Urban planning community

+ Reply to thread
Results 1 to 6 of 6

Thread: Impact of zoning versus construction on housing cost

  1. #1
    Member
    Registered
    Mar 2008
    Location
    Cape Town, Western Cape, South Africa
    Posts
    14

    Impact of zoning versus construction on housing cost

    Hi, trying to make sense of what appears to be two contradictory sources of information re the cost of residential homes:

    A) The NAHB surveys on final sale price of single family homes seem to indicate that as much as 59% of the cost can be attributed to construction costs. Finished lot cost only seems to contribute 20%.
    http://www.nahb.org/generic.aspx?sec...&channelID=311

    B) Majority of econometric surveys on housing price either place the blame for high housing costs on either scarcity of land or overly restrictive zoning parameters.
    (see for instance http://www.econlib.org/library/Enc/Housing.html)

    What makes no sense to me with regards to B is that if the total land cost is only 20% of the final housing price, how can factors relating to land (either the impact of zoning / scaricty of prime land) be labelled as the main explantory factor in the varience of housing price? Any help on this would be much appreciated!

  2. #2
    Cyburbian JimPlans's avatar
    Registered
    Aug 2006
    Location
    Gone to a better place (in my mind)
    Posts
    407
    The NAHB study is a national average for a very large country, and also represents builder choices in response to expensive land and buyer choices (and ability to pay) in a down economy.

    For example, the average lot cost in that study was $76,591, while the misshapen 1/4 acre lot across the street from me (which would probably require a variance to construct anything) is for sale for $250,000. The difference? The lot near me is in a developed and desirable neighborhood in an established city, while most of the lots in this study are probably located in greenfield areas in Texas. Builders are choosing to build on cheap land because that's the only way they can make a profit in this economy. And the few places with job growth right now are cheaper states ith lots of greenfield land and fewer land use regulations.

    Also, when land is expensive, builders choose to build expensive housing units on it. No-one wants to build a $200,000 structure on a $250,000 plot of land. Note that the average home size in the study was 2,716 square feet, and the structures were selling for an average of $110.83 per square foot (or over $300K). This brings down the average percentage of land cost vs. sale cost.

    And, the market for new houses is mostly high-end right now, as people with money are the only people who can afford new construction right now.

    So, go to suburban Boston and check on the cost of land and you'll see that it is much higher (easily 1 million per acre in desirable towns) and you'll also see lots of land use controls on what can be built. Then go to suburban Houston and compare land use regs and land costs. You'll find a big difference. Real estate is mostly local, so national studies like this are mostly useless.

    As for the claim that high land use regulation = high land costs, I think it has some truth. But there are other factors at work as well, such as income disparity.

  3. #3
    Cyburbian
    Registered
    Mar 2009
    Location
    Salt Lake City, UT
    Posts
    194
    The cost of construction and finished lots costs both are variable but only slightly. Construction costs can be reduced by building a cheaper house which many home builders are having to do today. Upgrades like marble counters and tile floors are a thing of the past. Finished lot costs are very hard to vary because they are based upon meeting engineering construction requirements such as width and depth of asphalt, width of sidewalks, the price of pipe, etc.

    Zoning is singled out because to most home builders and land developers it is considered highly subjective and variable. Zoning is a matter of choice made by a municipality. They choose to increase the cost of housing as a way to make public policy on the type neighborhoods that a city wants to promote. Of course, most municipalities don't see zoning as subjective but objective and based upon a variety of factors, both internal and external.

    I believe that the truth is somewhere in the middle.

  4. #4
    Cyburbian ColoGI's avatar
    Registered
    Jul 2009
    Location
    Colo Front Range
    Posts
    2,371
    IIRC Glaeser and Gyourko tried to tease this out and found across the country const costs were generally within a particular fairly narrow range/sf. Land costs were much more variable, with Ricardian rents and equilibrium rents driving the boat, along with zoning and buildable land availability (why Houston is cheap - lots of mesquite available to bulldoze, whereas San Francisco would need to start tearing down or building on barges to densify). Zoning can be closely related to equilibrium rents.

    I agree that cities choose to zone to get a particular housing type, but whether it is a conscious decision to increase the cost of housing is another matter altogether. Sure, some do as Glaeser points out. I think it is more likely that more do it to ensure that things look nice and orderly and quiet. Just a thought.

  5. #5
    In many of these models, they are explaining the variance in the price, not the percentage of the price. Thus zoning might explain 20% of the variance across the country, but a different percentage of the total price.

  6. #6
    Member
    Registered
    Mar 2008
    Location
    Cape Town, Western Cape, South Africa
    Posts
    14

    Thanks!

    Thanks, that helps make sense of things considerably!

+ Reply to thread

More at Cyburbia

  1. Replies: 1
    Last post: 04 Jan 2011, 10:54 AM
  2. Replies: 4
    Last post: 09 Jun 2009, 2:02 PM
  3. Replies: 1
    Last post: 07 Feb 2005, 5:56 PM
  4. Replies: 4
    Last post: 21 Apr 2004, 11:17 AM
  5. Cost of Construction of Streets...
    Transportation Planning
    Replies: 2
    Last post: 23 Jul 2002, 4:08 PM