It's the land, stupid: How the homebuilder cartel drives high housing prices
thebignewsletter.com
thebignewsletter.com
It's satisfying to blame a big bad "them" for this, but the problem is "us". We all want our properties to increase in value so we collectively conspire to suppress supply that would make our properties less valuable.
It's not enough to have land, though. The land needs access to water and electricity, not to mention roads, or it's a nonstarter, especially if you want to build a bunch of homes on the land. And the new homeowners will need access to food and supplies, i.e., stores. You need an entire community.
https://www.ruralhealthinfo.org/topics/food-and-hunger
https://www.propublica.org/article/food-desert-grocery-store...
> The neat thing about capitalism is that stores will be built to serve the community if there's a market for it.
I am pointing out that this is not a given, magic that will just happen. Capitalism is not always efficient nor reliable, based on the evidence.
> before going back mostly shopping at a Walmart 30 miles away. My guess is that those people were going to that Walmart anyway for this or that in many cases. So at that point, why drive to two locations, esp for most people in the rural area, that grocery store isn't actually that much more convenient, and can't compete on price with Walmart?
https://www.washingtonpost.com/graphics/business/walmart-clo...
https://www.washingtonpost.com/news/wonk/wp/2016/02/05/what-...
I said 'if there's a market for it'.
The simple fact is that these rural communities are just not as economically viable as they used to be. Most rural communities exist around 'base input' types of industries that made money by exporting stuff extracted from the land. Farming, mining, logging, etc. The community existed because extracting those resources required a lot of labor, and that labor wanted to buy services after work. When you had 100 people who worked in the fields all day, they'd come back to town and patronize local bars, stores etc. However, farming, like mining, has continued to become less and less labor intensive because of better automation. There isn't 100 people coming back from the fields in most cases now. There's 1 dude who was driving a combine harvester all day. Or a planter, etc. And more recently, its one guy who was monitoring a dozen combine harvesters that were self-driving based on GPS.
Editing in a reply to below comments bc depth limit.
> This is why I'm very pro remote work for the broader economy. > It's much easier for remote workers who want to live in rural areas to patronize these local bars, stores, etc, when they're not already commuting to places with a much larger collection of services.
I'm also pro-remote work, but even if every job that is do-able remote becomes remote, that won't revitalize every rural community. No one is moving to North Dakota just because they got a remote job. The US is just too big and the number of remote-able jobs is too small. Sure, some rural communities, with particularly nice outdoors, etc will be winners. But you need actual 'large' numbers of people to sustain those local bars/stores. A few software developers moving to a dying mining town is just not going to be enough patrons to sustain a bar, stores, schools, etc. Even if they all keep their 500k Google paychecks, they can still only drink so much beer at once.
> In which case, that reminds me:
> The neat thing about central planning is that it can invest in things-- like rural electrification-- which are cost prohibitive for a market-based solution, if/when that need arises.
> So would you agree they are both neat in their own way?
Yes, they are both neat in their own way. I like that the post office has to deliver mail to everyone.
Central planning can react faster than the market, if the central planners have good foresight. But they can't see into the future either. If you have some rural mining community that could sustain a population of 5,000 in 1970, it made a lot of sense to electrify it. But then 40 years later, the mine is more productive than ever before, but only needs 20% of the labor because of advances in automation. It kinda sucks that you built an electric system sized for a population of 10,000, right? Cuz now you have a town of 5,000 where unemployment is extremely high.
Though I'd argue that rural electrification at this point (or in the next few years) is probably best by a home-solar-battery combo.
It's much easier for remote workers who want to live in rural areas to patronize these local bars, stores, etc, when they're not already commuting to places with a much larger collection of services.
So they can’t become the motive for such businesses to start in a town. It’s a crop of local workers flocking to location-specific, non-remote job opportunities that creates that attractive opportunity for service businesses to follow.
But it's a risk.
In which case, that reminds me:
The neat thing about central planning is that it can invest in things-- like rural electrification-- which are cost prohibitive for a market-based solution, if/when that need arises.
So would you agree they are both neat in their own way?
Even if we accept that: what would you have those farmers do, then? Capitalism has hollowed out the towns that supported them, and now you say that the free market will handle the rest: to me that sounds like a recipe for headlines ten years out saying stuff like "The farmer shortage is quickly becoming an issue of national security."
And it's not just a rural issue either. AFAIK the term originated, or at least first became popular with reference to urban areas: e.g. map of these in New York https://www.arcgis.com/home/item.html?id=a20cc15bc7cf49939c8... These people did the "right" thing and moved to a city, even if they had to take up residence in cheaper homes to do so. Yet the market still doesn't want to serve them.
There's a chicken-and-egg problem here, though. Would you buy a new home and move in with no groceries or other stores in the area yet? If there's an existing community, then yes, stores will be built eventually, but that can't just happen overnight, so how do homeowners survive in the meantime?
That's why most new housing is built in the suburbs around existing cities. All of the amenities needed by homeowners are already nearby, or at least within reasonable driving distance. Starting a new community in the middle of nowhere would be extremely difficult, and would certainly cost a lot more money to the home builders, reducing profit.
When the OP said "everyone wants to live in the same few places", I didn't interpret that to mean specifically NYC/SF, because that's plainly false. I interpreted it to mean urban vs. rural/undeveloped areas in general.
But the problem is that home builder cartels exist all across the country, and they own a lot of the desirable land around the urban areas. For example, in my own area of Madison, Wisconsin, we have a company Veridian Homes that owns giant tracts of land all around the outskirks of the Madison area. They're the dominant home builder here.
(The comment may indeed be true--sort of by definition to at least some degree--for new construction, although getting that access can be pretty straightforward, to the degree anything involving construction is straightforward. It's more that housing prices are an issue in popular places where a lot of people want to live. And, yes, vibrant college towns fall into that category although not to the same degree as elite cities.)
I just don't think the conspiracy that the OP postulated, "We all want our properties to increase in value so we collectively conspire to suppress supply" is a very plausible explanation when applied in general to the entire country. For example, again in the Madison area, most of the home building is occurring not in the city proper but rather out in the suburbs and exurbs, which are independently governed. Indeed, in a fast-growing suburb, the property values can actually increase as homes are built and the town becomes a more desirable place to live.
To destroy housing values to increased affordability, you must destroy locality as a value factor.
Not really a fix. When people's location becomes free from their jobs, they don't move to remote locations where land is cheap. They move to cities they want to live in, or cities where they have friends and family.
The subset of people who prefer to move to the middle of nowhere and prioritize the cheapest housing above all else is very small (and probably overrepresented online)
https://www.yardikube.com/blog/remote-workers-leading-the-mi...
https://www.wcnc.com/article/money/charlotte-north-carolina-...
https://www.fanniemae.com/media/48891/display
https://www.americanexperiment.org/study-finds-that-remote-w...
https://web.archive.org/web/20230127175520/https://www.rural...
(also, I said where housing is affordable, not the middle of nowhere)
COVID dramatically increased the opportunities for remote work. Yet housing prices in major cities went up, not down.
Anecdotally, my friends who moved during COVID remote work all moved to cities they wanted to live in. I knew more people leaving mid-sized towns to move to Seattle, NYC, and the Bay Area than the opposite.
I can walk across the street to get my groceries. I have at least fifty restaurants within walking distance. My doctor is four blocks away and a large hospital is six. I have access to a large park three blocks away.
There is a streetcar that goes straight downtown one block away and three buses that go throughout the city are right at the end of my block. I can bike to virtually anywhere I want to go if walking is too far or transit is annoying.
And all of this keeps us healthy. It’s no secret that obesity is approaching near universality in areas of the country where driving is the only option to reach basic amenities. It also correlates with reduced energy use and therefore to reduced greenhouse gas emissions.
Making cities cheaper goes a lot further than trying to make cheap but fundamentally broken suburbs and exurbs less hostile. And part of that is precisely what this article highlights: the rentier class siphoning away the profits of workers while providing little to no value themselves. And I say this as a homeowner (and therefore landowner) myself.
It'd be better overall for society if we just got rid of exclusionary zoning and made it easier for people to live where they wanna live.
The equivalent of a large (by Canadian standards) city's worth of people is being added each year, but there is nowhere near that much residential construction taking place in total.
Maybe it can be like hot desking at the office. Just have to make sure you and your roommates work opposing shifts.
https://www.tvo.org/article/ontarios-housing-crisis-is-becom...
Forget that ! When you go to a dense city like Barcelona where every block is nearly 4 story high rise apartments, its wonderful.
Change is beautiful, people enhance neighborhoods
That's a pretty remarkable belief. Many of us happy suburbanites have lived in large dense cities in our younger days. We are not ignorant of the joys of city living, we've just changed priorities.
The extreme example is of course Venice.
I chose a random small city in northern Catalonia called Vielha and viewed it on Goggle Maps, there they are. They look different to Eixanple apartment buildings, but they are there in the centre. Population less than 6k.
Chose another, Gironella, a bit further south; population around 4k. One less floor on the multi family apartment buildings in the old centre, and a much higher ratio of SFDs to MFDs in the settlement as a whole, but still there.
How many should I sample to convince you?
Zoning that mandates low densities is used to economically segregate areas. They're invisibly gated communities enforced by the government. "Can't live here unless you can afford to buy/rent this much land."
One of the things I noticed while living in Munich was that the differences in apparent neighborhood prosperity in different parts of the city were vastly less extreme than in major US cities. Almost every neighborhood looked kind of vaguely middling, it was rare for a place to look obviously well-to-do or obviously run down.
And it makes that it's harder to get extreme differences there if at least medium density dwellings are allowed just about everywhere. Working class people may not be able to afford a whole house, but they may be able to afford an apartment in a given neighborhood.
Part of the apprehension might be caused by the difficulty of rezoning itself. The only people with the determination and money to get a zoning variance are big developers who need a big building to make it worthwhile. That's how you get 50- or 100-unit apartments going up in single-family neighborhoods, and a "missing middle" of density and affordability.
There is a 15 acre lot down the street. A good spot for another small housing development.
But one issue with it is that it has legacy utility and power poles on the periphery. Anyone wanting to develop that space is obliged to route all of that underground, which easily add several M$ to the project.
Eventually, someone will bite, buy the lot, and develop it.
But it's going to be low on the list because all of that cost will notably bounce up the new home costs. Cheaper places to build elsewhere.
[1] https://pdi2.org/wp-content/uploads/2021/03/51-EdisonElectIn...
[2] https://dps.ny.gov/system/files/documents/2023/09/final-repo...
I don't want more noise.
I don't want more traffic.
I don't want more students at my kid's schools, which are already at a 35/1 kid to teacher ratio.
That's it for me. I think that's it for a lot of people, whether they live in cities or suburbs or far out in the country. Very few people want more crowding. The people who like living in dense cities already live there.
Blaming greed and property values is just a distraction.
If you don’t, the problem isn’t the density.
A school was knocked down in my neighborhood to build a pricey apartment complex. The district and the developers made a bunch of promises about how current schools would be expanded and more resources would be available. Those were all lies, of course. Apartment complexes make money, public schools do not. Guess which one wins.
It's not that easy. If you doubled the density, maybe there is nowhere left to go for the school to expand, or the land is now so expensive there is no way for the town to afford expanding the school.
My town is an example. The middle school had two quite large empty lots on two sides.
Those lots have now multi-story apartment buildings in construction. Presumably those apartments will attract younger families who might have kids going to middle school. But if that school ever needs to expand, it is now boxed in by housing on all sides. Time will tell how it goes.
People rather have higher paying jobs, or quit because the job disappoints. I belong to the latter group. I quit teaching at secondary school (ages 15-18). After three different schools in three different areas, and having spoken with many colleagues and their experiences, I sadly had to conclude that broadly the work culture in secondary education (in this country, at least) is dramatically lacking professionalism. To a point where I think if my goal is to teach the next generation well enough, my time and energy is better spent elsewhere.
Only in medium density cities. Once you get to very high cost of living areas, finding and keeping teachers becomes extremely difficult because there's just not enough money to pay them enough for the cost of living. Many teachers either move to cheaper areas or change careers to high paying jobs.
A second problem is kids found out they can get everyone fired for claiming sexual harassment. Especially male teachers are scared. A brat utters a single sentence and you'll never work again as a teacher, and all your neighbours hate you.
Teaching today is a bad job.
For some reason, some people outside a community believe they should have a voice on what the actual community wants. As if a community should be expected to want to ruin what makes their space attractive so interlopers can infest it?
Some development where it makes sense - sure. But no, we aren't converting our homes and properties into multi-family dwellings.
Can you understand why a community would want to exclude you? That antisocial attitudes like this are shunned accordingly and projects that would attract them are avoided. We actively select to avoid these kinds of antagonistic attitudes getting a foothold because we know what makes our community attractive. Certainly it isn't people that "don't care" about what the community values. You'll need to find somewhere lower rent for that.
> The community you love wasn't always that way - it changed to become what you enjoy, likely to the similar anger/detriment of the previous residents who like the "old" community.
How do you know this? Likely even? Communities do change, of course. But there's a reason why the most highly sought after places continue to be the most highly sought after places and it isn't because they gleefully rip down the very things that make them sough after. Especially so "don't cares" can move in and not care about the place.
> I imagine racial segregationists and apartheid advocates used disconcertingly similar arguments.
What does that have to do with a community wanting to limit and select what they consider appropriate development in the modern age?
I don't find them antisocial whatsoever. Especially since, to my reading, the wider society is _ better_ because of the change. New communities take root and a better place arises.
Regardless, the community will change wether you want it or not. I find it rare that people wanting to stop something from happening get what they want. It's rather the people that want to build something that actually get stuff done.
Ok. So hoefully you can see why people who like their homes and their town will rationally do everything possible to oppose a person who is an outsider and comes in saying they don't care about anything the residents enjoy and just wants to change it all (destroy it)?
This mentality is the same one that’s leading California and New York to ruin, by the way. :D
There are plenty of already-urban areas that have poorly-used lots that could benefit from building more urban housing. Why not start there? Keep like housing styles together: If you're the one single family house in the middle of a city surrounded by dozens of apartments, then yea, that lot should probably be re-developed into an apartment. The single family home is out of place and the neighborhood is already set up for dense living.
But if you're in a small town that's all single family houses, it doesn't make sense to re-develop a random sampling of them into apartment buildings. 1. They'd look out of place and 2. These small towns don't have the infrastructure to suddenly 3X-10X their populations. They'd need more schools, transportation, electric capacity, water/sewer capacity, trash collection, retail, industry, everything.
I don't understand the notion that that community exists in a vacuum where they're entitled to be insulated from the world changing around them.
I don't live there; I shouldn't have any say on their policies (except via federal law-making, limited by the 10th Amendment delegation of powers).
General zoning policy should be decided at a state level (or federal) - like in Japan. Otherwise, no individual community wants more development (of course), but it's a bitter pill that they have to swallow together if we want to solve the housing problem.
I have a hard time believe that people aren’t aware of that. Especially since we tried it for decades and the obvious happened - it has gone horribly.
Of course the average current home owners in Palo Alto doesn’t want it to change. But Palo Alto doesn’t exist on an island or something. Why would the nearby towns have different views? Mountain View doesn’t want to change! San Mateo doesn’t want to change!
Wowza! How about that, now the entire bay won’t change if left to each town.
And you know what, for decades that’s what we did and we can see what happened. All we got for it was a massive housing shortage.
We tried letting towns set their policy. It went horribly, as it obviously would.
It’s like Kant, would the outcome be acceptable if all the similar actors took this action? No? Well why shouldn’t they if this town does it.
Both my wife’s and I home were “out in the country” when we were kids. Now they’re surrounded by houses. The same pattern is basically everywhere. If you want the community of 20 years ago, move to a new one that looks like it.
It’s simply part of the constant change of life. Being bitter over it isn’t helpful or anyone.
My town was a bucolic paradise at one time and then in the late 19th century a few of the regional villages merged and the community of land owners began to subdivide and develop the land and establish a new town. And now it’s highly desired. This was their choice to transform their holiday community into the bedroom community it is today. And now us, as the land owning community, get to decide how further development goes. Not interlopers with no skin in the game. And we do develop new things but they’re rightfully contested and very carefully decided upon because this is our home.
And the guy who bought 10 years before you hates you, the newcomer, changing their neighborhood and ruining its character.
In essence I found a neighborhood I liked and I’ve made sure I fit in rather than an interloper that is trying to make a quick buck at the towns long term expense.
The main noise in most places is traffic, and traffic is usually caused caused by sprawl, low density and car oriented building.
What you’re objecting to is fixed by more density
It's a bold theory but not one I want to try out in practice.
There's no way you're going to make public transit work in the American suburbs: you're better off hiring taxis and letting people use those for free, because at least the taxis won't create so much pollution and use so much fuel. Running buses every 10 minutes in the subways with 0-2 riders will never be practical.
Maybe western countries should learn a lesson from this, instead of somehow expecting public transit to always operate at a loss. The transit itself makes land valuable, so why not use that as an opportunity for profit? Here, even inside the stations, they rent out space to convenience stores, vending machines, cafes, etc., so they make direct profit just from that, but over in the US they seem to be allergic to doing that (nor do they even have bathrooms in the stations!).
As a bonus having more neighbors means things like grocery stores within walking distance become good businesses, so you need a car dramatically less and less space needs to be taken up by parking lots.
I assure you that neither of those are a good outcome as far as I'm concerned.
Because instead of infill density in cities, the sprawl will keep up its creep. Low density building makes that certain.
With how it goes with new development in American suburbs, it’s going to be car oriented and increase loud traffic and make walking unpleasant. (Although it’s probably already not very walkable)
Someone on the new edge will repeat your gripe, rinse and repeat.
Aside from lawn equipment, the noise pollution I suffer from in my streetcar suburb in a major metro is almost completely from cars and other fossil fuel motorized vehicles.
I was out in a fairly high earning suburb recently and the backyard was constantly inundated by the roar of a not so nearby highway.
Like, what exactly do you think people do to make noise?
Counter example: Europe, Japan. It's perfectly possible for a city to grow denser of people without growing denser of cars.
My inner city neighborhood is quite calm and quiet, because the city has decent public transit with three different modes within 3 minutes walk (besides decent biking infra).
When you build the city densely and don't give away free parking anywhere, it makes people not bother with driving very much. There's no place to park here, except for a few very expensive private lots that probably aren't close to where you want to go. There's no street parking. Renting a parking space at your apartment is very, very expensive (because they could be using that for something else that makes more profit instead, like more apartments or a convenience or grocery store). And you're not even allowed to own a car here unless you can prove to the police that you have a place to park it: they'll even come with a measuring tape to be sure that particular model of car will fit.
Closer to your home, maybe you should visit Amsterdam, because you've obviously never been there. There's lots of people living there without a car, and the amount of car traffic in the city center is quite low.
But living in these car-free zones is at least double as expensive as outside (and the more central, the easier it is to live car-free, the more expensive it is). It is also totally unrealistic to live there with a family, and if you want a job in center of Brussels and live in Mechelen (for example), you need a car. Train is barely doable and only if your employer is dead center brussels (e.g. Diegem, where "the internet lives", is not realistically reachable)
One would then think that dense cities would build more housing, but that doesn’t seem to happen. NYC, SF, and Boston are the densest cities in the country and build barely any housing compared to areas like Houston and Austin.
I also just think it isn’t true that everyone who wants to live in a dense city does. My experience is that a lot of people would absolutely love to live in NYC but can’t afford it, and I think this is primarily because there is not enough housing.
Sure, many people would love to move to NYC, but how many people would chose to move to a tiny apartment over a giant penthouse in there, if given such a choice. Say the employer pays for housing with no cost to the individual and no limit, how many people would go for the smallest place in their preferred location and how many would go for the largest? If the former group is in minority this would explain how the cities, ruled by a democratic process, do not strive to pump density.
Build rail and deploy bussing like you fucking want it. Make it so good Japanese and European civil engineers ask you for help.
Noise?
That’s an engineering problem.
Teacher ratios?
Your property taxes too low for the services your community needs. Notice how I said need - it’s necessary. 20-1 is high, 30+ plus and your local governance is criminally incompetent.
You’re distracted by change and upset that you need to adapt to a world that’s moved past you. Tale older than the dirt we walk on.
These are all solvable problems but no one has the will because the people empowered are too fucking comfortable watching the planet get destroyed while people die deaths of exposure and despair by the millions.
Another relevant project is the Solano County ("California Forever") proposal [1], which is being dropped from the 2024 ballot but is still active (presumably for March 2026 ballot, when there will be gubernatorial primary and high turnout).
Also, after 2024 CA Proposition 5 ("Lower Supermajority from 66.67% to 55% for local bond measures to fund housing projects and public infrastructure")[2] has been voted on. (It's also being challenged by the Howard Jarvis Taxpayers Association.)
We will be able to compare timelines/costs/delays between the two development proposals and get answers on whether costs/delays in CA homebuilding are primarily due to the homebuilder, the city/county, CA state, the development process in general, or nearby residents' objections. The Solano County proposal is more greenfield and seems to have more supporters and fewer existing homeowners to object, so this outcome should be interesting and informative. (Of course, it's a distinct possibility that both proposals get killed politically, which would also give us the answer that it's not really about costs or timelines, and that a vocal minority of existing homeowners/landowners can game the process to pretty much kill any proposal, regardless how antisocial that might be.)
--
[0]: https://www.mercurynews.com/2024/08/13/20b-bay-area-housing-...
[1]: KQED Forum "What’s Next for California Forever’s Proposal to Build a New City in Solano County" https://www.kqed.org/forum/2010101906729/whats-next-for-cali...
[2]: Ballotpedia: CA Prop 5 https://ballotpedia.org/California_Proposition_5,_Lower_Supe...
Yep. People want a bogeyman so bad, but time after time, I show up to hearings, read about efforts to build housing and the problem is local NIMBYism: https://bendyimby.com/2024/04/16/the-hearing-and-the-housing...
My own take on the 'bogeyman' theories: https://bendyimby.com/2023/01/11/the-bogeyman/
Take a bunch of folks across a block of area & convince them to band together & build big. Create a housing coop that collectively owns the building, is the people who will live there.
Right now every property owner is sort of in it for themselves. Figuring out ways to enable development while retaining ownership, without forcing owners to sell of their stake, while enfranchising future owners, worked really well. But it feels like we aren't trying to replicate this clear success.
Opportunity comes at scale Figuring out how to make that scaling possibly accessible by residents (versus someone else getting to capture the value of redevelopment) requires some legal can do willingness we haven't been seeing.
This is pretty far out there. They are the general contractor and have substantial value add to the project.
Most of the rest of the article is misunderstandings like that.
This is something I dealt with a few years ago. There were a few acreage lots (5-15 acres) my partner and I were considering buying and building a house on, and all of them had been in the $200k range a year or two before but had been bought by land speculators (in some cases by the same person). Prices went from ~$200k to ~$750k, which we weren't interested in.
Most of them sold. One of the larger lots was around $350k and is still for sale, now for almost $2 million.
I don't think developers should be forced to sell land just because I want to buy it, but the taxes they pay on their empty lots is extremely low. I checked on a couple of the ~$750k lots, and the taxes were something like $115 per year. At that rate, it costs the developer/speculator basically nothing to hold onto it while prices rise.
If lots like this were taxed at, say, 20x the current rate for lots that are near areas that are being built up and are ready to be bought, then there would be a stronger incentive for the owners to sell to people who are ready to build and start paying property taxes. It seems like such an increase would benefit everyone except the speculators.
Correct, a simple power law tax formula on unimproved/vacant land that forever increases the cost to hold onto land near and in the middle of population centers would do wonders.
A side benefit for homeowners is that improvements increase equity and resale value without raising taxes
In CA there was/is a ban on SFH zoning. So at least in that case every homeowner should get taxed like at least a fourplex. Considering your wage didn’t increase that means less money for mortgage, etc., so buyers have less to spend on a house and your property goes down in value.
The idea behind such taxation is to destroy the deadweight losses created by land speculators. You either buy the land, develop it, and bear the weight of the tax on the fair assessment of the land's value, or you don't buy the land at all.
Property tax is predicated on the value of the structure now. Land-value taxes are predicated on the value of the land, developed or not. That will fluctuate based on the desirability of the surrounding area.
The irony is that property taxes are predicated on the value of the structure, but the practicalities of market forces are that the land is what's actually valuable. So rather than keep playing this mis-labeled game, we should embrace land-value taxes and have municipalities asses taxes without regard to the structure, just the potential economic value of the land.
Land that can be developed into residential lots should be appraised at a higher value. There should be a 2-4 year period where a land owner has their opportunity to develop land, but then it should be taxed at rate of nearby developed lots.
Land ownership is almost a zero-sum game and should be well regulated for efficient demand and supply. Rent-seekers don't add any value, just suck it up into their fat pockets.
There needs to be pressure to actually make productive use of land so that people don't just uselessly sit on it.
Sure you can [1].
[1] https://en.m.wikipedia.org/wiki/Land_reclamation_in_the_Neth...
Tax all land so after 6 months it is not profitable to hold. I guess after 6 months all land everywhere will be built.
Economists have been saying this for over a century.
Look up land value taxes. They are what we need right now.
We agree there is a problem.
But I doubt the premise that land hoarding is the key issue. It seems to me that everyone wants to live in a 3,500 square foot detached house near the city. But only so much of that exists.
At least one major reason is that neighborhoods actively fight the installation of semi-dense housing because it would “ruin the character of the neighborhood.” This gets encoded in zoning.
The people who have most power over local zoning regulations are neighborhood boards, not home builders.
That and related factors (likelihood to commit crimes of the sort that affect home values, say) are a lot of why communities try to keep affordable housing away. High prices are your buy-in to good schools if you can’t afford good private schools. Once you’ve bought in at a price inflated by school quality, you definitely don’t want to see that slip or there goes all the money you spent (maybe literally all of it—I’ve seen premiums for “good” versus “just ok” districts near one another that are well into the levels of mortgage down payments—20%, 30%)
The argument in this article is that small homebuilders got caught in the credit crunch and had to flip their lots to the mega builders, who maintained access to capital and credit that the small players didn't have. So now the big players are hoarding land and not building on it to control the market.
I can believe that a credit crunch has cooled the construction market. Nothing about that would be surprising. I have a harder time believing that the major home builders have bought up so much land that nobody else can build anything, leaving them to control the market price of houses by artificially limiting supply.
Anecdotally, the most expensive housing markets are in cities where most of the buildable land has already been used by something. This is where these supposed land-hoarding mega builders would have the least influence. In my experience there are a lot of affordable houses being built in smaller cities and in the outskirts of major cities, but the demand just isn't there. More people want to live in dense and desirable locations and they're willing to pay a premium for it.
It did not build half as many homes, it was 82917 homes in 2023 vs. 51172 in 2005. Also, the profit number should be corrected for inflation when comparing across almost 2 decades.
Profit per house in 2023 dollars:
$44,751.04 in 2005
$56,683.19 in 2023
* My family worked with home builder marketing departments, and I use to enjoy seeing home & price progression in the area over the years (D.R. Horton has been and is, mostly 1200-2200sqft with a few going past that on either end). One of my many issues with this article is making the mass production builder into a bad guy. D.R. Horton IS the "Starter Home" builder, few other builders can compete for that market because the cost and time it takes to build. It's why local small builders tend to build higher quality homes, they only have the resources (money for permits, legal etc and manpower) for a few houses a year. If the profit on a home is $55k with all the marketing and construction bulk prices DRHorton gets, whats that profit for the 2-4 homes a year local builder this guy wants to replace them with? Probably not much to want to keep doing the job; always on the verge of financial collapse if 2008 happens again (many small home builders disappeared and did not come back. I dont think many people want that kind of risk to start up again). If we wait for small local builders to build homes we would be in a far worse situation than we are now.
I had the opportunity to talk, in length, to the owner/CEO of a mid-sized builder who had to sell the remaining lots from one of three communities because he couldn't keep the prices within: both a price that they would sell and price to make a profit (or break-even); the shortage of construction workers and regulatory delays and cost were a large drain on resources. It had nothing to do with having land or needing to buy land, he already had, it was simply taking too long to get through the building process. Not sure if home builders are still doing it, but many in the area were working together to try and get high-school students into construction apprenticeship/vocation programs to make up for the shortage.
> It did not build half as many homes, it was 82917 homes in 2023 vs. 51172 in 2005.
Unless my math is wrong: (82917-51172)/82917 ~= 0.38
~40% is roughly half.
For the extreme example, take a look at San Francisco, which has approved a grand total of 16 housing units so far this year (https://www.newsweek.com/san-francisco-only-agreed-build-16-...). Only a tiny margin of ultra-high-price housing can even be sustainable, let alone profitable, in that environment.
I think it comes down to risk, effort, and available labor/resources. If it costs them nothing to hold the land and build only when they're very sure that the building will be profitable, then that's what they'll do. But once they have the whole construction side working on projects... if there's capital left over... why not buy up more land in the mean time? It makes it harder for your competition to build while you work through your backlog and it costs you basically nothing.
Unfortunately, there’s no hope to fix the housing issue in a democratic way because the majority of the voters are landlords. The only possible solution is like Japan (where houses are depreciated assets) by having centralized control over housing, zoning, permits, and everything to maintain a flat price. Other than that, the future is grim for young people or anyone who doesn’t already own a house. I remember a year ago I saw a mortgage here in Canada of 70 years, so if you bought a house at 30, you will become a Crown tenant by 100!
https://www.astralcodexten.com/p/does-georgism-work-part-3-c...
As well as push things to subletting or force people to stay in one place for most of their life.
Nearly 40% of the United States is public land, supported by taxpayers and managed by federal, state, or local governments. -- https://headwaterseconomics.org/public-lands/protected-lands/public-land-ownership-in-the-us/
Doesn't seem to be true. You can buy land in e.g. Nevada for less than $1000 per acre, but it sits empty because approximately nobody wants to live in the middle of the desert.
https://www.reviewjournal.com/opinion/commentary-government-...
- Financing requirements & anticompetitive lending practices
- Municipal/state building codes and the regulatory capture thereof
- NIMBYism and activist urban planners
- The tyranny of the commute
Question: is finance screwing up capitalism? Real estate is supposed to be one of the most competitive and dynamic markets. If you can turn even this very simple and basic market into a quasi-monopoly, then there is something fundamentally wrong with the whole economy. And it seems all fingers point to Wall Street.
Simply hoarding land should not be profitable, and yet it is one of the most profitable businesses because of subsidies (too low property taxes, 1031 exchange, various “farming” and other exemptions).
This is unfalsifiable voodoo. It can be used to describe practically any economic phenomenon.
Prices are up since people did 30yr mortgages at obscenely low rates, and don’t sell/move in order to keep them. That group will eventually rotate out. Ironically, somewhat lower rates will cause a housing price decline.
Then you get New York City.
1. There is no problem. This is working as intended. Everything is fine;
2. There are a few bad apples on an otherwise good and functioning system; or
3. The entire system is fundamentally broken.
To blame the "homebuilder cartel" sounds very much like (2) to me. My view is that the entire system is broken and it goes back to enclosures and private property borne from capitalism and liberalism, respectively.
Liberalism is the deification of individualism, implicitly rejecting any sort of collectivism. A key pillar is the idea of private property, that is the ability to acquire and maintain a state-backed exclusive use of land well beyond your personal needs.
Capitalism is really the evolution of feudalism and the origins were in England with the Enclosure Acts [1]. These transformed land use for grazing by all to people having exclusive use thereof. You might hear as a counterargument things like "the tragedy of the commons". Interestingly, this term originated in 1968, some 350+ years later.
I bring this up because when I see people hoarding land and people voting out of narrow short-term self-interest to restrict supply and reduce housing in order to increase housing costs, I don't necessarily see that as a failure of government or the fault of a few bad actors. I see it as inevitable given our economic system.
So much of history can be viewed as simply a land grab.
I don't expect our economic system to change anytime soon but the governmentr can do a lot to alleviate this. At a minimum:
1. Ban single-family house zoning in urban areas. Multi-family units should be legal anywhere within city limits;
2. Stop subsidizing suburban expansion to the degree we do by building roads to a ridiculous degree;
3. Build public transit infrastructure. For the successfully-propagandized Americans who will fight this because "it'll raise our taxes", people on trains will make it faster and more convenient for you to drive. Literally everyone benefits.
4. Punitive taxes on non-prrimary residences (ie investment properties, second/vacation homes); and
5. Get rid of tax breaks for home buying.
I have zero confidence any of this will happen.
[1]: https://www.thecollector.com/what-were-the-enclosure-acts/
I grew up in the housing industry as the son of a homebuilder. Not to date myself, but I wrote what was probably one of the first cost accounting spreadsheets on the nascent PC of the day using VisiCalc. The spreadsheet took into account all costs associated with building a starter single family home, including land acquisition, financing, municipal fees, material, and labor costs, I.e. everything one one need to run a successful business as a home builder. I know this industry intimately.
Yes, Stoller is correct it’s harder to be a small (i.e. 10-20 homes per year) home builder than it was 40 years ago. But it’s not due to some conspiracy. It’s because the local zoning has become much more arcane and the red tape so Byzantine that the little guys have been effectively pushed out. For instance, you need a full time staff person to negotiate with your local ZBA (Zoning Board Association) to get permission to get something built. Beyond the direct costs, the delays and uncertainties are killer as they eat into your profits. (The gross margin is slim, somewhere between 10-20% on a home for a small time builder. I know - I wrote the damn spreadsheet that calculated it.) As a consequence of all these regulations, only the big builders can afford to absorb and amortize these costs over tens to hundreds of homes. Of course, this also means the big guys still need a fatter profit to to deal with zoning hurdles, long time frames, uncertainties, and what have you, thus margins need to be higher on average even for them. This is what is going on. Not some monopolistic conspiracy.
I looked Stoller up. Here’s the Wiki:
https://en.wikipedia.org/wiki/Matt_Stoller
His gig is railing against monopolies. The housing industry is just another nail for his one-size fits all monopolistic hammer explanations.
The real culprit here actually is a cartel ironically. But this cartel is made up of homeowners who flex their power through local zoning codes that make it near impossible to build new homes, especially apartments.
TLDR: In other words, the YIMBYs are right: the problem is zoning restrictions on new supply. Reform zoning and small time home builders will be back with a gusto.
Part of the issue is that the big guys have pushed out players like this. But another part of the issue is the onerous code process in place today. Could you even get a few guys together to build a home without having a certified electrician or engineer? And even if you could, does the present generation of able bodied workers even have the knowhow as my grandparents generation? The guy would spend all the time I waste on TV or the internet working out projects and plans until the day he passed practically. Seems present generations are a bit distracted by the digital world to pick up so many useful analog skills.
Not everyone can 'win' and the people who try harder often win more. And of course don't forget 'luck'. It plays a large part as well.
And guess what? Many of those people who win actually worked harder and weren't born or inherited and are from disadvantaged groups. Nobody wants to think that. Everyone thinks the other person has an edge 'and if I just had that edge things would be fine for me'.
(My father came to this country with nothing. My mother grew up and her father died back when there was no social safety net. All the children went to work. And yes because of that and in addition to my personal hard work and attention to school things are better for me for sure.)
We have a DR Horton home. It's really nice and well built. They deserve to make money.