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It's the land, stupid: How the homebuilder cartel drives high housing prices

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Re: It's the land, stupid: How the homebuilder cartel drives high housing prices

#71

Post by BenFranklin100 »

This Matt Stoller guy paints a misleading picture of the dynamics of what is to be in the industry.

I grew up in the housing industry as the son of a homebuilder. Not to date myself, but I wrote what was probably one of the first cost accounting spreadsheets on the nascent PC of the day using VisiCalc. The spreadsheet took into account all costs associated with building a starter single family home, including land acquisition, financing, municipal fees, material, and labor costs, I.e. everything one one need to run a successful business as a home builder. I know this industry intimately.

Yes, Stoller is correct it’s harder to be a small (i.e. 10-20 homes per year) home builder than it was 40 years ago. But it’s not due to some conspiracy. It’s because the local zoning has become much more arcane and the red tape so Byzantine that the little guys have been effectively pushed out. For instance, you need a full time staff person to negotiate with your local ZBA (Zoning Board Association) to get permission to get something built. Beyond the direct costs, the delays and uncertainties are killer as they eat into your profits. (The gross margin is slim, somewhere between 10-20% on a home for a small time builder. I know - I wrote the damn spreadsheet that calculated it.) As a consequence of all these regulations, only the big builders can afford to absorb and amortize these costs over tens to hundreds of homes. Of course, this also means the big guys still need a fatter profit to to deal with zoning hurdles, long time frames, uncertainties, and what have you, thus margins need to be higher on average even for them. This is what is going on. Not some monopolistic conspiracy.

I looked Stoller up. Here’s the Wiki:

https://en.wikipedia.org/wiki/Matt_Stoller

His gig is railing against monopolies. The housing industry is just another nail for his one-size fits all monopolistic hammer explanations.

The real culprit here actually is a cartel ironically. But this cartel is made up of homeowners who flex their power through local zoning codes that make it near impossible to build new homes, especially apartments.

TLDR: In other words, the YIMBYs are right: the problem is zoning restrictions on new supply. Reform zoning and small time home builders will be back with a gusto.

Re: It's the land, stupid: How the homebuilder cartel drives high housing prices

#72

Post by doubled112 »

VancouverMan wrote: post #29
xnx wrote: post #5

No shortage of land in the US, but everyone wants to live in the same few places (for good reason), and those places have a lot of restrictions on what can be built where. It's satisfying to blame a big bad "them" for this, but the problem is "us". We all want our properties to increase in value so we collectively conspire to suppress supply that would make our properties less valuable.

It's a similar situation in Canada, but with the added problem of horribly flawed immigration policies that have flooded the country with a huge number of foreigners each year. While this has been going on for decades now, it has really intensified over the last nine years. The equivalent of a large (by Canadian standards) city's worth of people is being added each year, but there is nowhere near that much residentia…

As long as Canadians live 4 to a bed, the housing situation is keeping up.

Maybe it can be like hot desking at the office. Just have to make sure you and your roommates work opposing shifts.

https://www.tvo.org/article/ontarios-housing-crisis-is-becom...

Re: It's the land, stupid: How the homebuilder cartel drives high housing prices

#73

Post by kaibee »

JumpCrisscross wrote: post #3

Have there been serious attempts at describing how a Georgist land tax would appraise the value of the land?

Yes, its pretty straight forward and there are many countries who already do it.

https://www.astralcodexten.com/p/does-georgism-work-part-3-c...

Re: It's the land, stupid: How the homebuilder cartel drives high housing prices

#74

Post by ndriscoll »

aorloff wrote: post #50
dnissley wrote: post #41

Earlier quoted context omitted.

I feel like I need to make this point again and again: It's not about increasing the value of properties for most (after all, allowing apartments to be built in your neighborhood would increase the value of the remaining SFHs). It's about keeping the character of the neighborhood the same as it is now (SFH vibes), and all that comes with that ("family friendliness", etc).

Everyone wants to keep the character of their neighborhood . Forget that ! When you go to a dense city like Barcelona where every block is nearly 4 story high rise apartments, its wonderful. Change is beautiful, people enhance neighborhoods

Lots of people who want to live in suburbs have in fact visited or even lived in large, dense cities. They're well aware of the tradeoffs.

Re: It's the land, stupid: How the homebuilder cartel drives high housing prices

#75

Post by sroussey »

nnf wrote: post #12

> tax the land of lot developers so they don’t hold land off the market. This is something I dealt with a few years ago. There were a few acreage lots (5-15 acres) my partner and I were considering buying and building a house on, and all of them had been in the $200k range a year or two before but had been bought by land speculators (in some cases by the same person). Prices went from ~$200k to ~$750k, which we weren…

Seems like the developer wasn’t the problem.

Re: It's the land, stupid: How the homebuilder cartel drives high housing prices

#76

Post by nomel »

xnx wrote: post #5

No shortage of land in the US, but everyone wants to live in the same few places (for good reason), and those places have a lot of restrictions on what can be built where. It's satisfying to blame a big bad "them" for this, but the problem is "us". We all want our properties to increase in value so we collectively conspire to suppress supply that would make our properties less valuable.

You missed a costly part of grabbing a chunk of land: utilities. Getting them onto your land, so you can live with modern creature comforts, some of them dictated by law, is often prohibitively expensive. You can DIY with the alternative being a well (hit or miss), a septic system, and setting up a solar/battery farm, which isn't cheap either.

Re: It's the land, stupid: How the homebuilder cartel drives high housing prices

#77

Post by biomcgary »

mulmen wrote: post #58
tigen wrote: post #13

This paragraph looks wrong. "In 2005, when D.R. Horton sold a record number of homes, it made $1.47 billion. In 2023, when it built roughly half as many, its profit was a little over three times as high, or $4.7 billion. " It did not build half as many homes, it was 82917 homes in 2023 vs. 51172 in 2005. Also, the profit number should be corrected for inflation when comparing across almost 2 decades.

1.47 billion 2005 dollars is 2.29 billion 2023 dollars. Profit per house in 2023 dollars: $44,751.04 in 2005 $56,683.19 in 2023

Thanks for doing this calculation! It would be interesting to know if the average square footage of houses built by the company has changed. If they have increased by 25%, the profit per square foot would be roughly unchanged.

Re: It's the land, stupid: How the homebuilder cartel drives high housing prices

#78

Post by vundercind »

iambateman wrote: post #63

Housing can’t be both a good investment AND affordable. As a kid, I was told that my house was a good investment and the houses rise in value overtime. Now, I own two houses which of both appreciated by about 9% per year for a decade. We agree there is a problem. But I doubt the premise that land hoarding is the key issue. It seems to me that everyone wants to live in a 3,500 square foot detached house near the city.…

Poorer kids tend to be harder to teach. School “quality” largely measures how easy-to-teach the kids are. School quality plays a huge role in home value.

That and related factors (likelihood to commit crimes of the sort that affect home values, say) are a lot of why communities try to keep affordable housing away. High prices are your buy-in to good schools if you can’t afford good private schools. Once you’ve bought in at a price inflated by school quality, you definitely don’t want to see that slip or there goes all the money you spent (maybe literally all of it—I’ve seen premiums for “good” versus “just ok” districts near one another that are well into the levels of mortgage down payments—20%, 30%)

Re: It's the land, stupid: How the homebuilder cartel drives high housing prices

#79

Post by whartung »

nomel wrote: post #76
xnx wrote: post #5

No shortage of land in the US, but everyone wants to live in the same few places (for good reason), and those places have a lot of restrictions on what can be built where. It's satisfying to blame a big bad "them" for this, but the problem is "us". We all want our properties to increase in value so we collectively conspire to suppress supply that would make our properties less valuable.

You missed a costly part of grabbing a chunk of land: utilities. Getting them onto your land, so you can live with modern creature comforts, some of them dictated by law, is often prohibitively expensive. You can DIY with the alternative being a well (hit or miss), a septic system, and setting up a solar/battery farm, which isn't cheap either.

> You missed a costly part of grabbing a chunk of land: utilities.

There is a 15 acre lot down the street. A good spot for another small housing development.

But one issue with it is that it has legacy utility and power poles on the periphery. Anyone wanting to develop that space is obliged to route all of that underground, which easily add several M$ to the project.

Eventually, someone will bite, buy the lot, and develop it.

But it's going to be low on the list because all of that cost will notably bounce up the new home costs. Cheaper places to build elsewhere.

Re: It's the land, stupid: How the homebuilder cartel drives high housing prices

#80

Post by BenFranklin100 »

treis wrote: post #20

>And I realized that to call these businesses “homebuilders” is misleading. It’s striking how little of their business has to do with, well, building. For instance, here’s D.R. Horton in 2023: “Substantially all of our land development and home construction work is performed by subcontractors.” Here’s Lennar in 2023: “We use independent subcontractors for most aspects of land development and home construction.” I sus…

This was a poor article. Stoller reveals his ignorance of the industry. The GC is far from some middleman. They are the one that coordinate all aspects of the construction, from the digging of the foundation, the rough-in carpentry for the frame of the home, the electrical work, painting, roofing, and everything in between. No single craftsperson could be versed in so many trades, so of course they use subcontractors.
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