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Comment by lifeisstillgood | Hacker News Reader

Far and away the biggest cost for housing in the West is land. It's almost 2/3rds now. We could all live in pre-fab boxes and barely shave 10% off.

See Josh Ryan Collins https://youtu.be/RX-AzKgUEWk

https://www.ft.com/content/ffa66898-fe7b-11e6-96f8-3700c5664...

My tldr on all this - since 1970 humanity has doubled in size - something comparabke only a couple of times in history (17C, 19C etc). A d the massive growth economically had wide ranging effects. One big one is there is a change in governmental models (autocracy to parliament, parliament to democracy)

The most obvious other effect is that land prices go up as cities grow. And 80%+ of increase in house prices is increase in underlying land.

This is of course massively unequal and negatively affects incentives for business and production.

So to change society direction create a long term (land) wealth tax (say 75 basis points a year) and plough that into education, entrepreneurship support and industrial banks greeen energy subsidies etc.

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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.

> 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.

It's not a strawman at all.

I'm not talking about regulations like requiring fire alarms. I'm talking about zoning regulations as well as environmental regulations that are usually well meaning, and maybe even necessary, but are more frequently used as a kudgel by local landowners to keep out any newcomers.

You can buy land in rural middle America for $2,500 an acre and build a nice house on it for $100k. And no, not the middle of nowhere. These areas have water and electric utility service as well as major highway access.

Much of Asia has a much higher population density than the U.S. Land prices are likely higher their due to actual scarcity.

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

The affordable housing is not in Tokyo but outside the city with a decent commute.

Also, Japanese national debt is 258% of GDP. I don't know how much incentives are put into housing but I got to imagine the government is spending it everywhere.

The housing is also built poorly and houses are rebuilt every few decades.

For a data point my wife and I live in a 1 bedroom apartment 4 and 8 minutes from 2 train lines by foot respectively, around 10 minutes from Shinjuku (central Tokyo) for about $650 - part of the trick is that unlike any place I’ve seen in US cities, my apartment is only 25m2, a size I’m perfectly OK with but would probably be impossible to find in most US cities. The density of my neighborhood is probably like 10x of my old neighborhood in SF and yet all the buildings are 1-3 stories and aside from the large number of pedestrians and proximity to several city centers, it feels smaller town than anywhere in SF.

Housing here isn’t built for the super long term, this is true - but it is built to much stricter codes than the US with respect to earthquake safety, and I wouldn’t say the typical modern American home is built to stand the test of time either.

Here they just build a lot more smaller units in much closer proximity here, and roads are much smaller which in itself probably doubles the buildable land in the city. They also have a strong transit network which means the available land to reasonably commute from is vast; you can get considerably cheaper than my rent or live in a bigger home if you lived say a 15 min walk from a train station a bit further from the center instead (similar properties to mine that are say a 45min-1hr commute to central Tokyo via bus/cycle + train can go for $350 or so, and you’d literally be living in proximity to farms (Tokyo contains a significant amount of rural countryside contrary to most people’s imagination).

I really think the American built environment is totally dysfunctional and prioritizes land speculators and motor vehicles over the people who actually live there. People here actually intend to live in their homes instead of being investment vehicles, to be a part of their neighborhoods, and to not risk their lives every time they enter public spaces. That makes it possible for working class people to afford to buy a home and for children to walk to school on their own.

> The density of my neighborhood is probably like 10x of my old neighborhood in SF

How are the utilities built to sustain such densities? Curious because in most cases, density is limited by the capacity of utilities in that area.

Do you know to what extent the short life of Japanese housing is a cultural or geographic issue?

I've read that the Japanese simply don't like living in older buildings, so their housing stock is built with the understanding that it will be torn down and rebuilt on fairly short timescales. I've also read that the frequency of small earthquakes in Japan makes building for the long term very difficult (earthquake damage to structures is cumulative) so it's easier to build housing with a short design life.

However, I don't read a word of Japanese so I have no idea if either of these stories are accurate.

It is accurate - I live in Japan, it’s a city that’s been destroyed pretty much every few decades either by war or natural calamity - houses beyond 30 years are generally worthless beyond their land value, probably negative since the next tenant will just demolish them. People feel unsafe about earthquake safety of buildings built before the earthquake code changed around 40 years ago and generally wary of older houses in general. Plus people just want creature comforts of better soundproofing, climate control and so on.

+Typhoon for disaster. And higher humidity makes buildings aging faster.

They have a declining population, which I imagine helps.

The country is in decline but cities like Tokyo and Osaka continue to experience significant growth - it’s the large number of small rural towns that are getting eviscerated.

I suspect their shrinking population and high speed rail everywhere helps.

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.

You have it almost completely backwards when it comes to the relationship between density and cost. For a fixed number of residents, nothing is more expensive per capita in terms of long-term infrastructure costs than low-density (especially single-family residential) housing[0]. The skyrocketing you speak of may occur when you look at the cost per area, but certainly not per capita, and definitely not per dollar of property tax revenue.

Basically the staggering long-term costs of maintaining suburbia infrastructure are so much larger than the property tax revenue from suburbia residents that many cities are doomed to either abandon the efforts to fend off the slow infrastructure decay, or go bankrupt.

[0] https://www.strongtowns.org/journal/2017/1/9/the-real-reason...

That’s overly simplified and missing the point. You can buy a 880 home for 90k in Gilroy CA just 52 miles from Stanford. In much of the country you could travel that distance daily, but because the roads are so overcrowded it’s still cheap. I am saying the exact same thing happens just a little bit closer whenever you build higher density without building new infrastructure to support it.

Now sure like most things there is a density sweet spot. But nobody is building suburbs because their close to corn fields. It’s still the cities infrastructure that’s driving up land prices around it. Simply because that land happens to be near stuff people want.

You're touching on another important issue. Zoning that mandates homes be built away from jobs and businesses means that more density causes drastic increases in traffic. But allowing mixed use development gives people an option to cut their commutes to almost zero, if they choose, letting the density scale a lot better than if everyone has to drive.

Since most modern work is not noisy, polluting industry, the major benefit of separating residences from work has mostly gone away. But we're still suffering the costs of this form of zoning. It would be non-trivial to intentionally come up with a more wasteful way to structure our cities and towns.

Another thing to think about is that if we could allow denser, mixed used development in all the suburbs, there wouldn't be so much pressure on housing in the dense urban core of cities. If just 10% of houses in suburbs turned into duplexes, that would mean a 10% increase in housing, and it would be hard to even notice. But again, we also need more intermingling of commerce and residences, to cut down on traffic.

You end up with dense urban centers just based on the relative value of commercial vs residential square footage. An office space in NYC is often above 20/sf/month that’s the equivalent of renting a 500sf apartment at over 10,000$/month. The only way to get true mixed use zoning in ultra dense urban areas is to mandate it.

Consider from a companies perspective they want easy access to employees and other business. The dense urban core offers both, so many companies are willing to pay a premium.

Perhaps bordering on conspiracy, but I wonder how much influence the motoring lobby has on urban design and lackluster public transit investment? With the demise of trams in the 1960s in many places due to lobbying, the General Motors streetcar conspiracy to buy up public transit networks in the United States, and well known connections between motoring lobbying and governments, this wouldn't surprise me.

I'm sure there are other vested interests here, but motoring/transit is certainly one that comes to mind.

> You can buy a 880 home for 90k in Gilroy CA just 52 miles from Stanford.

That's a mobile home, which does not include any land, that's a separate rent.

https://www.realtor.com/realestateandhomes-search/Gilroy_CA/...

(Add: The space rent is an additional $760/month and it is a 55+ park.)

That’s roughly equivalent to a condo fee in many apartment buildings. But, I should have included it to be clear.

Is that a typo? I'm pretty sure you can't buy a livable home or even a buildable plot for $90k anywhere in Gilroy.

It is a real property, but misleading. It is a mobile home, so the 90K price does not include any land ownership. One must rent that separately ($760/month).

https://www.realtor.com/realestateandhomes-detail/8282-Murra...

Also to add construction cost does not increase significantly by height up to 6 stories and only increases slightly more till 12 stories.

One does not need super skyscrapers in USA, but definitely needs housing units like Netherlands but with 4 to 6 stories of residential apartments and walkable neighborhoods. Unfortunately American culture will not permit this.

Nobody is doing anything out in suburbia like:

  Boston's Big Dig ($20,000,000,000)
  Boston's Deer Island sewage plant ($3,800,000,000)
  London's Crossrail (£20,000,000,000)
  San Francisco's Central Subway ($1,600,000,000)
  Seattle's SR 99 tunnel ($3,300,000,000)
  New York's Second Avenue Subway ($20,000,000,000)

Checking the first against population, that comes to $28,877 per person. This is hardly the only bit of infrastructure. Residents also expect water, sewage, and local roads.

The Big Dig was for suburbanites to drive into the city, and anyway was $1000/person which is pretty darn cheap over 20+years of use.

Look at a map of the big dig, it’s just through the very center of the city. https://en.wikipedia.org/wiki/Big_Dig#/media/File:Boston_Hig...

So, it doesn’t matter if suburbanites where living in 40 story apartment buildings or single family homes as long as they where past the where the big dig ended it’s all the same traffic in the city center.

You can both be right! Many massive transportation projects absolutely a waste of money when you weigh the costs and benefits. We shouldn't do those.

But that doesn't mean that spending so much money on sprawling infrastructure to support suburbs the way we do makes sense either, does it?

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)

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.

Replying to parent as the child is too deep(?):

> 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.

Berkeley is on the list of US highest density cities (https://en.wikipedia.org/wiki/List_of_United_States_cities_b...) and has a lot of single-family homes (definitely most by area by a large margin, and there are no high-rises in Berkeley...). The lots are small of course .

And it has, for the US, reasonable public transportation.

SF is dense but it also never the less has neighborhoods with single family detached homes too (glen park, cole valley and others built around approx time). of course it's mainly multi-family low-rise mid-rise buildings.

I think the root problem with single family homes is not their existence, but several factors:

1) They are implicitly subsidised by cities in the form of having way more infrastructure and public services dedicated to them, per-capita, than denser forms of development. Even though taxes in suburbs may be expensive, the massive amount of infrastructure it takes to support thousands of single-family homes, most with at least two drivers, means that suburb dwellers are not paying their fair share of taxes. It's like someone at a restaurant ordering a $200 bottle of wine for themselves and only being asked to pay $50 more when it comes time to split the check. In fact, in many places, single family suburbs are actually a net loss for the city, depending on the tax rates and how sparse they are.

That's also not to mention things like carbon emissions not being properly priced into the cost of gasoline. It would be much less attractive, relatively, to live far away from employment if this were fixed.

2) In many places, zoning makes it illegal to build anything BUT single-family homes.

If we could eliminate these two issues -- have people living in suburbs pay the true cost, and make it legal to build pretty anything else, then I think most people wouldn't have a problem with suburbs. But then, I also suspect that suburbs would be much, much less attractive if that were the case.

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.

How is a detached house an ‘isolating hell’?

I have lived in apartments and single family homes about 50/50 both as a kid, and as an adult, and I’d say bigger places have had an edge in terms of socializing just because it’s more comfortable to host people - but not by much.

BBQs are a great getting together activity summers (good weather). Many apartment buildings don’t have balconies or communal space fir BBQs... detached houses (or ‘plexes) make that activity easier.

It’s U shaped. NYC could build a new highway by knocking down skyscrapers or building massive tunnels like the big dig etc. At the other end, a new highway in Iowa needs to be extremely long to connect to anything useful. The sweet spot depends on a host of factors and the Bay Area ticks off several of them by having the ocean, bay, and parks, forcing a long narrow strip of development. Add in earthquakes and it’s really a terrible location for building infrastructure even ignoring NIMBY issues.

Sub-division being built by my house right now. They paid $500k for the land a few years ago. Paid $1.1m this year to get the earthworks done ( underground power, water, sewage, irrigation,etc) plus they will pave the street and do curbing. The land was the last expensive part by far, prepping it cost double.

There will be 19 lots, however he will not sell any, he will build every home on spec(ulation) and sell them himself. It's purely a profit driven decision and he will make million+, after spending years getting everything aligned and tying up capital. $80-100k in outfit per lot, plus another $100k per house. He will do quite well. However if he sold those lots and more builders were involved, we would have new housing faster.

This is true for at least 4 sub divisions being built in my town. Greed/capitalism is creating/exacerbating a housing shortage, everyone wants to maximize profits in a slow moving business, instead of just facilitating the creating of housing as efficient as possible.

The only reason that spec sub-divisions like that are profitable is all the permitting and other bureaucratic work is too burdensome for individuals. It requires economy of scale to get over that hump. Of course, there is some economy of scale with building multiple homes, buying bulk, etc. (and most of all, cutting corners that an individual home owner would never cut if they were building for themselves) but overall, it's the bureaucracy that makes it difficult for your average person.

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-califo...

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.

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.

>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.

> 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)

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

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/

Maybe people opposing sprawl for other reasons is a fortunate coincidence?

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!

It's no longer that risky if you keep defensible space around the residences and reasonable fire precautions when building the homes.

Well-located land is inherently scarce because the social graph isn't planer.

(Credit my co-worker for the observation)

Land Wealth Tax? Don't you mean Land Value Tax?

A LVT taxes the land underneath while not taxing the building on top of it. This is opposed to our current situation in which people are deincentivized from building because it'll increase taxes.

Yes that's right - but the point remains :-)

I think taking 150 years to squeeze the "value" out via taxes feels about right - it should not be a huge rush but should be something that is inevitable and at the generational level

The problem with that is that it incentivizes work, which is the primary source of carbon emissions and global warming.

If you build slightly up (let's say 20 units) then the share of land would drop to less than 1/30th of development cost.

Not the case in my area. A lot in a great new development can be had for $150K. Same lot with a nice house is $800K. I think one reason why the land is so cheap is because of all the rules about building on that lot. Often, for instance, you don't get to choose your own builder - and you definitely can build modular.

I think that far and away the biggest cost for housing in the West is money. Yes, interest rates are at all time lows. But that means loan amounts have skyrocketed in comparison to incomes. That has impacts across the economy.

I lived in the Bay Area for a bit ... it’s insanely overpopulated.

But that has nothing to do with birth rates and everything to do with migration- mostly from other low birth rate areas.

As we become more modern, we become more urbanized.

I’m confident the Bay Area would be very similar even if population levels hadn’t changed since the early 70s.

The West has very dense development. Most of the US isn't like that.

Where I live, land has to be 1/3rd the value of the home. Want a bigger house? You have to have a bigger plot or the bank won't lend the money because the value ratio is off.

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