By Evelyn Long, editor-in-chief of Renovated
Real estate investors are community builders. They develop raw land, rehabilitate derelict buildings and fund the construction of critical infrastructures underpinning the economy. The public relies on private real estate investments to drive down the cost of housing, transportation, food, insurance and leisure.
While more real estate investment is generally more desirable than less, it can harm local communities. Unsustainable investing makes places profitable for a few but unlivable for most over time.
What Is Sustainable Real Estate Development?
Sustainability has three components.
- Environmental sustainability preserves local ecosystems’ long-term health and vitality.
- Social sustainability focuses on people’s well-being, creating conditions that make community members prosperous and fulfilled.
- Economic sustainability revolves around using available resources without causing adverse environmental and social impacts.
Many of the problems communities face stem from unsustainable real estate development. A balanced approach to real estate investing that considers all three areas can alleviate today’s environmental, social and economic ills.
Signs Real Estate Investment Is Becoming Unsustainable
The initial symptoms of real estate development unsustainability can be subtle, but they become palpable at some point. Here are the undeniable signs that real estate investments are becoming environmentally, socially or economically detrimental.
Overburdened Infrastructures
Lengthy commutes, unreasonable health care wait times, frequent public utility service interruptions and volatile internet speed connections prove that some segments of real estate experience underinvestment while others enjoy overinvestment.
Such an imbalance diminishes quality of life. Extended travel times suggest many people live far away from work due to insufficient nearby affordable housing and a lack of public transit options. This situation drives up the demand for private vehicles and increases transportation-related greenhouse gas emissions.
An inadequate number of well-equipped clinics and hospitals delays the delivery of much-needed medical services. Power outages, water scarcity and slow internet speeds indicate that existing energy, water and telecommunications infrastructures have failed to keep up with local population growth and demographic shifts.
Unchecked Urban Sprawl
Urban expansion keeps population density in check. However, it also encroaches on wildlife habitats, which can destroy biodiversity, result in deforestation and reduce the size of adjacent greenbelts.
Vegetated areas store carbon instead of letting it reach the atmosphere and contribute to climate change. They also mitigate the effects of weather events by weakening strong winds, absorbing floodwater and preventing soil erosion.
Often, developing new built environments creates heat islands and spreads light pollution. Warmer air and surface temperatures increase properties’ cooling loads, requiring more energy to keep indoor spaces comfortable. Exposure to artificial light disrupts animal behaviors, including sleep, migration, survival and reproduction.
Rapid Gentrification
Revitalizing economically ailing or crime-ridden districts can generate more tax revenue. Renovating worn-out buildings and improving public spaces will make an area conducive to economic activity. Low crime rates and modern amenities attract entrepreneurs to set up shop and create job opportunities.
Though gentrification can expand a jurisdiction’s tax base, it can exacerbate prevailing social inequalities and erode a place’s identity. The influx of newcomers may fuel inflation, pricing out financially disadvantaged longtime residents. Locals may become angry about this phenomenon if it happens too fast.
Some racial and ethnic groups are more prone to hardship in gentrified areas than others. For example, San Francisco’s urban renewal plan significantly displaced the city’s Black population — which grew tenfold in the 1940s — to build new freeways, houses and commercial establishments for the affluent.
Skyrocketing Housing Costs
Rent and home prices rarely increase and stay high for a long time in a vacuum. Zoning laws restrict land use, restricting what developers can build where. The glaring missing middle housing crisis across the United States is solid evidence of this. Restrictive municipal policies discourage real estate investors from building anything other than detached single-family homes and multifamily buildings.
Existing homeowners often resist new development to keep the local housing stock low. A chronically wide gap between supply and demand accelerates property appreciation, allowing homeowners to build equity and cash it out to fund whatever they see fit.
Though many people rent for years until they save enough to afford a home, a persistent housing shortage sometimes makes homeownership unattainable. In 2023, the increase in expenditures on rented dwellings outpaced those of owned dwellings, 7.6% versus 5.7%.
7 Best Practices for Investing in Real Estate Sustainably
Environmentally unsound, socially inequitable and economically uninclusive real estate projects can’t continue indefinitely. These seven practices develop a future-proof real estate investment philosophy.
1. Embracing Mixed Land Use
Mixed land use designates an area for residential, commercial and industrial activities. Blending these spaces is elegantly sustainable, curbing urban sprawl and reducing per capita greenhouse gas emissions.
Places where residents can live, work and play in a single location offer a more balanced lifestyle. Recognizing this, some business owners have adopted similar models to make in-office work more appealing to telecommuters who grew accustomed to the flexibility of remote work throughout the pandemic.
Many vibrant American cities have enacted zoning ordinances that enable this land use designation. Mixed-use development should be the standard to reduce car dependence and its adverse effects.
2. Designing Compact Properties
Compact building designs accommodate more occupants with less land. They can yield more housing units, keeping rent and property prices stable and reducing homelessness.
Compact structures fit urban plans that preserve open, green spaces to make densely populated areas socially cohesive, less stressful, aesthetically pleasing and climate-resilient. They preserve greenbelts’ natural beauty, prevent habitat loss and ensure biodiversity.
These properties use fewer resources to construct, operate and maintain. Incorporating circular materials — like ferrock, whose recycled content is about 95% — and disaster-proof features should minimize their impact on the environment and people’s finances throughout their life cycle.
3. Diversifying Housing Options
Housing diversity reduces land consumption, fosters inclusivity, equity and resilience and leads to robust social structures. Policymakers should relax regulatory barriers to encourage real estate developers to build condominiums, medium-rise apartment complexes, townhouses, duplexes, courtyard houses, detached single-family homes and tiny homes.
A broad range of housing options gives more people the freedom to rent or buy a property that suits their lifestyles and income levels. This abundance should benefit everyone — recent college graduates seeking a low-cost place to live, empty nesters planning to downsize and newlyweds hoping to upgrade to a bigger space. Splitting the demand for housing across various dwellings moderates property price fluctuations.
4. Setting Fair Pricing for Rentals
Commodifying real estate is only sustainable if landlords can afford fair pricing for tenants. Many investors take out a second mortgage to buy another home to earn passive rental income. The problem is that this strategy often involves passing on much of the financial burden to renters. Owning two homes means two sets of property taxes, mortgage payments, insurance premiums, utility bills and maintenance expenses.
Aspiring residential landlords must self-regulate to ensure financial stability. A second property shouldn’t come at the expense of other goals, like putting a child through college or saving for retirement. Responsible rent-setting also respects other people’s goals of pursuing homeownership instead of pricing them out of the market.
5. Prioritizing Regenerative Architecture
Regenerative architecture is the practice of building structures designed to be net positive for the environment and society instead of merely minimizing their harm on the community. Advocates of this approach gravitate toward biomimicry, drawing inspiration from biology to construct built environments that harmoniously integrate with the surroundings.
Regenerative properties are active elements of the ecosystem. They feature biophilic design elements to promote good physical and mental well-being, improve indoor air quality, contribute to carbon sequestration, support urban farming and sustain local wildlife. They’re resource-efficient and conserve energy and water.
6. Making Mobility Convenient
Living in a sustainable community makes car ownership optional. Modern, well-maintained mass transportation systems can efficiently move large volumes of passengers. Well-thought-out networks have stops at strategic locations throughout metropolitan areas. Enhancing urban accessibility drives economic activity by encouraging residents to enjoy local shopping, dining and entertainment options and attracting tourists with the promise of hassle-free exploration.
Walkable neighborhoods within 15 minutes of public transit help people spend less on transportation. Bikeable ones neutralize the adverse effects of sedentary lifestyles and empower more people to cut their carbon footprints. Decarbonizing buses and taxis keeps roads quiet and emission-free.
7. Creating a Sense of Place
Non-local real estate investors should recognize the intangible qualities that make a location unique. Any natural or human-made feature the public deems historically or culturally valuable deserves respect and protection. Developers should be aware of these and the feelings people associate with them to improve areas without erasing their uniqueness.
Emotional attachment promotes a sense of ownership of a place, encouraging environmental stewardship in people. Feelings of familiarity, belonging and identity are powerful motivators to be responsible for each other and work together to enhance the community everybody cherishes.
Real estate developers should engage with local stakeholders to discuss projects and get their input. Coordinating with community leaders allows investors to hear public sentiments and clarify misunderstandings early in the process. Collaboration is the secret to making win-win development decisions.
Investing in Real Estate the Sustainable Way
Investors gravitate toward real estate because of its reputation as a profitable domain and extensive track record as a safe asset. Sadly, some lack the foresight to realize the consequences of pouring money into environmentally, socially or economically detrimental projects. Fortunately, sustainable development is becoming the norm. Help from government officials will encourage investors to profit from real estate while improving residents’ lives over the long term.