House Prices and the Cost To Build

Nick Gillespie | October 11, 2007

In her latest Atlantic column, former reason chief Virginia Postrel delves into the various reasons why Dallas is cheaper to live in than L.A.:

[The] right [to build] costs much less in Dallas. There, adding an extra quarter acre ran about $2,300-raw land really is much cheaper-and a quarter acre minus the cost of construction was about $59,000. The right to build was nearly a quarter million dollars less than in L.A. Hence the huge difference in housing prices. Land is indeed more expensive in superstar cities. But getting permission to build is way, way more expensive. These cities, says Gyourko, "just control the heck out of land use."

The unintended consequence of these land-use policies is that Americans are sorting themselves geographically by income and lifestyle-not across neighborhoods, as they used to, but across regions. People are more likely to live surrounded by others like themselves, creating a more-polarized cultural map. In the superstar cities, where opinion leaders congregate, the perception is growing that the country no longer has a place for middle-class life. Yet the same urban sophisticates who fret that you can't live decently on less than $100,000 a year often argue vociferously that increasing density will degrade their quality of life. They may be right-but, like any other luxury good, that quality commands a high price.

It's a rich piece that's well worth-reading.

Last year, reason calculated "The Politics of Sky-High Housing Prices."

Comments

|10.11.07 @ 10:08AM|#

"It's easy to believe the middle class is vanishing when you live in Los Angeles, much harder in Dallas. These differences also reinforce different norms and values-different ideas of what it means to live a good life. Real estate may be as important as religion in explaining the infamous gap between red and blue states."

Predictably good observation. I think joe and I have had variations of this discussion several times, and I came to the same conclusion. Living in northern KY, it seems unreal to me that someone could argue that the middle class is disappearing.

|10.11.07 @ 10:13AM|#

There are some very interesting observations in there, but the piece suffers from not recognizing the difference between urban cores, established neighborhoods/inner ring suburbs, and new suburbs.

"Urban sophisticates" living in lofts of highrises downtown are most certainly do not "often argue vociferously that increasing density will degrade their quality of life." The family-centered owners of houses in outlying neighborhoods or suburbs of "superstar cities" are doing that. The "urban sophisticates" of Los Angeles aren't the ones trying to block denser housing in the neighborhoods and burbs - they're often the ones moving into that denser housing, disturbing the family-centered locals.

|10.11.07 @ 10:34AM|#

It should be obvious that LA is more expensive than Dallas because more people want to live in LA.

There is a free market in cities, so to speak.

|10.11.07 @ 10:38AM|#

The other fundamental Postrel should pay more attention to is supply.

Dallas sits in the middle of a plain, only one large city nearby to hem in growth, and that is just close enough that they are just now sprawling into each other.

Los Angeles is a coastal city, with other substantial cities - not suburbs, but built-out urban centers in their own right - butting up against it, and mountains nearby.

|10.11.07 @ 10:42AM|#

Dear Joe,

Urban sophisticates often don't want more development. They're fighting a furious battle in Brooklyn to "save" their skyline. If you go to San Francisco, you'll see lots of virtually unused land in prime locations. If you built a highrise there you'd make a fortune. But you'd also ruin someone's view of the Bay.

Urban politicians often "conspire" against development because it gives them a way to collect "rent," just as landlords do. Want to build a highrise? Sure, but it's going to cost you. Maybe a recreation center, a new park, and about $25,000 in political contributions. If you don't want to build in Manhattan, New York, you can always go to Manhattan, Kansas, right?

But Virginia's tale of Dallas isn't the whole story. There are rich enclaves around Dallas, like Turtle Creek, which are zoned exclusively for single-family homes, with a minimum lot size of 1.75 acres. (OK, this is an old story. it may have changed, but I doubt it.)

juwan|10.11.07 @ 10:46AM|#

What's the general libertarian opinion(or any educated opinion for that matter) on Proposition 13?

I am planning on moving to CA, and I feel it acts as a hidden tax on newcomers.

|10.11.07 @ 10:48AM|#

Urban sophisticates often don't want more development. They're fighting a furious battle in Brooklyn to "save" their skyline. If you go to San Francisco, you'll see lots of virtually unused land in prime locations. If you built a highrise there you'd make a fortune. But you'd also ruin someone's view of the Bay.

Another way of looking at that is to say that one of the reasons San Francisco is a desirable place to live is because they don't let developers put up a building on any piece of land they can get their hands on.

Saying that it would "ruin someone's view of the Bay" is a crass way of saying that residents realize too much haphazard development would ruin part of what makes the city appealing in the first place.

|10.11.07 @ 10:51AM|#

Alan,

I would say that the people you mention are opposed to certain types of development, and wish to impose design controls as development continues, as opposed to being opposed to development itself.

For example, have you ever heard of people in an urban downtown who opposed the redevelopment of a warehouse for condos? In most cases, the residents are thrilled about more units being added to the urban core.

This is quite a distinct phenomenon from anti-development NIMBYISM, which actually is opposed to the addition of units and the growth of the local population.

shecky|10.11.07 @ 10:56AM|#

I think Postrel may be greatly underestimating plain old supply and demand. She hints at it in her article, then writes it off, feeling it can't possibly be a factor.

Indeed, Dallas isn't exactly a libertopia, and Los Angeles isn't quite a shrinking rustbelt enclave.

juwan|10.11.07 @ 11:06AM|#

The reason I asked the question earlier is because California has such a bizarre property taxation scheme due to Proposition 13 from the 70's, that is one of the main reasons that new housing construction is so costly.

She should have looked at a city like Boston or Miami instead of LA to be comparing apples to apples.

JBinMO|10.11.07 @ 11:18AM|#

It is funny that the people that live in these cities think that the country is no place for the middle class. Those of us that live here feel the same way about cities.

|10.11.07 @ 11:20AM|#

I think Virginia misses one thing which is mobility. Rich people now have the ability to live and work anywhere in the world they like. That didn't use to be the case. Before modern air travel, it was pretty difficult to relocate from your home and roots. Yeah, I could get super rich and move off to the big city but it would be difficult to communicate with my friends and family and they won't come visit very often. Now, that isn't much of an issue. As a result, when you try to live somewhere like say Manhattan or Aspen or San Fran you are not just competing with the locals. You are competing with the wealth of the entire world. In addition, there are so many wealthy people now that it is not uncommon for people to own multiple houses. If ever became insanely wealthy, I would probably have an apartment on the Left Bank, a country house in Ireland and apartment on Central Park West. My taste in places to live is not that rare.

Because you are competing with the wealth of the world to live somewhere like Park Avenue, the prices are going to be beyond anything a normal person can afford. You end up with cities of just he rich and a few hangers on. It is an inevitable result of globalization.

|10.11.07 @ 11:23AM|#

I can only speak of Atlanta and Seattle, the two cities with which I am familiar, but in both these cases, Joe is exactly wrong. In each of these cities, it is the urbanites living in the dense urban core who fight tooth-and-nail to prevent additional housing from being built.

Here's the catch - they don't oppose additional housing in the city, they oppose the growth of suburbs. In Seattle, urbanites voted overwhelming to increase the minimum lot size in the suburbs, while the suburbanites opposed this measure.

Basically, the people living in the city want to limit the supply of suburban housing in order to force new residents to take up city life. Unfortunately, since the vast majority of people want to live in the suburbs, the price of houses out here continues to skyrocket.

|10.11.07 @ 11:30AM|#

Basically, the people living in the city want to limit the supply of suburban housing in order to force new residents to take up city life.

But only because they're tired of subsidizing the 'burbs.

shecky|10.11.07 @ 11:49AM|#

My anecdotal observation is similar to Ralphy's. There seems to be some resentment about urban sprawl. Yet, here in densely populated L.A. it seems to me most folks want to move into a single family home on a reasonable patch of land. Thus, there isn't much trend in razing such neighborhoods in favor of condos, apts or similar housing schemes. Rather, new housing is spreading further and further from the city's center. The result is tons of new development into surrounding counties the high desert. After a while, you realize living in the harsher climates, you may as well live in Dallas.

ed|10.11.07 @ 11:53AM|#

it's going to cost you. Maybe a recreation center, a new park, and about $25,000 in political contributions

And some really ugly welded "art" that will rust in the courtyard.

|10.11.07 @ 12:09PM|#

The Dallas metro area is larger than Boston or Miami. It's the second fastest growing area in terms of raw numbers (next to L.A.) and in the top 10 in terms of percentage. Perhaps Phoenix, Houston, or Atlanta would be better cities for comparison, but Postrel lives in L.A.

No matter where I have lived the general rule of development politics is NIMBY. People in high-rise jungles will complain when somebody wants to build a high-rise. People in suburbs want to "preserve" farmland near their house (which was originally built on farmland). Things like redevelopment of industrial areas are generally supported by politicians, but often opposed by people who are already living in those areas and who oppose yuppies.

meerdahl|10.11.07 @ 12:11PM|#

"For example, have you ever heard of people in an urban downtown who opposed the redevelopment of a warehouse for condos? In most cases, the residents are thrilled about more units being added to the urban core."

I can think of several examples of such opposition in my city. One soon to be abandoned hospital building downtown was going to be converted into apartments / condos, and this was blocked by surrounding residents. Basically, the extra supply of new units would have caused the value of their nearby units to drop in value. Plus, more people in the area would result in less parking and more traffic.

Another case was a burned out shell of a building in a prime area downtown was to be converted into residences, and it took 20 years of fighting for this to happen, for the same reasons as above.

In both cases, you had fringe extremist groups who wanted the properties for a "community center" (ie rent-free space for them), "social housing" (ie government provided dwellings), plus people who are generally opposed to development of any kind for ideological reasons, and neighbors who fear their property values may be reduced (not always a rational fear, but a fear).

|10.11.07 @ 12:14PM|#

Ralphy,

That's a good point. I was just responding to Postrel and Vanneman, who were talking about "urban sophisticates" wanting to stop urban development.

meerdahl,

What kind of areas was this in? Highrise district? Single family homes? Apartment houses? Apartment/condo complexes?

|10.11.07 @ 12:18PM|#

Echoing what meerdahl stated, in Seattle a developer purchased a huge chunk of warehousea and rotting buildings between downtown and Lake Union. It took several years to buy up all the land. Now, he is starting to tear everything down and build condos and a bio-tech office park. The residents of Seattle are almost uniformly opposed to this effort for several reasons: they hate developers in principle, they hate yuppies (despite the fact that they themselves are yuppies), and they fear the additional traffic and reduced parking.

Fortunately, this developer is one of the ten richest men in the world, so he can buy all the politicians he wants...

wsdave|10.11.07 @ 12:27PM|#

Ralphy,

Unfortunately, Paul is also getting lots of tax subsidies to build his contructs.

meerdahl|10.11.07 @ 12:45PM|#

in a mix of highrises and apartments / condos, 3 - 15 stories, no single family homes

there was vandalism, fires, protests, legal challenges, a big mess in both cases

meerdahl|10.11.07 @ 12:46PM|#

"they hate developers in principle, they hate yuppies (despite the fact that they themselves are yuppies), and they fear the additional traffic and reduced parking."

exactly the same problem here

|10.11.07 @ 12:50PM|#

Saying that it would "ruin someone's view of the Bay" is a crass way of saying that residents realize too much haphazard development would ruin part of what makes the city appealing in the first place.

Right, like a lack of property rights.

Metro Orlando is probably similar to Dallas - a lot of land to spread out on. That being said, the price of land in more coveted areas closer to the city center has gone up enough to create (until recently) a condo-building boom.

In 2004, I had to leave my one bedroom apartment (part of a 12 unit complex) where I was paying $475 a month. The developer put up fifteen 2 & 3 br condos starting @ $450,000. Much as it sucked to leave that situation, I could hardly blame them.

meerdahl|10.11.07 @ 12:57PM|#

I forgot about another situation going on now. Abandoned office building downtown, nothing but retail & other abandoned office space around, developer turning it into high-end student housing.

The word "Gentrification" keeps getting spray painted on the building, even though no one lives there or in the immediate area. After several other acts of vandalism they had to hire 24-hour security. There were several legal challenges, and a series of articles in the local alternative weekly criticizing the project.

Basically the complaint was that the developer should instead be spending millions on building low-cost housing (which would be unprofitable), and opposing this project was a way to get attention for these fringe groups. But all their efforts and challenges have delayed the project, making it more expensive and riskier.

VM|10.11.07 @ 12:58PM|#

Baked - are you a FLA resident, too?

Dageek, ProGLib, you: there's a strong group from down there!

And I'll assume that none of you is driving the Medicare Sled... errrrr. Town Car in the left lane of the highway, going 53 mph with the left blinker on...

Jennifer|10.11.07 @ 1:05PM|#

We have a double (or is it triple?) whammy in Connecticut: snob-zoning laws like requiring houses to be built on two-acre minimums make housing prices extra expensive. Then the rich folk living in these snob-zoned neighborhoods wring their hands with worry over the fact that poor people can't afford to live here. Guess what the proposed solution is? Taking tax money and using it to bribe towns to pretty-please loosen some of their zoning restrictions so that less-expensive housing can be built.

|10.11.07 @ 1:17PM|#

meerdahl, you seem to be describing the actions of fringe groups, more than the mainstream.

Also, wanting a project to be affordable is not anti-development. Different issue.

ed|10.11.07 @ 1:22PM|#

Town Car in the left lane of the highway, going 53 mph with the left blinker on...

And apparently no one behind the wheel. I think that once you've shrunken to less than 3' tall you should think about taking the bus. Or maybe a nice long dirt nap.

|10.11.07 @ 1:28PM|#

VM - yeah, just outside of Orlando. I live a mere 8-10 miles from Taintsville.

...driving [a] Town Car in the left lane of the highway, going 53 mph with the left blinker on...

No, I'm the guy behind them, screaming profanities. Or I was, until I found a job less than 3 miles from my house. Soon as the weather gets a little cooler, I'm joining DaGeek in riding my bike to work.

|10.11.07 @ 1:39PM|#

Los Angeles is a coastal city, with other substantial cities - not suburbs, but built-out urban centers in their own right - butting up against it, and mountains nearby.

You got that right.If it wasn't for Camp Pendleton, the San Diego and LA megalopolises would merge into one.

OTOH, you could sell Camp Pendleton to the highest bidder and then, Hmmm.

VM|10.11.07 @ 1:46PM|#

heh!

|10.11.07 @ 2:01PM|#

You think trying to build a high rise for yuppies in San Francisco is hard....try finding a place for a trailer park for poor folks. I know for a fact that a pricey subdivision would rather build near an open landfill before it would allow a trailer park near them.

VM|10.11.07 @ 2:04PM|#

Baked - and near Taintsville is LITTLE BIG ECON State Forest.

and take 46 from Geneva to I 95, and you'll pass Independent Drive, where Freedom Road intersects with Liberty Road.

(you probably know all of this, but when URKOBOLD reports on Taintsville, that'll come up again, plus just in case EDWARD is hier, he'll get to see it, too)

|10.11.07 @ 2:12PM|#

JasonL... where in northern ky are you? I'm here, too :)

|10.11.07 @ 2:20PM|#

Right, like a lack of property rights.


You could put it that way. Clearly, few people subscribe to the idea that if you own a piece of property, you can do whatever you want with it.

Why? Because what one person does with his property can positively or negatively affect the property of others around them.

So yes, the limitation of property rights is a appealing aspect of many cities. And judging from the number of communities with HOA's, many in suburbs don't care for true property rights either.

|10.11.07 @ 2:24PM|#

VM - The irony is, I was looking into buying land in Geneva, b/c everything here in Orlando proper is teh expensive for the poverty stricken such as myself.

That I could get closer to teh Urkobold™ is a bonus.

Minion of URKOBOLD|10.11.07 @ 2:29PM|#

YOU ARE ALREADY CLOSE TO THE URKOBOLD, IN SPIRIT AND IN TAINT!

(but one could imagine that being an expensive area. plus you'd have the 1986 Challenger "no, bud light" front row seats!)

meerdahl|10.11.07 @ 2:29PM|#

The fringe groups receive government funding to make these legal challenges which delay the projects, thus making them more expensive. They, plus the residents of the area who use legal aid or their own money for legal action, use a regulatory regime to their own perceived advantage. The result of these restrictive land-use rules (which are open to such manipulation and misuse, not to mention corruption) is to make it more expensive to build in this city.

Which, of course, is the exact point of Postrel's article.

Plus, "wanting a project to be affordable" is precisely anti-development in these cases, as the opponents know perfectly well that if a developer's only choice (due to government interference) is to make an unprofitable project, then the project will be abandoned. Whether the opposition is "mainstream" or not does not matter to these developers, the costs of development still go up due to the regulatory regime in this area.

JMR|10.11.07 @ 2:36PM|#

For example, have you ever heard of people in an urban downtown who opposed the redevelopment of a warehouse for condos? In most cases, the residents are thrilled about more units being added to the urban core.


It happens here in Seattle.

VM|10.11.07 @ 2:39PM|#

"For example, have you ever heard of people in an urban downtown who opposed the redevelopment of a warehouse for condos"

sorta - the Cabrini Green development has been an interesting story... (Chicago, near north side)

JMR|10.11.07 @ 2:46PM|#

VM - yeah, just outside of Orlando. I live a mere 8-10 miles from Taintsville.

Cue the jokes about a city being named "Taintsville".

Minion of URKOBOLD|10.11.07 @ 3:02PM|#

ooh - URKOBOLD shall be writing about that - the Moose is in possession of a photo of the town...

Nash|10.11.07 @ 3:59PM|#

"What's the general libertarian opinion(or any educated opinion for that matter) on Proposition 13?

I am planning on moving to CA, and I feel it acts as a hidden tax on newcomers."

I don't know the libertarian position but this highlights why property taxes are the worst kind of taxation.

Without prop 13 homeowners lose their homes because they can't pay taxes. With prop 13, newcomers pair an unfair share of taxes and either can't buy a home or suffer from high rent costs.

There is no possible way to make Property taxes fair which IMO places it just above income taxes in the "worst kind of tax" discussion.

Mike Laursen|10.12.07 @ 1:01AM|#

I know a few California libertarians who think Proposition 13 was a great victory against The Man. But they all seem to have bought their homes a long time ago.