Article: Dense zoning is the solution to housing costs

Posted by brewster on 2017/10/24 12:40:05
Short excerpt from this long article: Https:// ... d-from-construction-costs

When home buyers are paying for dirt, someone is being excluded, and the solution is to densify

High home value to replacement cost ratios are a good indication that the housing supply is restricted, meaning that people who are willing and able to pay enough to support new housing construction are being excluded by limits on density.

Both expensive coastal metros and affordable expansive ones would benefit from the relaxation of restrictions on housing density, but for slightly different reasons. Whereas the former need greater housing density to combat a full-blown housing affordability crisis, the latter need it in order wean off sprawl without creating an affordability crisis of their own.

Doesn’t upzoning just raise the value of land?

A common objection to increasing a lot’s permitted housing density or – loosely speaking – upzoning it, is that it simply raises the value of the land in reaction to the increase in density rather than resulting in cheaper homes. Although there is truth to the observation, it is a poor argument against raising density. When upzoning raises land values it indicates that the scarce factor drawing a premium is not land per se, but the units zoned upon it. It is mistaken to think that upzoning will reduce the land value component of homes simply by dividing a fixed land value over a greater number of units. The value of land depends on its characteristics, one of which is the number of units it is zoned for – i.e. the number of households allowed to call it home – and changing that number affects the land’s value. But upzoning also increases the number of zoned units in the housing market as a whole, and in so doing will contribute to easing their scarcity.

For upzoning to meaningfully suppress housing prices, it must be applied en masse. Upzoning a limited number of lots – where “limited” means small compared to the relevant housing market – will raise the value of the upzoned land without measurably influencing home values. To suppress housing prices, upzoning must substantially ease the scarcity of zoned units and, for this to happen, upzoning must be applied at sufficient scale vis-a-vis the relevant housing market.

Another interesting artifact highlighted in this article is the ratio of replacement construction cost to land price. 07302 is 4.81:1 according to the data provided, yet that's the reverse of how our property is appraised. The land is always the minor cost. If this were done accurately, a lot of the abated properties would be taxed much higher, since the value of the land is not tax abated. In the Heights (3.14:1 ratio) where double lots are closing on $1m a single lot is appraised by the city at around $80k. (A $20k assessment) These fictions can't be good for tax fairness.

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