8 ms·

The bigger cost is land, yes, but let's not become confused into thinking high land prices are due to natural scarcity. Land is expensive due to artificial scar

by jjeaff 6y ago

The bigger cost is land, yes, but let's not become confused into thinking high land prices are due to natural scarcity. Land is expensive due to artificial scarcity created wholly by regulation. Usually propped up by the older generations that already have their pieces of land. Sure, dense urban areas have some scarcity, though almost all could build up. But as I look around me in this southern california suburb, surrounded by 2,500 sq foot homes on 1/4 acre built 25 years ago that go for $800k, I can see endless empty land in all directions. But you can't get a permit to build on any of it, because any requests to permit it are met with an army of residents near retirement that have lived at the edge of their means their entire life and so their only retirement plan is to sell their overpriced home and move to Texas.

Ericson2314 6y ago
Well-located land is inherently scarce because the social graph isn't planer. (Credit my co-worker for the observation)
skybrian 6y ago
Just because it's empty doesn't mean it's safe to build on. Here's a map showing fire risk for California: https://ia.cpuc.ca.gov/firemap/ https://ia.cpuc.ca.gov/firemap/ Maybe people opposing sprawl for other reasons is a fortunate coincidence?
- thewebcount 6y ago
  And it's not just fires. They're trying to turn every hillside in the area around LA into sellable land. There's mudslides, earthquakes, etc. to deal with, too!
- jjeaff 6y ago
  It's no longer that risky if you keep defensible space around the residences and reasonable fire precautions when building the homes.
Retric 6y ago
Land is generally expensive because infrastructure is expensive. Building plumbing systems, subways, highways, schools, etc gets directly reflected in land prices. That compounds when the cost to build even more transportation infrastructure skyrocket. Trying to build larger buildings without that infrastructure just results in pointless gridlock. The Bay Area compounds that by capping property price increases which heavily distorts incentives and the overall market. But, don’t assume simply building more housing would actually make a significant difference long term without massive investments in infrastructure. At best it simply changes which land is valuable.
- thatfrenchguy 6y ago
  Infrastructure gets more expensive as density lowers. Most of the US (and France, for example) built after the 1960s decided to build stupid detached single family houses. There is no incentive to upzone there given that homeowners who bought for cheap want their property values to go up, with no downsides for them (thanks prop 13)
  - mc32 6y ago
    Developers didn't build stupid detached homes because no one would want them, they built them because that's what most people prefer. People don't prefer dealing with noisy neighbors, etc. Almost anywhere where there is land available and it's affordable you'll have a large group of people who prefer single family homes --even favelas have single family homes. As societies become more affluent they want more independence --and your own house is part of that.
    - lordCarbonFiber 6y ago
      Citation desperately needed. Having grown up in the suburbs and participated in the exodus along with everyone I knew that could, detached housing is an isolating personal hell (and a pain to clean and maintain on top of it). Places where single family homes exist rarely even have the option for high density housing and, in the US at least, never have the public infrastructure to support it. It's a learned excess not a requirement.
freddie_mercury 6y ago
> Land is expensive due to artificial scarcity created wholly by regulation. This is a bit of a strawman. I suggest you broaden your perspective and don't only rely on narrow US anecdotes in order to try to explain global phenomena. I live in Asia where there are essentially, especially from a Western perspective, zero regulations. (I've never seen a house with a smoke detector, for instance.) And land is still expensive. In a country where the per-capita GDP is under $3,000 a year, the houses in my neighborhood still cost over $500,000 and most of that is the value of land (parts & labor for building a house of that size are only about $150,000). And the city I live in has a population over 13,000,000. "Building up" doesn't happen magically. It takes investors willing to put up tens to hundreds of millions of dollars for an uncertain payoff many years in the future. That kind capital simply isn't trivially available here. The road to my house is wide enough for a single car -- and it is in quite poor condition. The roads flood every year (up to about half a meter) during the monsoon and "flooding" means sewers are backed up so it isn't pristine water we're talking about. All of that infrastructure needs to be improved to increase density by "building up". In a developing country, those things are in the condition they are because the local city has an insufficient tax base to fix things in the short term. Again, it doesn't happen magically, easily, or instantly. What's more, there are constraints to "build up". Every house in my area is already four stories tall. Because of the high water table, there's no such things as "foundations", so every house is built on top of dozens of steel piles driven 20 meters into the ground. Construction of new houses regularly causes damage to adjacent houses, due to the unstable land. Construction here is primarily of brick, which has height limits due to weight. You can use other materials but then you have additional costs of needing to import materials and not having workers with experience in it. Sure, it is possible to take all those four story houses and turn them into eight story houses. It just takes an extra level of complexity of architecture and construction.
- vsskanth 6y ago
  What about Japan ? I read somewhere that they have manageable housing costs even in Tokyo. If true, how did they achieve it ?
  - staticman2 6y ago
brudgers 6y ago
Land for housing is expensive because land is a repository for wealth and housing is among the least profitable uses to which land can be put over the long term. Good urban land generates better long-term returns from commercial uses. Good rural land produces better long-term returns from agricultural uses. By "long-term," I mean inter-generational. Land doesn't ever really go to zero. And the problem with selling land is that the seller has to do put the proceeds in a similar repository of wealth, i.e. roll over the proceeds into a different piece of land. Absent a change in investment philosophy, the seller is in exactly the same situation as before despite having taken all the risks that come from liquidating their wealth repository into cash. Empty land is a solution to the problem of having too much money. That makes it hard to think about based on ordinary experience.
- bumby 6y ago
  >Land doesn't ever really go to zero. Land can actually go to less than zero. Anyone who's worked in environmental remediation can tell you how expensive it becomes. Even in non-industrial parcels, this can be a concern depending on when/how the land was previously used.
davidgay 6y ago
> Land is expensive due to artificial scarcity created wholly by regulation. Growing up in Switzerland (with expensive land and housing prices), this is quite an insular point of view. Land is expensive in Switzerland at least in part due to: - an excess of (unregulated) mountains - regulations not allowing all agricultural land to be converted to housing (WWII is close enough in memory that it is remembered that Switzerland was not self-sufficient in food, and that this is a major problem when all your borders are controlled by a single alliance)
- jjeaff 6y ago
  So the view is insular, yet of your two reasons that land is so expensive in Switzerland, you list "regulations" as one of them?
m463 6y ago
You can't help but think it's all a big scam, especially when you get on a plane and fly at 600mph for HOURS and still haven't crossed the country.
beetroot_user 6y ago
I second this. Land is not naturally scarce. What is scarce is land near good jobs. I believe one of the major drivers of housing prices is the ratio of jobs to housing in a given area. In parts of San Francisco the ratio of jobs to houses is as high as 4:1 [1]. Nearly everyone wants to live close to their job, so the houses are priced to price out over most of the people who work in a given area. The housing becomes prices at the maximum load the top n buyers can manage. Imagine if the ratio swung the other way with an oversupply of houses, created by either relocating jobs or building new units. The prices would fall drastically until they approach the cost of construction. [1]: https://www.bloomberg.com/news/articles/2018-03-05/in-california-momentum-builds-for-radical-action-on-housing https://www.bloomberg.com/news/articles/2018-03-05/in-califo...

by jjeaff 6y ago

Ericson2314 6y ago

Well-located land is inherently scarce because the social graph isn't planer. (Credit my co-worker for the observation)

skybrian 6y ago

Just because it's empty doesn't mean it's safe to build on. Here's a map showing fire risk for California: https://ia.cpuc.ca.gov/firemap/ https://ia.cpuc.ca.gov/firemap/ Maybe people opposing sprawl for other reasons is a fortunate coincidence?

thewebcount 6y ago
And it's not just fires. They're trying to turn every hillside in the area around LA into sellable land. There's mudslides, earthquakes, etc. to deal with, too!
jjeaff 6y ago
It's no longer that risky if you keep defensible space around the residences and reasonable fire precautions when building the homes.

Retric 6y ago

Land is generally expensive because infrastructure is expensive. Building plumbing systems, subways, highways, schools, etc gets directly reflected in land prices. That compounds when the cost to build even more transportation infrastructure skyrocket. Trying to build larger buildings without that infrastructure just results in pointless gridlock. The Bay Area compounds that by capping property price increases which heavily distorts incentives and the overall market. But, don’t assume simply building more housing would actually make a significant difference long term without massive investments in infrastructure. At best it simply changes which land is valuable.

thatfrenchguy 6y ago
Infrastructure gets more expensive as density lowers. Most of the US (and France, for example) built after the 1960s decided to build stupid detached single family houses. There is no incentive to upzone there given that homeowners who bought for cheap want their property values to go up, with no downsides for them (thanks prop 13)
- mc32 6y ago
  Developers didn't build stupid detached homes because no one would want them, they built them because that's what most people prefer. People don't prefer dealing with noisy neighbors, etc. Almost anywhere where there is land available and it's affordable you'll have a large group of people who prefer single family homes --even favelas have single family homes. As societies become more affluent they want more independence --and your own house is part of that.
  - lordCarbonFiber 6y ago
    Citation desperately needed. Having grown up in the suburbs and participated in the exodus along with everyone I knew that could, detached housing is an isolating personal hell (and a pain to clean and maintain on top of it). Places where single family homes exist rarely even have the option for high density housing and, in the US at least, never have the public infrastructure to support it. It's a learned excess not a requirement.

freddie_mercury 6y ago

> Land is expensive due to artificial scarcity created wholly by regulation. This is a bit of a strawman. I suggest you broaden your perspective and don't only rely on narrow US anecdotes in order to try to explain global phenomena. I live in Asia where there are essentially, especially from a Western perspective, zero regulations. (I've never seen a house with a smoke detector, for instance.) And land is still expensive. In a country where the per-capita GDP is under $3,000 a year, the houses in my neighborhood still cost over $500,000 and most of that is the value of land (parts & labor for building a house of that size are only about $150,000). And the city I live in has a population over 13,000,000. "Building up" doesn't happen magically. It takes investors willing to put up tens to hundreds of millions of dollars for an uncertain payoff many years in the future. That kind capital simply isn't trivially available here. The road to my house is wide enough for a single car -- and it is in quite poor condition. The roads flood every year (up to about half a meter) during the monsoon and "flooding" means sewers are backed up so it isn't pristine water we're talking about. All of that infrastructure needs to be improved to increase density by "building up". In a developing country, those things are in the condition they are because the local city has an insufficient tax base to fix things in the short term. Again, it doesn't happen magically, easily, or instantly. What's more, there are constraints to "build up". Every house in my area is already four stories tall. Because of the high water table, there's no such things as "foundations", so every house is built on top of dozens of steel piles driven 20 meters into the ground. Construction of new houses regularly causes damage to adjacent houses, due to the unstable land. Construction here is primarily of brick, which has height limits due to weight. You can use other materials but then you have additional costs of needing to import materials and not having workers with experience in it. Sure, it is possible to take all those four story houses and turn them into eight story houses. It just takes an extra level of complexity of architecture and construction.

vsskanth 6y ago
What about Japan ? I read somewhere that they have manageable housing costs even in Tokyo. If true, how did they achieve it ?
- staticman2 6y ago

brudgers 6y ago

Land for housing is expensive because land is a repository for wealth and housing is among the least profitable uses to which land can be put over the long term. Good urban land generates better long-term returns from commercial uses. Good rural land produces better long-term returns from agricultural uses. By "long-term," I mean inter-generational. Land doesn't ever really go to zero. And the problem with selling land is that the seller has to do put the proceeds in a similar repository of wealth, i.e. roll over the proceeds into a different piece of land. Absent a change in investment philosophy, the seller is in exactly the same situation as before despite having taken all the risks that come from liquidating their wealth repository into cash. Empty land is a solution to the problem of having too much money. That makes it hard to think about based on ordinary experience.

bumby 6y ago
>Land doesn't ever really go to zero. Land can actually go to less than zero. Anyone who's worked in environmental remediation can tell you how expensive it becomes. Even in non-industrial parcels, this can be a concern depending on when/how the land was previously used.

davidgay 6y ago

> Land is expensive due to artificial scarcity created wholly by regulation. Growing up in Switzerland (with expensive land and housing prices), this is quite an insular point of view. Land is expensive in Switzerland at least in part due to: - an excess of (unregulated) mountains - regulations not allowing all agricultural land to be converted to housing (WWII is close enough in memory that it is remembered that Switzerland was not self-sufficient in food, and that this is a major problem when all your borders are controlled by a single alliance)

jjeaff 6y ago
So the view is insular, yet of your two reasons that land is so expensive in Switzerland, you list "regulations" as one of them?

m463 6y ago

You can't help but think it's all a big scam, especially when you get on a plane and fly at 600mph for HOURS and still haven't crossed the country.

beetroot_user 6y ago

I second this. Land is not naturally scarce. What is scarce is land near good jobs. I believe one of the major drivers of housing prices is the ratio of jobs to housing in a given area. In parts of San Francisco the ratio of jobs to houses is as high as 4:1 [1]. Nearly everyone wants to live close to their job, so the houses are priced to price out over most of the people who work in a given area. The housing becomes prices at the maximum load the top n buyers can manage. Imagine if the ratio swung the other way with an oversupply of houses, created by either relocating jobs or building new units. The prices would fall drastically until they approach the cost of construction. [1]: https://www.bloomberg.com/news/articles/2018-03-05/in-california-momentum-builds-for-radical-action-on-housing https://www.bloomberg.com/news/articles/2018-03-05/in-califo...