
Paying for Dirt: Where Have Home Values Detached from Construction Costs? - erwtuif
https://www.buildzoom.com/blog/paying-for-dirt-where-have-home-values-detached-from-construction-costs
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kevinburke
Would like to say: If you would like to reverse these trends, or live in the
SFBA and would like to be able to afford a home or condo without needing to
commute from Stockton or hit the startup lottery, please pay attention to your
local City Council and their zoning/land use decisions. Local decisions
frequently don't get that many comments; your voice makes a difference.

\- Brisbane may approve 4400 units of housing, or zero. 4400 units would be
close to how many the Bay Area typically produces in a year.

\- Cupertino and Sunnyvale residents frequently oppose new housing.

\- San Francisco has a strong contingent of people that oppose large projects.
There is one project near Glen Park BART, and another one with 1200 units at
700 Innes, that could use support in the coming months.

If you're not sure where to get started getting involved, contact me and I can
point you in the right place. One good place to start would be to push your
executives and VC's to actually work towards making housing affordable here in
the Bay Area; for too many it's an afterthought.

~~~
TheSpiceIsLife
Will building more units / appartments/ houses bring the price down?

Have other cities seen home prices move toward affordability when more housing
has been built?

I'm not saying it isn't a good idea, just that the logic seems flawed.

~~~
rspeer
I'm not up on the sources, but a moderately pro-development candidate for
Cambridge City Council has often quoted a statistic saying that there are only
two ways to bring down house prices:

1\. Make the city suck

2\. Get the housing vacancy rate to 5.5%

And of course he says this to encourage everyone to work toward #2, and the
way to do that without displacing anyone is to build new housing.

I don't really understand the opposite logic, which the NIMBYs like to use,
saying that building new housing will drive the price up.

I mean, I am not some kind of libertarian free-market cheerleader, but it
shouldn't be that controversial to say that a market _exists_ , that the way
to bring down the price in the face of overwhelming demand is with supply.

People point to how expensive newly-built market-rate housing is, but that's a
symptom of the shortage. People want to live in good cities. If there's not a
new home for them, they'll pay even more for a home someone lives in, so
prices go up _and_ a community gets displaced.

~~~
ACow_Adonis
I don't see many people mentioning a proportional value-based land tax, which
would probably be about the first thing a traditional economist would
recommend?

Brings down prices, hurts land-banking, increases density, generates revenue
for infrastructure, captures public benefit from value increase, etc...

~~~
rspeer
Hurts grandmas/grandpas who lucked into houses with high property values, who
could be rich but don't want to be because they have personal reasons not to
move.

These are incidentally severely overrepresented among voters, and their votes
are amplified by how easy it is to paint someone following the economic wisdom
as an evil grandma-displacer.

It's much more politically convenient to displace young minorities. Nobody
will really speak up for them, and they won't vote against you because you
displaced them and they live somewhere else now!

~~~
nradov
One solution would be to defer tax payments and put a lien on the property
instead, payable upon change of ownership. That way no one will be forced out
of their home, and the government can even use those liens as collateral if
they need to borrow funds for current operations.

~~~
ensignavenger
Allow those liens to compound over enough time, and eventually they become
more than the value of the home. Also, many of these voters want to leave
their property to their children, not the government.

~~~
nradov
Many of those voters also don't want to pay higher sales, value-added, or
income taxes. The money to operate governments has to come from somewhere.

~~~
ensignavenger
Sure, but just how much government we need is always a political question,
subject to much debate. The point is, the solution isn't as simple as raising
taxes.

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pxeboot
I got sick of living in a HCOL area and moved somewhere super cheap. Put 20%
down on a nice house and have a $500/month mortgage payment. My total annual
housing expenses are less than the taxes on a similar house in Seattle or San
Francisco.

Pay is less on paper, but actually quality of life and savings are much
higher.

~~~
lostmsu
Where did you move to? I'm looking for a good area like this with the biggest
requirement of having fiber or otherwise just a very good 250Mbps+ service.

~~~
rayiner
If you can telecommute a lot, I recommend Maryland b/w D.C. and Annapolis. You
can get a 4BR house for what a 1BR apartment costs in D.C., you can be at a
farm in 20 minutes in one direction and a downtown bar in 10 minutes in the
other, and I've got two different fiber providers available (I'm getting 2-gig
installed soon). Unfortunately, the tech scene in the DMV area seems to be
mostly in northern Virginia, which is probably the most overrated part of the
entire country.

~~~
Retric
Northern Virginia has very low unemployment and high paying jobs. The area
also has all 4 seasons fairly balanced, zero significant natural disasters,
plenty of rainfall to stay green in the summer etc. Granted, you may not like
that tradeoff, but it has a lot going for it.

Sure I moved to MD due to my current job, but I am seriously considering
moving back.

~~~
mtberatwork
Even with high paying jobs (if you are fortunate to have one), NoVA also has
incredibly high housing costs unless you decide to live in the less desirable
locations (which come with their own problems) or move far out and give
yourself a massive commute.

~~~
Retric
Depends on what your comparing it to. Northern VA has a mix of jobs and houses
so it's possible to have a very short commute. It's easy to find an nice
apartment around 1500$ / month just about anywhere which is not cheap, but not
so crazy as NYC or SV.

A dual income professional family can generally afford a 4 bedroom home, but
that's hard on a single income without a massive down payment or over sized
salary.

In terms of living further out, it's frequent for people to telecommute 1-3
days a week which makes a huge difference.

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clairity
i once managed the product that calculated the cost basis for your property
tax bill in most US counties & states (and some international jurisdictions),
and it was common knowledge there that home prices were disconnected from
construction costs.

construction cost relative to home prices is interesting to a company like
buildzoom because they're in the construction business (and finding the coming
construction booms is important to them), but if you want to understand home
price inflation, it's not that interesting at all. shiller, of case-shiller
fame, also showed that home prices are disconnected from construction costs in
his book _irrational exhuberance_.

in a stable economy, you'd expect home prices to roughly follow GDP or
inflation, not building cost. if you graphed median home prices against GDP,
you'd literally see the bubble (between median home price and GDP) starting to
form in the 80's and popping in 2008.

why? financial engineering--we turned homes from places to live into
investments. greed fueled home price inflation. and real estate investment was
accessible to the average american, unlike more complex financial instruments
like bonds or derivatives. in classic bubble fashion, people knew (and still
know) that prices are irrational, but we all think we can make a boatload and
get out before the bubble pops (again).

but these are homes we're talking about, not some abstract concept like a
futures contract on the production of black-eyed peas. these are not simple
commodities that we can easily replace with a substitute. it's where we
_live_.

and yet, we continue to allow financiers and investors to extract wealth
through higher rents (now nearing 50% for many residents of big cities),
regulatory capture, and collaterized debt (the risk on which is passed to
taxpayers). but "everyone else is doing it" so it's ok, right?

~~~
carradjm
[https://en.wikipedia.org/wiki/Georgism](https://en.wikipedia.org/wiki/Georgism).

Don't mean to boil down your entire well-written post to a single point, but I
maintain that Georgism is the only sensible solution to this problem.

~~~
clairity
i'm not familiar with Georgism, but i do agree that the land value tax should
be a primary taxing mechanism for a property-ownership economic system (like
ours in the US). it's progressive, fair, and according to the wikipedia
article, doesn't get passed on to renters.

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jackcosgrove
I did a crude analysis of the effects of density on cost in this thread:
[https://news.ycombinator.com/item?id=12362684](https://news.ycombinator.com/item?id=12362684)

"Sure. I found this for Canada:
[http://www.altusgroup.com/media/4099/costguide_2015_web.pdf](http://www.altusgroup.com/media/4099/costguide_2015_web.pdf)
Toronto (average $/sq ft to build given range) Medium Quality Tract House
(assume 1 story): 180 Medium Quality Highrise (50-80 stories, average 65
stories): 270 This comes out to $1.38 more per square foot for each additional
story. Let's just assume land will be twice as expensive in the city center as
at the edge of that metro. Assume the cheapest land is $200 per square foot.
Assume that the house will be built on the cheaper land, and assume one
dwelling per story for simplicity. As you add a story, the cost of land is
halved. After adding the 65th story, it is divided 65 ways. By adding the
linear curve of building cost over the inverse curve of cost of land divided
by story, you get the cost per square foot per story. In fact, this is
maximized for a single-story building as land costs are born by a single
tenant. Cost per floor falls until construction costs overcome the falling
cost of land. The minimum cost to add a story, $214.67 occurs for the 12th
floor. Again, back of the napkin and very naive. A highrise will probably have
less square footage per dwelling though. If we halve that the cost of land
falls even faster, with building costs plus land costs bottoming out at
$203.51 per square foot, for the 8th floor. Finally, I added an $8,000 per
square foot premium at city center. With this, the cheapest floor costs
$348.44 per square foot for the sixth floor. So as land prices become steeper
from city center to periphery, it actually makes more sense to disperse.
Likewise reducing dwelling size does not have as much of an effect as rising
build costs."

More than happy if someone can poke holes in it, but my takeaway was that
costs are minimized at lower density rates than I first assumed. Mid-rise
buildings are the most cost-effective, moreso than high-rises.

I'm glad that the BuildZoom study confirmed my exercise somewhat, but it's
still disappointing that sprawl seems to be the best way to make housing
affordable.

~~~
mlinksva
Midrise can be very dense. Think Paris. So can lowrise. Think rowhouses.

So no, sprawl is not the best way to make housing affordable. Doubly so if you
account for transportation costs.

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wheresmyusern
hey, i'm looking to buy a small plot of land and build a house on it in the
next few years. my goal is to be able to have land and a house of my own
without taking a loan, or a very big one at least. ive been looking at land in
northern california and there seems to be a lot of promising deals. lake
county california seems to be a pretty good spot.

if anyone has experience with buying land to settle on, in northern california
or otherwise, i would be eternally grateful for advice and tips. in fact, i
would greatly appreciate any advice or tips regarding anything that has to do
with buying land, building a house, or owning property and a house.

~~~
nowarninglabel
Check out the book "County Property: Dirt Cheap". It has some good tips.

Note Lake County is high in fire danger, so depending on where you buy you'll
want to take that into account for insurance cost or building style. Neighbors
are also pretty critical to whether or not you'll be happy with this dream of
yours.

~~~
boardwaalk
This is a pretty old book, being >20 years old. I wonder if anyone knows of a
good book that takes into account searching via the internet.

~~~
nowarninglabel
Well, the principles still hold from the book, you'd be surprised. For
internet searches, just looking at landwatch.com and Zillow. Between those two
you will pretty much see all there is out here.

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pascalxus
They really should normalize the costs on a per square foot basis and the
numbers would be even more start. Homes tend to be smaller in areas with
really high per square foot costs.

It just seems so sad. When you're driving along the highway and you see all
these tiny homes jam packed together like some sort of Gehtto, only 2 feet
between each home and yet there's miles and miles of space in every direction,
outside the complex. I'm talking about the exerbs that surround the bay area.
According to one govt report i read, Only 5% of CA land is currently being
used!

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rb808
Lol they should do this for London, where 150 year old tiny apts cost
millions.

~~~
chrisseaton
> 150 year old tiny apts

Tiny is bad, but what's wrong with old?

I find older houses are usually built to a much higher standard (may just be
those that remain but that's irrelevant), and have much more character.

~~~
Spearchucker
Build quality in the UK is generally dire. Mortar and bricks of old buildings
crumbles. Lots of asbestos. Leaky pipes cost too much to fix, electrics are
old and a hazard... New buildings favour low cost over quality. Staircases
crack away from walls 12 months in. Insulation is designed to meet green
targets, but not to actually insulate. Compared with the standards-obsessed
Germans, I suspect many buildings in the UK should really be demolished. It's
but one of the reasons I'm selling up in London and moving to the mainland.

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dsfyu404ed
TL;DR: Proximity to water and density of rich people drive up the cost of
land.

It ain't rocket science people.

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purplezooey
Densification. Wish we would learn some of that in the SFBA.

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neaanopri
Do they not have RSS enabled?

~~~
0bfus
Here you go:
[https://www.buildzoom.com/blog/feed](https://www.buildzoom.com/blog/feed)

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dogruck
Real estate values have always been rooted in location, location, and location
(land).

