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One thing I don't understand is the "their real estate values will tank 80-90%" part. I live in a transforming rural area and one-by-one all the farmers have be

One thing I don't understand is the "their real estate values will tank 80-90%" part. I live in a transforming rural area and one-by-one all the farmers have been selling their land to developers to make planned neighborhoods. They control the supervisors, zoning, and planning boards, and they have to be dragged kicking and screaming to allow these developments. However, their land values have gone up a ton in the last decade: basically a whole order of magnitude from on the order of 10's of thousands per acre to 100's of thousands per acre. I think the same applies to your single family home next to a 15 story condo building. Instead of selling to a another family, now they're selling to a big developer and can price it waaaaay higher, because the developer will be getting significantly more value out of the land than they were. And still, they'll not want to do it. There's still farmers holding out, despite single digit million dollar offers for 10-ish acre plots. And it's great if a small number of them do hold out, because it makes it possible to have some green space down the line when the area has fully developed to a single family house level suburb. But I think the main issue is the culture. Farmers want to maintain their way of life. Single family home people want to maintain their way of life. And so on. People don't like change.

nordsieck 7y ago
> One thing I don't understand is the "their real estate values will tank 80-90%" part. I live in a transforming rural area and one-by-one all the farmers have been selling their land to developers to make planned neighborhoods. They control the supervisors, zoning, and planning boards, and they have to be dragged kicking and screaming to allow these developments. However, their land values have gone up a ton in the last decade: basically a whole order of magnitude from on the order of 10's of thousands per acre to 100's of thousands per acre. > I think the same applies to your single family home next to a 15 story condo building. Instead of selling to a another family, now they're selling to a big developer and can price it waaaaay higher, because the developer will be getting significantly more value out of the land than they were. I think the way to think about property values is this: what is the highest value economic activity that can be accomplished on the property? In your first example, it's pretty clear that building lots of houses (in the presence of sufficient demand) is a much higher value economic activity than farming. The home to condo example is a bit more complicated. For the very first person to sell to a developer, I think your point is sound. However, each additional bedroom that's created in the city decreases the value of all other bedrooms by a small amount. This not only directly decreases the value of a single family home, but it also decreases the value of a condo building, which means that developers will be willing to play less money for land. Eventually, builders will stop building - the cost of construction will be more than they can sell new condos for. At that point, I believe the remaining home owners will have suffered a dramatic decrease in the value of their property. Where does the equilibrium land? I don't think anyone knows for sure. But new construction goes up in some pretty low value real estate markets. 80-90% is just a guess on my part, but I don't think it's too far off based on current prices.
- neuland 7y ago
  That's a great explanation. One other thing that contributes to the equilibrium I think we haven't mentioned here is migration. You mention that as the number of accommodations increase, the price of existing residences is shifted down. This is supply. But demand is changing too. And I think that demand to live in the bay area is absolutely huge. As supply increases, I believe that either new people will move in to meet that supply. Or, under-housed current residents of the bay area will level up (ie. move out of a van / garage / attic and into a "real" dwelling). Another thing to mention is that the remaining single family houses will have a different kind of value once they become rarer. Owning one of the final single family houses in San Francisco is the ultimate flex. You still have a backyard; you can still walk to things. So some super-rich person will come knocking and want to buy just as a status symbol or as a way to get the way of life they want but still in the city.

nordsieck 7y ago

> One thing I don't understand is the "their real estate values will tank 80-90%" part. I live in a transforming rural area and one-by-one all the farmers have been selling their land to developers to make planned neighborhoods. They control the supervisors, zoning, and planning boards, and they have to be dragged kicking and screaming to allow these developments. However, their land values have gone up a ton in the last decade: basically a whole order of magnitude from on the order of 10's of thousands per acre to 100's of thousands per acre. > I think the same applies to your single family home next to a 15 story condo building. Instead of selling to a another family, now they're selling to a big developer and can price it waaaaay higher, because the developer will be getting significantly more value out of the land than they were. I think the way to think about property values is this: what is the highest value economic activity that can be accomplished on the property? In your first example, it's pretty clear that building lots of houses (in the presence of sufficient demand) is a much higher value economic activity than farming. The home to condo example is a bit more complicated. For the very first person to sell to a developer, I think your point is sound. However, each additional bedroom that's created in the city decreases the value of all other bedrooms by a small amount. This not only directly decreases the value of a single family home, but it also decreases the value of a condo building, which means that developers will be willing to play less money for land. Eventually, builders will stop building - the cost of construction will be more than they can sell new condos for. At that point, I believe the remaining home owners will have suffered a dramatic decrease in the value of their property. Where does the equilibrium land? I don't think anyone knows for sure. But new construction goes up in some pretty low value real estate markets. 80-90% is just a guess on my part, but I don't think it's too far off based on current prices.

neuland 7y ago
That's a great explanation. One other thing that contributes to the equilibrium I think we haven't mentioned here is migration. You mention that as the number of accommodations increase, the price of existing residences is shifted down. This is supply. But demand is changing too. And I think that demand to live in the bay area is absolutely huge. As supply increases, I believe that either new people will move in to meet that supply. Or, under-housed current residents of the bay area will level up (ie. move out of a van / garage / attic and into a "real" dwelling). Another thing to mention is that the remaining single family houses will have a different kind of value once they become rarer. Owning one of the final single family houses in San Francisco is the ultimate flex. You still have a backyard; you can still walk to things. So some super-rich person will come knocking and want to buy just as a status symbol or as a way to get the way of life they want but still in the city.