be between $25M and $66M, which would have a total impact on annual tax revenue in Montgomery County of $500K to 1.2M (using a nominal 2% real estate tax rate). In comparison, an additional 200 houses at the average MV price ($331k) would be valued at $66.3M, and provide only $1.3M in additional property tax revenue, with an additional cost of providing services costing easily as much as that amount each year (200 houses with 100 students would require 3 additional teacher positions and 2 additional school support staff positions).

Conclusions: Clearly there is no benefit to Montgomery County from a tax revenue impact, and the change in zoning status would have a significant negative impact on approximately 400 home owners in Montgomery County. These homeowners have been paying additional property taxes over the last 30 years of about $38 Million (using a midpoint price of $150k, 20% impact, 2% tax rate, and 30 years time on 388 homes) based on the higher valuations afforded those properties adjoining a golf course. This prior stream of payments to Montgomery County

assumed that the MVGC property would remain a golf property, with the associated higher property resale values for adjoin residences. The negative impact of a change in zoning would provide significant financial gain to the current MVGC property owner and his development partners, the Artery Group, but this gain would come at a greater cost to all other adjoining property owners. This lost property value and prior higher investment in property purchase should be strongly considered by any local zoning board review, and appears to greatly outweigh the interest of the public in allowing a property zoning to be changed from golf-course use to residential use.

References: 1. The Impact of Golf Courses and Current Market Conditions on Cordillera Property Values By: Bruce Baumgartner, November 15, 2010. 2. The Million Dollar View: A Study of Golf Course, Mountain, and Lake Lots, David Wyman and Stephen Sperry, The Appraisal Journal, Spring, 2010. 3. Pricing Residential Amenities: The Value of a View, Earl D. Denson, Julia L. Hanson, and Arthur L. Schwartz. Jr., The Appraisal Journal, July 2000. 4. Golf Courses and Residential House Prices: An Empirical Examination, A.Quang Do and Gary Grudnitski, Journal of Real Estate Finance and Economics, no. 3 1995. 5. Adjusting the Value of Houses Located on Golf Course, A.Quang Do and Gary Grudnitski, The Appraisal Journal, July 1997. 6. Montgomery Village. Wikipedia page. http://en.wikipedia.org/wiki/Montgomery_Village,_Maryland