4 ms·

The carrying cost of land is very low compared to any overall project. The issue is that extended timelines drive down the IRR and add risk which is not the sa

The carrying cost of land is very low compared to any overall project. The issue is that extended timelines drive down the IRR and add risk which is not the same as being expensive to carry. > All of the local large projects around me are expensive because of massive amounts of red tape This just isn’t true. There are projects that could be happening but aren’t because of red tape, but no, a project that’s happening is spending a tiny portion of its capital on red tape.

pj_mukh 1y ago
It's not just carrying cost, it could be the full A&D cost, so you're paying the loan on the mortgage without being able to build anything. That's huge and has sunk major projects around me. This happens, literally all the time [1][2][3], all around the country. What's more, the fear of doing this has basically staved off all but the most brave companies, or giant conglomerates that can buy land cash, which is the most predictable byproduct of excessive regulation at a local level like this. [1]: https://jerseydigs.com/american-dream-owners-default-on-1-2-billion-construction-loan/ https://jerseydigs.com/american-dream-owners-default-on-1-2-... [2]: https://www.axios.com/local/phoenix/2023/11/08/one-camelback-office-apartment-loan-default https://www.axios.com/local/phoenix/2023/11/08/one-camelback... [3]: https://www.reddit.com/r/sanfrancisco/comments/y2ein5 https://www.reddit.com/r/sanfrancisco/comments/y2ein5 "The issue is that extended timelines drive down the IRR and add risk which is not the same as being expensive to carry." Confusing statement, the IRR is low and the risk is high because the carrying cost is unknown (and unbounded).
JumpCrisscross 1y ago
> carrying cost of land is very low compared to any overall project In New York and San Francisco? And it's not just land, it's keeping all the environmental reviews and neighbourhood associations on board. It's delays in pre-selling, or, if you're pre-sold, customer service to impatient buyers. It's constantly redrawing plans because a community member wants an offset 3/8ths of an inch further so their petunias don't catch shade. Again, these costs add hundreds of thousands of dollars to each and every apartment built in San Francisco. > This just isn’t true What are you responding to? The quoted text isn't mine.
- sorcerer-mar 1y ago
  Is there a reason you're pointing out San Francisco and New York in particular? Is it because we both know they're by far the most absurd instances of this problem and quite obviously unique in how absurd they are?
  - pj_mukh 1y ago
    It all started in San Francisco and New York, but now the disease has spread everywhere. Frankly the disease was always there. Millennials trying to buy houses en-masse over COVID is what exposed it. Nobody notices it because it's nationwide (and to a certain extent worldwide) and it's a city-by-city policy issue [1][2][3]. But it's the same issue everywhere, over-indexing neighborhood preferences to slow down and kill construction projects behind a permitting process. [1]: Denver, https://denverite.com/2025/04/14/denver-construction-permitting-new-office/ https://denverite.com/2025/04/14/denver-construction-permitt... [2]: Toronto/Ontario, https://www.cbc.ca/news/canada/toronto/ontario-housing-construction-budget-doug-ford-1.7536883 https://www.cbc.ca/news/canada/toronto/ontario-housing-const... [3]: Atlanta, https://www.bizjournals.com/atlanta/news/2024/06/20/metro-atlanta-housing-shortage-2022.html https://www.bizjournals.com/atlanta/news/2024/06/20/metro-at...
    - sorcerer-mar 1y ago
      I don't know what point you think you're arguing against. I am not denying permitting exists and it slows things down. The original point was that this is a major contributor to cost of construction, which it's not. They specifically said "a small cost seems to be the actual labor and materials [compared to permitting etc]"-- this is absolutely not true. It is not even close to reality in the US. Here you're just pointing out two facts: 1) Permitting exists (and slows things down) 2) We have a housing shortage No argument there! But what you are failing to do is demonstrate that (1) is the major driver of (2). The actual drivers are the cost of well-situated land, cost of labor, and cost of materials. This is evident in ANY actual budget from ANY actual construction project. Add to that the fact that large scale homebuilders are petrified of creating a 2008-style oversupply so they've been chronically underbuilding since then -- and will continue to do so regardless of permitting reform. This is evident in the housing starts compared to population growth since the GFC.

pj_mukh 1y ago

It's not just carrying cost, it could be the full A&D cost, so you're paying the loan on the mortgage without being able to build anything. That's huge and has sunk major projects around me. This happens, literally all the time [1][2][3], all around the country. What's more, the fear of doing this has basically staved off all but the most brave companies, or giant conglomerates that can buy land cash, which is the most predictable byproduct of excessive regulation at a local level like this. [1]: https://jerseydigs.com/american-dream-owners-default-on-1-2-billion-construction-loan/ https://jerseydigs.com/american-dream-owners-default-on-1-2-... [2]: https://www.axios.com/local/phoenix/2023/11/08/one-camelback-office-apartment-loan-default https://www.axios.com/local/phoenix/2023/11/08/one-camelback... [3]: https://www.reddit.com/r/sanfrancisco/comments/y2ein5 https://www.reddit.com/r/sanfrancisco/comments/y2ein5 "The issue is that extended timelines drive down the IRR and add risk which is not the same as being expensive to carry." Confusing statement, the IRR is low and the risk is high because the carrying cost is unknown (and unbounded).

JumpCrisscross 1y ago

> carrying cost of land is very low compared to any overall project In New York and San Francisco? And it's not just land, it's keeping all the environmental reviews and neighbourhood associations on board. It's delays in pre-selling, or, if you're pre-sold, customer service to impatient buyers. It's constantly redrawing plans because a community member wants an offset 3/8ths of an inch further so their petunias don't catch shade. Again, these costs add hundreds of thousands of dollars to each and every apartment built in San Francisco. > This just isn’t true What are you responding to? The quoted text isn't mine.

sorcerer-mar 1y ago
Is there a reason you're pointing out San Francisco and New York in particular? Is it because we both know they're by far the most absurd instances of this problem and quite obviously unique in how absurd they are?
- pj_mukh 1y ago
  It all started in San Francisco and New York, but now the disease has spread everywhere. Frankly the disease was always there. Millennials trying to buy houses en-masse over COVID is what exposed it. Nobody notices it because it's nationwide (and to a certain extent worldwide) and it's a city-by-city policy issue [1][2][3]. But it's the same issue everywhere, over-indexing neighborhood preferences to slow down and kill construction projects behind a permitting process. [1]: Denver, https://denverite.com/2025/04/14/denver-construction-permitting-new-office/ https://denverite.com/2025/04/14/denver-construction-permitt... [2]: Toronto/Ontario, https://www.cbc.ca/news/canada/toronto/ontario-housing-construction-budget-doug-ford-1.7536883 https://www.cbc.ca/news/canada/toronto/ontario-housing-const... [3]: Atlanta, https://www.bizjournals.com/atlanta/news/2024/06/20/metro-atlanta-housing-shortage-2022.html https://www.bizjournals.com/atlanta/news/2024/06/20/metro-at...
  - sorcerer-mar 1y ago
    I don't know what point you think you're arguing against. I am not denying permitting exists and it slows things down. The original point was that this is a major contributor to cost of construction, which it's not. They specifically said "a small cost seems to be the actual labor and materials [compared to permitting etc]"-- this is absolutely not true. It is not even close to reality in the US. Here you're just pointing out two facts: 1) Permitting exists (and slows things down) 2) We have a housing shortage No argument there! But what you are failing to do is demonstrate that (1) is the major driver of (2). The actual drivers are the cost of well-situated land, cost of labor, and cost of materials. This is evident in ANY actual budget from ANY actual construction project. Add to that the fact that large scale homebuilders are petrified of creating a 2008-style oversupply so they've been chronically underbuilding since then -- and will continue to do so regardless of permitting reform. This is evident in the housing starts compared to population growth since the GFC.