Article in the SF Chronicle on why Bay Area homes are so expensive – it’s (no surprise) the land. Fifteen years ago, I made an offer on a large wooded lot about 10 miles north of Berkeley – $30,000 (didn’t get it as couldn’t scape up the “all cash”). Now one would have to put at least another zero behind that and then some.
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2005/12/18/REGPEG8N2V1.DTL
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Too many people wanting to live there; too little housing stock; no room for expansion; government regulation & taxes. Some are caught in the perception that it's trendy to have an SF address, so a premium gets added to the price as well.
Same is true anywhere - look at NYC - it's an island, so how are you going to make it bigger to provide land for expansion. Or, Savannah. Or, Beantown.
The primary driver of RE price surges has been regulation. When you hear "supply and demand", you generally think 'natural' market forces are at work.
In the case of RE in this last boom cycle, supply has been artificially choked off by government regulation. People go on about "sprawl", but sprawl itself is a symptom of land use regulations requiring single family homes with large minimum lot sizes.
Sure, the population (demand) has increased, but in some of the areas with the highest prices, population has not increased significantly. Heck, my state of MA saw a population decline and a surging RE market.
The irony here is that regulations on land use often incent development over conservation, since owners feel the need to develop to get ahead of the regulations that are depreciating their property.
For example, an old fellow of modest means I know owned 30 acres with potential ocean views. Owned it for many years, and had a modest home on the property. The town kept increasing minimum lot sizes, setting lower caps on permits, redefining 'environmentally sensitive', increasing frontage requirements for subdivisions, etc.... Finally, they were on the verge of making his land completely undevelopable. While he really had no interest in developing the property, an asset he had hoped to leave to his children was about to be devalued in a very dramatic way. He caved an sold it- became a 20 lot subdivision.
Now some folks are thinking, why should we feel bad for him? He made a lot of money. Except- consider he was essentially forced to develop his backyard against his will for no reason other than regulation. While he sold to the high bidder, this wasn't greed. The guy really just wanted to live out his life quietly in the simple home he had lived in for 60 years. He had actually hoped that his son would build a home on the property once he could save enough to build it, which would have meant a whole lot more open space then the result. He was not alone- there were dozens of others in the same boat in that area, so the land use restrictions intended to slow development triggered a McMansion development boom.
This happens all the time. Land use 'takings' are not compensated like explicit eminent domain takings, though the consequences can be very much the same to the landowner. So much for life, liberty, and property.
Edited 12/19/2005 10:28 am ET by csnow
thats not the case in SF, all the land on this pensula that can be developed has been for a long time. The trend on the bay waterfront now is to tear down old wearhouses and put up big concrete "loft" condo's or convert some of the brick warehouses to lofts and charge a primum for them. I sure wish i had bought up some of that industrial wastland.....
james in sf
"thats not the case in SF, all the land on this pensula that can be developed has been for a long time."
Perhaps true in the city, but what about the suburbs? There you will find some of the strictest land use regulations in the country. These markets are tightly linked.