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A Tale of Two Town Houses (and why one costs way more than the other)

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A Tale of Two Town Houses (and why one costs way more than the other)

Old 10-31-07, 02:59 PM
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A Tale of Two Town Houses (and why one costs way more than the other)

I think the information from this study is quite interesting.

I especially like how they determine the cost of the "right to build" as being a seperate cost, which is different than the costs of the land and construction.


http://www.theatlantic.com/doc/20071...hjpE2yeHl78%3D

November 2007 Atlantic Monthly

Real estate may be as important as religion in explaining the infamous gap between red and blue states.

by Virginia Postrel

A Tale of Two Town Houses

In 2000, my husband and I moved out of our mid-1970s three-bedroom town house in Los Angeles and into a brand-new three-bedroom town house in Uptown Dallas. At the time, the two were worth about the same, but the Dallas place was 1,000 square feet bigger. We’ve moved back to L.A., and we’re glad we kept our old house. Over the past seven years, its value has roughly doubled. By contrast, we sold our Dallas place for $6,500 less than we paid for it.




It’s not that we bought into a declining Dallas neighborhood: Uptown is one of the hottest in the city, with block upon block of new construction. But the supply of housing in Dallas is elastic. When demand increases, because of growing population or rising incomes, so does the amount of housing; prices stay roughly the same. That’s true not only in the outlying suburbs, but also in old neighborhoods like ours, where dense clusters of town houses and multistory apartment buildings are replacing two-story fourplexes and single-family homes. It’s easy to build new housing in Dallas.

Not so in Los Angeles. There, in-creased demand generates little new supply. Even within zoning rules, it’s hard to get permission to build. When a local developer bought three small 1920s duplexes on our block, planning to replace them with a big condo building, neighbors campaigned to stop the proj*ect. The city declared the charming but architecturally undistinguished buildings historic landmarks, blocking demolition for a year. The developer gave up, leaving the neighborhood’s landscape—and its housing supply—unchanged. In Los Angeles, when demand for housing increases, prices rise.

Dallas and Los Angeles represent two distinct models for successful American cities, which both reflect and reinforce different cultural and political attitudes. One model fosters a family-oriented, middle-class lifestyle—the proverbial home-centered “balanced life.” The other rewards highly productive, work-driven people with a yen for stimulating public activities, for arts venues, world-class universities, luxury shopping, restaurants that aren’t kid-friendly. One makes room for a wide range of incomes, offering most working people a comfortable life. The other, over time, becomes an enclave for the rich. Since day-to-day experience shapes people’s sense of what is typical and normal, these differences in turn lead to contrasting perceptions of economic and social reality. It’s easy to believe the middle class is vanishing when you live in Los Angeles, much harder in Dallas. These differences also reinforce different norms and values—different ideas of what it means to live a good life. Real estate may be as important as religion in explaining the infamous gap between red and blue states.

The Dallas model, prominent in the South and Southwest, sees a growing population as a sign of urban health. Cities liberally permit housing construction to accommodate new residents. The Los Angeles model, common on the West Coast and in the Northeast Corridor, discourages growth by limiting new housing. Instead of inviting newcomers, this approach rewards longtime residents with big capital gains and the political clout to block projects they don’t like.

The direct results of these strategies are predictable: cheap, plentiful housing in some places, and expensive, scarce housing in others. A remodeler working on my L.A. town house a couple of years ago wistfully recalled visiting a cousin in Arlington, Texas, between Dallas and Fort Worth. He wanted to move there himself. In Arlington, he said, “you can buy a million-dollar house for $200,000.” According to Coldwell Banker’s annual sur- vey, a 2,200-square-foot, four-bedroom “middle-management” home costs around $141,000 in Arlington (or, for big spenders, $288,000 in Dallas), compared with $1 million or more in the L.A. area. One man’s million-dollar dream home is another’s plain old tract house.

Many people do pack up and move, if not to Arlington, then to Las Vegas or Charlotte. Historically a magnet for educated migrants, California has begun losing college-educated residents, on net, to other states, in large part because of the high cost of housing. Most of the South’s population growth since the 1980s has come from the lure of cheap housing created by liberal permitting policies, according to new research by the Harvard economists Edward Glaeser and Kristina Tobio. By lowering the cost of housing, these policies give residents higher real incomes compared with similarly paid workers elsewhere—a strong incentive to move, even if you don’t like bugs or hot summers. The mobile middle class gravitates to the cities where housing is affordable. “If you’re your basic $85,000-a-year person, you can’t own in Los Angeles. You can’t do it,” says the Wharton School economist Joseph Gyourko. And if you’re your basic $45,000-a-year person, closer to the U.S. median household income, you’d better pack for Texas.

That doesn’t mean Los Angeles and San Francisco are in any danger of turning into Detroit and Buffalo. To the contrary, Gyourko calls them “superstar cities,” places that offer “a rare blend” of stimulating leisure activities and a highly productive work environment. A life that looks “rushed” and “materialistic” to the folks headed for North Carolina feels exciting and creative to die-hard urbanites. As a friend who recently moved from Manhattan to Santa Monica once said to me, “When people say a place is ‘good for raising children,’ that means it’s boring.” But not everyone with a taste for urban amenities can afford the superstar life. As the number of affluent Americans grows, the rich are bidding up the price of living in these special places, increasing the gap between the superstar cities and everyplace else.

People in these high-price areas respond that they have no control over housing costs. Everyone wants to live in California, and the land is already full of houses. This isn’t Texas, with its miles and miles of empty old cotton fields. True, land is cheaper and more plentiful in less-developed parts of the country. But high-price areas could put many more units on the land they have. Research by Gyourko, Glaeser, and Raven Saks found that the lowest-density areas around expensive cities tend to have the least new construction and the most land-use restrictions. It’s actually somewhat easier to build in more densely populated towns and neighborhoods—the opposite of what you’d expect if a shortage of empty land were the problem.

Some of the higher price of L.A. real estate does reflect the intrinsic pleasure of living there, as I’m reminded every time I walk out my door into the perfect weather. Some of the price reflects the productivity advantages of being near others doing similar work (try selling a screenplay from Arlington, Texas). All of these benefits—and the negatives of traffic and smog—are reflected in the price of land.

But what exactly is that price? Consider two ways of computing the price of a quarter acre of land. You can compare the value of a house on a quarter acre with that of a similar house on a half acre. Or you can take the price of a house on a quarter acre and subtract the cost of the house itself—the price of construction. Either way, you get the value of an empty quarter acre. The two numbers should be roughly the same. But they aren’t. The second one is always bigger, because it includes not just the property but the right to build. Expanding your quarter-acre lot to a half acre doesn’t give you per- mission to add a second house.

In a 2003 article, Glaeser and Gyourko calculated the two different land values for 26 cities (using data from 1999). They found wide disparities. In Los Angeles, an extra quarter acre cost about $28,000—the pure price of land. But the cost of empty land isn’t the whole story, or even most of it. A quarter- acre lot minus the cost of the house came out to about $331,000—nearly 12 times as much as the extra quarter acre. The difference between the first and second prices, around $303,000, was what L.A. home buyers paid for local land-use controls in bureaucratic delays, density restrictions, fees, political contributions. That’s the cost of the right to build.

And that right costs much less in Dallas. There, adding an extra quarter acre ran about $2,300—raw land really is much cheaper—and a quarter acre minus the cost of construction was about $59,000. The right to build was nearly a quarter million dollars less than in L.A. Hence the huge difference in housing prices.
Land is indeed more expensive in superstar cities. But getting permission to build is way, way more expensive. These cities, says Gyourko, “just control the heck out of land use.”

The unintended consequence of these land-use policies is that Americans are sorting themselves geographically by income and lifestyle—not across neighborhoods, as they used to, but across regions. People are more likely to live surrounded by others like themselves, creating a more-polarized cultural map. In the superstar cities, where opinion leaders congregate, the perception is growing that the country no longer has a place for middle-class life. Yet the same urban sophisticates who fret that you can’t live decently on less than $100,000 a year often argue vociferously that increasing density will degrade their quality of life. They may be right—but, like any other luxury good, that quality commands a high price.
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Old 10-31-07, 03:12 PM
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Good article. My area takes great advantage of this. The National Gorge Scenic Area along the Columbia River has huge restrictions. Currently, a new home would have to have a minimum of 40 acres, and then be subject to where they could put the home, the color, etc., which is all covered by the Gorge Commission. The little towns are exempt, but can't really expand. So in towns with populations under 3,000 and no real industry (like a White Salmon, Lyle, Bingen, that you have never heard of), you end up with 100x100 lots going for $100,000. Double that or more if they have a view of the river.

But get to my area, which is about 10 miles out of the Scenic Area, and you find 1/2 acre city lots that have sold recently for only $15,000. So as property and houses have become scarce in The Gorge, my prices have increased as people have moved out of the Scenic Area, but still want to be near it.
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Old 10-31-07, 03:29 PM
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The sprawling areas are soon going to face the reality of the cost of transportation to work, shopping, and activities. If those don't follow the new construction the values of the closer-in homes will rise relative to the ones far away.
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Old 10-31-07, 03:38 PM
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Originally Posted by kvrdave
Good article.

Thanks.

I've posted links to Thomas Sowell articles on this subject before.

But now I have an official, objective study which proves that in San Frnacisco, in addition to the costs of buying the land and building the house, just the cost of getting the building permit and the "right to build" adds an extra $700,000 to the price of each new house.

Meanwhile, the politicians in that city keep pretending that they care about the homeless.
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Old 10-31-07, 03:51 PM
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Originally Posted by grundle
But now I have an official, objective study which proves that in San Frnacisco, in addition to the costs of buying the land and building the house, just the cost of getting the building permit and the "right to build" adds an extra $700,000 to the price of each new house.
Huh?

Read the article again. Look at the graph again. The price includes land value. The point of the article is not that regulatory costs vary widely across municipalities, it's that they vary widely because of local attitudes regarding land use, zoning, urban construction trends, and the razing of existing properties. Regulation is being used as an instrument of public policy to further the goals and desires of local residents.
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Old 10-31-07, 04:10 PM
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Originally Posted by X
The sprawling areas are soon going to face the reality of the cost of transportation to work, shopping, and activities. If those don't follow the new construction the values of the closer-in homes will rise relative to the ones far away.
My guess is that the gov't control of zoning, growth, building, etc. will always outpace the cost of transportation, etc.
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Old 10-31-07, 05:14 PM
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Originally Posted by wendersfan
Huh?

Read the article again. Look at the graph again. The price includes land value. The point of the article is not that regulatory costs vary widely across municipalities, it's that they vary widely because of local attitudes regarding land use, zoning, urban construction trends, and the razing of existing properties. Regulation is being used as an instrument of public policy to further the goals and desires of local residents.
Oh. You're right.

I was wrong. It's only an extra $600,000, not $700,000.
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Old 10-31-07, 05:33 PM
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Originally Posted by wendersfan
The point of the article is not that regulatory costs vary widely across municipalities, it's that they vary widely because of local attitudes regarding land use, zoning, urban construction trends, and the razing of existing properties.
Those two things are the same.
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Old 10-31-07, 06:31 PM
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I live in LA.

It's far worse than you think it is.

Because no matter where you go, housing prices are absurdly over value.

The one factor that hasn't been sufficiently addressed is the amount of sheer speculation that is done with the housing market in southern california. That alone has driven housing prices through the roof.

I remember when the housing bubble deflated (slightly) last year, there were rounds and rounds of layoffs at real estate, loan, and investment firms. I had a small party to celebrate.
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Old 11-01-07, 08:42 AM
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the reason RE costs more in LA and NYC is because more people want to live in these places than Dallas. the population of NYC swells to something like 20 million people during the work day. Most of California' 50 some million people live near the coast in the expensive areas. NY state has 20 million people, 8 million in NYC and a few million just outside NYC most of whom work in NYC

technically there is still land to build on, but the transportation infrastructure is stretched around NYC and people who moved out to the burbs in the last 20 years don't want to see their town turned into a bigger town or small city, so they make all kinds of laws to make it harder and more expensive to build and since there a lot of people with a lot of money on the coasts they can bid prices higher

the costs of connecting to infrastructure are about the same as in other places. i looked for homes outside of Denver one time and in a new development the property taxes were at a higher rate than sorrounding areas because the town makes new home buyers pay for the infrastructure to support them.
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Old 11-01-07, 08:57 AM
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Originally Posted by X
The sprawling areas are soon going to face the reality of the cost of transportation to work, shopping, and activities. If those don't follow the new construction the values of the closer-in homes will rise relative to the ones far away.
Yup, look at ATL. Living ITP (inside the perimeter - inside 285) costs a lot more than living OTP.
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Old 11-01-07, 09:12 AM
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Originally Posted by al_bundy
the reason RE costs more in LA and NYC is because more people want to live in these places than Dallas. the population of NYC swells to something like 20 million people during the work day. Most of California' 50 some million people live near the coast in the expensive areas. NY state has 20 million people, 8 million in NYC and a few million just outside NYC most of whom work in NYC
Is the NYC area growing faster than the Dallas area?
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Old 11-01-07, 09:28 AM
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This is all pretty straightforward.
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Old 11-01-07, 09:34 AM
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Originally Posted by classicman2
Is the NYC area growing faster than the Dallas area?

don't know the numbers, but NYC is predicted to grow to 9 million people over the next 20 years. that's an increase of 1 million people or most of the population of Dallas itself.

I bet NYC has more colleges than Dallas has high schools
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Old 11-01-07, 09:44 AM
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Please provide a source for that statement.

While you're at it, find out which metropolian area the fastest - NYC or Dallas.
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Old 11-01-07, 09:52 AM
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who cares if dallas is growing faster since it has 12% of the population of NYC
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Old 11-01-07, 10:37 AM
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Originally Posted by al_bundy
who cares if dallas is growing faster since it has 12% of the population of NYC
Nice backpedaling. Dallas, and many other cities in the west and south have been growing faster that New York for decades.
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Old 11-01-07, 10:42 AM
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http://en.wikipedia.org/wiki/Dallas,_Texas

As of July 1, 2006, U.S. Census estimates put Dallas at a population of 1.2 million
http://en.wikipedia.org/wiki/Demogra..._New_York_City

New York City is home to more than 8 million people

Growth =
NY 139 (2.6%)
Dallas 125 (3.7%)

http://www.citymayors.com/statistics...owth-2007.html
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Old 11-01-07, 10:49 AM
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Seems like an easy way to settle that would be finding a source for new housing on new lots in NY and CA compared to Dallas.
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Old 11-01-07, 10:59 AM
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Originally Posted by movielib
Nice backpedaling. Dallas, and many other cities in the west and south have been growing faster that New York for decades.

when your population is less than 15% of the largest city in the USA it's easy to grow faster. but even with faster growth down south NYC is still adding more people than Dallas


even with 20% growth from 1990 Dallas added only 200,000 - 300,000 people compared to almost 1000000 people gained by NYC in the same period
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Old 11-01-07, 11:07 AM
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Originally Posted by al_bundy
when your population is less than 15% of the largest city in the USA it's easy to grow faster. but even with faster growth down south NYC is still adding more people than Dallas


even with 20% growth from 1990 Dallas added only 200,000 - 300,000 people compared to almost 1000000 people gained by NYC in the same period
You missed my point. We are talking about maybe several dozen Dallases. New York and other northern and eastern cities are growing far slower, if at all. Some are losing population. And this has been going on for decades.

What is the growth of Dallas over the last 30 years compared to New York? Or Houston? Or Atlanta? Or Phoenix? Etc.

Last edited by movielib; 11-01-07 at 11:12 AM.
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Old 11-01-07, 11:08 AM
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What did the Dallas Metroplex add from 1990-2000?
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Old 11-01-07, 11:26 AM
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www dot census dot gov
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Old 11-01-07, 11:37 AM
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Originally Posted by movielib
You missed my point. We are talking about maybe several dozen Dallases. New York and other northern and eastern cities are growing far slower, if at all. Some are losing population. And this has been going on for decades.

What is the growth of Dallas over the last 30 years compared to New York? Or Houston? Or Atlanta? Or Phoenix? Etc.
NYC grew around 10% since 1990. NY State population might be flat but NYC is growing. The city government is projecting another 1000000 over the next 20 years

might be slower growth than the southern cities, but in actuall people it's still twice the amount of new people added compared to smaller cities growing twice as fast since NYC has 8 times the amount of people than Dallas and if you count the suburbs since a lot of people in the burbs here work in NYC it's some ridiculous number
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