13 ms·

Paying for Dirt: Where Have Home Values Detached from Construction Costs?

123 points by erwtuif 9y ago

rb808 9y ago
Lol they should do this for London, where 150 year old tiny apts cost millions.
- asah 9y ago
  ...or beachfront property in (say) Santa Cruz. It's like a Mastercard ad: simple beach bungalow.. $300,000 dirt and parking....... $3,000,000 35 steps to the sand... priceless
- chrisseaton 9y ago
  > 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 9y ago
    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.
  - TACIXAT 9y ago
    You miss out on a lot of modern advancements. A few things that come to mind from my lovely house: * Single pane windows that leak heat / cool, also that rattle. * Lack of insulation. * Non-grounded wiring / unsafe wiring. * Plaster instead of drywall, cracks very easily. * Old heating systems (oil furnace with steam radiators). * Crooked doorways and doors that don't close quite right.
  - rb808 9y ago
    Nothing wrong with old. Just that its related to the OP - construction costs are irrelevant when you can amortize the cost over a century or two.
- liveoneggs 9y ago
  for a lease hold instead of actual ownership too
pxeboot 9y ago
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.
- toomuchtodo 9y ago
  And you'll actually get to retire!
- lostmsu 9y ago
  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.
  - emodendroket 9y ago
    I don't know where he went but I've occasionally thought about Raleigh or Chicago as like, way cheaper than Boston, where I am.
    - loeg 9y ago
      Raleigh or Chicago aren't $500/mo mortgage for a nice house cheap.
      - emodendroket 9y ago
        No, but they have a livelier job market than, like, Rochester or Buffalo, and comparatively they still look quite cheap.
    - carlivar 9y ago
      Chicago and Illinois in general are in rough financial shape. Taxes are very high with no end to raises in sight.
jackcosgrove 9y ago
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.
- rb808 9y ago
  > but it's still disappointing that sprawl seems to be the best way to make housing affordable. The other alternative is like much of Europe with lots of small cities and towns connected with trains and roads, and zoning enforced farms in-between. Isn't easy to get done in US though where developer $$ rule.
neaanopri 9y ago
Do they not have RSS enabled?
- 0bfus 9y ago
  Here you go: https://www.buildzoom.com/blog/feed https://www.buildzoom.com/blog/feed
kevinburke 9y ago
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.
- innesinnes 9y ago
  Re: 700 Innes https://twitter.com/SFyimby/status/921454648044666880 https://twitter.com/SFyimby/status/921454648044666880 https://twitter.com/SFyimby/status/921438475554918400 https://twitter.com/SFyimby/status/921438475554918400
- TheSpiceIsLife 9y ago
  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 9y ago
    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.
dogruck 9y ago
Real estate values have always been rooted in location, location, and location (land).
wheresmyusern 9y ago
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 9y ago
  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 9y ago
    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 9y ago
      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.
clairity 9y ago
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?
- AznHisoka 9y ago
  Why should abstract things like a futures contract be investable, while "real" things like houses shouldnt? I guess the government should recommend bitcoin investing to everyone since its not real and nobody is affected?
  - clairity 9y ago
    it's not so much that real things shouldn't be investable, but that a primary residence has unique properties (lke the lack of substitutability) that make it unlike commodities. and commodities are what capitalistic free markets was design for and for which it works best. so a free-for-all market may not be ideal for a society when it comes to primary residences. i'd go so far as to argue that the american identity rests on the psychological safety of a reliable place to live (or at least it used to, before we turned them into slot machines). entrepreneurship couldn't have flourished without it, along with reasonable bankruptcy laws that (until recently) fostered greater risk-taking among the labor class. it's hard to be the rugged individualist if a risk you take can lead to you and your family's death.
purplezooey 9y ago
Densification. Wish we would learn some of that in the SFBA.
dsfyu404ed 9y ago
TL;DR: Proximity to water and density of rich people drive up the cost of land. It ain't rocket science people.
pascalxus 9y ago
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!

123 points by erwtuif 9y ago

rb808 9y ago

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

asah 9y ago
...or beachfront property in (say) Santa Cruz. It's like a Mastercard ad: simple beach bungalow.. $300,000 dirt and parking....... $3,000,000 35 steps to the sand... priceless
chrisseaton 9y ago
> 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 9y ago
  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.
- TACIXAT 9y ago
  You miss out on a lot of modern advancements. A few things that come to mind from my lovely house: * Single pane windows that leak heat / cool, also that rattle. * Lack of insulation. * Non-grounded wiring / unsafe wiring. * Plaster instead of drywall, cracks very easily. * Old heating systems (oil furnace with steam radiators). * Crooked doorways and doors that don't close quite right.
- rb808 9y ago
  Nothing wrong with old. Just that its related to the OP - construction costs are irrelevant when you can amortize the cost over a century or two.
liveoneggs 9y ago
for a lease hold instead of actual ownership too

pxeboot 9y ago

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.

toomuchtodo 9y ago
And you'll actually get to retire!
lostmsu 9y ago
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.
- emodendroket 9y ago
  I don't know where he went but I've occasionally thought about Raleigh or Chicago as like, way cheaper than Boston, where I am.
  - loeg 9y ago
    Raleigh or Chicago aren't $500/mo mortgage for a nice house cheap.
    - emodendroket 9y ago
      No, but they have a livelier job market than, like, Rochester or Buffalo, and comparatively they still look quite cheap.
  - carlivar 9y ago
    Chicago and Illinois in general are in rough financial shape. Taxes are very high with no end to raises in sight.

jackcosgrove 9y ago

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.

rb808 9y ago
> but it's still disappointing that sprawl seems to be the best way to make housing affordable. The other alternative is like much of Europe with lots of small cities and towns connected with trains and roads, and zoning enforced farms in-between. Isn't easy to get done in US though where developer $$ rule.

neaanopri 9y ago

Do they not have RSS enabled?

0bfus 9y ago
Here you go: https://www.buildzoom.com/blog/feed https://www.buildzoom.com/blog/feed

kevinburke 9y ago

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.

innesinnes 9y ago
Re: 700 Innes https://twitter.com/SFyimby/status/921454648044666880 https://twitter.com/SFyimby/status/921454648044666880 https://twitter.com/SFyimby/status/921438475554918400 https://twitter.com/SFyimby/status/921438475554918400
TheSpiceIsLife 9y ago
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 9y ago
  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.

dogruck 9y ago

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

wheresmyusern 9y ago

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 9y ago
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 9y ago
  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 9y ago
    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.

clairity 9y ago

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?

AznHisoka 9y ago
Why should abstract things like a futures contract be investable, while "real" things like houses shouldnt? I guess the government should recommend bitcoin investing to everyone since its not real and nobody is affected?
- clairity 9y ago
  it's not so much that real things shouldn't be investable, but that a primary residence has unique properties (lke the lack of substitutability) that make it unlike commodities. and commodities are what capitalistic free markets was design for and for which it works best. so a free-for-all market may not be ideal for a society when it comes to primary residences. i'd go so far as to argue that the american identity rests on the psychological safety of a reliable place to live (or at least it used to, before we turned them into slot machines). entrepreneurship couldn't have flourished without it, along with reasonable bankruptcy laws that (until recently) fostered greater risk-taking among the labor class. it's hard to be the rugged individualist if a risk you take can lead to you and your family's death.

purplezooey 9y ago

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

dsfyu404ed 9y ago

TL;DR: Proximity to water and density of rich people drive up the cost of land. It ain't rocket science people.

pascalxus 9y ago

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!