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Comment by OnlineGladiator | Hacker News Reader

The cost of the house itself is nothing compared to the cost of the land. Houses don't appreciate in value because of the houses (which deteriorate over time) - they appreciate because of the scarcity of land.

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Sure, but houses don't depreciate as quickly as you might think. There's a few reasons for this:

- Constructing a new building isn't as cheap as when the existing structure was built. For instance, my home cost about $15,000 to build 100 years ago. Today the structure itself is worth more than that. Inflation matters here.

- People maintain and improve their homes. New kitchens, roofs, flooring, furnaces, siding, etc. In essence you are rebuilding a home 1 piece at a time from the day it is made. If you don't then the house gets to a point it can't be lived in.

People who haven't looked at new build prices for 10 years are shocked at what it costs today.

Nothing you're saying is wrong, but it doesn't change the fact that the land is an order of magnitude more valuable than the building (I'm speaking broadly and for residential real estate).

We still have more lumber than land. In a very hand-wavy way we have more labor than land. The limiting factor is always what drives the price.

This is not accurate outside of a handful of broken housing markets. In Philadelphia[1] land is often 1/5 of the total value. There are definitely some parcels that are undeveloped[2] or underdeveloped[3], but most properties are more balanced.

[1] I chose Philly because of a good clickable property tax browser https://property.phila.gov/?p=881576550, and because it keeps separate land vs. improvement assessments.

[2] This is in no way a statement that Rittenhouse Square should be developed. Parks are good. https://property.phila.gov/?p=885705260

[3] https://property.phila.gov/?p=881520352

Your [1] example is a 100+ unit apartment building. In the context of this thread, we're discussing single-unit buildings like your [3] example.

Single-unit buildings close to downtown can have higher land costs. But single-unit buildings in single-unit neighborhoods are, again, around 1/5 land cost.

https://property.phila.gov/?p=492129100 https://property.phila.gov/?p=581427500 https://property.phila.gov/?p=212348000 https://property.phila.gov/?p=344136100

These are definitely better examples than you previously used. That said, I think the tax assessments don't accurately state the value of the land vs the building. I don't think OnlineGladiator is correct about the universality of >10x land:building, but I don't think you're right about ~0.2x in these neighborhoods either. I do think OG is correct about housing as an appreciating asset being primarily about the land value.

1) The nominal land cost has huge jumps up and down. From 2016->2017, all of these properties had their land value lowered 60-70%: $150k->$44k; $166k->$59k; $75k->$32k; $279k->$96k. I find it hard to believe that property prices swung that much, especially since the total appraised value remained constant.

2) The price of the land depends on the zoning of the land. A lot which can't be subdivided further or which can't have multi-unit housing will be constrained by what a single family is willing to pay for the lot. If you compare the last property ($140k land assessment / 19k ft2) to a smaller lot nearby [0] ($50k land / 2.4k ft2), you can see a huge difference in the land price per ft2: $6.7/ft2 vs $20.4/ft2. This price difference reflects legal constraints on what can be done with the lot. If the larger lot could be subdivided, it should be closer in price per ft2 to the smaller lot and would be worth ~$390k. If the total assessed value remained constant, that would be 1.25:1 for land:building.

[0] https://property.phila.gov/?p=344121100

3) Furthermore, the price of the building itself depends on the scarcity of housing. With plentiful land to build new housing, old housing loses value quicker. An old house in a constricted market has more value because it's existing housing on a scarce plot of land. Even though the value is assigned to the building, that building is more valuable because of the plot of land it's associated with.

I used to believe this and then I got into the area. It depends on the area of course but it turns out that the cost of the house is quite significant. House construction costs are $200-500 per square foot, putting even a medium-sized house at around a quarter of a million dollars. When you look at the costs of empty plots of land versus similar plots of land with houses on them, you'll see that the housed plots of land cost the same as the empty plots plus the construction costs of a similar-sized house. In the areas where I looked, the costs of the house dominated, such that the land value is about 20% of the total value of the plot. Even the variance that occurs at that level can be further explained by the value of potential future plots of land on the space -- a plot of land that has one house but could hold a second (for whatever reason) is more valuable than an otherwise-identical plot that can only support one house.

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