It’s the LAND stupid!

I just had a nice little conversation with my neighbor who knows a thing or two about the financial world, grew up in San Francisco, had parents that grew up in San Francisco, is ultra conservative with most things, but extremely bullish about the San Francisco real estate market. He’s seen, and been a part of, the ups and downs in both our real estate and financial markets.

We got to talking about golf, kids, and of course, because I’m a Realtor, we talked real estate (seriously, everybody wants to talk real estate, I can’t escape it!)

[Woah! Earthquake!]

I was sayin’….we talked about the normal ups and downs, the mortgage crisis, whether I’ve been busy, and his theory that the home should not appreciate, it’s the land you need to focus on. Sounds pretty simple right, but then why does everybody focus so much on the asset that is the house (guilty as charged)?

Think for a minute about the enormous amount of over-building in places where homes didn’t need to be built. Places where there was already plenty of land (and homes) to supply the current population, and still more land to supply another 60 million people. Yet they kept building. It’s those places that are experiencing the most pain from this recent crisis. It’s places like San Francisco, Seattle, Chicago, New York City, to name a few that are experiencing much less pain. Why? The land. There isn’t any more, people still want to live in these places, and the only logical place to develop is up, but San Francisco is very strict about that. A piece of San Francisco earth is a limited commodity and they ain’t making any more.

We can talk details and numbers and all sorts of things, and we could argue that it is not that simple, but it really, truly is. Sure, our market has felt some pain, and we’ll surely feel some more, but deep down in your gut, do you really think it can/will last? And do you really think that San Francisco will see declines in the 30-40% range like so many parts of over-built America, where there is still plenty of land to go around?

Try not to let your thoughts drift to SOMA and the extraordinary over-development going on there. We could definitely see some big (short term) declines there, and my nemesis will certainly high-light those declines, but what about the rest of San Francisco?

I might not be making complete sense here, because I was not the teacher in this conversation, rather the apprentice, but certainly you get the gist…it’s the LAND stupid! N’est ce pas?

39 thoughts on “It’s the LAND stupid!

  1. That is so awesome you have a nemesis, bro. I’m going to go out on a limb and say that only successful people have nemesises. J/K ! I kid. I kid.

    In all seriousness this theory is sort of another way of saying “Superstar City.” It’s a theory that I subscribe to as well. I have definitely participated in conversations with people far more financially sophisticated than me who also subscribe to it.

    The theory gets countered by, “Well, why the colossal runup in recent times then? The city always was that way.” and “this is purely easy credit run amok.”

    To those arguments I argue that yes, those things did happen, and they brought change. Almost contemporaneously tho other changes occurred both in the world at large and here. In fact many significant changes to the world began here. I’m speaking of the computer industry and the internet industry. Because back in the day San Francisco was not a very good place to seek employment. You had the West Coast Exchange, Bechtel, Borax, Levi’s, Gap, some advertising, and a whole lot of retail and tourism oriented jobs.

    Seriously, when I moved to SF in 1995 it was a different place. Time and time again one would hear, “Yeah. SF. Great place to live. Big flats. Cheap rent. No jobs.” Times have changed. So that’s my view. Yes easy credit happened. Yes the runup was steep. But yes, land is scarce, yes it’s tough to build here, and you know what the city changed a lot too.

  2. This is one of the few cases where the heartless administration from a City might actually get it BETTER than the individuals.

    I cant talk for all the properties in the city, but I know a few where the property taxes statement is right on target. The land value matches the price of an empty lot (empty or empty with a zero dollar structure on it) – and the construction value kindof matches the cost of construction.

    And when you do insure your home, make sure you have your property statement in hands before choosing the cost to replace you want to insure – because MOST insurance would use the basis of 80%construction 20%land instead of SF 40% construction 60% land or whatever ratio you have on your tax statement.

    That can make a few thousands difference in insurance costs!

    Please do the same when remodeling. If you have a 600K land with a 400K structure, it might not be very smart to spend 200K for cosmetic remodel (cosmetic = for example new kitchen without new systems, or new bathroom still using a 25yo water heater)

  3. oh… and of course, we forget to mention that the average household size went from 5-10 members to 1-3 members (check the census if you care), and the average unit size went from 1000sqft to 1800 sqft.

    All this happening on an island. NO extention possible in any direction (bay east, bay north, pacific west, hills south).

    And I dont believe one second that the new Towers will ease the tension a bit. not short term. Those programs are NOT a replacement/alternative to people in existing units and in need to move away /bigger /smaller /different. Those new super expensive units only bring more foreign money (coming from outside the bay area) – thus bringing even more new inhabitants.

  4. Most realtors would call the “extraordinary over development” south of

    Market an “unprecedented buying opportunity”

    Among the significant changes that KJ from Kidron alludes to:

    The average age in town has dropped from late 30’s to early 20’s and

    blue collar jobs have almost totally vanished.

  5. I think your friend is correct. I remember my grandfather telling me how they couldn’t sell the lots in Newport Beach (wish he had given me one!) The city is an island, a very desirable island. SOMA? That will shake out in 10-20 years. I’m in Wanut Creek and we’re about out of land, excluding annexation. Values have taken a hit, but a very mild one. San Francisco is still very desirable, except for Market from Civic Center towards Montgomery, unless you’re into porn, junk and the street folks there. It is the land, land, land.

  6. Nathan,

    What is Kidron?

    Also, the blue collar construction industry jobs have certainly not vanished? The housing for blue collar jobs has vanished or is vanishing, but not the jobs themselves..

  7. Umm how about we take a look at Tokyo where they are not making any new land and housing prices have been stagnant for years. Your argument doesn’t make any sense when you decide to ignore things like SOMA for no other reason than they put a hole in your theory. I am sorry but that’s just not logical, look back at the .com bust when people said can you really imagine the stock market going down another 30%, and sure enough it did.

    “And do you really think that San Francisco will see declines in the 30-40% range” I do, and so do a lot of my friends who don’t mind renting and having their money earn interest elsewhere.

  8. I’m actually not from Kidron but from the county seat 15 mi to its west called Wooster, Nathan. Come on man. Come clean. What do you know about me? Who are you?

    All of the changes were not for the good. Did I say they were? Anothet couple of things I forgot to mention are that BofA is gone and so is the Pacific Exchange. (And I forgot Wells, which remained in a changed structure.) That’s a lot of white collar SF jobs, gonezo. You’re correct about blue collar except I’d argue that blue collar jobs have disappeared all over the country. Yes, even in Wayne County. We used to have Rubbermaid in my hometown. Its leaving was devastating.

  9. My theory is always the RE appreciation = inflation + population growth (in %) – new development (in %)

    Tokyo (and Japan) have had no inflation, no population growth over the last decade or tow. No wonder nothing changes.

    US has had a moderate inflation and moderate population growth. SF’s population is anyone’s guess (didn’t Newson sued Census for this?)

    I am not saying the bubble was justified. I think 4% annual appreciation is about right…and mostly from inflation.

  10. its no coincidence that most rich people have some real estate.

    of course if you read the “self-satisfied renter’s site” you will find the most popular poster is a long time renter espousing investment in I-bonds (and only if you bought them a long time ago mind you, not now). there are no ideas about how to make any money on that site but gobs and gobs of schadenfreude served up daily. plus realtor bashing ad nauseum (they’re still invoking you fluj!).

    seems kinda weird that so many people want to read and post on sfre w/out any intention of ever buying any.

  11. I heard they said that I lost my property? Dude. Ouch. You want to talk about trolling.

    For the record I have a fully rented three unit and I live in one of the units. There is a good upside, Paco, in the form of a big ole semi-developed attic with views. Once I get around to squaring off the roof lines and grabbing this aclove storage space, and putting windows on, I’ll double the sq feet up there. Plus the city views will be very good.

    Cash flow is OK. It costs me $1800 a month out of pocket to pay the I/O. Some months I do that, such as months when taxes are due. Some months I try to pay down as much as I can. The city recently informed me the property is worth 50K more than I bought it for. In my opinion comps bear out a lot more equity than that.

    I have a really great listing right now and a client circling several properties. He’ll get one. From my perspective things are still surprisingly good. A whole lot of properties did hit the market last Friday, tho. Like 200 at once. We’ll see what that does to the market in short order.

    I supposed I should take it as a compliment that those guys are still dissing me when I’m gone. I guess when you get right down to it those guys love them some fluj. I just started getting angered all the time and it isn’t worth it!

  12. i hear you fluj. its not that interesting to hear all those ‘armchair experts’ expounding on the market when they have no experience and one-way vision. plus they have no alternative suggestions for making money-but plenty of scorn for those who do.

    btw, attic conversions are a great way to go.

    check out the velux MO-8’s; they’re perfectly suited for our local rafter framing scenarios (assuming you have a gable roof)

    and you can install one in a day!

  13. fyi fluj- in case you were not aware, look into the legal implications of that attic conversion carefully. with 3 units (over garage/basement?), the city will probably make you go through alot of upgrades such as fire sprinklers. i don’t know if you will need to reinforce the structure for the 4th fl of living space.

    of cousre, you can go it w/o permits, but then you can’t call it legal living space and add the sq ft officially. and, you really need to make sure your neighbors who can see your roofline are cool with added dormers/windows, etc. (it sure would suck to have one call you in…geting caught by dbi w/this would be bad news.)

    bottom line: it’s a great idea, but proceed carefully!

  14. Non, you are quite wrong. Land is the one thing you can never run out of, because you can always keep piling more houses on the same piece of it. Read Edward Glaeser and Joseph Gyourko on this — even in New York, until the advent of zoning, the cost of new construction was always about the cost of capital plus the cost of adding a new floor to an existing building. What is scarce is not land, but building permits.

    You actually almost stumble on the correct answer by accident, when you observe that “overbuilding” in SOMA is going to gut prices. The actual price of new construction is actually pretty low, if the city (or region) did not empower voters to exile their kids and grandkids through atrocious land-use policy, the retail cost of new construction would be something a bit under $300/sf. That is the cost of building plus the cost of borrowing the money to complete the construction. Everything else is politics, a kind of tax that is paid by young people directly to the old, or if you like it’s the old placing a gun to the head of young people.

  15. “until the advent of zoning” is the key to the above statement. Zoning and land together drive the price up. Yes you can add stories in some places, but a story or two tends to be the limit (see hipster above) in most of the city. In the areas that you can go big zoning, red-tape, BMR, and other fees drive the price up. The $300 per foot is tough to do when you pay $30/ft for the permits and fees, then still have to add below market units or pay again.

  16. paco,

    Do you have any alternative options for investing money? I have a big chunk of change under my pillow, and I am lost with what to do with it (on non-RE stuff, I am a novice)

  17. I’m pretty conversant with code as it applies to a number of things, attic conversion being one of them. One unit is next to the garage anyway, so it would only be 3 stories. Thanks tho. You make a good point 44YOH.

  18. sparky,

    i’m in the same boat looking for a sheltered cove.

    my buddies at farrallone have been doing a good job keeping money working. some like the idea of buying the bank preferreds (yielding 13-20%) and shorting the stocks but it takes a pro to spread it around in enough volume.

    meanwhile i think its a great time to be liquid in case some good sf properties pop up. i look specifically for multi-unit fixers (in the core of sf ) with low rents b/c

    i think there is less competition and greater potential for those places in this market.

    i also think its a great time to put investment groups together to buy/evacuate/renovate and finance the sale of said multi-unit fixers. easy to understand, lower risk and still likely to return much more than the stock market IMO.

  19. Paco,

    I am actively looking at that, on the single family and add units front. I hadn’t looked at the rented units, I should. But, I wasn’t counting the money I have allocated for that into my post. That’s the problem, as everything else is losing money. The wifey don’t want it all tied up in RE, and some high risk stuff (start-ups) that I have money in. She wants some security. What to do, what to do?

  20. “And do you really think that San Francisco will see declines in the 30-40% range” I do,

    When do you think that this is going to happen? I have heard lots of Bears claim this over and over and while it happened in Sacramento, it has not happened here.

    A reasonable person adjusts their theories to fit the evidence. When will you adjust yours? When real estate prices start to go back up?

    There are two equally strong tides right now affecting San Francisco real estate: one is the general unwinding of the housing bubble. The other is the Great Urbanization of America. As gasoline prices continue to rise and California continues to refuse to invest in infrastructure, good neighborhoods near jobs will continue to appreciate. You ignore the second effect at your own economic peril.

    What do you think will happen to home prices in San Francisco after the bubble finishes deflating? How much more are home prices going to deflate nationally? How much further can home prices adjust in The Central Valley, they are down about 50% from peak, and in that same period SF prices are down 7% from peak. Do you think that Central Valley home prices are going to zero? Why would the adjustment come later here?

  21. Sparky,

    “Until the advent of zoning” is not only the “key” to the above statement, it is the point of the above statement. Zoning is not a fact of nature like the geographical constraints of a sliver of land surrounded by water, it is a kind of tawdry and pathetic politics that is unique to obscenely expensive places. I understand that until recently in India a liter of blended Scotch could cost something like a hundred pounds because of bans and import duties. That doesn’t mean that the Scotch was “worth” a hundred pounds, it means that the cost of getting a bottle of it into the subcontinent was 80. The actual cost of a 1000 sq ft 2 bedroom in a high- or mid-rise with reasonable finishes is something like $300,000; the cost of permit rationing adds $400,000. This is inherently precarious, not that I expect Bay Areans to suddenly decide that they would rather their grandkids not grow up in Oregon and Missouri, but there is nevertheless a 50% drop built into the purchase price of everything within 50 miles of SF, if we started allowing construction where people work and want to live. The work of Glaeser and Gyourko, professors at Harvard and Penn respectively, is as conclusive as social science can be, you can read it here:

  22. The only region in America that does not use zoning laws to regulate development is Houston. I do not like what has happened here, with polluting heavy industry directly adjacent to housing and I doubt you would like it either.

  23. NVJ,

    You are confusing health and safety regulation with zoning — there is no reason to conflate the two, and the kind of self-interested obfuscation and confusion you are exhibiting is the reason 3/4 of my parents’ friends kids are in other areas. You can prohibit smokestacks near children’s lungs without prohibiting mid-rise condos; see, for example, every city in California before the baby boomers started to take an interest in “property values.”

  24. Also NVJ,

    I know the Houston area a bit, having spent years with a brilliant girl from Deer Park who grew up in the shadow of the shadow of the petrochemical plants. Her brother is an artist married to a kindergarten teacher, they own a nice urban house on a leafy street in Houston, and their mortgage is less than half of the rent on a crummy 1 bd in SF. They feel and are middle class, and live on one income while their child is young. The first part, the sad location of heavy industry too close to populated areas, is a legacy of the fact that Texas is a mini oil state in the middle of America. The second part, the one about the affordable housing, has to do with the fact that people can build things when it is necessary to do so, and they have a bit more shame about running their kids out of town. (Austin is also cheap, dynamic, and fun for the same reason, and doesn’t suffer the petrocracy defect you’ve noticed in Houston. SF, Boston, NY, etc., are exceptionally bad at city planning.) If you want to quibble about my overwhelmingly obvious point, try to find a hole in the logic of the PhD’s I am citing, or in mine, before declaring that lots of new houses in SF means oil refineries are not far behind.

  25. You can prohibit smokestacks near children’s lungs without prohibiting mid-rise condos

    Yes, you can. The rules that you use to do this are called zoning regulations. You are throwing out the baby with the bath water.

  26. Timon, Your $300K to $400K does not count land, carry, permit costs, engineers, architects, fees, BMR’s or sales costs. It also does not include profit to the developer. The cost of a mid-finish mid-rise may be $300-$400K for 1000ft in construction, but that is not what what it would sell for. So does the zoning add cost yes, but not nearly what you are stating.

  27. Sparky, I am not stating it, I am relying on expert research, which I encourage you to read. If that is too much, you could try reading my posts, which are precisely an explanation of why you should not consider permit costs, BMRs, and (ridiculously long due to permit approvals) carrying costs as part of the inevitable inputs into building, like wood or concrete.

    NVJ, to say I am throwing the baby out with the bath water is chutzpah. You can prohibit smokestacks, or bonfires, or helicopter landing pads, under many traditional legal rubrics, particularly common law nuisance. That is not “called zoning”, that is called “centuries of legal history unknown to Jim”. You are the one saying that in order to deal with noxious pollution you have to simultaneously empower voters to ban poor people, or people who might only be able to afford small houses in jurisdictions where large expensive houses on lots of land are mandatory. Zoning even prohibits completely invisible changes to land, such as two families buying an old house and turning it into a duplex. They are completely different issues, the fact that “zoning” even comes to your mind as having to do with pollution shows how narrow and indefensible the thing we are actually talking about is, which is local governments banning cheap housing, to the applause of people who benefit from the artificial shortage.

  28. Timon, I would read what the experts have to say. Your link only goes to a blurb, and not an article or paper. And I couldn’t find the paper itself.

    But, to my point, if you don’t want to count BMR’s and the hold on ridiculously long permit process then that’s fine. Group them in with zoning. But, there is still a permit to pay for; do you think the city should give away it’s time, review, and inspections? There are still soil reports, architects, engineers, energy reports, etc., unless you don’t think those are needed. You still have to buy the land in the first place. You still have to pay the carrying cost between permit and completion (and sale). You still have to pay the agents to sell the place. And you still want to make a profit. These are all above the $300K-$400K number it actually costs to build.

  29. Hi Sparky,

    There is a direct pdf link here:

    The abstract does get to the nub of the issue, namely:

    “an examination of housing price data from across the country reveals that, in most areas of the country, home prices appear to be fairly close to the physical costs of construction. Only in particular areas, especially New York City and California, do housing prices diverge substantially from the costs of new construction. The bulk of the evidence that we marshal suggests that zoning and other land use controls are heavily responsible for high prices where we see them; measures of zoning strictness are highly correlated with high prices.”

    You would be surprised what you can build for $250/ sq ft, even in SF. I know of one largish building South of Market that averaged almost exactly that within the last 5 yrs. I also worked on an expensive residential medical facility that cost about $400/per, that is kind of a high end. In Miami, even during the boom, you could buy nice new mid-rise construction for under 300/ sq ft, that is not a fluke, that is the norm wherever construction is allowed to happen. We are actually lucky that residential towers are as economically efficient to build as they are.

  30. Tmon, I read the article and it really does not relate to SF at all. Besides that it points out that SF is the most expensive land cost. The base of the article is on the land value diffference between large and small lots, and sub-dividing lots. Not much of that in SF. Then it goes on to base the pricing off of medium sized 50 house sub-divisions. None of that. Plus it does not go into cost of construction at all, which is higher in CA than lots of the US.

  31. Subdividing a lot does not mean drawing new lines on the ground, the main application to SF would be vertical subdivision.

    The way to understand the point about large v small lots, is simply to imagine a teardown zoned rh1 on a typical 25 x 120 ft. lot, and figure how much greater its value is than the same house on a 25 x 60 ft lot. According to the “its the land” theory, the double lot should be twice as expensive. In fact it is only marginally more expensive, by analyzing the cost differences in detail, ie, by finding what people are willing to pay specifically for a slightly larger garden etc., you can get an implicit value for land and another for the permit. (If there were no zoning issue, there would be essentially no difference between one 1000 sq ft lot and 2 500’s.)

    The fact that you don’t get a lot of new subdivision in SF is exactly my point. What would be happening, if we still had the freedom that originally led to the construction of SF in the first place, is that people would be buying parking lots in Dogpatch, and disused furniture stores in the Mission, and subdividing them 100 ways, up 5-50 stories. (To the extent that does happen at a snail’s pace in SOMA, you get complaints that “overbuilding” will be bad for prices, which is an also an acknowledgment of my point.)

    Nowhere is a better case study for these effects than the Bay Area, if you do not want to see them you probably wont, but it is not serious to say that the Gyourko and Glaeser research does not bear on the mecca of restrictive land-use laws.

  32. Timon. the land value is visible.

    on the short side of a block, where the lot is only 50, 60 or 70ft deep instead of 114 or 120, there is basically no garden, and in NoeValley, this equate to about 100K.

    The problem is that it’s difficult to prove as many of the row houses around the same block which were strictly identical aside the orientation and the lot size are not identical anymore. On the long side of the blocks, many homeowners added some structure at the back, a full extention or a simple deck – thus throwing away any “fair” comps.

    One very specific example of the impact of “no lot” (I thinkg the correct way is this: a bigger lot doesnt add value, but a smaller lot does dent the price) is 434 vickburg. A super sweet house. some discutable but reasonably good flip-remodel. The value of the house is stuck and will stay stuck, because no garden, no lot, no land, and the garden fences are two storey high walls from neighbors.

    In that sense, there is a direct correlation of land and value, that is the same houses (row houses) around a same block will have a visible difference in price tag according to the land and its value. A flat lot is not equal to a steep lot, and a small lot is not equal to a large lot. Add views, winds, etc… and lots are definitly NOT equal.

    yes, you can argue that zoning gives a direct value to the sqft of the land (you can only build 60% of the area of the lot, on so many floors, which equal to a maximum structure of XXX and a maximum price of YYY), but if this was the case, THEN the houses would all be the same price p sqft. So a NV 1000sqft remodel would be sold at 1000/sqft (not true, it’s around 1.5M) and a NV 4000sqft remodel would be sold at 1000/sqft (not true, it’s around 2.9M).

    land + ppsqft*1000 = 1.5

    land + ppsqft*4000 = 2.9

    thus ppsqft = 500 and land = 1M (a standard lot is actually around 800K IMO)

    do the same in PacHeights. ppsqft in a 2 units condo vs ppsqft in a 30 units condo.

    in the 30 units condo, the land value is tiny. it’s 1/30 of a somewhat large lot.

    in the 2 units building, the land value is 1/2 of a regular PacHeights lot (this value potentially reaching several millions) (example 2266 vallejo land value is around 3M – thus each unit start with about 1.5M in land + construction).

    still not convinced? just burn your house down, and tell us how much developers are trying to give you for the empty lot. I’m not sure there are many lots under 300K in the city, no matter where.


    of course, that doesnt mean the value is ONLY tied to the land. But there are additional values directly linked to the empty lot before we can even look at the structure and the value of it. as said above, beyond feetage of the lot, there is orientation (south, north…), winds, shade from hills, surounding buildings, street and street acces, public transportation, public noise (street cars, 19th avenue, BART etc), polution (101, 280), …

    if a hundred blocks were flattened in the city in 100 different locations, and you would be the FIRST to pick a lot … could you pretend you’d pick any? lots are very differents, and because of those differences, they are priced accordingly to “usual” preferences such as size, sun etc.

    just for fun, I checked some current listings.

    double lot on valencia. 58×80 ( 4640sqft = 0.1 acre) – at 1.5M or about 15M an acre

    comp with 8 acres in modesto (4 lots – 348,480sqft ) for 750K or about 0.2M an acre.

  33. So you’re saying the difference in value between a 120′ deep lot and a 60′ deep lot is only 100k? (“…a bigger lot doesn’t add value”). That sounds reasonable. And then: “I’m not sure there are many lots under 300K in the city, no matter where.” Also, no reason to disagree, I would expect it to be higher. So what you are saying is that if a backyard currently worth 100k were transmogrified into a 25 x 60 foot separate lot zoned for a house, that the minimum change in value is $200k (and I would bet much more). That is what I am talking about, a (minimum!) 300% change in value at the stroke of a bureaucrat’s pen.

    You also add some useful illustrations of just how little land is necessary to make a nice place to live, again I couldn’t agree more. Another way of expressing this is that in a place zoned rh1, it is legally mandatory to buy about 1250 sq ft of land, whereas if you put six units on the same land, you only need to buy 200. But because what people really want is just a nice place to live, you have to buy more land than you need if the zoning calls for it, such that you can only sell for 100k for something that would otherwise be worth a minimum of 3 or 400k, because what people are buying is the right to build, not a big yard.

    Incidentally, what do you think the Valencia lot would go for if it were zoned single family in the same basic area or one comparable? I am not sure how much of what I am saying is even comprehensible in SF, because it is so unthinkable nowadays that we would build up existing neighborhoods, saying we can build 4 floor multi-family housing in Liberty Hill, or Noe, sounds to some people like saying we can all have cold-fusion reactors in our kitchens, it is beyond the realm of possibility.

  34. Timon,

    I have no disagreement on you in principle, only in price. No question these things should be done and we’d all be better for it. I’m just saying, for example, a typical sub-division picks the design out of a book and repeats. A verticle condo building needs architects, engineers, reports, etc. These things have to be done, and they add to cost a lot. Also, per the report and SF lot is worth on abeverage $700K. So what I was saying before was that in most cases your not going to build 50 stories, but 4 or 5. Say 4 @ 1500ft. That is what $116/ft. to start with. You just won’t get to $300K’s/ft finished. That said, the finished $ would be less than single family costs now, so it still makes sense and should be done.

    Over by my house, a developer is building 6 single family houses on vacant land (15th @ West Portal). They are all 2 story over garage, fully detached. What a waste! The empy space alone between the houses is over 4500sq.ft. Tons of other waste as well. And, across the street is a 5 story apartment on West portal. This build sits down in a valley, to boot. Easily could have been 20 units. This is an area with some of the best transit in the city, 1 block to trains, 3 from the tunnel. Plus an easy southern commute.

  35. Timon,

    it gets more tricky than this. The price of the land fluctuate with the size of the lot.

    To take your example of a 60ft deep lot vs a 120ft lot.

    first of all, part of the lot is not “your” lot. it might be curbside, street etc. So let’s first assume we are talking about the real land inside the white picked fence. Now, because of zoning, you cannot build anything anywhere, and you certainly cannot build two small houses on the two halves.

    HOWEVER, that has been done in the past, so let’s look at lots with two structures on it. There are many small victorian houses with a carriage house at the back. So there is one structure on the front 30%, one structure on the back 30% of the land. – and in theory, you could build a white picked fence in the middle of the lot and create – sell two lots. (those lots might be TIC or condos anyway).

    Now the question is: Is the value of the whole lot equal to the sum of the value of the 2 smaller halves? And unfortunatly, I believe no. The front house looses zoning rights and the right and potential to expand. The back house [b]has no street access, no garage![/b]. So the front lot probably looses more money than the value of the lot created at the back. in the case of vicksburg, the 100K I attribute to the garden are not a half lot, merely a lot chunk.

    Now the opposite argument. Take three “identical” row houses, one on a 25/100 lot, the next one in the middle of 2 lots, so half lot waste on one side, and half lot waste on the other side, and the last house is on 1 lot, but the owner also own the next full lot (as garden).

    what’s the value of each lot? there is one lot impacted by stupid SF regulations (the one with the house in the middle, specialy if the house is historical etc – the garden might be grandfathered if there are significant trees on it etc etc)

    if anybody could plug the EXACT datas for 469, 469bis, and 439 clipper. Those were 3 lots that should fit right here. and being on the same block, the prices should be the closest to comparable and accurate.

    One last comment. Land has value, even outside of SF. There are many FREE houses to take, like a city needs the lot, the space to do something else, and the historical house sitting on it is FREE to take by anybody with the guts to find another lot and move the house (either piece by piece, or by chunks on a truck).

    So the structure’s value obviously depend on – TIME – LOCATION. And on that point, I agree that the value of the structure in a 2005+ developement doesnt have anything to wiggle from a simple calculation of sqft x finishes – nomatter where in the states. But you still have to add the value of the land, which might be 20K in Jackson, MI, or 200K in Fresno.

  36. Sparky,

    I am being a little over-focused on SF, what we have is actually a regional problem — just look at the area around North Berkeley Bart, for example, it could be a transit hub but instead is as suburban as outer Phoenix. Same with every peninsula town with a train station. If you go to those latter towns, btw, you see clusters of apartment buildings near El Camino on either side, none of them a day under 30, which is about when the boomers had their real estate consciousness raised. Looking too much at just SF is like saying that car roofs don’t pollute, it’s just the tailpipe you need to be worried about. In fact just liberalizing sf permitting, etc, wouldn’t be enough, you would have to open up at least everywhere close to Caltrans or Bart, we are all sort of tied-for-last nationally in terms of both zoning prohibition and affordability.

    The point of all this, though, is just that it isn’t the land, historically, or in other parts of the world. It has always been closely tied to the cost of construction, and, recently, the cost of permit rationing. You can buy extra land just to enjoy it, but as Sophie pointed out, the value of that land is a fraction of the same land + permission to build on it. Even in the Valencia listing Sophie mentions, you could do 2 stacks of 5 25’x50′ incredible units, 29′ is even wide enough for 2 garages with the cars angled in, and you’d have a nice garden to boot. That would make your average land cost per unit 150k, cheaper than the Modesto lots!

    We can quibble about the actual cost of construction, I know one developer who did a big infill project and after all costs he was $590/ sq ft in. (That includes carrying costs related, among other things, to a year delay while they dealt with removing a tree.) That also includes demolishing an old building, legions of lawyers, 3 years of permitting, EIRs, etc. The fact is we have no idea what things would cost if there was an efficient, transparent market in building. I am not even sure the role of developer would survive. You would just have a loan officer, an investor, a contractor and engineering and sales teams, as obtains in most of the US and elsewhere. (I am writing from Mexico City, which is kind of an anti-SF in many respects, but one thing you do get is a ton of new construction, reverse-gentrification, and a lot of new and dynamic neighborhoods.)


    “Is the value of the whole lot equal to the sum of the value of the 2 smaller halves? And unfortunatly, I believe no.” This is what I have been getting at, land is not a fungible commodity when there is so much restriction on what you can do with it. The numbers you are pulling are exactly the kind of thing Glaeser and Gyourko look at; of course there is some value in having a big garden, that is the straight-up, hedonic value of the land. Then you do the kinds of hypotheticals we are doing right now — say that big garden was zoned for an additional house, the price differential is the implicit cost of the zoning decision. Another interesting case would be to look at the total land value around Dolores Terrace and Dolores, it is the same size as the adjacent blocks, but with the backyards filled in along an alley.

  37. let see what happens to 542 valley.

    a house that could be 2.4M (new construction, see comps) + an extra lot at around .8 equals the asking price of 3M. and the house is using both lots, so it’s not like the buyer can resell the second lot. This should utimalty say if anybody is giving $$$ to plain ol’ land.

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